Cinderella to Rockefeller

Tomasz Cudowski, ‘Eurobuild CEE’: What kind of mood did Segro finish the first half of the year in?

Bożena Krawczyk, investment director for Central Europe, Segro: Our mood was in line with the sentiment on the market. The past half-year was record-breaking in the warehouse sector in Poland – according to JLL’s data, the space leased exceeded 2 mln sqm, which is the best figure in history, while almost 2.3 mln sqm of new development projects are under construction. Segro registered excellent financial, operational and portfolio-related results in the first six months, for the entire group and in Poland.

In 2018 you carried out development projects and purchased a warehouse park in Warsaw. Does Segro now plan to grow organically or through acquisitions?

In both ways and we have seen successes in both fields in the past. One of our recently completed projects is a facility fully dedicated for DSV Road comprising over 7,600 sqm of modern office and warehouse space at Segro Business Park Warsaw, Ożarów. Furthermore, we bought Segro Business Park Warsaw, Okęcie – a fully-leased, class ‘A’ urban business park with a total of ​​more than 18,500 sqm. As a result of these activities, the value of Segro’s portfolio has increased and the leasing activity has enabled us to maintain a vacancy rate of around 4 pct. We are currently building almost 95,000 sqm of modern warehouse and production space in Poland – in seven facilities in the centre of the country and in Upper and Lower Silesia.

Around 76 pct of the warehouses leased in Poland in H1 were new lease agreements and expansions. Do these proportions chime with Segro’s experience? Which lease agreements and clients have had the most impact on your figures?

In terms of Segro’s portfolio in Poland, new contracts and expansions accounted for around 90 pct of lease agreements. The leading market sectors still include retail chains, logistics operators and light production. The largest number of lease agreements we have signed have been with clients from the production sector – one example of which is Corning Optical Communications, for which we have built a ​​new 39,200 sqm facility in Segro Logistics Park Stryków. Second on the list come retail and e-commerce chains, including LPP, for which we are expanding their 30,400 sqm in Segro Logistics Park Stryków by another 16,000 sqm. Behind these the largest volume of leases were by logistics operators and clients from the automotive sector.

And what about the geographical distribution? Which region is the most active?

The research shows that there is a high demand from clients in the Central Poland region – record figures have been registered here on both the demand side (370,000 sqm of leased space) and the supply side (623,000 sqm under construction). This trend is consistent with the dynamics in Segro parks in Stryków and Łódź, where we are currently carrying out the largest number of development projects.

What does such a leasing structure prove?

That the market is growing. In my opinion, the proportion of expansions in the total number of contracts signed is a barometer of how customers are feeling. The expansions of customers’ premises is a clear sign that their businesses are doing well and that they appreciate the cooperation with the owner of the facility, which is just as important.

Can you talk about any problems in the sector in the light of such results? What did Segro have the biggest issues with in recent months?

I prefer the word ‘challenges’. Warehouses, like any business, have their challenges, especially in the modern world, which is changing very dynamically. Megatrends including globalisation, urbanisation, digitisation and demographic changes affecting the labour market have an impact on all sectors. Regardless of the business a company operates in, you need to be aware of such phenomena and approach them accordingly. The fuel for our sector is mostly e-commerce, which generates a significant proportion of the demand, but it should be borne in mind that this phenomenon affects the economy to a much greater degree rather than just the warehouse sector. Other elements worth mentioning when discussing the warehouse market are the consolidation of the supply chain and the continuing improvement in our road infrastructure – around 450 km of new roads and motorways should be built in Poland in 2018. In terms of the challenges, one we have to face is the increase in the costs for construction projects, which has been noticeable across the entire economy, as well as the increasing difficulties related to the availability of personnel. We have been facing up to these challenges, which, by the way, has not affected the punctuality of our project completions and the high quality of warehouse and production space we provide.

How have warehouses changed as an investment product in recent years?

You could say that they were once the Cinderella of investment products, but they have since turned into princesses – according to CBRE, a third of European investors intend to invest in the warehouse and logistics sector. That’s more than for offices, which 26 pct of investors are interested in.

What are the factors behind this elevation in status.

They certainly include its emergence as an institutional product, together with the prospect of stable returns and the scale of the market – which is finally large enough for the needs of portfolio transactions that the main players focus on. The extent of the changes that have taken place on our market is perfectly illustrated by the numbers: in 2008 there were 90 logistics parks in Poland, today there are 290. Ten years ago our market comprised slightly more than 4 mln sqm of warehouse space, today it has 14 mln sqm. The growing enthusiasm of investors is reflected by the numbers – it is expected that 2018 will be record-breaking in terms of the transaction volume in all sectors, including the warehouse sector. The attractiveness of the market is also evident from the emerging new sources of capital from China, South Africa and Singapore.

