Seeing green

Warehouse & industrial
The bolder approach of developers, the environmentally friendly expectations of large corporations and the changing regulations – will these be enough to trigger an avalanche of green certification on the warehouse development market?

According to Colliers International, there are now 21 ecologically certified industrial facilities in Poland, made up of fourteen with BREEAM and seven with LEED certificates. However, many of the most significant certified projects have only been developed in the last two years. These include two large Amazon distribution centres by Panattoni, another built by Goodman (currently in the process of BREEAM Industrial certification), as well as Volkswagen’s premises in Segro Logistics Park Poznań. The percentage of certified facilities in the total stock of completed projects is still rather small and the vast majority have been constructed for international firms dedicated to corporate social responsibility principles. The larger group of tenants, however, are not exhibiting the same interest. “It’s not like it is with the office market, where it is clear that tenants will not sign unless the building is certified. Nobody asks about that in warehouses,” explains Radosław T. Krochta, the CEO and vice-president of MLP Group. Piotr Bzowski, the leasing and development director of P3 Logistic Parks, is of a similar opinion, remarking that many tenants inform the developer that they do not have anything against certification, but they think it is the developer who should be paying for this.

Unwilling to pay for the paper

“Tenants of warehouse space are often logistics operators whose business is based on long- and short-term contracts. The best customer service, the delivery speed, the warehouse equipment and good locations are the most important factors for them, rather than leasing space in a certified building,” claims Regina Gul, a senior project manager in JLL’s project management department. A good section of the market believes that certification is purely a marketing exercise, which does not generate any benefits for the tenant. In their view the green solutions that bring tangible operating savings, such as better wall insulation and LED lighting, have become the norm anyway and the more formal exercise of official confirmation does not provide much apart from extra costs.

Any benefits from facility certification are not obvious when selling the buildings, either. “Investors appreciate green certificates but they are
not required or necessary,” explains Regina Gul. Soren Rodian Olsen, an associate in the capital markets department at Cushman & Wakefield, agrees but suggests that in time this could change. But not every developer is planning to wait for attitudes to change...

Green warriors step up!

The forerunner is Prologis, for which obtaining green certification for all their future projects has become a corporate requirement. “We have been following this strategy for the past 4–5 years and now have over 20 buildings BREEAM accredited in Central and Eastern Europe all the way from ‘pass’ to the ‘excellent’ rating. In Poland we have nine buildings in place and two more that will be certified by the end of this year,” explains Balázs Bellák, the CEE vice-president for project management at Prologis.

The company’s shareholders apparently agree that this policy fits perfectly into their business model. “I agree that additional costs may not make sense in the short term of, say, two or three years. But we build our buildings for 30, 40 or 50 years. We are keeping them in our portfolio. Then it definitely does make sense,” says Mr Bellák. As he explains, this policy adds 3–5 pct to investment costs, which cannot necessarily be transferred into higher rents. What counts, however, are the benefits. “We have learned a lot by going through many certification processes and there are really many things that even the most ecologically conscious developers would normally not even think of. I think the only way you can really prove you have a sustainable building is to have the certification. Not just talk, but the proof,” he insists.

Segro has also announced plans to adopt a similar policy. “It is our ambition to certify newly-built facilities and we are planning to do it regardless of whether a client is particularly interested in certification or not. I think that the adoption of such a strategy is a matter of a year or two,” reveals Bartosz Michalski, the development manager of Segro. He emphasises at the same time that the point is not to score the highest ratings of BREEAM certification straight away, but instead to focus on the implementation of the measures that generate the most benefits for clients. “Lower certification levels are not equivalent to a substantial increase in costs. As is the case for the facility constructed for Volkswagen, you can score many points for the appropriate management of the construction process to make it comply with the requirements of the BREEAM system – such as from the management of the construction waste material. These additional requirements are not very difficult to implement and they don’t extend the construction time, either. These are mostly organisational matters,” explains Bartosz Michalski. For Segro, whose general contractor costs for each project are EUR 5–10 mln, the costs of the certification process come to around EUR 60,000, which make up 0.6 to 0.1 pct of the entire investment costs. “This seems acceptable for us considering the benefits of certification,” says Batosz Michalski.

Promotion for everyone

Certification, on the one hand, is about knowledge transference, and on the other it is a marketing tool. The importance of this aspect is likely to grow over time together with the number of certified buildings. The pioneers of this trend are predicting that sooner or later warehouses are bound to follow offices and retail. “I would assume that our competition will start picking up on this in the next two or three years as well. And hopefully they will follow our lead to get this product on the market. We always try to stay ahead of the curve,” says Balázs Bellák.

Although tenants are not so keen to open their wallets, they regard certificates as nice bonuses. ”Asked if building certification is important for them, the majority often say, not at all. However, when their building receives one, they like to promote it in their publicity material. So I think at first tenants would not pay a penny more for the process, but later they learn that it is a good marketing tool,” explains Balázs Bellák.

Carrot for now, stick for later?

Piotr Bzowski does not expect a revolution any time soon in terms of green certification in the warehouse sector. “I think that the popularity of certification will only grow significantly when investors, considering their long term strategies, see the benefits of owning certified buildings or there are some changes in the law that lead to this,” believes the representative of P3. What kind of legislation could help to boost the push for a more ecological approach? “In California, for example, or in the UK, where such accreditation is very popular, green developers benefit from an easier building permitting process. In other parts of the world your property tax would be lower,” says Balázs Bellák. “According to the 2010/31/EU directive, from 2020 all newly-built buildings in the European Union will have to prove that they are facilities with an energy balance close to zero,” points out Regina Gul. However, she emphasises that the popularisation of more energy efficient buildings does not mean that developers will automatically change their habits when it comes to green certificates – one does not have to go hand in hand with the other.