Taking Polish success across the Oder

Rafał Ostrowski, ‘Eurobuild Central & Eastern Europe’: What’s new at MLP Group?

Agnieszka Góźdź, sales director for Poland and Romania, MLP Group: Soon we are going to beat our target for this year by leasing out a total of around 250,000 sqm, including 140,000 sqm in Poland, 20,000 sqm in Romania and 90,000 sqm in Germany. I’m not talking about renegotiations but about new contracts.

Why are your results so good?

It’s certainly due to the current boom on the market. Demand is being driven by the rapid development of e-commerce. We can see this really clearly. Online stores need on average three times more storage space than normal retail chains, so the demand is mainly coming from e-commerce and also from the logistics and courier companies that serve it. This is the first thing. Secondly, the locations we operate in are also important. The highest demand is now in five major markets and we operate in each of them – except for central Poland, which we will also be entering soon. Also, our growth is being fuelled by our expansion in Germany, which is beginning to take up a significant share of our new lease agreements. We have recently signed a contract with L-Shop Team for around 56,000 sqm as well as several smaller contracts.

MLP Group doubled its profits in 2018 compared to the previous year and your H1 results are also equally good. Should we be expecting a similar increase in H2 this year?

In H1 we had a high operating profit. The group’s finances are now very good. We are still growing, as can be seen in our results, and we are going continue following our strategy which is to maintain a strong position on the market in Poland and expand into foreign markets, which mainly means into Germany. We are optimistic about both this year and the next. Our strategy is certainly of great importance here. We are a developer that does not sell and we keep our properties in our portfolio. We build our business on our relations with our tenants and treat them as long-term business partners rather than as just a part of the cash flow. This is what makes us different from other developers who sell their logistic parks just after they have dug the first hole or even earlier. Then their clients are handed over to a fund headquartered in somewhere like London or Singapore and the client becomes just an entity that is supposed to generate regular rental income. Of course, problems arise when a client wants to make changes or improvements to their space but by that stage nobody is interested. Our tenants like our model since throughout the entire lease they work with the same people who are responsible for delivering a high quality of service.


MLP Pruszków II

Have you already set your goals for 2020?

Of course! Other than focusing on Poland, our German projects are going to be our priority. We are aiming for our space in Germany to make up around 50 pct of MLP Group’s portfolio by 2020. We want to be there on all the main markets, just like in Poland. We still have a lot of land on which to build and the possibility of at least doubling the size of our warehouse space. We are also beginning to expand into Austria, where we should soon be launching our first project. We are going to strive to maintain our high level of service for our tenants. We have even developed a special app that allows them to quickly contact our management department.

When will this German share of the MLP portfolio come close to what you have already developed in Poland?

Germany is the largest market for warehouse space in Europe, which is why our strategic goal is to expand there. We want to buy three or four German properties a year. Now we have 15 parks in Poland, so we should have a similar number in Germany in within three or four years. At the moment we have already leased out our first MLP Unna park, where L-Shop has taken up 56,000 sqm. We have also signed a letter of intent to purchase land for our MLP Mönchengladbach logistics park which will eventually have 55,000 sqm. We have also recently bought a plot near Berlin, where we are going to develop the first phase of our MLP Business Park Berlin I project. We are going to develop 15,500 sqm there, including 2,000 sqm of office space. It will be a City Logistics park with modules that start from 700 sqm. Its location near the city makes it ideal for urban logistics. And after some time we are going to buy more land there for the next stage of the project where another 35,000 sqm is to be built. Just like in Poland, we are mainly interested in Germany’s key warehouse locations. We should buy more land this year – or in H1 2020 – in Bochum, Koblenz, Cologne and Munich.

In Romania, you are building a 22,000 sqm hall near Bucharest, 12,000 sqm of which has already been completed and leased. What next?

The second stage of this building will be completed by the end of the year. The park is to eventually comprise 95,000 sqm. However, Romania is a completely different market. Although we managed to sign a lease L-Shop for a building to be delivered in 2021,in Romania we have to have the space ready before we can rent it. This is a young market and there are customers who need a warehouse ready within two or three months. Our tenants do not make such long-term plans as they do in more developed markets. In Romania, the demand for warehouse space is growing by around 20 pct year-on-year because of the low cost of labour and the easy access to employees.


MLP Stryków

So are you building speculatively?

Yes, we are building the first hall as well as a few more on a speculative basis. If we didn’t we wouldn’t be able to lease anything. We intend to construct buildings of 10,000 sqm in Romania. When one is leased, we will start constructing the next. That is what we did this year. In H1 we completed a 12,000 sqm warehouse and when it was rented, we immediately started to build another building of 10,000 sqm. I think that we will have leased it out by January, and then we will start thinking about building 20,000 sqm more.

