Warehouse market

Poland, Germany or the Czech Republic? Which of the three Central European markets is the most attractive when it comes to e-commerce, which offers the best conditions for warehouse developers and investors and how will each of them develop in the future? Interview by Alicja Ciszewska WBJ Observer: Recently, it has been announced that Panattoni is going to construct the largest logistics center in Germany for e-commerce company, Jago, encompassing 120,000 sqm. This is another big BTS (Built-To-Suit) scheme developed by Panattoni. Can we expect more in the future? Robert Dobrzycki: We are always making plans, but it all depends on the market. We hope that we will be developing such projects and signing big contracts. We have a very ambitious plan regarding Germany, we would like to grow significantly in the market, therefore we believe that this transaction is just the beginning. The German market is very attractive in terms of e-commerce, because of its large customer base, and we have very high hopes regarding the sector. What about Poland and the Czech Republic? Is it possible to develop such projects in these countries? Yes and they are being carried out. The three schemes we developed for Amazon are good examples of that. Each of the projects features some 100,000 sqm, which is very rare in the Polish market. Additionally, they were developed for e-commerce, so we are aware that the sector is growing. Naturally, Polish e-commerce largely services western markets, Germany in particular. However, the Polish market alongside Polish retailers are investing in e-commerce, and the space is expanding because of increasing needs as a result of e-shopping. Amazon is the world leader in e-commerce, hence it sets the trends, leading to a growing demand for space in Poland and the Czech Republic. [caption id="attachment_77006" align="alignleft" width="224"] Panattoni Europe[/caption] So, is Poland competitive as a potential destination for large logistics centers? It surely is, due to the fact that such complexes need a huge labor force. Some 3,000 people are employed at each of Amazon’s logistics centers, and during the Christmas period the number reaches 5,000. The flexibility of the labor market and the labor law is also a very important factor. Poland’s problem is our customer base, which is not yet as strong as Germany’s. As a consequence, we have to serve the German market which is not convenient in terms of location, because it is obviously easier to serve Germany from the country’s central regions. Nevertheless, there are other factors that persuade firms to locate in western Poland and in western parts of the Czech Republic. If our customer market grows, Poland will serve itself, but as for now, the western part of the country handles the big German market. Is the Czech Republic positioned higher than Poland in terms of optimal locations? When it comes to the depth of the labor market and the transparency of procedures, Poland does better, yet the Czech Republic has better access to wealthy German regions. Still, in my opinion, it is much easier to invest in Poland than in our southern neighbor, taking into account the law. What are the factors that impact an investor’s choice when it selects a particular country? The three main factors are the following: the depth of the labor market, the condition of a country’s infrastructure and access to markets. Currently, the costs of building new units are much lower than a few years ago. What does it mean for old facilities and their owners? The units with leases about to expire will be under pressure to lower rents, as the costs of developing new space is much lower than in 2007 or 2008, just before the financial crisis. Construction costs were higher back then due to cost inflation. One has to adjust rent to the costs, when a renewal is to be signed. Won't it increase the vacancy rate? It will not happen, I believe, because companies’ net profits are constantly rising, especially in the e-commerce sector. Firms are transferring their businesses to Central Europe taking into account low labor costs, therefore I am not expecting an increase in the vacancy rate. Do the Czech and German markets differ so much from Poland in terms of costs and vacancy rates? The costs are not so different in the Czech Republic, however legal procedures are more complicated than in Poland. In addition, fewer plots of lands are available in the Czech Republic. The German market is more expensive when it comes to construction costs, yet financing costs are lower than in Central Europe. Furthermore, access to land is limited, especially on the speculative market. The majority of plots are owned by local municipalities and they are not interested in selling them on the speculative market. They always look at the number of jobs created through the sale of the land. Overall, labor costs are the main factor which differentiates Poland from the Czech Republic and Germany. According to a report compiled by JLL, the average vacancy rate in the Czech Republic dropped to 6.9 percent in Q2, and the vacancy rate for warehouses featuring equalling 5,000 sqm or more for Germany does not exceed 5 percent, the company estimated. In comparison, in Poland, the vacancy rate stood at 7.4 percent by the end of the first half of the year. Our market seems to perform poorer than the other two, but still the rate is the lowest since 2007. Can the German and the Czech warehouse markets expect as much development as the Polish market in the near future? Those markets are quite similar, but the Czech one is more saturated, so the increase of space in Poland should be bigger than in the Czech Republic. There are more warehouses per capita in the Czech Republic, than in Poland. So, I believe that we should expect a higher increase in warehouse stock in Poland than in our southern neighbor. When it comes to Germany, the growth of warehouse space is to be lowest among the three countries, because the market is the most highly developed.