Strong medicine

Warehouse & industrial
As the post-pandemic need for pharmaceuticals continues to grow, so does the demand for the specialised warehousing designed for storing them. And naturally this has to be built in line with strict legal regulations

The pharmaceutical market in Poland has been growing steadily year by year. According to the Pharmaceutical Market report published by Market hub in May 2022, it is the largest market in Central Europe and the sixth largest in the European Union. The Polish pharmaceutical industry, which is centred mainly on producers of generic and bio-substitutes, generates a gross domestic product of EUR 7.3 bln (app. PLN 32 bln), which makes up 1.33 pct of the Polish GDP. In 2021, the value of the pharmaceutical distribution of drugs and pharmaceuticals supplied to patients came to PLN 56 bln gross, representing an increase of 8 pct annually. In 2021, the import of pharmaceuticals (including medicines, human blood, cotton wool, bandages and organs) amounted to USD 335 mln – 17 pct more than the previous year, moving Poland into 18th place globally, while exports over this period came to more than USD 317 mln, putting Poland into 22nd place. But the logistics and storage processes required for both supplying pharmaceutical producers and their customers are far from simple.

Red tape

“The formal requirements for both the operations and processes that a logistics operator has to fulfil for the pharmaceutical industry are extraordinarily complex and strictly regulated by the law. This requires expert knowledge and continuous monitoring of the law,” insists Paweł Janicki, the senior business development director at FM Logistic. The company runs a pharmaceutical distribution centre in Błonie on Warsaw’s western outskirts for clients that include Polpharma and Teva. And he’s not the only one to comment on the complexity of the regulations that the industry is bound by. André Jobmann, the head of reefer verticals and FMCG at Maersk, also comments that: “The regulations impact our warehouse operations in respect to providing GxP [Good Practice] certification to ensure that the goods are handled in a way that maintains high-quality levels. This requires warehouse operators to invest in higher standards and more highly qualified workers.” Maersk handles the distribution for Bayer from its centre in Mszczonów. André Jobmann also goes on to explain: “For any logistics service provider, pharma represents highly specific challenges in respect to ensuring an unbroken cold chain to protect product quality.” However, this is also subject to strict regulation. “Pharmaceuticals are a special type of product that need specific storage conditions. To start with, the guidelines set by the Polish Pharmaceutical Inspectorate (GIF), as specified in the Ministry of Health’s Good Distribution Practice regulations, must be met. You also need to obtain the requisite permit from the GIF to run a medical drug wholesale business,” emphasises Jarosław Bicki, a development manager at the Polish branch of warehouse developer Prologis

“The warehouse space itself, regardless of whether it is a wholesale warehouse or consignment facility, has to comply with GIF requirements. Online pharmacies also have to meet these requirements, even though they are not defined by the pharmaceutical law and are not bound by the same restrictions,” admits Joanna Ociepka-Wojciechowska, the regional leasing director of Polish warehouse developer 7R. On top of all this, an operator also requires permission from the Polish Pharmacological Institute to operate. “The PPI’s standards are stricter than those set by the Sanitary Inspectorate. It usually takes about six months for a decision to be granted, making it a costly option for starting up,” admits Hubert Wojtera, the director of industrial and logistics at consultancy Axi Immo.

“In pharmaceutical warehouses it is also necessary to segregate operations into receiving/dispatch bays and – in some cases – also into storage areas for restricted medical drugs. This can be done by installing panel walls – mostly full-length – and high-speed doors that allow for the movement of forklifts throughout the warehouse. In addition to designated office space, most warehousing operations require cold storage areas for products that have to be kept at lower temperatures, areas for flammable materials such as aerosols, areas for psychotropic drugs with additional security systems and areas for repackaging drugs – which is commonplace in Poland due to supply chain diversifications,” explains Tomasz Bulej, a senior negotiator in the industrial and logistics agency at Cushman & Wakefield.

And as Paweł Janicki of FM Logistic points out, the storage of psychotropic drugs is subject to even more regulations: “An additional regulation is the law to combat drug addiction. In accordance with this rooms containing controlled substances must be fitted with two certified locks and security doors,” he says. Temperature control is also usually a requirement. “Wholesale warehouse facilities or companies that retail their own products are required to follow the Good Distribution Practice regulations. These requirements are very restrictive. Rooms must be temperature and moisture controlled in terms of the particular type of medication, while there also have to be refrigerated areas, freezers and dry rooms. Walls, ceilings and floors have to be air-tight to prevent smells entering the warehouse. In addition, the correct number of air-exchangers should be installed and the lighting must meet the required parameters. Attention also has to be paid to the division of the space, with areas for deliveries and dispatch as well as returns. Medications of different categories, such as herbs, psychotropics, vaccines and biopharmaceuticals, have to be stored separately. In addition to this, it’s necessary to have security procedures and restricted access for personnel,” explains Joanna Ociepka-Wojciechowska of 7R.

