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Poland's Automotive Sector: Momentum Ahead

As Poland’s automotive output is likely to find itself on an upward curve, the industrial real estate market will be affected. Demand from the automotive sector has already been gathering pace, particularly during the last three years. New production plan

International advisory company JLL presents an analysis focusing on the impact of the automotive sector's development on industrial real estate. The latest JLL report, Poland’s Automotive Sector: Momentum Ahead, also compares two approaches to real estate – owning and renting industrial properties, and investigates which option is more cost-effective.

Tomasz Olszewski, Head of Industrial CEE, JLL, said: “The existence of a modern automotive sector is a key feature of all developed economies. Direct investments in car manufacturing plants are much sought after by governments, who often go to great lengths to secure these projects. Car plants not only provide jobs, but also stimulate local economies, increase exports and foster general economic growth. The strong position of the sector is further confirmed by numbers. According to the Central Statistical Office, the automotive sector is the third largest industrial employer in Poland, employing 158,000 people in 2013”.

Poland was still the main car producer in CEE in 2004, but over the course of a decade it has been overtaken by both the Czech Republic and Slovakia, which have managed to attract a number of large foreign automotive investments. In 2013, more than 583,000 automobiles rolled off production lines in Poland, making the country the EU’s eighth largest car manufacturer. The automotive industry accounted for 11.7% of Polish exports in 2013 (data from Car production in Poland is concentrated in the country's major industrial hubs - Upper Silesia (Fiat, Opel) and Poznań (VW). However, the country’s automotive output is much more than just car manufacturing. In fact, the vast majority of production involves parts and components for export. Multiple producers, subcontractors and suppliers operate throughout Poland, making the automotive supply chain a compound system.

Poland’s automotive output is set to increase substantially in the next few years with a number of large capacity-enhancing investments recently announced. The most notable include: the New Volkswagen Crafter plant in Września (a maximum capacity of 100,000 vehicles per year to be reached by 2016), production of the fifth-generation Astra (to be started in GM’s Gliwice plant in 2015), and a new diesel engine production line in GM’s Tychy plant.

Rising demand for industrial space from the automotive sector in the last three years
As Poland’s automotive output is likely to find itself on an upward curve, the industrial real estate market will be affected. New production plants and extensions to existing ones will require a new network of suppliers, who will be seeking industrial facilities across various locations. Some will certainly prefer operating in owner-occupier buildings, developed as built-to-suit model, others will have a preference for renting industrial properties. As with most manufacturers (excluding light production), automotive companies require facilities which are tailored to their specific needs, and with each improvement the construction cost increases. Buying such a facility often requires the freezing of a substantial amount of working capital. Therefore leasing often becomes an option worth considering.  

“During the past ten years, numerous automotive companies have decided to relocate their operations to commercial buildings. This phenomenon has been gathering pace, particularly over the last three years as the automotive sector's demand for the industrial space has grown. Leasing industrial space, as opposed to owning it, is not only more cost efficient, but is also valued for flexibility, as most suppliers collaborate with a manufacturer on the basis of temporary contracts”, Tomasz Olszewski added.

The modern real estate market in Poland provides a number of options for production companies seeking to optimize their real estate portfolios by leasing industrial space. They can choose from the following solutions: a built-to-suit facility on a greenfield site; a built-to-suit facility in a warehouse park; or the leasing of an existing building. All these options present the automotive tenant with upsides. Choosing the best suitable option depends on the preferred length of the lease contract, specific expectations in the area of technology, or how quickly the company needs new space.

Industrial land
Rents in production facilities depend largely on the number and scope of the improvements to a building's structure, as well as  the price of land.

Mariusz Zborowski, Senior Consultant, JLL Industrial Poland, added: “Currently, the industrial land market remains favourable for buyers, as the demand for investment sites in most regions remains limited. This is mostly due to the large land portfolios created by development firms, who are now reluctant to make new purchases. The second factor, which impacts the price of industrial land, is its stock, as municipalities responsible for spatial planning have assigned a vast pool of plots for investment purposes. Apart from urban land, which is typically the most expensive, prices for investment plots are at their highest in Warsaw followed by the Wrocław and Poznań regions, and are found to be at their lowest in Central Poland”.