Size matters

Warehousing companies are turning their gaze towards projects offering small spaces for rent. ‘Small units’ are still a niche market, but to judge by developer interest, they are generating excitement despite their size

 

Ewa Andrzejewska

In Poland, there is still no commonly agreed term for warehousing of a more diminutive nature. This type of project is variously called a ‘small business unit’, a ‘flexi’ or ‘small space’, but this lack of consensus about terminology is by no means discouraging for the industry, as an increasingly wide circle of the warehousing world is now discussing the potential of these ‘small’ projects. The minimum space which may be rented in such facilities is around 450-500 sqm. According to Tomasz Mika, senior negotiator of Cushman & Wakefield’s industrial department: “The smallest warehouse space which developers have offered so far has been 2,700 sqm. In exceptional cases such space is available in large halls, where there have been units of around 1,500 sqm in size. But previously, companies interested in small areas had been sent packing due to the rigid framework of commercialization policy. However, as the number of customers looking for such space has risen, developers have changed strategy and are not wasting any time in supplying it.” Those who are fighting for what is still in Poland a modest slice of the industrial cake include Segro, Panattoni and Parkridge. However, US developer ProLogis, with which Panattoni is competing for the position of leader, is not among this group. The reason given by ProLogis officials was simply that: “Such projects are not in our field of interest.” In short – there is one less competitor fighting over this niche.

I know but I’m not telling

Robert Dobrzycki, Panattoni’s regional partner for Central Europe, reveals that: “We were and continue to be interested in such projects, since our company has experience acquired in other countries. We are keeping an eye on sites in all the large conurbations, including those of Poland and the Czech Republic, in which the population exceeds 500,000.” Waldemar Olejnik, the development manager of Segro Poland (third in the Polish market), offers a few more details: “I feel that some market polarization will occur within the next few years. There will be two types of investors who can count on success: those that develop projects near major motorway junctions and those developing halls
to house small modules. Segro is planning such investments in the largest cities of the Mazovia, Wielkopolska and Silesia provinces, among others.”

Parkridge, whose warehousing portfolio was bought out in 2007 by competitor  ProLogis, is also entering the fray; but will Parkridge rise like
a phoenix from the ashes? Market insiders have heard that some development plots, for example
in Wrocław, have already been snapped up. Piotr Wąs, a company representative, refuses to discuss operational strategy for the coming months, but does allow us a small clue to solving the mystery, by promising us that a format has been decided upon and is ready for the shape that such projects should take.

Model ready for use

Developers searching for plots for smaller projects tend to prefer land within a town or city’s administrative boundary. In their attempts to secure suitable land, however, they often find themselves competing with other developers who specialize in office or housing projects. Consequently, an urban location means a higher price. Waldemar Olejnik can testify to this: “I have seen offers at estimated prices of between PLN 500 and 900 per sqm. The greater cost of this kind of investment is also the result of the more sophisticated architecture that is required, compared to standard halls.” Mr Olejnik goes on to add that: “Developers will have to invest more in higher quality facilities, for instance, with some elevation elements made of glass. Additional outlays will also be designated for the interior décor.” It can also be assumed that a planned complex will have office space amounting to around 5-7 pct. However, in smaller scale projects, the business element can account for even as much as 30-40 pct. Jakub Holec, an agent for King Sturge Czech Republic’s industrial department, comments that: “These planned developments can be compared with those of the Czech Republic. Flexi-space buildings
– as they are called in the Czech Republic – offer a flexible linking of class ‘A’ office space with warehousing or production space for the textile industry, of 600 to 3,000 sqm. The size of the office space depends on customer needs – normally 10 to 20 pct.”

Tomasz Mika of Cushman & Wakefield emphasizes, however, that: “It costs EUR 2.5 to 3.2 to rent
1 sqm of warehouse space per month at present, and a further EUR 8-9 for office space. For the sake of comparison, we estimate that small unit warehouses will be leased by their landlords for around EUR 4.5 to 5, while office rates should be in the region of EUR 10-12.” According to King Sturge, rents in the Czech Republic are around EUR 5.25 per sqm (without service fees).

Another box

Dutch-based developer CTP Invest has drawn up an original format which it calls CTBox. Jakub Holec of King Sturge outlines the concept: “A two-storey building contains an office section, space for retail and industrial space, on which repairs can be carried out and warehousing or production can take place. These units are smaller than flexi-space, with usually around 90 sqm of representative office space and a 30-60 sqm sales showroom with large exhibition windows, as well as 300-600 sqm of space for storage, assembly and packaging.

The total area of each such unit varies between 450 sqm and 800 sqm. Example of such buildings currently exist in Plzen, Prague, Brno
and Ostrava.

In April, CTP Invest announced plans
to expand into Poland. A pioneering park is to be developed in Jaworzno, to be developed in four phases. Justyna Romańczuk, business development manager of CTP Invest in Poland, states that: “We intend to build 62,000 sqm of roofed warehouses. The park will break down into 4 types of facility. The first is to be
a building containing so called flexi-space, while small units will be delivered in the final stage, since they are a supplementary project.” Jaworzno is just the beginning, after which the company plans to have developed 3 to 5 warehouse parks in Poland by 2010.

Customers queue up

Waldemar Olejnik of Segro Poland mentions one group of potential tenants: “Many customers are poised to change their headquarters from old buildings to modern warehouses. They are usually not interested in new facilities, since they do not require 3,000 to 5,000 sqm all at once. In addition, there are companies, for example, distributors of small-scale products, who need to be close to their recipients.”

Specialists have been emphasizing for several months that nothing lasts for ever, and the record-breaking leasing volume of last year cannot return. So is small unit development going to provide some security for the difficult times ahead of us? In the opinion of Robert Dobrzycki of Panattoni: “The increased development activity when it comes to smaller units stems from the desire to diversify revenues.” Tomasz Mika feels that: “Apart from being a remedy for a recession which, to a shallower or deeper extent, is bound to come, it is also a sign of market maturity.” ν