Enter the Dragon 2.0

Ewa Andrzejewska, ‘Eurobuild CEE’: What are you most proud of when you look back at ten years of Panattoni on the Polish market and ten years of managing the company?

Robert Dobrzycki, managing partner for Europe, Panattoni Europe: Ten years ago it seemed that the balance of power on the market was already settled. There were two large players and there was no room for another serious company – at least this is what everyone claimed. I did not set out to interfere in this; I simply wanted to do business. It turned out that we managed to enter the scene to a greater degree, not to play the number four role, or five or six, but to be one of the leaders. It has to be admitted that it is difficult to enter a market when the largest company in Poland is at the same time the largest company in the world in this field, and completely dominates in terms of its portfolio and the potential.

And you’ve succeeded. Is there one decision you have made over these ten years that you are particularly proud of?

It is difficult to say that one decision determined the company’s operations. The right decision that I made, and at a good time too, was to move to Panattoni. I was 30 years old at the time...

So it was a serious promotion...

And if it all had not worked out... well, I remember I was sitting alone in the office at the time and I was thinking that I was starting from scratch I didn’t have anything, not even my own computer. It is difficult to say that one decision might have changed everything. I make a lot of decisions every day based on my observations of the surrounding world, trends and the knowledge I have been gathering... That thing was not really a decision, but more of a strategy: we do not fight against the entire world, but we just consistently get on with our business.

And is there anything you regret?

Nothing. I sometimes wonder whether I might have done something differently. And I have also come to the conclusion that I would not. Still, if ten years ago I had more peace of mind, which I did not have at the time (but I do have now), I would be further along than I am now. Perhaps I lacked some distance to certain things.

It is interesting that you talk about distance and not, e.g. knowledge – since you were a young man, with only a few years of experience in the business.

Knowledge is also very important and it would certainly have been better if ten years ago I knew as much as I know now. However, I know that this was not possible. I was only 30 years old and I could not have had a great deal of knowledge. A young person can be ambitious – sometimes even too ambitious – but distance allows you to look at things with a cool eye and to do more than when you try to do things at a push. It sometimes happens that excessive ambition takes away that cool way of looking at things.

Panattoni is you, but it is also the people who are behind you. The core has probably not changed.

A lot of people came to Panattoni from my previous workplace and there were also people I worked with earlier and our paths parted later on. There has been little fluctuation in the core of the company, the three key people in the development department (Bartek, Marek and Marek), the head of project management and Karina who is responsible for the finance. Employing a BTS specialist was an interesting decision. It was entering a completely different market segment.

Indeed, this is what sets you apart on the market. You have 3 mln sqm of warehouses under your belt. Has anything stayed in your portfolio?

We build new facilities, old ones have been sold and we manage some of them for their new owners. We have 350,000 sqm under construction. Our annual historical standard ranges from 250,000 to 500,000 sqm. Owning a property is not our goal. We build, we manage, we work around the property market.

And how many square metres does Panattoni have under its management?

1.36 mln. We are not just a property manager but also a landlord representing the owner. We work for PZU, AEW and Blackstone. This is not our core activity, because the development business is the core, but it is our auxiliary business.

Why manage facilities – is it not better to build?

There is the school of though that says management only drives you away from the core business and could potentially generate conflicts between the manager and the owner and for the positive aspects, such as a fixed cash flow and the contact with clients, the market potential should be weighed against the negatives. Perhaps this business model will not work so well in 5–10 years’ time, but today we have come to a conclusion that it is positive for the business and this is what we will be doing. In order to manage warehouses you need to have a lot of volume. On the office market it is easier to get to manage a few facilities, which are usually located in Warsaw anyway, because this is the main office market. Some developers, particularly the office ones, do not want to manage facilities, but they have their own construction services. When you have your own construction company you also have a fixed cash flow that helps you to survive the doldrums in business cycles.

Do you plan to establish your own construction company?

In the States we have our own construction company, but we are not planning to set up such a business in Poland.

Since you have mentioned the States, I want to ask you about Carl Panattoni’s strategy when it comes to business development in Europe.

We are a private company and I, as the manager in Central Europe, am the co-owner of the business. Carl Panattoni provides the platform, the financial strength, while the medium-term strategy and development directions are decided here. We consult with him on the long-term strategy, but the strategic sequence comes from the bottom. In this respect we differ from our competition with its top-down decision making. I have a great deal of freedom in terms of decision making and that is why I like the place and the company I work in. The main owner knows that he has a co-owner on the spot who will try to head in the same direction. In corporations there are procedures and the people who manage them are only leased managers. Coming back to your question about Carl Panattoni, he certainly knows how the business works in Europe, he has his thoughts and it affects the decisions about where to be and what to do. The business in Europe is completely different from the business in the United States. Here there are many differences between each country, both in terms of the business and the development of the industry. There is less development business in the south of Europe, and there is more of it in Germany and Poland. France, Great Britain and Scandinavia also have their specificities. In the States there are no such differences. In Europe what counts is not just an assessment of the size of the market, the demand and the supply, but also the regulations, the bureaucracy, property titles and the capital market regulations. It is much more difficult to develop here compared to the United States. Our experience tells us that from the development point of view some countries are not promising enough to stay there permanently.

Which countries are not so promising for the expansion of the development business?

