The twilight zones

In Poland a debate is currently raging about the value of Special Economic Zones, which have been a feature of the country's economic landscape since they were set up in 1996-98. Some argue that they have helped to generate desperately needed employment in depressed regions; others that the tax incentives provided for them are a drain on the treasury. The issue has come into sharper focus recently since the present system is due to expire in 2020 (but still likely to be extended to 2026). What cannot be disputed by either side is that the SEZs have drawn in a great deal of foreign investment from major international companies. But despite all the industrial plant building activity, a boom for developers in the zones has so far failed to materialise.
A director of an international company that has just opened a factory in one such zone told me that the main advantage of locating in an SEZ was that it enabled the firm to "bypass the developer", in that they could own their own plant and build it much more cheaply with the incentives on offer and to their own specifications.

Important role to play
Tom Listowski, Cushman & Wakefield's head of the industrial department in Poland and CEE corporate relations, nevertheless maintains that developers play an important role in the SEZ programme, especially for companies who want to locate within an SEZ and take advantage of government incentives, but who have a preference or corporate policy towards leasing as opposed to owning the real estate they occupy. "The present value of a lease contract is an eligible cost when applying to obtain tax incentives, therefore developers ultimately provide a financial alternative for companies who want to be located in an SEZ, and who will create new workplaces but prefer to rent and direct capital expenditure towards investment in new technology or machinery as opposed to heavily investing in the construction of a new real estate solution," says Tom Listowski. "Furthermore," he claims, "developers also allow smaller and medium-sized firms to take advantage of the incentives of locating in an SEZ, as opposed to only the larger companies. In some instances specialist industrial developers are also tendering for projects where the end user will ultimately look to own the facility at handover, commonly referred to as a ?design and build project'." He explains that in such cases the developer is not usually responsible for arranging financing for the construction as the end user will usually finance the project using their own funds, payable in tranches as certain milestones are achieved. "For these types of projects the role of the developer is more focused on project and construction management, co-ordinating the land acquisition process and providing value-add engineering during the design phase by incorporating the specialist knowledge and experience they have gained in the construction of similar industrial properties," explains Mr Listowski.
Australian company Goodman is one warehouse developer that is active in the development of projects located in Special Economic Zones in Poland. It currently has projects located in SEZs in Wrocław, Toruń and Opole and expects to launch other speculative projects in Gliwice and Wrocław. The company is also considering applying for SEZ status for its Pomeranian Logistics Centre in Gdańsk. The experience of Błażej Ciesielczak, Goodman's regional director in Poland, has been positive: "Our overall experience with Special Economic Zones looks very promising so far, mainly because SEZs are usually very well prepared for investment in terms of planning and available infrastructure. We also see a number of synergies resulting from the close cooperation between representatives of SEZs, investors and developers at all stages of the project." Other large developers to have begun projects in the zones include, among others, Wikana with its Wikana Business Park development in Lublin (within the Europark Mielec Special Economic Zone), Segro with its Segro Business Park Gliwice in Katowice Special Economic Zone (Gliwice subzone), Panattoni in a number of locations (eg. a warehouse project in Tarnobrzeg Special Economic Zone Euro-Park Wisłosan). Panattoni was also chosen last spring to redevelop the unfinished Lenovo plant in Legnickie Pole in the Legnica SEZ. The Chinese computer manufacturer pulled out of the project when the original developer, PLA Development, folded. The facility is now to be converted into an automotive plant for US firm Lear Corporation.

Banging heads together
So if the garden is so rosy in a Special Economic Zone, why aren't more developers more active there? In Błażej Ciesielczak's opinion, there are a number of factors behind this: "In my opinion, the main reason why developers aren't active in Special Economic Zones is that they aren't the main beneficiaries of the reliefs and privileges offered by the zones. This being said, in order to stimulate the development of projects in SEZs, the zones should focus on companies and be more pro-active as an advisor to potential clients. This could mean for example providing all the necessary information about the possibilities a company has when it plans to launch a project in an SEZ, as well as organising meetings between developers and companies to link both sides of the logistics space development process."

Shiny, happy people
The pro-active approach adopted so far by a number of the local authorities with zones does seem to have been a major factor in foreign investment. One shining example of this is Wrocław, which has become a major IT and outsourcing centre since the local zone was established, attracting some of Poland's largest foreign direct investments in recent years. The city has since undergone a major transition and been revitalised, which will continue to attract new investors in the future, along with the new motorway and express road system infrastructure, the newly constructed airport, quality hotels, modern commercial office and retail complexes. According to Tom Listowski of Cushman & Wakefield, the most successful regional cities in Poland which have managed to attract some of the largest foreign direct investments to date have also placed a great deal of focus on FDI by "providing amenities for foreign companies, their representatives and families who decide to relocate to Poland. The provision of English speaking schools for children, the availability of international hotels, housing and accommodation for foreigners, the proximity to airports and providing social services for non-Polish speaking residents. These are all major drivers for companies who are to decide on one location over another."
All this demonstrates that with a highly educated and skilled local population where labour and operating costs are lower than in more developed countries, and with the help of a facilitating local government, that very strong demand for premises for international companies can be generated and then perpetuate itself. In these straitened times when the potential for speculative projects is thin on the ground, it might seem surprising that developers are not actively pursuing the option of building in SEZs more vigorously.

Nathan North