Warehouse demand increases as rents bottom out
Space for let: the Warsaw Distribution Center
The bad old days
As with all other real estate developments, Warsaw has been Poland's traditional leader in warehouse space. The sector was still undeveloped for the first part of the 1990s and investors setting up in the country had to make do with decrepit warehousing dating back several decades.
In 1995, there were still only 14,000 square meters of modern warehouse space available on the market, developed by two U.S. firms, TKG International and Menard Doswell. Tenants had to queue to get room in the Warsaw Distribution Center, developed by TKG. Pre-lease contracts were signed preceding completion, with rents ranging from $9-$10 per square meter a month.
Back to the future
Recently, however, the number of companies using warehouse space in Warsaw has risen dramatically as supply has expanded and rents have dropped. Today, greater Warsaw's warehouse stock is about 3 million square meters, but only 480,000 square meters of it is classified as modern or refurbished.
Telecom, high-tech data transmission firms and logistic companies are renting space in larger numbers now, while established firms have expanded their existing operations. As supply has increased during 1999-2000, rents have dropped to $6-$8.50 per square meter, depending on location. Meanwhile, vacancy rates dropped last year to 12-13% from 20-26% in 1999.
Warehouse market 1999/2000
Warehousing became more developed in 2000 with several projects opening, including the 15,000 square-meter Bokserska development and still-incomplete Prologis Park Teresin development, which will eventually cover 100,000 square meters. "We've had significant growth in the warehouse market, which has influenced its stability and maturity," said Roman Fortuna, an associate at U.K.-based King Sturge real estate company.
Industry watchers said the larger take-up of space was due to companies holding out for lower rents. One of the biggest deals was signed by Japan's Mitsubishi, which rented 23,000 square meters in the Alliance Logistic Center, a warehouse in Blonie that was developed by the U.S.' Menard Doswell. Also U.S.-based Colgate Palmolive rented 8,000 square meters in Warsaw's Sanpro Center. Both warehouses are "build-to-suit" investments, where the developer builds infrastructure to suit the client's needs.
Other large transactions include Warsaw's Bokserska Office and Distribution Center, which has rented 10,000 square meters to Central European Distribution. Sweden's Elektrolux signed a deal for 10,000 square meters at the Zeran Distribution Center in Warsaw, while Era GSM also signed a deal for 9,400 square meters at Zeran.
Other companies also taking up space include Polish freight forwarder Cargoforte, which took up 7,000 square meters in Warsaw's Space Distribution Center. M.S. Stolica, a Polish messenger service company, also rented 6,000 square meters in the capital's Degor building.
The Millennium Logistic Park in Pruszkow (near Warsaw) has leased about 30,000 square meters since the start of 2000, and companies renting there include U.S.-based TRW (6,000 square meters), Polish freight forwarder Linco (5,500 square meters) and Aged, a Polish importer and distributor of household appliances (2,500 square meters).
With rents now starting to bottom out, Fortuna said if they dropped any lower many developments would become unprofitable. "Rents are approaching the bottom line of profitability," he said, adding that they could hit $6 per square meter at their lowest level.
The shape of things to come
By the start of this year, 100,000 square meters of warehousing was under construction around Warsaw, including space in Mszczonow, Nadarzyn and Blonie (Metropol Park). Pressure has also been building to improve the quality of these developments as companies look for more high-tech storage solutions such as fiber-optics, an integrated services digital network (ISDN) connection and updated telecom systems.
Last year several high-technology firms started looking for warehousing deals and since then developers have woken up to the potential of modern warehouse space. "Warehouses are being specialized for high-tech purposes, and should continue in this direction this year," said Marek Wachowski, a warehouse specialist at U.S.' CB Richard Ellis real estate agency.
Telehousing and data centers are particularly popular among customers. Data centers lease low-cost space for computers with a larger capacity than usual. These computers are then sublet to accounting firms looking for fully equipped space. Telehouse warehousing provides similar services, but with telecom technology. One of the first of these deals was with Energis, the Polish arm of the U.K.-based telecom company, which is taking up 5,100 square meters in Diamond Business Park Piaseczno.
With new warehouse developments in the pipeline, the industry is now in a state of flux, according to Marek Wachowski, of CB Richard Ellis. He said it could go one of two ways. With rents falling, the industry's rapid growth could slow down. Or if demand remains strong, rents should stay at the same level or even increase. "They (rents) shouldn't go down any further, they could even go up," said King Sturge's Fortuna.
Location and purpose
Fortuna said there are three types of warehouse developments now available for clients. Some of the largest in Warsaw include Prologis Park, Zeran Distribution Center, Warsaw Distribution Center and Diamond Business Park. Rents in these locations run $8-$8.50 per square meter. Most of the companies renting warehouse space in these prime locations are importers and producers that need to deliver their goods directly to retail centers. Developments outside Warsaw such as the Alliance Logistics Center, Prologis Parks in Blonie and Teresin or Ozarow Business Center, are renting at $6.50 to $7 per square meter. Those based 40-45 kilometers outside Warsaw, such as the Mszczonow development, are logistic-oriented and specialize in transport, warehouse and customs clearance, charging rents of about $6 per square meter.
