Despite current caution logistics developers see a bright future

THE CURRENT financial and economic crisis has halted several speculative logistics and warehouse projects which developers had begun without any pre-leasing or other firm commitments from tenants.

THE CURRENT financial and economic crisis has halted several speculative logistics and warehouse projects which developers had begun without any pre-leasing or other firm commitments from tenants.

Developers of logistics centres have become more prudent and now are focusing on build-to-suit projects. They recommend that companies have a look at currently available facilities, noting that it is now the customer who can dictate conditions.

But they also say that because of the current lull in construction of new capacity, the market situation will change in the coming years.

The Slovak Spectator spoke with Martin Polák, leasing manager of ProLogis in Slovakia, Peter Bečár, marketing director of PointPark Properties for Slovakia and Martin Fodor, project manager of CTP Invest SK about the current business situation in the logistics parks segment, its prospects in the future and the specific plans of their companies in Slovakia.

The Slovak Spectator (TSS): How would you assess the current situation in the construction and leasing of logistics and warehouse capacities in Slovakia? Is Slovakia similar to the neighbouring countries?

Martin Polák (MP): The situation of logistics and warehouse capacities in the Slovak market is comparable to most others in the central and eastern European (CEE) region. We have seen a halt in speculative development across the region, which is a prudent move in the current economic climate, and it results in a lower availability of warehouse space.

This is important for a couple of reasons. Primarily it means that there will be no new developments coming on line through 2009 and potentially into 2010. When the economic situation in the region improves, this could result in less available space and fewer completed projects to choose from. I would advise companies looking to locate in quality logistics centres in ideal road-side locations to have a serious look at this situation because making a strategic decision now could result in significant savings down the line.

Peter Bečár (PB): The market has slowed down significantly this year and this is common for all CEE countries. Construction of new logistics capacities is very low. Two projects with a total capacity of 62,200 square metres have been completed so far this year. Of them one was built as a speculative project but its construction had started already last year. The second one is our project of a tailor-made hall for Mobelix, with 28,000 square metres in our logistics park – PointPark Bratislava. This has been the only project with construction starting and finishing in just this year.

Construction on a solely speculative basis was completely halted over the course of 2009 and tenants are rather leasing existing facilities. Construction this year and also next year will focus only on tailor-made projects.

Neighbouring countries register a trend of slowing construction, too. Because of the lower total volume of existing logistics capacities in Slovakia in comparison with neighbouring countries and a total vacancy rate lower than in neighbouring countries, at about 11 percent, we assume an earlier increase in construction here.

Martin Fodor (MF): The second half of 2009 has brought a slight recovery in demand for industrial property. Logistics and manufacturing companies have started to re-examine the status of individual projects and have submitted new requirements. Development in individual countries depends on the opportunities and benefits.

TSS: What is the impact of the economic and financial crisis on your segment? Can you see customers behaving differently?

MP: Customers are price-sensitive and looking for a ‘good deal’. Smart customers will realize that a cheaper rent in a sub-standard building located kilometres from main transport routes may yield immediate savings, but that this impact is short-lived as maintenance costs and higher fuel costs add up. Choosing to locate in a high-quality building with modern, energy-efficient features will result in greater cost efficiency over time.

PB: For now, it is really the customer who dictates the conditions. Developers are endeavouring to get customers not only by lower rental prices but also through other discounts and benefits. Today it is also possible for a client to get an advantageous rental for a shorter period of time; that was not possible in the past.

MF: We are happy to see that the vast majority of our customers are doing well. Many of them have been acting carefully over the previous 12 months and many of them have seen opportunities. The result is that those which are in good shape and have an edge on the competition can benefit now. This is the moment for reorganisation and the best time to make decisions to improve their competitiveness. For us, future growth rests primarily on our existing customers. We believe that those strong companies will continue to expand their facilities.

TSS: What impact has the crisis had on your company? Has it brought some new challenges?

MP: The global financial crisis and its impact on the availability of capital have severely reduced developers’ desire and ability to build on a speculative basis. Companies are now focusing on build-to-suit projects which enable developers to reduce financial risk while providing greater flexibility to the customers. Moving forward, we believe this development trend will continue but at a much slower pace.

ProLogis decided to take several measures, announced last November, to conserve capital resources and protect ProLogis’ franchise and long-term strength in the current economic climate. Since that time ProLogis has reduced its debt by more than US $2.9 billion and has modified and extended its global line of credit of US $2.25 billion through 2012. These actions, plus many more, have strengthened ProLogis’ financial status and have proven that the company can respond quickly to worst-case-scenario market conditions.

PB: PointPark Properties is an international company operating in eight countries of central and eastern Europe. Currently, we administer about 900,000 square metres of space in 30 distribution centres and also have almost 610,000 square metres of land on which we plan future developments. As a developer, we have built five parks in Poland, the Czech Republic and Slovakia which we now administer.

Our logistics centre, PointPark Bratislava close to Bratislava, is gradually expanding. We are also working on improving and enhancing the services for our tenants. The crisis, despite a number of negative impacts which have also hit our company, has also brought some opportunities which we are trying to seize.

Our experience and financial stability have enabled us to grow during these times when other developers were forced to halt their projects.

MF: Thanks to our long-term business partners, suppliers, bankers, as well as the CTP organisation, we have been able to use these opportunities as well. We have improved our after-care, reduced our vacancy rate and have been able to carry out our solar panel project, which is an ideal opportunity for CTP to utilize its property portfolio and increase profitability. We remain conservative and careful when it comes to new developments. Figures for the first half of 2009 show a profit and we are looking forward to the rest of 2009.

TSS: What are your company’s plans in Slovakia for the future? In which areas of Slovakia do you see prospects for further development?

MP: While we have halted new speculative development projects for the foreseeable future, we are open to considering build-to-suit proposals on a case-by-case basis. We are now highly focused on leasing activities at existing parks. During the last few months we managed to sign lease contracts with five customers for a total of 30,000 square meters in Slovakia.

PB: We expect that the market for logistics halls will continue to concentrate in the vicinity of Bratislava, more specifically in the localities of Senec and Trnava, thanks to the existing infrastructure. But the gradual completion of the transport infrastructure towards the east brings a huge potential for development of the logistics market in eastern Slovakia. Thus, our expansion plans will focus on western Slovakia along with the D1 highway and eastern Slovakia.

MF: Our long-term plans have not changed. In the future we expect a successful launch of our planned construction in all locations: CTPark Trenčín, CTPark Žilina Airport, CTPark Martin, and CTPark Prešov. These are strategic locations with excellent transport infrastructure, history and ability to win customers. In implementing these projects CTP Invest will benefit from lessons learned from our past operations within the territory of central and eastern Europe.

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