By Isobel Lee
The industrial real-estate market is booming in Central and
Eastern Europe, thanks to the region's geography and cheap labor
along with the benefits of Europe's unified currency and lack of
trade restrictions.
Developers are adding new warehouses and distribution facilities
at a record pace. The math is simple: the facilities can be built
and operated at low cost in countries like Poland or the Czech
Republic and still serve affluent markets of high-cost countries
such as Germany, Switzerland and France.
Rents for modern industrial space in Poznan, Poland, are about
EUR3.50 euros ($4.09) a square meter compared with EUR5 a square
meter in Berlin, 170 miles to the west, according to JLL data.
This disparity has attracted some of the world's largest
retailers. Amazon.com Inc. operates five high-tech fulfillment
centers along Poland's border with Germany, in Poznań, Szczecin and
Sosnowiec, plus two in Wroc aw, and it plans further expansion.
By contrast, the e-commerce giant has four fulfillment centers
in Italy, a country with a population of more than 60 million,
compared with less than 40 million in Poland.
Domestic and foreign investors have also paid attention to the
trend. About 3.7 million square meters (40 million square feet) of
new space was added in 2017, a 68% increase over 2016 and 55% more
than the record amount, which dates to 2007, according to broker
Cushman & Wakefield Inc.
"This is the right place for us to be," said Robert Dobrzycki,
chief executive of Europe for Newport, California-based Panattoni
Development Company Inc., which built about 38% of the new supply
in Central and Easteern Europe last year. Other players include
Prologis Inc. (based in San Francisco in the U.S. and in Amsterdam
in Europe) and P3 Logistics Parks, owned by Singapore's
sovereign-wealth fund GIC Pvt. Ltd.
Not surprisingly, the mushrooming supply has stoked concerns of
a glut in the market. Developers and investors have expressed
frustration about rents in most Central and Eastern European
countries, which have stayed flat for over a decade.
"Six to 12 months ago, we were seeing rents below EUR2 per
square meter per month in Poland. said Ben Bannatyne, president of
Prologis Europe. "In terms of our global portfolio, that's the
lowest we've seen anywhere in the world."
Still the vacancy rate has stayed low in the region despite the
new construction: 614,000 square meters was delivered in the last
three months of 2017 in Poland compared with 144,000 square meters
in the last three months of 2016, according to CBRE Inc.
Industrial real-estate values continue to rise, with total deals
reaching EUR2.2 billion ($2.57 billion) for 2017. The sector now
represents 20% of the region's commercial real-estate market,
compared with around 4% just a decade ago.
At the same time, analysts are pointing to the industrial market
in Central and Eastern Europe as an argument in favor of regional
economies and currencies. These arguments have taken on new urgency
as concerns about Italy's commitment to the euro and the European
Community have shaken global financial markets.
Proponents of the euro point out that Slovakia's adoption of the
currency in 2009 triggered the arrival of European automotive
giants such as Volkswagen AG and Peugeot SA, as well as several
South Korean car-tech manufacturers. "Slovakia now produces more
cars per capita than any other country in the world," said Ian
Worboys, CEO of P3 Logistics Parks, a pan-European industrial
specialist. The presence of those companies helped to drive demand
for the big industrial spaces.
The region's industrial-property market looked a lot different
in 2004 when Panattoni first opened operations in Europe, just a
few years after the euro was introduced on the continent. By the
end of 2004, there was 1.6 million square meters of industrial
stock in Poland, compared with 13.7 million square meters in March
2018, according to JLL.
The market started to gain momentum especially as thousands of
miles of new roads were added to the region, partly with funding
from the European Union. "You can get from Poland to all of Germany
or even to parts of France in one 9 hour drive shift," said Eric
Jansen, managing director of Eastdil Secured Europe.
Domestic growth also fueled the industrial-property sector.
While other economies contracted during the global financial
crisis, Poland's GDP kept rising. CBRE forecasts further increases
of 3.25% to 4.5% across Central and Eastern Europe for the coming
years.
In the current recovery, growth in the industrial sector has
been fueled by Europe's love affair with e-commerce, which has
driven the expansion of logistics and courier operators, such as
DHL Worldwide Express and Kuehne + Nagel, Mr. Dobrzycki said.
"Investors which historically invested in retail are using
logistics to hedge against the loss of momentum on the retail
side," said Mr. Dobrzycki.
Of course, growth could be dampened by a wide range of forces
including rising interest rates or the trade tensions between
Europe and the U.S.
But the party doesn't appear to be over yet. In first three
months of 2018, tenants in Poland leased a record 1.1 million
square meters. Panattoni has just started a EUR1.2 billion
pan-European investment program in last-mile logistics assets,
anticipating a potential e-commerce boom in Poland.
Mr. Bannatyne, of Prologis, predicts rent increases will follow.
"Land is becoming more constrained, construction costs are
increasing," he said. "We're seeing proper, sustainable rent levels
which set things up for sustainable growth in the coming
years."
(END) Dow Jones Newswires
June 05, 2018 07:14 ET (11:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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