By Martin Sobczyk 

WROCLAW, Poland--Next to Germany but with much cheaper labor, Poland is attracting more major distribution centers now that transport links with the rest of Europe have been upgraded.

Amazon.com Inc. last year opened fulfillment centers near the southwestern Polish city of Wroclaw and the western city of Poznan. The centers that service mostly the German market sit near highways running through Poland to neighboring Germany.

Some 600,000 square meters (720,000 square yards) of logistics space were under construction at the end of the first quarter, according to U.S.-based property manager CBRE Group Inc. When completed, that development will increase the total stock of modern logistics space in Poland to nearly 10 million square meters.

Last year, one million square meters were added to the market, the largest number since 2007. Construction is going on in nearly every region of Poland now. In the past, development primarily took place in central and western parts of the country.

The biggest companies in the market are San Francisco-based Prologis Inc. and London-based Segro PLC, which each own about a quarter of Poland's industrial supply. Other major players include Logicor, a European industrial space landlord controlled by Blackstone Group LP.

These developers--who lease or sell space to retailers such as Amazon, French retailer Intermarche or Germany's Volkswagen AG--have lately been enjoying strong demand. In the first quarter of this year, some 640,000 square meters of logistics space was leased in Poland, up 30% in annual terms, according to a report by the Polish unit of CBRE. Most of the leases were for new space and expansions while about a third were extensions of existing leases, with demand driven by logistics firms and e-commerce.

Amazon said it would open a third center in Poland this year because of strong customer demand in Europe. The company said its decision to place the centers in Poland was due to the proximity of the German market, which it serves using the Amazon.de website.

The Polish industrial space vacancy rate declined to 5.6% at the end of the first quarter, from 5.8% in the fourth quarter of 2014. "It's the lowest vacancy rate in 10 years," said Magdalena Szulc, director at the Polish unit of Segro. "It encouraged developers to start new investments, sometimes of speculative nature."

Improving roads and the availability of skilled workers in the largest emerging economy of the European Union are among the key factors that lure operators to build warehouses as well as business outsourcing centers here.

"What you see is maturing of the Polish market on the back of its economic performance over many years," said Philippe van der Beken, managing director for continental Europe at Goodman Group, which owns the Amazon-occupied site in Wroclaw.

Poland has more than tripled its economic output since the collapse of communism in 1989, when it was an economy in tatters following decades of central planning. After the country joined the European Union in 2004, it gained access to billions of dollars worth of the bloc's development funds for less affluent member states. Much of that money has gone into transportation infrastructure.

Bad roads were a perennial problem for Poland until the EU-funded buildup, which saw the length of modern highways and expressways rise from 670 kilometers (415 miles) in 2004 to more than 3,000 kilometers now. While still rudimentary, the network allows trucks to quickly drive between Poland and Germany, two heavily interdependent trade partners.

The boom in Poland's industrial property sector also is being fueled by rapid growth of online shopping. This has increased demand among retailers and big online companies like Amazon for distribution space closer to population centers so they make deliveries quickly.

Besides new development, there has also been a surge in investment activity. Investors purchased EUR884 million ($993.4 million) of Polish industrial property in the 12 month period ended in the first quarter of 2014, compared with $706.9 million in the year ended in March 2013, according to data firm Real Capital Analytics.

"The last two years were record years in terms of industrial space. Never before has Poland seen so much demand and transactions," said Blazej Ciesielczak, regional director for Central and Eastern Europe at Goodman.

Increasing investor interest has driven up prices. In the first quarter of this year, the average price paid for Polish industrial space was a record EUR1,133 per square meter, compared with EUR708 per square meter in the first quarter of 2014, Real Capital said.

PZU, Poland's largest insurance company, entered the logistics segment last year. The insurer bought a portfolio of four logistics centers for about EUR140 million as it seeks to diversify its assets away from Polish government bonds that yield about 3% for 10-year maturities with Poland's main interest rate at 1.5%, the lowest level on record.

"Changes in the trade sector impact what's going on in logistics. We're heavily engaged in this sector and plan further investments," said Wojciech Pisz, director of real-estate projects at PZU's investment arm.

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