April 23, 2013 12:05 am

Infrastructure: Road schemes help drive central European logistics deals

road works near Olsztyn in Poland©Alamy

Easier riding: road works near Olsztyn in Poland

When most of central Europe had terrible roads, it was difficult to set up large warehouses that could service countries or regions.

This is changing as countries such as Poland, Slovakia and Romania build national highway systems and the Czech Republic and Hungary put finishing touches to their more advanced networks.

Builders are establishing warehouses at the intersections of highways designed to service much of the region and occasionally parts of western Europe, too. Better roads mean logistics can be more centralised and shops can be smaller as they do not need to store as many goods.

“You see it most in Poland because that is the country that has benefited most from improved infrastructure,” says Ben Bannatyne, managing director for central Europe at ProLogis, a logistics developer.

Investors looking for ways to diversify from office and retail are hoping to take advantage of higher industrial property yields.

Last year the US and European logistics space developer Panattoni sold more than 400,000 square metres to Blackstone Group, the US investment fund, for €250m. In addition there was the €120m sale of a logistics portfolio by ProLogis to Texas-based property firm Hines.

Poland attracted €460m in logistics and industrial investment last year, more than for the rest of the region.

Hadley Dean, managing partner for eastern Europe at Colliers, the property business, says: “Investor interest in industrial properties is steadily going up. Investors see it as a long-term play now the roads are being built.”

Over the same period, the Czech Republic, which was in recession for most of the year, notched up only €15m in industrial and logistics investment, down from €385m a year before, according to Jones Lang LaSalle, the property group.

The spur for logistics investments is the overall condition of the economy, which in Poland’s case has been outperforming most of the EU since 2008.

Poland has 4.6m sq m of warehousing stock, the bulk of it near Warsaw in central Poland and Silesia, in the southwest.

Last year there were 465,000 sq m of completions, while this year about 221,000 sq m are under construction, according to consultancy CBRE.

With average vacancies at 11 per cent, rents are low, ranging from €3 to €5 per square metre, which is hampering further investment. “Rents have been pushed so low that they can’t go much lower,” says Brian Burgess, managing director of the Polish office of Savills, the property company. “Some projects are being sold at the cost of the build plus land.”

As the economy has slowed, the market for speculative projects has almost disappeared. According to Jones Lang LaSalle, only 12 per cent of the space under construction is being built on a speculative basis.

In the Czech Republic, only 8 per cent of the 196,000 sq m of industrial space under construction is being built on spec. The largest project is a production hall being built for Faurecia, a car parts supplier, in a sign of the importance of the industry, which supplies an important portion of Czech exports and one of the few glimmers of light for its economy.

Further south, the troubled Hungarian economy recorded no industrial investment deals last year. Little new construction is under way.

Speculative development has halted in Romania, where there were no investment transactions in the final quarter of last year, and where there appears to be a lack of credit to finance new development schemes, according to Cushman & Wakefield, the consultancy.

Only one industrial scheme was completed in the Bucharest area last year. There are 144,000 sq m under construction, spurred by a calming political scene and progress in the completion of Romania’s two main highways, which will improve its links with western Europe.

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