Warehouses count – both literally and metaphorically
In a time of soaring inflation and rising warehouse rental costs, tenants are looking for savings. Where they can be found and where it is best not to look if you don’t want to pay even more tells us Magdalena Kostjan, Leasing Director 7R.
How high are rents in Poland and what does this depend on?
Base rents in Poland are currently averaging around EUR 3-5 per sqm a month, and that depends on the region, the type of product and the lease length. For the last few years, Poland has been the European region with the lowest rents but looking at the last few months we can see a growth trend. However, you have to remember that rents in Poland are still relatively low when we look at the rates abroad – for example in the Czech Republic or Germany. This means that we are still a country which can offer attractive conditions for a business to develop. That’s why the Polish market remains very attractive both in the eyes of investors and owners.
The war across our Eastern border has grown worse. What impact is it having on the warehousing market?
We all have to deal with a limited supply of building materials and rising prices. Investors are much more circumspect when looking at the market. But Poland is still a market they like because as well as the competitive rates and rents it also has to offer an appropriate labour pool of workers, who are still cheaper in comparison to other countries. In my opinion over the longer term, Poland will benefit from its location as one of the European Union’s most eastern countries. We are already seeing growing investment from China. For Western European investors in turn, Poland is the last point where they can set up distribution centres to serve eastern markets while still being in ‘Europe’.
So the situation could turn out to be to our advantage
War is never a factor in the development of business apart from maybe for the arms industry. However, I always try to look for the positives. Just two year ago everyone was scared by the pandemic, which in the end turned out to be a boon for warehousing due to the rapid growth of e-commerce. The move of so many businesses to the internet caused a wave of new investment. This included both new projects of up to even 50,000 sqm and increases in the sizes of previous leases. The changes, which we are still dealing with now, will significantly shape the warehouse market and as often happens after a crisis, the market will mature.
But at the beginning there was uncertainty…
Yes. There was uncertainty with the war, just as there is now. One of the results of the war is a further increase in the cost of building materials. Everyone was expecting prices to stabilise after the end of the pandemic but then the crisis in Ukraine came along. The war means that the entire supply chain has to adjust to the new geopolitical situation in which we find ourselves. Companies are trying to shorten supply chains and generate business locally.
Rental costs are also soaring…
The rising costs result from an analysis of the market situation and they are not a question of margins. Rising rents are a natural consequence of the changes that we are all trying to contend with now. It’s worth adding that rents have nor risen in Poland for many years even though the business environment has changed greatly.
Where in that case can we find savings? What can a tenant do to cut costs?
To start with it’s worth asking yourself the question what are rental costs actually composed of? When we sign a lease, we should pay attention to three factors: rents, service charges and utility bills. You have to realise that in a lease contract, there will always be the base rent rate, otherwise known as the headline rent, as well as the effective rent. The effective rent is the rent after any discounts offered by a given developer. How these discounts are paid out over time depends on the tenant, on how he wants to adapt the space, and whether he needs lower bills at the beginning of a lease due to such things as the costs of moving etc.
When looking for a new rental location, a tenant often concentrates on low effective rents, since he is convinced that this will give him the lowest effective costs. However, that is not always the case. It is worth pointing out that there are a host of other factors that influence the total costs including the cost of labour and the cost of transport, which are dependent on any given location. The first thing to consider is the nature of the business engaged in by the tenant. Logistics firms have different needs to production plants and e-commerce stores. Each project is different so each project requires a different approach. What is crucial is that the tenant and the developer work together at the design stage so that the solutions applied result in savings in the building’s use.
When it comes to service charges, their main component is property taxes and building maintenance charges. These costs are mostly not dependent on the tenant.
And what about the cost of utilities, which keep on rising. Is there a way to limit them?
The cost of utilities depend on how much you use them. This means that every tenant pays for exactly what he consumes. Nonetheless, it’s worth adding that even though in principle we have no say in the cost of utilities, we do have a say – and not a small one – in how much we use.
This is where modern systems and solution come to the rescue. Advanced technology, on the one hand, minimises harm to the environment and on the other it reduces the costs of maintaining a building. At 7R we have made use of such solutions as solar panelling, LED lighting with DALI control systems and motion sensors, improved insulation for walls and roofs, destratifiers and also modern heating and air-conditioning units with heat recovery systems for office and social areas. Each of these systems represents additional investment but they are intended to lower the costs of maintaining a building and consequently reduce the bills paid by the tenants.
Taking into account long-term lease contracts for warehouse and production space, the return on investment is sure to be noticeable. I would also add that 7R has an investment strategy that is based on ESG and we build in the spirit of sustainable development. For us it is important to care for the natural environment as well as for the work comfort of our clients and the transparency of our development procedures.