Do you have any plans to go beyond Bucharest?

At the moment, no, we don’t. MLP Bucharest West is a large park and I think we need to focus on renting out its 95,000 sqm. We are keeping an eye on various other locations and waiting to see what is going to happen on the market.

What about Poland? Are you planning any new development here?

We are going to open in two locations in central Poland: Łódź and Stryków. We are also preparing another plot in Wrocław. We already have a park in that region, which is now over 60 pct leased. We follow a rule that we start looking for new locations in a region whenever our leasing level goes over around 60 pct. Now we’ve got a very good location in Wroclaw, where we will be launching a project later in the year. We are also soon going to start up in Gliwice, and we will be starting on a project even earlier in Lublin.

Why Lublin – considering that your first 45,000 sqm park took you over four years to lease?

Because we have successfully completed the leasing. It is not important how long it took to lease. We managed to find three very good customers, and the average lease length for the entire park comes to thirteen years. So this is very important to us. The leasing may have taken us longer compared to our competitors but we have great tenants and a great park. We have two very good German manufacturers and Stokrotka, which is a company that has recently been acquired by a Lithuanian fund. We are also seeing demand for space rising in this region all the time. I can see many German companies that would like to relocate their production centres to Lublin. The city’s road infrastructure has certainly been changing and the S17 between Warsaw and Lublin is now under construction. This will definitely change how the region is seen. It is also a student city with five universities, which means that there is access to highly qualified people. Additionally, average wages for an hour of work are still much lower than in the country’s main industrial centres so we are now planning another park of 40,000–50,000 sqm in Lublin.


MLP Business Park Berlin I

MLP charges a flat rent. What does this entail?

Yes, we are probably the only developer who has such a simple charge. This is what distinguishes us from those who make use of financial incentives and rent exemptions. For them, their effective rent has to be calculated by subtracting from the base rent all the exemptions and other financial incentives including cash given to help the tenant move. We don’t make use of such a system. Our tenants like our business model as it is transparent and clear.

How long have you worked like that?

Always. We don’t do any financial engineering. I think this is important for our clients because our price indexing is calculated with a lower base rent, which will be say around EUR 2.60 rather than EUR 3.50 as with other developers. This means that our clients pay less.

The other thing is a fixed service charge. What is this all about?

Our fixed fee covers all the services that we control such as building maintenance. We can charge the client a fixed fee that they will pay throughout the duration of their lease. The charge is slightly higher than with open book settlements but this is a fixed sum, which the client knows will not change throughout the entire rental period. We were one of the first developers to started using such a system and this kind of business model gives the tenant confidence and predictability when it comes to planning their rental expenses.

Didn’t you also pioneer using LED lighting with motion sensors? Today everyone fits this as standard but this wasn’t the case not so long ago.

That’s right, modern lighting has become much cheaper now and more widespread but we introduced it as standard four years ago, when it was still relatively expensive. Also we are going to be one of the first to install solar panels on our roofs, which will provide more green energy for our clients. This has two advantages. Firstly, we care about our shared environment, and our tenants will also have cheaper electricity bills than they would have with our competitors – we would like to eventually produce around 30 pct of our electricity from solar panels for our tenants. This year we are doing a pilot project in Pruszków and eventually we’re planning to install them in seven other MLP parks. I believe that our clients like the quality of our buildings, which we build ourselves. We have our own management department with lower managerial costs. I think we might even have the lowest service costs on the market and this is because we do the management ourselves, we have a large number of parks and are managers are effective.

I also saw a canteen in your MLP Pruszków I complex. Is this also the standard for your parks?

We try to make sure there is a canteen in every park. We also try to keep a great deal of green space. We are going to have a nursery school in one of our parks in Germany because this was a requirement stipulated by one of our tenants. We have a rental bike stand in Pruszków, which is operated by Warsaw’s city bike chain and we have also put bus stops in the park. We always try to make it as easy as possible to travel to our parks and our Pruszków park even has a railway station with the platform accessible from the park itself.

MLP Group wants to certify all its new buildings under BREEAM all with ratings of ‘Very Good’. Just a few years ago, no warehouse tenant would have asked for green certification. What has changed?

The way people in Poland think about ecological issues has been changing and we are becoming increasingly aware of the harm industry does to the environment. Because we care for the environment, we aim to install systems that reduce our consumption of energy and water and reduce the greenhouse gas emissions in our parks. We can see that our tenants are asking us more and more about what environmentally friendly systems we have, since using them also reflects well on their corporate image and helps them to differentiate themselves from their competitors. ν