Manufacturing floor space

Logistics centres are not just the domain of companies involved in e-commerce or distribution. Manufacturing companies can also take advantage of the strategic benefits of such space to help them improve their operations. Managing supply chains, which in recent years have been heavily disrupted, also involves numerous challenges and requires flexibility. Production and logistics should, therefore, be closely integrated and for many manufacturers investment in modern centres has become a priority. What are the benefits for tenants and developers of such a model and do they outweigh the difficulties?

Robots to do the work

According to Małgorzata Czepel, the director of the industrial and warehouse space department at CBRE, three trends are now evident when it comes to manufacturing firms operating from logistics space: “These are the increasing technological requirements, the changing business models, and the increasing importance of sustainable development. With the first trend, we can see that manufacturers are increasingly looking for logistics space that is equipped with advanced technology and has the latest infrastructure. New supply management systems require automation and robotics, and it also must be possible to integrate this space with IT systems,” she says. Tomasz Pietrzak, the leasing director for Poland at MLP Group, makes the same point. “Manufacturers require specialist installations, such as reinforced flooring, specialist ventilation, more lighting (both natural and artificial), additional power connections and his year security systems. Manufacturers, particularly from the food or chemical industries, now often require extra permits and must follow stricter rules in regard to the environment, security and health and safety,” he points out.

Developers cannot afford to fall behind in terms of the latest technology and preparing space for manufacturers with this in mind is particularly demanding. As Tomasz Pietrzak explains: “Developers have to offer appropriate IT facilities, power supply and system integration. In the Industry 4.0 era, manufacturers use IoT to monitor and manage their production lines and their logistics in real-time. Warehouse space has to be ready to be integrated into such systems, which requires specialist infrastructure and data security.”

It should come as no surprise that the manufacturing sector follows the trends seen in other sectors of the economy and regards ESG as a priority. According to Małgorzata Czepel: “The demand for logistics space that meets certain environmental standards is growing, such as for energy efficiency, recycling and reduced CO2 emissions. Companies are looking for space that will allow them to meet their sustainability goals and the certification of the warehouse space they rent is now commonplace.” Marek Foryński, the managing director of Panattoni BTS, lists a number of solutions that can help tenants to realise their ESG goals. As well as proptech solutions, such as BMS, these include solar panelling, heat pumps and heat recovery systems. Additionally, he emphasises employee well-being and ways to improve the biodiversity around buildings.

Ten years minimum

Manufacturers require ordinary space that has good connections for distributing goods. Locations near motorways, important road junctions and border crossings are a major advantage for tenants, and so developers can count on their loyalty and the stability of the contracts they sign. Tailoring space to the specific operations of a company, which can often be extremely specialised, requires a significant investment, but this also means that the tenant is likely to stay for longer.

“The standard contract term for a manufacturer is ten years or longer,” points out Tomasz Pietrzak of MLP Group. “This gives us, as the developer, a stable revenue stream. Leasing space out to companies that have a constant need for logistics reduces the risk of vacancy. Manufacturing usually involves long-term planning and this also lowers the risk of the tenant suddenly leaving the space they lease. Through leasing out space to companies from different sectors, we can also diversify our tenant portfolio and in this way we can secure ourselves against the possible future financial difficulties that might be faced by a particular industry,” he explains.

Marek Foryński of Panattoni also points out that tenants are often attracted by such an approach. “For manufacturers, leasing logistics space is above all an opportunity to take up space that is adapted to their specific operational needs. This is true for both the space leased in parks and for BTS centres. This allows operations to be optimised resulting in savings and in better results for the business. Manufacturers do not have to invest significantly in building and maintaining their own property but instead can concentrate on their core businesses,” he explains. Małgorzata Czepel also believes that leasing logistics space is often a better choice for manufacturers than building for themselves, but mainly when this is most profitable and offers added value. “You have to bear in mind that logistics and manufacturing space has to fulfil the specific requirements of a company: such as its size, layout and access to high storage. This is why many manufacturers choose BTS formats,” she explains.

Applying the latest technology and solutions for the needs of a specific tenant can be costly and time-consuming, but in the long term it significantly improves the value of the property. “Developers who invest in high standards for their centres, including in the surrounding roads, will increase the value of their centres. This is important when they apply for financing as well as when they come to sell them,” stresses Marek Foryński.

