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edition 3 (228)
March 2018
Warehouse & industrial

Making hay while the sun shines

With economies booming across the region, the logistics sector enjoyed spectacular growth in 2017

Rafał Ostrowski

Making hay while the sun shines
3PL, e-commerce and retail are set to dominate the sector in 2018, says Tomasz Kasperowicz of Colliers International

Industrial markets in Central Europe broke a number of records last year. We saw unparalleled demand for warehouse space and vacancy levels at historic lows despite high development levels

As Robert Dobrzycki, the CEO for Europe of Panattoni Europe, claims we are experiencing a phenomenal time for the industrial and logistics market with not only the opening of new logistics locations but also huge growth across the sector. The total take-up in Poland, the Czech Republic, Hungary, Romania and Slovakia tripled to 6.6 mln sqm from 2.2 mln sqm in 2016, according to figures from Cushman & Wakefield. The supply was also unparalleled with 3.6 mln sqm completed smashing the 2007 record of 2.5 mln sqm by over a third and last year’s total of 2.2 mln sqm by over 60 pct. Total modern stock increased to 25.8 mln sqm across the region, with an average vacancy of just 5 pct.

Poland leads the pack

This was also a record year for the Polish market, both in terms of supply and demand. According to figures from Axi Immo, a total of 4 mln sqm of gross warehouse space was leased, of which 75 pct comprised new lease agreements and expansions. Indeed this is the third year in a row that total leasing volumes have set a new record, with volumes for 2017 being 32 pct higher y-o-y and as much as 61 pct higher compared to 2015. Developers responded quickly to the high demand, which resulted in 2.36 mln sqm being delivered to the market with 1.39 mln sqm under construction at the end of 2017. The high level of absorption caused the vacancy rate to decrease to 4.5 pct. Large lease agreements for BTS investments dominated with high demand from the e-commerce and retail sectors. The largest completions included two BTS projects by Panattoni for Amazon – a 161,000 sqm centre in Szczecin, a 135,000 sqm warehouse in Sosnowiec and a 130,000 sqm BTS warehouse in Gryfin near Szczecin for Zalando by Goodman. Other big projects included a 60,000 sqm distribution centre for H&M in Bolesławiec and a 50,000 sqm development for Castorama in Stryków (both developed by Panattoni). Logistics operators accounted for the largest market share of the market (32 pct), followed by retail chains (15 pct), e-commerce (15 pct) and the automotive sector (6.8 pct). Over the last five years the total stock had almost doubled to 13.5 mln sqm at the end of 2017. “The Polish warehouse and industrial market will maintain its strong upward momentum next year. The positive outlook for manufacturing output and the PMI [Purchsing Managers Index] figures show that there is space for further projects, while the planned changes to special economic zone regulations and the opportunity to apply for state aid for projects in any part of Poland are likely to drive the market going forward,” says Bolesław Kołodziejczyk, the head of research and advisory at Cresa Poland. According to Colliers International, 2018 will see an increased interest in BTS projects and even BTO [build-to-own], as well as the further development of smaller industrial markets, such as Białystok and Kielce. “3PL [Third Party Logistics], e-commerce and retail will be dominant among the sectors. Access to qualified labour and the proximity of academic centres will remain decisive factors in choosing locations for warehouses,” claims Tomasz Kasperowicz, the director of the industrial and logistics agency at Colliers International.

Czech Republic on 4 pct

The industrial market in the Czech Republic is booming, with both record high construction and a record low vacancy rate. According to preliminary figures from the Industrial Research Forum ,new supply rose by 24 pct y-o-y to 685,400 sqm. The total stock of modern industrial storage space increased to about 7 mln sqm with a vacancy rate of app. 4.1 pct, down by 89 bps y-o-y. According to JLL, over the whole of 2017, gross take-up reached 1,320,800 sqm, which is 11 pct below the 2016 figures. Net take-up came to 937,300 sqm, representing an annual increase of 3 pct. The net absorption, however, came to 693,100 sqm, which is a 32 pct rise on 2016 (524,800 sqm). Currently there are 41 different projects under construction, out of which five are new developments. According to Cushman & Wakefield, the market remains very concentrated around Prague, but the importance of regional locations has been growing due to improving infrastructure and a lack of suitable building land near the capital. The market is expected to grow throughout 2018.