A need for care

“Pharmaceuticals are delicate products, and even small changes in temperature or air humidity can result in entire batches having to be disposed of. Since the cooling, heating and ventilation systems have to function even during a breakdown, duplicate systems are therefore necessary, as well as automated supervision and immediate access to maintenance services. Currently, a crucial factor is the power supply, as well as the cooling, heating, and ventilation systems. Poland has already seen restricted energy supplies, while other countries have even had blackouts and network failures. There is also the risk of mechanical damage, which can be caused by natural forces. As a result, it’s a good idea to receive power from independent sources, and preferably from separate suppliers. This can be complemented by investment in power generators and uninterruptible power supplies. Solar panels can also prove effective. It’s worth investing in modern systems that require less electricity but are just as effective. Simple solutions of this kind include more insulation in the walls and roofs,” emphasises Jarosław Bicki of Prologis.

Such requirements often prove expensive. “It’s worth mentioning that modifying space for the pharmaceutical industry can require twice the work needed for traditional sectors and the extra cost results in higher rental rates. For this reason, most tenants in this sector will often opt for BTS or BTO warehousing, specifically designed and equipped for storing such pharmaceutical products as drugs, raw materials and medical supplies,” explains Hubert Wojtera of Axi Immo. Tomasz Bulej of Cushman & Wakefield has a somewhat similar opinion: “The key to adapting warehouse space to the requirements of the pharmaceutical sector is to ensure the highest safety standards for the pharmaceutical products manufactured and stored in the space. That’s why often the best solution for tenants from this sector is to choose a centre that is still to be constructed and that can, therefore, be customised while it is still being designed,” he says. According to Hubert Wojtera, it is possibly due to this complexity that pharma leases are rare: “On the warehouse market in Poland, the leasing of space by pharmaceutical clients is usually a relatively rare phenomenon. If we hear of any transactions, they are typically made by large organisations. The pharmaceutical market is highly hermetic, and such companies usually operate on industrial space leased years ago,” he explains.

It therefore seems unsurprising that the warehouse developers themselves claim that prior experience is required to win pharmaceutical clients. “Companies from the pharmaceutical sector place a lot of importance in this. They often demand that you provide examples of your previous developments for clients from the industry. Such experience has to consist of having partnered with both large companies and with operators that provide services to smaller companies. This not only has to include examples of ready-made solutions, but also an individual approach to modifying existing space while meeting all relevant regulations. In our experience, a successful collaboration will pay off not only in renewed leases and with current tenants enlarging their warehouse space, but also in new customers being won,” stresses Jarosław Bicki of Prologis. “A developer that is able to show previous experience is a crucial factor for tenants from this sector,” claims Joanna Ociepka-Wojciechowska of 7R, who goes on to add: “In this regard 7R has vast experience. A good example is our 7R City Park Warsaw Airport III centre. The tenants there include such firms as ITP, Stryker and Komtur. Polfa Warszawa also operates its research and development centre from this warehouse.”

Looking up

“Pharmaceutical logistics continues to grow at a good pace,” claims Tomasz Bulej of Cushman & Wakefield, who adds that “one of its key growth drivers was the pandemic, with governments around the world making the securing of ample medical supplies for patients a priority. The market’s growth can also be attributed to the increasing demand for over-the-counter preparations, from vitamins to dermatological products.” And he’s not the only one who’s sanguine about the prospects for this particular industry. “The pharmaceutical market will grow. Unfortunately, the diseases and health issues that are currently prevalent are not going to disappear, while new health risks are bound to emerge, and all of this requires further research and new medicines. This will translate into growing demand for warehouse space,” predicts Jarosław Bicki of Prologis. Paweł Janicki of FM Logistic is also optimistic. “In my opinion, Poland is an attractive market for the pharmaceutical sector. I would say that there were three factors that influence this. The very fact that Poland is a big country provides pharmaceutical producers with huge opportunities both when it comes to development and as a consumer market. Secondly, our geographical location is very advantageous and attractive for logistics and for locating distribution centres here to serve not only the local market but also the Baltics and Central Europe, so finding workers is not difficult,” he says. Joanna Ociepka-Wojciechowska of 7R shares his optimism about the segment: “The competition in this sector is clear. We are definitely going to see further consolidation in the pharmacy sector due to takeovers of pharmaceuticals by foreign capital and investment funds. This means location changes for new centres that meet the requirements of pharmaceutical law and the reorganisation of the logistics for such firms.”