Investors' caution, Developers' reluctance

The Polish warehouse market does not have much to offer to investors. There are only a few good developments, which developers in any case prefer to re-finance themselves.

The above statement will be confirmed by developers, investors and investment advisors and it tells us why there have been so few transactions, with only three having been officially announced in Poland. In 1997, the Real Estate Investment Trust bought the 36,000-sqm. Warsaw Industrial Centre complex from Menard Doswell &Co, and this was the first transaction of its kind in the country.  The warehouse is now called ProLogis Park Warszawa. In 2000, the American investment fund, Heitman Central Europe Property Partnership, purchased Diamond Business Park Janki (32,000 sqm.) for USD 27.7 million, from developer AIG/Lincoln Polska who still manage the complex. At the beginning of this year, the Austrian Europolis fund bought Alliance Logistic Centre's two buildings, (totalling 28,000 sqm of space), again from Menard Doswell&Co. Other purchases are being negotiated, but won't be concluded in the near future.

Topping out in Poznan
The investors and constructors of new office building Globis Poznań, have celebrated the building's topping-out ceremony. Final completion of the office building (13,000 sqm) is scheduled for the beginning of 2003.
The project's investor, company Globis Poznan, was established by Globe Trade Centre (75 %) and Orbis (25 %.). Hochtief Polska was the general constructor and architects Pentagram designed the building. SAP Project was involved in the preparatory stages of the project and the leasing agents are CB Richard Ellis and Blaszczyk Nieruchomosci.

Stratos welcomes Belgians
The Belgian Embassy's Wallon Region Trade and Economic Representation (AWEX), has leased 292 sqm. of office space at the Stratos office building in ul. Skorupki in Warsaw.
Stratos, completed in 2000 by general contractor Universale International, has a total area of over 9,900 sqm. It was designed by architects Majewski, Wyszynski and Hermanowicz and  is owned  by Karimpol.

"We are currently working on two transactions in Poland, but haven't completed them yet", says Noel G.H  Manns, Director of Europa Capital Partners, which exclusively advises the Europa Fund. "We have purchased in the Czech Republic, however".
Loic de Villard, Head of the Investment Department of Cushman & Wakefield H&B, is also representing clients in negotiations concerning the sale of two warehouse projects around Warsaw.  One of CB Richard Ellis' recent reports informs us that Apollo Rida's Zeran Park and CEIDCO's Warsaw Distribution Centre are currently for sale. The negotiations mentioned above could be related to these developments.

Complicated warehouses
According to the Director of the Financial and Investment Advisory Department of Knight Frank Nieruchomosci, Dorota Latkowska, most property funds' rules, (with the exception of funds established for a specific purpose),  allow investments in warehouse properties, when they constitute around 20-30 percent of its planned investment portfolio. The funds,  allocate most of their resources, (50-70 percent), however, to investments in office buildings. A good example is German fund Deutsche Grundbesitz, part of the Deutsche Bank Group, who acquired the Kopernik Office Buildings in Warsaw.
,We are less focused on investing in warehouse and logistics centres, as those developments aren't very 'visible', and are often located in city suburbs or even away from cities", says Norbert Czypionka, Vice-President of Deutsche Grundbesitz. ,There is less demand for such buildings than for space in office buildings and retail centres, and should the leases expire, it is more difficult to find new tenants".
Chris Grzesik, Director of King Sturge, disagrees: "Funds specialise in whatever sectors of the market they are familiar with and the warehouse sector is the most complicated. One has to be familiar with transport and logistics and the tenants are also quite unique. That might be one of the reasons why investors are less interested in warehouse development",  he suggests.

Good sign for investors
Another obstacle according to Dorota Latkowska, is that many investors, particularly open-ended German property funds, require that land is owned by warehouse developers. If they are only the perpetual users of the plot, they will have their offers rejected.
Investors are equally concerned about how warehouse centres are managed, as they are much more difficult to run than office buildings, or even retail centres. There are few warehouse management specialists in Poland and the job is often performed by logistics companies.
"Nowadays, more and more warehouse developers understand that it is better to hire professional property managers (an agency or independent company). This gives a positive message to investors," stresses Loic de Villard.

Advantages and disadvantages
In order to attract investors such as investment funds, developments ought to meet vital criteria. Norbert Czypionka of Deutsche Grundbesitz lists them:

• Location - in big cities or close to them

• Access to transport infrastructure, including airports,  motorways and railways

• Leases no shorter than 10 years

• Good current tenants

• Buildings of a high technical standard, to ensure the development's longevity.

• Rate of return, which should be at least 100 base points higher than the rate of return achieved on investments in office or retail developments.

"The warehouse market is considered riskier than the office market, but it also has one advantage", says Chris Grzesik of King Sturge. "The rate of return on an office project is 9,5 percent while that on a warehouse project is 11 percent".
This is more or less the rate of return expected by investors who analyse the Polish market. Noel G. Manns of Europa Capital Partners says he would be satisfied with a net yield of 11-12 percent, whereas for Loic de Villard of Cushman & Wakefield H&B expectations are about 10,5-11,5 percent.

Market too small
Are investment funds which specialise in warehouse space interested in the Polish market? Would there be more transactions if they came here? Loic de Villard for one, is skeptical that funds such as ING Industrial and Fund Europe are ready to invest in Poland, because the market is too small: ,most investors would rather establish funds for the whole region (of Central Europe) than for particular real estate sectors". He adds that increased activity in the warehouse space market will happen when the Polish economy improves.

The future
As the investment market for modern warehouse complexes only began 5 years ago, there is yet more investment in the logistics sector to come, says Christopher Grzesik: ,Developments since then, [five years ago] by which I mean Ozarów Business Centre, Warsaw Distribution Centre, Diamond Business Park, Zeran Distribution Centre, Europa Park and ProLogis Park, are very similar or only slightly different to those in the West. The best lawyers wrote the lease agreements for these complexes and that's why they've attracted institutional investors".