Champagne, a string quartet, an aging but amusing Czech actor as the emcee – welcome to the new warehouse for supermarket chain Globus that was built by Prologis. If all that seems a bit much, consider this is Prologis' first new building in nearly four years and you'll get why they are so happy to celebrate.
"Generally, the last three and a half years have been difficult for everyone in real estate," says Ben Bannatyne, Prologis' managing director for Central and Eastern Europe, where this owner, operator and developer of industrial real has 3.5m square metres (sqm) of property across Poland, Czech Republic, Slovakia, Hungary and Romania. "But because we own, we have been able to keep leasing even through the crisis. In 2011, we had our biggest leasing year, signing 1.7m sqm of deals."
The Czech Industrial Research Forum reported that the total stock of modern warehouse space rose 75,600 sqm in the first quarter of 2012 to 3.9m sqm and that another 132,500 sqm is under construction. This suggests that the market isn't quite as dead as people have been making out. And Prologis certainly proves that point across the CEE region. Besides the newly opening 29,000 sqm Globus facility, the company recently opened another build-to-suit (when a company commissions a particular warehouse be built to their needs) in Wroclaw, Poland and has two more under construction. The latter are speculative builds, meaning that Prologis has yet to secure tenants for them. One is in Bratislava and the second in Warsaw. Both are set to be completed in 2012.
CTP, a developer of manufacturing, logistics and office properties which also operates a network of industrial parks throughout the region, is building a variety of warehouses across the Czech Republic as well. "We are currently completing several projects such as a new 6,000-sqm production facility for the company ABB at our CTPark Ostrava; a production building for the company Coavis at the CTPark Brno; a warehouse for Dachser at CTPark Brno; a HP Pelzer production facility extension at CTPark Ostrava and others," says Paul Deverell, CTP's business director.
Not all created equal
While business in the region as a whole is looking up, one should be wary of lumping the various countries into the same CEE basket.
Bannatyne says the group's operating portfolio is doing very well, but Prologis is staying very focused on its core markets. For Prologis, Poland is the leader on the market, then the Czech Republic and Slovakia; Bannatyne says these countries are where they see the most interest and plan to direct their resources. "Expanding geographically is definitely off the cards, expanding where we are is our focus - we are where we want to be and will grow in those markets."
"Many people group the CEE together, but that shouldn't be done - each country is extremely different," he says. "Poland is the biggest, it is close to 50% of our total market, but it's also the most challenging for retailers and producers, as it's the most competitive market in the CEE. However being the biggest also means it's a focus for investors."
He lists the Czech Republic and Slovakia as the most stable and least impacted by the global recession, and this can be seen in the company's focus on the two countries.
CTP also has positive plans for the Czech Republic. "Long ago CTP decided to concentrate its efforts in the Czech Republic," Deverell says. "The central location sandwiched between Western and Eastern European markets as well as the skilled workforce, long history of manufacturing, universities and road transport infrastructure is still, we believe, a very attractive reason for businesses to set up here."
Moving south though, Prologis finds a more difficult region. "Hungary is the most challenging overall from a real estate perspective; they are not proactive in terms of foreign direct investment and are a bit politically volatile," Bannatyne says. "Romania is completely different, they are much more southern Europe; they went through a real estate bubble in 2007 and were the hardest hit of all these countries in 2008."
While Poland is a clear regional leader - Colliers International said in a recent report the country "is set to emerge as a major force as it benefits from new infrastructure, manufacturing and consumer demand growth" - infrastructure remains a big question mark.
Colliers warns that if there is any let-up in the development of planned transportation improvements and expansion, it would hinder industrial growth. CEE has a number of pluses, including low wage rates, strong transport links with Germany and central Europe, and independent, floating currencies. While these will help drive manufacturing growth, in the long term better linkages to global supply chains will be needed to sustain growth. And all this manufacturing and production growth will need warehouse space.
Proximity to Germany is a huge plus for the Czech Republic, Deverell believes. "There is much speculation about what the future holds, however I believe the Czech market will remain buoyant partly due to the strength of its immediate neighbour, Germany," he says. "Happily, we have seen most of our existing clients follow through with their expansion plans in the first half of 2012 and we expect that to continue throughout the year."
Deverell says CTP is keeping its eyes on other markets too. "We have land plots in strategic locations in countries such as Romania and Slovakia and will start developments there as we believe the potential still exists and demand is starting to return."