Record demand in Romania

The volume of space leased on the Romanian market reached a new historic high of 525,000 sqm, up by 15 pct y-o-y, claims JLL. Almost 80 pct of the space leased was made up of new lease agreements, extensions and pre-lettings. “Foreign direct investment increased to a record level, GDP growth was unexpectedly high, driven by consumer spending (2017 is the second year in a row when consumption has increased by over 10 pct). This picture has fuelled the market growth even more than we were anticipating earlier last year,” admits Costin Bănică, the head of the industrial agency at JLL Romania. Logistics, transport and distribution companies accounted for most of the space leased – 290,000 sqm, or more than 55 pct of the total. Retailers were also among the most active companies last year, signing leases for over 110,000 sqm, 22 pct of the total volume for the year. “There is still a captive market in many areas of the country such as Bucharest, the West and the Centre. With a few exceptions, the demand and the new supply were focused last year in locations that are already development poles. From this point of view, there is an imbalance on the market, which will be remain as long as there are problems with the availability of labour and with infrastructure,” says Costin Bănică.

Radosław T. Krochta, the president of MLP Magdalena Szulc, the business unit director of Segro
in Central Europe

Developers feeling pleased as punch

Panattoni Europe leads the way among all the developers in the region, both in terms of the space leased and the space constructed. The company broke two of its previous records with 1.6 mln sqm leased and 1.3 mln sqm built in 2017. In Poland the company is responsible for almost half (48.4 pct) of the country’s 3 mln sqm net-take up. It also started the construction of its flagship Panattoni Central European Logistics Hub near Łódź, which is designed to be the largest logistics complex in the country. It currently comprises two buildings of 117,000 sqm in total. “We are about to start the construction of another 140,000 sqm for Smyk and Media Expert. We are also ready to add 150,000 sqm more,” reveals Robert Dobrzycki. Panattoni entered new locations last year, including Kielce, Szczecin, Zielona Góra and Białystok. It also plans to start the development of its City Logistics projects, which will comprise 600,000 sqm to be built within city limits.

The vacancy level across Prologis’ 4.4 mln sqm portfolio in Central and Eastern Europe fell to an all-time low of 2.6 pct. This could mostly be attributed to strong leasing activity of 1.6 mln sqm, including a record 940,800 sqm on the Polish market. The key agreements included a 45,100 sqm new lease by Empik in Sochaczew and a 37,500 sqm lease renewal by Auchan in Budapest-Ullo. “It was fitting that Prologis should celebrate its 20th anniversary in Europe with another strong year for our business. Lease renewals surged by 11 pct above 1 mln sqm – a distinct sign that our customers value our well-located, high-quality facilities and superior property management services,” claims Martin Polak, the senior vice-president and regional head of Prologis CEE. In 2017, Prologis sold ten properties totalling 365,440 sqm and 25.86 ha of land in Poland, Slovakia and the Czech Republic. “We are entering 2018 with a lot of momentum,” believes Paweł Sapek, the senior president and country manager of Prologis in Poland. “Three new parks are set to be developed and we will complete the installation of Singu FM – an electronic system for the management and maintenance of our facilities in all our logistics parks across Poland,” he adds.

P3 Logistic Parks also set a new leasing record of 400,000 sqm in Poland, of which new contracts made up 290,000 sqm. “Not only have we achieved the goals of our development strategy in Poland, but we beat our development target from the beginning of the year three times over. We started new developments in each of our four industrial parks. We completed 190,000 sqm and a further 88,000 sqm is under construction,” says Andrzej Wroński, the managing director for Poland and head of asset management at P3. This year the company plans to start construction work on a newly bought 50 ha site near the P3 Poznań logistics park. “We are also looking for new locations for development,” adds Andrzej Wroński.

Dont take your foot off the gas

MLP Group leased out over 221,800 sqm of space in 2017, which is twice as much as in the previous yea. Out of this, 90,200 sqm was leased out in newly completed projects. The remaining leases were mainly renewals (77,500 sqm), extensions (37,800 sqm) and leases of finished space to new tenants (16,300 sqm). In total, 32 leases were signed. “This year we do not intend to slow down. We are thinking about two new investment projects in Poland. At the same time, there is huge potential for growth in our existing parks. We also want to invest more in speculative developments. Outside Poland, the German market is our priority. We are to start building three parks there in Unna and Mönchengladbach in the Ruhr Area as well as a location in southern Germany. Meanwhile, in Romania we already have a building permit and are planning to start construction in Q3 2018,” reveals Radosław T. Krochta, the president of MLP.

Segro managed to attract a large number of new tenants last year, including a 30,400 sqm lease by Arvato in Segro Logistics Park Stryków. In 2017, the company built almost 82,000 sqm of warehouse space across the CEE region, including almost 68,000 sqm in Poland. This year the company is planning to expand its existing locations, close to the largest cities and the main transport routes. One of these will be the completion of a 38,000 sqm manufacturing plant for Corning Optical Communications in Stryków. “City business parks, which make up the final part of last mile delivery, are also of interest to us due to the development of e-commerce,” explains Magdalena Szulc, the business unit director of Segro in Central Europe.

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