Manufacturers welcome

For some time, the activity of tenants in the production sector on the Polish warehouse and industrial market has been gradually building. According to this year’s ‘Logistics vs. Production’ report by Colliers International, the trend started in 2009. “Production companies are increasingly willing to modify their business strategies and to lease a production area rather than build their own plants,” explains Maciej Chmielewski, the director of the industrial and logistics department at Colliers International. This view is shared by developers. “Over the last few years the demand for production space has clearly been increasing. Prologis has been shaping this market since the beginning and some companies have already been operating their production business in our buildings for eight years now,” claims Paweł Sapek, the head of Prologis Poland. Around 10 pct of the company’s portfolio is currently occupied by production sector tenants.

The services of warehouse developers are mostly sought by light and non-intrusive production enterprises, such as for packaging or automotive elements. Heavy production, however, is almost exclusively carried out in their own facilities – but this phenomenon is starting to change. The Polish division of Panattoni Europe signed its first contract with a representative of heavy industry this year. The developer is to build a 19,400 sqm factory in Wrocław for a rolling stock manufacturer – Bombardier Transportation.

When Panattoni Europe opened its BTS division in Poland in 2008, it was very much a pioneer of tailor-made solutions on the warehouse development market. Since that time it has carried out 30 such projects with a combined area of app. 1 mln sqm, almost half of which are production BTSs (400,000 sqm). As in the case of Bombardier, there are sometimes projects that are very demanding in terms of construction, which in turn requires long term planning. “We worked for over an year on the project before the contract was even signed. We discussed each installation, the technological process and transit within the facility,” explains Marek Foryński, the director of Grupa BTS Panattoni Europe.

Down the standard path

However, the majority of projects in the production sector are not so time consuming or demanding. Tenants can normally use standard warehouse buildings with a few minor modifications. “Additional windows are cut out, the ventilation is enhanced, additional power connections are added and the production can then be launched. It is usually small scale production, which in general does not affect the building itself,” says Tomasz Olszewski, the director of warehouse department at JLL. He adds that such transactions are treated as equivalent to warehouse contracts, because a ‘standard path’ exists for both types of project.

Time is also a significant factor. “The decision over the location is determined by our analysis, in which we try to answer the question of what is most important for a given client: is it the economic aspect or the labour force or the time of construction? Then we examine the availability of properties that match these expectations best,” explains Tomasz Olszewski. The time can often be shortened by using an area within a logistics park that already has the required building permits. “In such a case the term for the delivery of a new production facility could be around 6–8 months, provided that we have the ideal situation, in which the appropriate access to utilities is provided and the land has the right soil bearing capacity. When such permits are not in place and they still need to be obtained, the construction process stretches to 10–12 months,” explains Piotr Bzowski, the leasing and development director of P3 Logistic Parks Polska.

Developers make things easy

Leases for production buildings are signed for long periods, ranging from 10 to 20 years. These long lease terms makes it possible to secure a return for the investor for the higher expenditure in adjusting the buildings to the tenants’ needs, as well as providing compensation for any possible difficulties encountered in finding another company interested in such a non-standard facility. In order to ease the latter process, developers are designing production facilities in such a way that they can be converted into warehouse buildings if they decide to sell the properties. “In the majority of cases a building with a height of 6 to 8 metres is enough. However, they are now being built with a standard height of 10 metres and a strengthened floor to allow the facility to be adapted for high storage requirements. So we are doing something that not only has technical but also investment value,” insists Marek Foryński. This is an approach that often does not occur to the private investors who build their plants without a developer. “They usually construct lower facilities because they believe that they can optimise their costs in this way. But in fact it lowers the property’s value in the case of a future sale,” adds Marek Foryński. Furthermore, developers can often advise on the further optimisation of the project for the benefit of the landlord. Companies that build their projects without the participation of a developer do not have the right experience to implement such an optimisation. “I often see production halls that feature plenty of costly solutions. We often wonder what would happen if such a client consulted an expert first. Would they want to use the optimisation option? I think that they would,” believes the head of Grupa BTS of Panattoni Europe. Finally, a developer can save the production company a great deal of work, risk and shredded nerves, because they can guarantee the delivery of a completed facility in due time at the price specified in the lease contract. This provides considerable peace of mind for any company that does not want to involve its own people in a complicated development process.

To reach the unaware

Out of the 9.2 mln sqm of warehouse and production space currently leased out in Poland, app. 15 pct i.e. 1.2 mln sqm is occupied by production tenants. However, the statistics only include those facilities that are leased and exclude private, stand-alone manufacturing plants. “If you look at all the data we have and all the activity we monitor on the market, we assume that probably 75 pct of all the market is still under freehold rather than lease hold,” says Jörg Kreindl, the senior director heading up CBRE's CEE industrial and logistics business. One of the reasons for this could be a lack of awareness on the part of manufacturers. “Companies have not traditionally associated developers with this segment and have not realised that it is possible to lease production space,” suggests Maciej Chmielewski. The main difficulty for developers is how to raise awareness in this area. “The record volume of direct investment proves that there are a large number of companies locating their businesses in Poland. However, we are under the impression that many of them are not engaging with developers. So we are now striving to become more recognisable,” reveals Marek Foryński.

About half the clients from the production sector that contact CBRE are not interested in leasing. In order to meet the client's expectations, two years ago the company expanded its services in the CEE region into project and construction management as well as site assembly and acquisition services. “We have created a much wider spectrum of services for production companies. The leasing business is only a fraction of what is required. We are seeing freehold projects that have become of great relevance to us because we can sell the land and buy sites, sell the project and construction management services and then sell the facility management services later on,” emphasises Jörg Kreindl.

Increasing flexibility

Developers have also identified another opportunity to satisfy the demand. Instead of leases they suggest a model that involves the construction of a built-to-own facility. The developer ceases to be the investor behind the project, because this function is taken on by the ordering party, which only has to commission the development services. This brings developers closer to the role of the general contractor. “It sometimes happens that we are competing for a project against general contractors – but we can win thanks to the experience we have and our cost optimisation skills. This shows how flexible we are and how much more we can offer clients,” claims Marek Foryński.