Out of capital

Strong upward movement continues. Another half-year and another record set. Colliers International reveals that a total of 550,000 sqm of warehouse space was leased in the first half of 2007, mainly in new projects. The figure for the first half of 2006 was 440,000 sqm

The warehousing industry continues to be driven by the strong growing economy, mainly due to thriving trade and production spurred by rising consumption. However, a new and highly positive growth factor has come into play due to the merging of the market leaders ProLogis and Parkridge and the resulting unusual easing of competition between developers. Overall, everything is fine, although it could be even more so. Investment budgets, land and material prices and labour costs keep mounting, while the expansion of the road system is still just a twinkle in the ministry of transportation’s eye.

Warsaw’s

standing slips

Warsaw’s position on Poland’s logistics map is weakening. 52 pct of all modern warehouse space in Poland is registered in Warsaw, whereas the figure stood at 80 pct in 2005. 700,000 sqm of new storage space was developed in Poland in the past 12 months, 15 pct of this in Warsaw. In the first half of 2007, Colliers 86,000 sqm of new projects in Warsaw, mainly in zone I (10 km from the centre) and zone III (more than 25 km from the centre).

Demand was rather weak in Warsaw in the first quarter of 2007, with only 82,000 sqm of new space being rented. The market awoke from its winter hibernation in the spring when warehousing owners concluded tenancy contracts for 133,000 sqm in the second quarter of the year. Zone II (10 to 25 km from the city centre) continues to top the list with 108,000 sqm being leased in the first half of 2007. This means the zone accounted for 55 pct of the Warsaw market. Tenants contracted 79,000 sqm in zone III (40 pct of the market).

According to Maciej Chmielewski, head of Colliers International’s industrial department: “Proximity to the city centre is a major factor for tenants who deliver high value products of small dimensions to the local market, for instance, pharmaceutical products. However, the high costs of such locations force tenants to make do with smaller areas of between 500 and 2,000 sqm.”

In Colliers’ opinion the importance of zone III (more than 25 m from Warsaw’s centre) is bound to fall away in a few years time, should the announced expansion of the highways and motorways system take place, thereby cutting the transportation time between Warsaw and other cities. Customers will find it more profitable to rent space in nearby, less expensive, regional towns, where new projects are already being drawn up.

Regions continue

to attack

Tenancy contracts for almost 360,000 sqm, nearly a half as much again than last year, were concluded in the first half of 2007 in regional cities. The largest amount of new space came on to the market in the Poznań region (117,000 sqm) and Wrocław, in which ProLogis developed its own park in Bielany and took over Parkridge’s investment in Kąty Wrocławskie. The TriCity accounted for almost one sixth of all concluded transactions, boasting a total increase of 46,800 sqm modern class A surface thanks to two projects from ProLogis and the Biuro Inwestycji Kapitalowych. He goes on: “Compared with the same period last year, H1 of 2007 was a good time for Poznań, Wrocław and Silesia, which in that order had the largest amount of warehouse space leased.”

Cramped and expensive

Despite the substantial number of new projects (finished and under development) the available unoccupied storage space is still too small. In the region of Gdańsk, where the modern warehouse market was non-existent up to the beginning of 2007, no trouble at all was encountered when leasing 90 pct of newly constructed facilities in the first half of 2007. Maciej Chmielewski claims that: “The coefficient of free space in Polish regional cities presently stands at 4.7 pct, and in Warsaw around 5 pct. There was only 16 pct of unoccupied new warehouse space in Warsaw’s zone III in the second quarter of 2006, though this year the system is more dynamic, with greater interest being expressed in pipeline projects.”

The rent for new warehouse space rose in the first half-year of 2007 for the first time in two years, as the market compensated for the fall in rents due to fierce competition among developers. The average price of land for investments doubled in 2005-2006, with building materials and labour also rising substantially.

However, Maciej Chmielewski of Colliers International stresses that: “Despite the small rise, rental rates in Poland are still competitive compared with those in other countries. The effective rent in large space class-A warehouses in Warsaw’s zone II and III stands at around EUR 3 per sqm, while rates start at EUR 5-5.5 in zone I.”

More, nearer

and dearer

The realities may change at the close of this year when a further 900,000 sqm of new space comes on to the warehouse market. Developers have already finalized tenancy contracts in the first half of the year for 660,000 sqm, which means the market will not have to cope with an excessive saturation of new facilities, always assuming that developers will not be encouraged by the boom to begin new projects.

Maciej Chmielewski reveals that: “Warehouse developments with a total space of almost 700,000 sqm are presently under construction. When their planned completion takes place at the end of the year, a resulting 25 pct rise in supply will occur – the present supply of class-A warehouses is around 3 mln sqm.” High demand will be maintained mainly due to the growth of the shopping sector and new production investments, which can be observed not only in Poland, but also throughout the CEE Region. This will also accelerate demand in regional cities, with Szczecin, Bydgoszcz, Toruń and Kraków expecting new projects.”

The expansion of the warehouse and logistics sector is strictly related to the state of the transportation infrastructure, which justifies the close attention which the industry is paying to road, rail and airways investments. The first mentioned are by far the most essential, which is also why both investors and tenants will continue to appreciate locations at the junctions of existing and future motorways. Prices of plots in such surroundings (currently EUR 15-20 per sqm) may be expected even to double in the next few years.

Tomasz Cudowski