Land bankruptcy

Where warehouses and logistics centers are today mushrooming - mainly in suburbs and near highways - the size of developments will have at least tripled, if developers see their plans to fruition

The uncontrolled boom in the Czech Republic's warehousing market worries architects and environmentalists, who say that industrial halls will spoil the character of the landscape and have a detrimental impact on the climate, regardless of economic benefits.

Land-bank savings

This year companies will lease the highest-ever amount of industrial space in the Czech Republic, and this record demand is fueling developers to snap up plots and create land-banks for future logistics and warehouse projects. CTP Invest, one of the biggest local industrial developers, now owns about 600 ha of vacant land that it will build up in the coming years, said Remon L Vos, the firm's managing director. Seeing strong market potential, CTP - which will invest this year about E350 (zł.1,331) million in building industrial space - is still looking for land to acquire, he said.

Similarly, VGP - industriální stavby, a newcomer on the industrial market, will have almost 300 ha of vacant land by the end of this year and plans to pack it with warehouses and other industrial space in the next five to six years, said Jan Van Geet, the company's CEO and co-owner. VGP is also seeking to buy more land primarily around regional cities. The trend of creating land-banks for future developments is now common for all major industrial developers, said observers.

"This year will likely become another record year, with the highest number of leased industrial space in Czech history," said Bert Hesselink of property consultant CB Richard Ellis. In the first half of 2007, companies leased 245,000 sqm of modern industrial space, 26 percent more than in the same period last year, according to CB Richard Ellis. IT company Tech Data closed the largest deal, leasing 16,200 sqm in CTPark Bor.

Growing trend

This year companies will likely close contracts for leasing a total of 500,000-600,000 sqm of industrial space, Hesselink said. The demand for warehouses, logistic centers and production halls has been rapidly growing since the country's accession to the EU in 2004. In that year companies leased almost 200,000 sqm of industrial space, in 2005 the figure grew to 450,000 sqm and last year it reached 500,000 sqm, according to CB Richard Ellis.

With EU ascension, Czech borders opened and the country's convenient Central European location and low labor costs have been tremendous inducements for various international companies, such as tire and rubber manufacturer Bridgestone Corporation, to open distribution centers. Although labor costs are growing, the country's suitable geography, growing purchasing power and firms' desires to modernize their Czech facilities continue to fuel the demand for more industrial space, claimed observers.

Warehouses and logistics centers are snaking their way from Prague suburbs and highways exits - where they first emerged - to the outskirts of regional cities where their presence is creating job opportunities and pushing down unemployment rates. In addition to the capital, other popular locations for industrial developers include: Brno, South Moravia; West Bohemia with its proximity to the German border; and Ostrava, North Moravia. In the Czech Republic there are around 1.55 million sqm of modern-build and leased industrial space. With the growing demand the number is likely to triple in the next five years, Hesselink said.

Ugly logistics

The ongoing boom pleases economists but upsets some architects and environmentalists. "In several years the character of the Czech landscape will be completely changed. Nobody is dealing with the aesthetic aspects of the [warehouse and logistics centers'] unregulated developments," said attorney Petr Kužvart, who represents the citizens' association Atelier pro Životní Prostŕedí (Studio for the Environment).

Although concern is shared about the future look of the country, Kužvart said there's probably no way to stop this "unpleasant" trend. There are citizens' protests against particular projects on regional levels, but it is up to each town to decide and approve its developments within their zoning plans, he said. Stopping this trend is even more difficult as towns' representatives usually support these developments in anticipation of personal benefits from private companies, he said. Another issue revolves around citizens who are keen to sell agricultural land to developers, Kužvart added.

"It's so sad coming to Prague from the south and seeing just box after box lining both sides of the highway," said Prague-based architect Vlado Milunić, giving an example of what he calls "ugly logistics projects." Milunić said he blames "irresponsible politicians" for this trend. "In our line of business, it's common practice to sponsor a certain political party applying political pressure to secure [development] contracts for towns," he said. "As a significant part of society shares an interest [in this tolerated way of doing things], corruption remains quite consistent."

Still, Hesselink sees a brighter future. As land gets scarcer, developers are starting to look at old factories and other contaminated plots to turn brownfields into logistics centers, he said.

Petra Breyerová

This is an edited version of an article which originally appeared in Czech Business Weekly