Who’s going to buy a factory?

Owning a modern centre with a limited usage is not always advantageous for the developer, believes Filip Deleżyński, the director of logistics and industrial space at Colliers. “Of course, leasing logistics space adapted for production or building a new centre on land that has been secured will reduce as much as possible the time spent on a project. But at the same time, it means that a company is not attached to its assets. If the market suffers a downturn, with a loss of orders or a restructuring, the company is free to plan its future after the end of the contract and is not burdened with a specialised plant that is difficult to sell,” he points out.

Tomasz Pietrzak of MLP concurs: “If a manufacturer runs into financial difficulties, the developer might have problems recouping its investment or finding a new tenant with similar requirements – and the manufacturing sector is highly sensitive to market downturns,” he explains. He also notes that economic slowdowns often result in reduced manufacturing and this can result in tenants having difficulties keeping to the terms of their leases. If this results in the developer looking for someone to take the place of a previous tenant, they will most probably have to make adjustments to the space, which will again lengthen the vacancy period.

Far from town but close to the workers

The development of e-commerce and the accelerating changes on the market are making it necessary to increase flexibility and shorten delivery times. Locations near city centres often have a depleted labour pool, which forces companies to look elsewhere. The increasing impact of the trend for nearshoring is also apparent. “This doesn’t mean that factories in Asia are closing down so that production can be brought closer to consumption. Companies are just opening additional facilities to shorten supply chains and minimise the risk of being cut off from further flung parts of the world,” explains Małgorzata Czepel. Meanwhile, Filip Deleżyński points out that even though everyone was talking about shortening supply chains during the pandemic, it is only now that we can truly see the trend emerging. It is particularly visible in sectors that require a high degree of automation. “These are sectors with a lot of added value, such as the automotive industry, electronics and household appliances. These kinds of companies usually run very tight schedules,” he says.

“The complexity of such projects also poses huge challenges. Manufacturers often want to be located near their older plants, key markets or within special economic zones with tax incentives and easy access to labour. For this reason, a developer not only has to supply space but also has to support their client with their knowledge and experience in the selection of the best location,” points out Marek Foryński. Of course, the location is just the first step. Additionally, you have to take into account that looking for a location is time-consuming and complicated. As Małgorzata Czepel of CBRE explains: “This is because of reasons such as the increased requirement for utilities, which from the start restricts the number of available locations. Moreover, some spatial plans will preclude certain types of operations. You also have to take into account the length of time it takes to obtain the permits, in particular the environmental decisions. And for this reason, these kinds of projects have to be planned out many months in advance.”

More expensive in Warsaw

One of the largest contracts to be signed recently was signed by Panattoni and Taiwanese electronics manufacturer Compal. “Panattoni is building the company’s first production plant in Europe,” reveals Filip Deleżyński. “The new 7,600 sqm centre is to be a BTO centre in Czeladź. The same developer is also going to build a 14,400 sqm centre in Łódź, this time for E.G.O., a producer of home appliance components,” he adds. He also mentions that Korean company Sungwoo, one of Hyundai’s suppliers, has expanded its centre twice in the last 18 months by a combined area of almost 7,000 sqm in Segro Logistics Park Gliwice. The company now leases around 30,000 sqm of warehouse and production space throughout the country.

This year, in Jaworzyna Śląska, Harden Construction has begun to build a production plant for Rector Polska a producer of prefabricated prestressed concrete. More than 20,000 sqm is to be handed over for use in the second quarter of 2025. Interestingly, Harden is using construction elements produced by its future tenant, including supports and prefabricated blocks. Meanwhile, DL Invest Group is developing a 12,000 sqm warehouse and production facility near Bielsko-Biała, for which a long-term lease has already been signed. In March last year, work also was completed on extending Logicor Wrocław II, where Walki, a Finnish manufacturer of ecological packaging, has its two Polish production centres.

As Filip Deleżyński points out, Łódź and Mazowiecki as well as upper Silesia are the leading regions when it comes to the supply of modern logistics centres. Warsaw is where the highest rents are, with base rates even as high as EUR 7 per sqm. In other regions, costs are between EUR 3.1 and EUR 5.9 per sqm. This might spur some companies to look for cheaper locations. “Especially when it comes to other criteria important to tenants, both Silesia and the Łódź region offer conditions not very different to those found closer to the capital,” he says.