Shedding years

The first modern warehouses were located on ul. Szyszkowa on Warsaw’s south-western outskirts and had a combined area of app. 65,000 sqm. They were the first two projects of this class to have been built in Poland, as all the other premises used for warehouse operations were located in class ‘B’ and ‘C’ facilities converted from communist era buildings. Companies worked in truly spartan conditions at the time. There were no professional warehouse developers or huge consulting agencies. Rents reached the extortionate level of USD 12 per sqm of warehousing and USD 25 per sqm of office space in a warehouse facility. By comparison, effective rates nowadays only amount to EUR 2.8 per sqm. “It was a completely unknown market, very risky, and it was not clear in which direction it would evolve. However, we did not have to wait long for dynamic development and the first boom. As early as 2000 they managed to move from drawing up plans to their realisation: the first few logistics centres outside Warsaw were starting to be constructed. The only place near Warsaw where warehouses could be built was around Błonie and Sochaczew. The facilities built there already had a decent standard. For the logistics industry or companies that lease space, such as L’Oréal, which was one of the first tenants in these complexes, it was an incredible shift in terms of quality, improvement of comfort, and work efficiency,” recalls Maciej Madejak, the head of the development department at Goodman, who has been employed in the sector for a dozen or so years. It was also the start of warehouse construction outside the capital city – although still within its orbit. The infrastructure that existed at the time, including the roads, left you with no choice. If somebody wanted to start a business, they did it in Warsaw. It was only in 2003 that the first few companies started getting interested in locations outside Warsaw, mainly in Silesia and around Poznań. Of course, plans existed for the construction of motorways, but nobody believed they would be built so quickly. However, developers had their fingers on the pulse and were closely watching which direction the market was going in. Only a few warehouse developers, such as Prologis, CEIDCO, Menard Doswell and AIG Lincoln, were active at the time. And all warehouse projects were built speculatively.

Development under the EU flag

Poland’s accession to the European Union on May 1st 2004 proved to be a milestone for the Polish warehouse market. “It was a period which developers had prepared for well. They already had land banks secured for subsequent projects. Between 1998 and 2004, crowds of investors came to Poland to look at the direction of the development of the warehouse real estate market. Not everyone believed that we could successfully negotiate the administrative formalities and subsequently build a new facility within eight months. At the time everyone was cautiously assessing how realistic and secure investment in Poland was,” recollects Maciej Madejak. The year 2004 saw the first boom and a powerful acceleration of the market. Thanks to this, the regions, such as Wrocław, Wielkopolska and central Poland, were finally able to get in on the act. Also, the availability of land for warehouse development was not a problem at the time. The option of moving production activities to Poland became available. Foreign investors stopped perceiving us in terms of a cheap labour force and instead in terms of quality. The companies that entered our market then included FagorMastercook, Braun, Electrolux and Whirlpool. This is when the rivalry among developers started over who would be the first to launch a project in a given region and who would secure the best tenants. The regions that were coveted apart from Warsaw were Poznań, Silesia, Wrocław and central Poland – Łódź, Stryków and Piotrków Trybunalski. These are the locations that today are still the most prominent on the warehouse map of Poland. The TriCity only joined this group later. From that moment on, the warehouse market has never looked back. It was a period of hard work for developers, investors and agents. “In this period we had to forget about holidays because there was really too much going on. Developers who were not yet present in Poland started to closely analyse the market and the possibilities of developing and doing business here,” adds Maciej Madejak. This was when developers such as Panattoni Europe (2005), Parkridge (2004) and Segro (2006, then Slough Estates) entered the scene. There was more competition but no one was short of work anyway. All the firms and the entire market then started to grow at a simply exhilarating rate. Maybe as much as 4 mln sqm of warehouses was built in this period. A new building was put into operation practically every fortnight.

Bad news from across the ocean

The market was racing, but at some point it had to hit the brakes. Was this done with a squeal of tyres? Did the credit crunch of 2008 represent a market collapse or an opportunity for Poland to make its mark on the European scene? “The mood in the US and Western Europe was terrible. Nobody was even considering that the situation could be a chance for Poland – if the British were saying that things were that awful over there, it had to be equally as bad everywhere in the world. All our indexes were plummeting. However, that was only due to the fact that they were crashing in the West. As far as the demand for warehouse space in Poland was concerned, a dozen or so months after September 2008 we were experiencing another boom. Companies from the UK and France were looking for solutions that would enable them to reduce their operational costs, and so they started entering the Polish market. Somewhere between 10 and 20 huge corporations moved their operations to Poland. The whole of Scandinavia was also looking in our direction; however, due to problems with their domestic trade unions, they gave up on the idea. By the end of 2009 the market was continuing to grow. But despite the impetus given by the healthy local economy, a crisis cloud moving inexorably towards us, and we knew that it would get to us sooner or later. And that is what happened, but only in terms of companies suspending their development decisions or moving,” says Maciej Madejak. Companies no longer wanted to develop, they only wanted to maintain their production or logistics activities, and that was enough for them. Even though everybody had been growing at a rate of 20–30 pct per year earlier, their priorities changed. Everyone, including developers, was only thinking about keeping afloat on the market. From mid-2010 everything started to get rebuilt. The market was not booming any more, but for sure it had achieved a more mature level of activity. Market players had learnt their lessons and knew how to avoid mistakes, particularly financial ones. The market became considerably more secure for investors. Huge volumes of speculative space were no longer being built. Nonetheless, the market is now showing a return to this, but in a limited form. “We are starting to build speculative facilities. But they are much smaller buildings than before. We are not developing them in all possible locations but only in two or three. Each has an area of up to 15,000 sqm. The market will certainly not return to its previous giddy heights. And that’s fine. On the other hand, customers are more experienced and they know what they want. Previously everyone took what was on offer, but nowadays they are more conscious of their needs. This is why it is more convenient and cheaper to build a facility for a specific tenant, because it is clear what parameters need to be fulfilled. The construction procedure in Poland is predictable and we can rely on certain deadlines that are 99 pct guaranteed. We have a very good construction law, which is transparent compared to other countries. Since 2004 the input of the local authorities has also considerably changed for the better. Nowadays we can treat them as our partners in terms of investment and cooperation, not as an adversary that we need to defeat,” concludes Maciej Madejak.

The Wild East: here be dragons?

The Polish map already features a clear network of warehouse and production space. However, it stops abruptly on the right-bank of the Vistula. The warehouse market is virtually non-existent along the country’s Eastern Wall. This is mainly down to the poor infrastructure in this region. “I believe that in a few years’ time the infrastructure, which will be in place by then, will help the region to develop. Besides, the unemployment rate along the Western Wall is so low that clients’ interest in this region will soon begin to recede. Investors will start having problems finding people to work for them. When production companies want to enter a given country, it is the labour force that is one of their key requirements. So it is natural that they will look for regions where it is possible to find staff. On the Eastern Wall there are still areas where the unemployment rate is still very high. The eastern cities that developers and investors are most interested in are Białystok, Lublin and Rzeszów. These are ideal areas for locating production and the warehouses that support it. The logistics industry itself has no chance of being successful there due to its geographic remoteness from Western markets. The core of the logistics industry moved to Silesia as early as 2004 as it has an optimal geographical location, with its easy connections to the Czech Republic, Slovakia and Hungary.