Off to the regions

Warsaw's grip on the title of best location for investment in real estate seems to be loosening. Investors in retail space are already looking to cities due to the saturation of the Warsaw market. Now, more and more industrial space is rolling out into the regions.

Regions rake it in
"In 2005 the development boom of logistic warehousing in Poland continued spreading into the regions of Katowice, Poznań, Wrocław and Łódź/Piotrków Trybunalski," confirms Wojciech Kosiór from Prologis. According to CB Richard Ellis, over 312,000 sqm of industrial space, which equals half the area of all projects completed in 2005, were delivered to markets outside Warsaw. "Taking into consideration the number of projects developed and the number of deals signed, Sector 3 appeared to be the most dynamic sector in 2005. We assume that this trend will be maintained in 2006." said John Palmer, managing director at CB Richard Ellis Polska.

Employee convenience
Michael de Jong-Douglas, senior vice president with Prologis, points to the importance of locating a warehouse within convenient transport access for employees. "People have to get to the warehouse to work. You can put a warehouse in the middle of nowhere where the land and building might be very cheap, but you won't have anyone to work there because there is no public transport. More and more companies are doing not just distribution but light manufacturing or light assembly, where you have to worry about how 200 people can get to work each day."

When it comes to his own company's priorities concerning location, de Jong-Douglas said: "We like to have a prime distribution location. We develop our buildings and lease them out to our customers. We don't sell them. Everything we do stays in our portfolio so we are more concerned with the long-term leasability of buildings. Our customers are more interested in the classic distribution locations," he said.

Room to grow
Warehouse vacancy rates are on the rise. At the end of last year the vacancy rate in the industrial sector stood at 13.66 percent, a 5.88-percent increase on the end of 2004. According to CB Richard Ellis, this situation stems largely from the delivery of a significant amount of speculative space to the market last year. "I have always felt very comfortable doing inventory or speculative development because a lot of our buildings are let out to multiple customers." says Prologis' senior vice president. "A lot of logistics companies have very short lead times, they need a building in two to three months after signing a contract. For the fast-moving industries, inventory development seems the way to go. Some companies still can't do that, because of their financial structure or risk profile," he adds. Currently, 253,000 sqm is available on the industrial market, mostly in Sector 2.

Custom built
Another observable trend on the warehouse market is companies (including Belgium-based Eurinpro) drifting away from constructing standard warehouses suitable for nearly all potential customers and offering tailor-made solutions. Experienced players on the market such as de Jong-Douglas, however, still stand by the philosophy of flexibility. "We have a very generic type of building with highly flexible and adaptable space," he says. "The trick is having a building that fits 95 percent of the customers. From a valuation point of view a highly flexible building is going to have a higher value because if [you don't have flexible facility], when a tenant leaves after several years you have a building that is so specific that no one else can use it."