Hybrid developers

Risk is a major item in the cost calculation of a developer of speculative space. A general unpleasant experience for a developer is the eight months his building will stand empty. In the case of a warehouse of some 8,000 sqm floor space, a calculation displays a financial loss of 8 months times 8,000 sqm x 3 EUR/sqm = 192,000 Euro. In a word, a speculative developer should expect that he will not receive such a rent. Clearly he will be delighted should he manage to rent the space before 8 months have passed.

Less waiting

The Europa Park logistics centre in Mszczonów will expand by two warehouses, each of 13,000 sqm floor space, as the result of a EUR 15 million credit line from the European Bank of Reconstruction and Development. The Europa Distribution Centre which is the project's developer, started building operations without contracting a warehouse space tenant. The obvious question is: "Why did he decide to take such a risk?" Paweł Piasecki, Development Director of the Europa Distribution Centre commented: "We want to compete with other developers by delivering the customer a building he requires in a shorter time. When holding projects and building permits in hand, we can finish all construction jobs within six months, including individual space arrangement to suit the customer. We are looking with confidence to the future, now that the market seems to be gaining vigour".

The telephone began ringing

Such confidence must surely be substantial since EDC intends to add two or three buildings annually in Europa Park. Paweł Piasecki said he is far from suggesting that a sudden upswing is occurring in the business outlook, though an improvement is evident. The telephone hardly ever rang in 2002, but customers are now at least asking about available space. It must be admitted, however, only one in ten enquiries ever reaches the contracting stage. It is to be regretted that even in conditions of a sharp upsurge in the business situation there can be no dream of a return to those early days when developers could pick and choose among clamouring customers. Today's developers must worry about their tenants even when no new building has appeared on the market. The reason lies in an effect which has not been encountered on the market so far: the reappearance of warehouses whose first leasing contracts have expired, which means developers are again on the hunt for customers and trying to attract them away from the competition.

Speculative constructions for logistic specialists (though not only)

Tomasz Olszewski of Cushman & Wakefield H&B thinks EDC's decision to enter into speculative construction has no connection whatsoever with the market situation. He claims that dividing developers into speculative constructers and "build-to-suit" companies aiming at concrete operators has no relation at all with the market's health. Tomasz Olszewski remarks: "Building 'to-suit' is the predominant feature on mature markets, while speculative construction is characteristic for younger ones. Clearly there will always be customers for such warehouse space: e.g. logistic operators who have suddenly won a tender to render their services, and also companies who want to rent up to 5,000 sqm and cannot count on constructions erected just for them". Paweł Piasecki of EDC also thinks of logistic operators as potential renters of new Europa Park warehouses. Menard Doswell which constructs one warehouse of 9,000-10,000 sqm space every year independent of the economic situation, is a good example of a speculative developer. Construction usually gets off the ground before initial contracts are signed. The warehouse delivered this January is also still not rented though Robert Dobrzycki representing that company is sure a user will be found within two to three months after the project was commissioned. He adds that he is talking to three firms, among which is both an end user and logistic operator.

Time is money

An analysis of recent moves by Polish warehouse developers would suggest that these are both of a speculative and 'build-to-suit' character. Most developers in the effort to shorten the time required to deliver a warehouse to a customer employ all kinds of tricks. For instance, they apply for permits to construct buildings which, by assumption, will not be those described in documents. It is much easier and quicker to obtain consent to change the conditions in a building permit than to obtain a whole permit from the roots up. So, whenever a tenant appears, the project and the building permit are amended to suit the customer and his needs. Developers may also commence ground works on their own initiative, some even going so far as to pour foundations and floors. The Problem warehouse constructing company even set up the frame of a future shed. Work recommences once a renting contract is signed and may conclude even after a bare four months. But Menard Doswell will have nothing to do with such moves. Robert Dobrzycki justifies that in several ways. First, in the Warsaw suburb of Blonie where that developer is constructing, no problem exists in obtaining a building permit, and that - in a short time. Second, he thinks customers want to rent space in warehouses which already stand and, can be seen and touched. Third, the company's financial health allows it wait even twelve months to rent space in a specific project.