They are the South European countries, such as Italy or Spain. Of course, this is from the point of view of keeping warehouses in our portfolio. If someone has a portfolio strategy they should certainly be present there, but this is not for us. Our core countries, for example, include, Germany.

A year ago you became involved in the German market. How long have you been present there?

We have been present in Germany since 2007, but hadn’t had an expansion policy. The country is large and it certainly is not a market for a non-expansive policy. So we changed our strategy and I became involved in this market, while the person responsible for the country has also changed. We have a large team which has been built over the last six months. At this time we are carrying out five projects, for Dachser, BLG Logistics, Faurecia, Uponor and Huwald-Liebschner.

Where do you want to develop next?

The key issue was for the German market to start working well – and now it seems that everything is fine. We want to build there as much as in Poland even though the competition is strong. However, it has to be admitted that the competition in Poland is also far from being timid. The plan that makes most sense would involve the construction of an equal number of projects in Poland and Germany over the next two to three years. We are also looking at Romania – a market we have never entered. However, in 2008 we also examined the possibilities of development there. It is a large and promising market. We just need to find the right idea for expanding into this country.

And what about our closer neighbours?

The Czech Republic works and will do fine, but Slovakia and Hungary are very small markets.

And is the East of Europe interesting?

No, not yet.

A few years ago you tried to enter the retail market. Are you still considering expanding the scope of your operations?

The idea centred around developing retail parks, anchored by grocery supermarkets. However, grocery operators then started limiting their expansion plans. It was a good decision in terms of seeing how this business works and finding out that we need to focus on our core business.

So you haven’t considered entering another segment, such as offices?

No, I haven’t. I definitely prefer to enter other countries and build warehousing there. I think that specialisation in this field is crucial. We can focus on one sort of business and do it as well as we can.

Have you particularly come to appreciate any company or person on this market during the last ten years?

There are companies with a clear strategy that has been consistently implemented for many years, such as Segro. I think that local developers deserve some special appreciation, as they have managed to cope well on a market dominated by international players backed up with substantial capital. For example, Ideal Idea, which builds small units in Warsaw. Appreciation must also be given to Blackstone, which has managed to accumulate a considerable portfolio in such a very short time. It’s certainly an efficient investor.

And have been shopping yourselves, recently?

Yes, I have, near Wrocław – in Nowa Wieś, near the Nestlé manufacturing plant, we’ve bought an 18 ha plot to build our fourth park in the area. In the Czech Republic we’ve purchased a 30 ha plot.

Does this mean that you will be building another warehouse for Amazon?

No, it does not. So far we are completing a facility in Prague, and Amazon, indeed, wants to consolidate its operations and is looking to have another smaller facility, but I haven’t heard anything about any more huge hubs. There was only Brno remaining, which was supposed to be the last of the five distribution centres that were to be built for Amazon in our region of Europe, but eventually this wasn’t built. Anyway, we hadn’t been chosen for the construction process there.

How do you evaluate the potential of the Polish market as a whole? Where are the saturation points in terms of the space that could be developed?

I think that in ten years the market will at least double – from the current area of 8 mln sqm it will grow to 16 mln sqm. As for the positive things that might happen – the segment will deepen in terms of investment, that is, there will be many players who will be the owners of warehouse and industrial facilities.

And will new investors have enough facilities to buy?

Developers will be building and the investors who bought facilities some time ago will be exiting their investments.

And who could emerge in this country?

For example Exter, which has entered a JV with GIC and is looking for opportunities. The market will also deepen in terms of new operators. And it should be deep and resilient enough not to be washed away by any wave.

From a few attractive sources: the German automotive industry, e-commerce (traditional retail will have to shore itself up by investing in e-commerce and saving money on logistics and then the demand for warehouses should increase), and the production that will move to Poland, which is in turn serviced by logistics. We will also see the consolidation of logistics, purchases and operational offices in our part of Europe. This is currently being done by Tesco and is very much the trend.

And where will Panattoni be developing in Poland?

Apart from the traditional regions we also want to develop in smaller markets, such as eastern Poland – Rzeszów as well as other locations. We have secured land near Szczecin and Gdańsk, among other places. We are building a great deal. The current point in the business cycle is comparable to 2005, so it seems that we are on the rising curve and we carry out more varied products (facilities for sale, complex ones, in special zones and for production). We are predictable only in our unpredictability.

Clarity and consistency

Robert Dobrzycki manages Panattoni’s European branches – he is responsible for Central and Eastern Europe (Poland, the Czech Republic and Slovakia) as well as Germany. Ten years ago, in 2005, he established the Central European branch of the company. Under his management Panattoni has built over 2 mln sqm of warehouse and industrial space in Poland out of over 8.5 mln sqm which exists today (app. 3 mln sqm in Central and Eastern Europe). The size of the portfolio managed by the company in Poland is 1.36 mln sqm. Panattoni Europe was recognised as the ‘Industrial Developer of the Decade 2000–2010’ for Poland at the Eurobuild Awards 2010,
and five times in a row (2011, 2012, 2013,2 014 and 2015) was judged to be the ‘Industrial Developer of the Year’ by the jury of the competition. Robert started his professional career at Menard Doswell & Co., which is involved in the construction and management of industrial properties. He is a graduate of Warsaw University, where he completed a master’s degree at the department of management. He is a tennis and sailing enthusiast.