Trouble in store?

Logistic services are in retreat because companies are using their own transport whenever possible to save money. It is the food and pharmaceutical industries that are now generating the main demand for warehouses. It seems that in spite of the credit crunch we haven’t been tightening our belts – and the resulting headache has made us reach for our pills more often

Emil Górecki

Logistics is a kind of economic barometer. The type and quantity of goods that circulate between manufacturing plants, warehouses, shops and the end-customer are a gauge of a country’s level of prosperity. When the country becomes poorer, this can clearly be seen in the supply chain. And when the situation improves, operators’ vehicles and warehouses start to fill up once more.

About turn!

By the end of 2009, analysts from the Jartom agency had already noticed a new trend on the Polish market – the leasing activity of logistic companies was falling away in the warehouse sector. By contrast, in 2008 they were the leading players in the sector. This observation was confirmed in 
Q1 2010. In those three months logistics companies only leased slightly over 20 pct of the total take-up. The biggest slice of the pie-chart of types of tenant belonged to the industrial sector, with 44 pct of the total. The third and fourth positions were occupied by the printing and food industries, with 15 pct and 13 pct respectively. “It is worth noticing that logistics firms are also reducing the space they are currently occupying. Services in this sector of the economy are something of a luxury for many companies. In a worsening economic climate when everyone is looking for savings, some companies prefer make savings by doing this extra work themselves,” explains Tomasz Branecki of Jartom.

As many as 36 pct of logistics companies surveyed by Jones Lang LaSalle in April when asked about their plans to increase the amount of warehouse space they lease replied in the negative, while as 37 pct of the respondents wanted to increase their space by at least 5,000 sqm.

Krzysztof Redkowiak, head of logistics company DSV Solutions, is one of the 37 pct. Admittedly, the company has not increased its warehouse space since the end of 2008 – but it has acquired major new clients. “Since the beginning of the credit crunch, companies have started to control their warehouse stock in a stricter fashion. This gave us a few or a dozen or so per cent of savings with regard to the occupied space. This is why we are still not leasing additional space despite gaining new clients, as we can store their goods in the space we have created. After 2009 I can feel a breath of fresh air,” says the head of DSV Solutions.

New boys call the shots

According to Robert Dobrzycki, a managing partner of Panattoni Europe, the reason why the tenants in his warehouses are mainly from the food and pharmaceutical industries is that they have been relatively unscathed by the crisis. Another strong group of clients are companies which have relocated their activities from western Europe to areas located along Poland’s western border to make savings. “The share of logistics companies has slumped. Some of them have even decided to sub-lease their space, although currently this trend is gradually diminishing,” claims Mr Dobrzycki.

Panattoni’s plan for 2010 is to lease out an area of 400,000 sqm. Last year, just over 500,000 sqm was taken up on the entire market, as potential tenants adopted a much more cautious approach. “The cautiousness of tenants is still very strong, and I do not expect a change in their approach. The good result in Q1 comes from fact that new tenants are simply big players in need of very large areas, such as Tesco or AB Foods for example,” adds the head of Panattoni.

Indeed, among the transactions concluded within the last six months listed by the developer, only one was with a logistics company. This was the 5,400 sqm in Panattoni Park Poznań I that was leased to Compania de Distribution Integral Logista Polska. But this seems paltry compared to the 57,000 sqm leased to Tesco in a built-to-suit project Panattoni is developing near Gliwice. The food, automotive, IT and electronics industries are much more active now than the logistics sector

Looking at ProLogis\' biggest recent leasing transactions in Central Europe, it is clear to see that logistics companies are rarely involved in them. In Poland so far this year there has only been Wincanton, which has leased nearly 7,800 sqm in ProLogis Park Poznań. During the same period three other players on this market – Raben, 
FM Logistic and Kuehne+Nagel – prolonged their tenancies (for nearly 60,000 sqm in total) in parks in Chorzów and Wrocław. However, companies in other industries, such as the automotive and production sectors, have signed huge new deals. However, the number and size of leases in the Czech Republic and Hungary are smaller than in Poland, and concern mainly the logistics industry.

The longer, the better

The industries mentioned above are not as flexible as logistics. They require long-term relationships, more preparation, stability and the continuity of activities. This is the complete opposite of logistics firms. The latter are flexible, can change the function of the leased warehouses relatively quickly, and move their centres from one location to another depending on their needs. They usually lease more space than they use at a given time, but they are always ready to take on a new client. “This rapid response to market needs means they are the first to lease additional space when the demand starts growing. So far no change in the trend can be seen – everyone is still being very cautious about signing new leasing contracts; but in a year or two it will be already be evident,” predicts the president of Jartom.

Maciej Chmielewski, partner and director of the industrial and warehouse department of Colliers International, provides us with some explanation for why the clients of the logistics industry are struggling at the moment. “Logistics companies leased more space than they needed, in the belief that we were experiencing continuing economic growth. However, the situation became complicated: consumption has slowed down, production has been slightly reduced, exports have fallen – and all this has made it much more difficult for logistics companies to keep their clients, while finding new ones is an even greater challenge,” he explains.

The only leasing transaction carried out by 
DSV Solutions in the last few months was for space in Silesia. The logistics firm was moving from an older facility to a newer one adjusted to its needs and with office space included in the same area. Paradoxically, the company has even saved money through this transaction. “The reduction in rents since the beginning of the crisis might be as much as 20 pct. Rents have slumped, but I do not expect this to last very long,” argues Krzysztof Redkowiak of DSV Solutions. He adds at the same time that a 20 pct reduction in rent is not a big saving for a logistics company. “Rent is only one component of the total price that you pay for the lease. Other costs remain unchanged, or even go up,” he adds.

Money hand in hand with respect

The travails of the market have not only forced tenants to be flexible, but also developers and warehouse owners. As Tomasz Branecki points out, they used to be very selective about tenants, refusing to even consider medium-term lease periods, and were wary of sectors such as the food industry, as they preferred not to adjust their warehouses for production purposes. “However, now every potential tenant that has the money is being courted,” he claims.

Małgorzata Ślusarczyk of MLP Group confirms that tenants that appreciate long-term relationships are gaining more and more in significance. Logistics companies want to sign contracts that are as short as possible – even for two years – and this is not encouraging developers to build new warehouses. At the moment the main tenants of MLP Group include mostly companies that need production space, which is a guarantee of a longer leasing period. According to a recent Cushman 
& Wakefield report, the company was the biggest supplier of industrial space in Poland over the period 2005-2009, with a market share of 30 pct. ν