The extension of LPP’s 30,400 sqm premises is underway in Segro Logistics Park Stryków – which will add another 16,000 sqm to the facility

How can warehouse developers support their clients in solving their problems? Or maybe everyone should be left to deal with their own affairs?

You cannot close yourself off from the problems of business partners. This is how we treat our clients. Our cooperation is a bilateral relationship in its nature. One of the problems that our customers face every day is the recruitment and retention of employees. This year together with Randstad Polska we have published the ‘Warehouse and light production – challenges and trends in employment’ report. It contains valuable data and comments to help our current and potential clients adjust to the changing labour market, which – as you know – is an employee’s market these days. We are in touch with our customers every day and these efforts do not go unnoticed, which is a source of great satisfaction for me. According to the latest Segro customer satisfaction survey, as many as 97.5 pct of them consider the communication with our company to be good or very good, while 90 pct are satisfied with their cooperation with Segro. The awards we have received also confirm that we have no equal when it comes to our contact with our clients. At the Eurobuild Awards 2017, Segro Logistics Park Warsaw, Nadarzyn won the ‘Warehouse of the Year’ title in the tenants’ awards category, while the ‘Warehouse Manager of the Year’ award was picked up by one of our property managers.

What is the company’s policy in terms of the development of your land bank?

Our policy on this matter can be described as thought-out and disciplined. We focus on securing development opportunities in locations and regions where we are already present. Our projects are situated within the largest conurbations and along the main transport routes, thanks to which we can provide our clients with access to the best local city markets, as well as efficient availability to nearby regions and the markets of neighbouring countries. One good example of this strategy is how we have enabled our client, Corning Optical Communications, to grow. We have recently delivered another, 39,200 sqm, building in Segro Logistics Park Stryków, that was ordered by the company, next to its existing 43,000 sqm warehouse and production facility, which has been located there for twelve years.

What sectors will be the driving the market in the near future? Will anyone be able to knock e-commerce off its perch?

E-commerce does not appear as a separate category in market analyses. It is combined with various segments, such as store chains and logistics operators. Research shows that these sectors actually generate almost 70 pct of the net demand. Because the purchasing power of Polish consumers is continuing to rise and their e-shopping habits are becoming more regular, I don’t think that the driving force generated by these sectors will lose any of its momentum. The research also reveals that light production tenants also make up a fairly significant share of the market. They are in fact eager to invest in the development or transfer of production lines to our country.

The competition has become increasingly bold when it comes to investing in ‘last mile delivery’ facilities. What are Segro’s plans in this field? Could the purchase of Ideal Park in Warsaw be the first of other such acquisitions?

Undoubtedly we have an appetite to grow in the urban logistics park sector. This has already become a very strong point for the Segro Group – we have a large portfolio in this segment, in the UK as well as in Germany and France. This appetite is being driven by the development of the e-commerce sector and the growing demands of consumers, who expect ever faster deliveries – sometimes even on the day the order was placed. On the other hand, another global megatrend, urbanisation, has led to the expansion of cities and so there are an increasing number of people who expect store chains and logistics operators to meet their growing requirements. What we offer has been evolving in line with these trends for a long time – in our portfolio we have long had Segro Business Park Warsaw, Żerań, which is located within the city limits as well as on the border between zones one and two – together with Segro Business Park Warsaw, Ożarów, where we also lease out small business units. We are currently looking at opportunities for further purchases of completed investment products, similar to the recently purchased Segro Business Park Warsaw, Okęcie, but we also have possibilities when it comes to developing new projects, for example, at Segro Business Park Warsaw, Ożarów, for our current and potential clients.

And for my final question: which direction will Segro be taking in Poland and Europe – big box facilities or small business units?

We plan to develop both products in parallel because they are complementary to each other. In the eight locations where we operate in Poland, we will focus on large-format facilities, whereas in Warsaw the focus will be on small business units. Anyway, the terms ‘big’ and ‘small’ are rather symbolic – no project is too big and no customer is too small for us. ν

Bożena Krawczyk,

Segro’s investment director for Central Europe, has twenty years of experience in the commercial real estate sector. Before she joined Segro, she worked for Ghelamco Group and has also been employed in the office department at ​​DTZ. She graduated in marketing and management and is a member of the RICS. Bożena joined Segro in mid-2006 and since 2011 has been responsible for the investment department (purchases and sales) and valuation of the portfolio in the region.