A real game changer

‘Eurobuild CEE’: Could you briefly explain what’s going on in the warehouse sector, because we have Covid-19 on the one hand and on the other record leasing activity. In the first half of the year alone a stunning 2.4 mln sqm was leased. How have warehouses managed to break yet another record even during a pandemic?

Tom Listowski, a partner and the head of industrial and warehouses for Central and Eastern Europe at Cresa: We entered 2020 with a significant pipeline of large transactions, both in their closing stages and being planned, coupled with many new development projects already under construction across the country. Covid-19 was the catalyst for the further acceleration in the expansion of the market with e-commerce being the major driver. Although new acquisitions dominated the demand levels, renewals and renegotiations of existing lease agreements were also strong, especially among occupiers, who decided prematurely to extend lease contracts as a trade-off for a period of rent relief, while also seeking some visibility of the impact Covid has had on their business and growth plans. Needless to say, the stagnation among occupiers planning new acquisitions was short-lived and H1 saw a series of major leases taking place. Logistics operators, retailers, e-commerce and light manufacturing companies were the most active among occupiers.

There was one record lease during that time – for over 200,000 sqm. What could you tell us about it and again why do you think such transactions are still being closed at all? Aren’t investors deterred by the uncertainty factor that Covid seems to bring with it?

This specific lease was signed by an e-commerce company in western Poland, close to the German border. However, we need to respect the confidentiality of the occupier and the details of the transaction at this stage. But it doesn’t surprise me at all. Quite the contrary. E-commerce-led requirements will only grow over time and Poland is very well placed to be a major beneficiary of this trend. Warehouse buildings are no longer just a place to store inventory. Technological advances have resulted in modern warehouses becoming very sophisticated in terms of their functionality and the various processes that take place inside them that drive efficiencies and save on costs.

Developers have obviously also been very busy. Around 1 mln sqm was built in H1. We now have 19.6 mln sqm of modern logistics space in Poland. How does this level of growth compare to the rest of Europe and the CEE region?

Poland’s total warehouse stock has doubled in the last five years, which clearly demonstrates the important role Poland plays on the European industrial map looking at the amount of space that was added to the market and also leased by international as well as local occupiers. Poland is the most dominant industrial and logistics market in the CEE region, consistently outperforming its neighbours, the Czech Republic, Slovakia, Hungary and Romania, when it comes to both supply and demand. From a continental perspective, in recent years Poland has ranked among the top countries in Europe in terms of take-up, new construction and space delivered on an annual basis when compared to Germany, the Netherlands, France, UK, Spain and Italy.

How long will this strong development activity last?

With app. 1.9 mln sqm of warehouse and industrial space currently under construction, we will soon be witnessing Poland breaking the 20 mln sqm mark in terms of total stock. We expect the strong occupier demand to continue to be driven by e-commerce, which will in turn generate new requirements from retailers, 3PLs and parcel delivery companies as well as mainstream e-retailers. Data centre requirements are also growing in Poland.

One of the most promising trends is the outshoring of production from other markets to Poland. How is this situation likely to evolve?

Yes, we have been witnessing a relocation and expansion of manufacturing and logistics functions from Western Europe and countries further afield to Poland for a number of years now, and this again is one of the key growth drivers of the sector. The majority of production activity in the country is export driven, and therefore the attractiveness of Poland lies in its geographic position, large labour force, continually expanding port functions and improved road infrastructure, which allows companies to service multiple countries from one location. Covid severely disrupted global supply chains and many companies are now in the process re-evaluating their manufacturing and logistics footprints to safeguard the future movement of materials and products and to be closer to their customer bases. Poland is a very attractive location where both these fundamental objectives can be achieved.

One of those most visible trends on the warehouse scene is city warehousing. What portion of the market does it currently hold and is that percentage growing? And where do you see this segment of the market heading in Poland in the years ahead?

City warehousing is not a particularly new trend, as the first modern warehouse buildings in Poland were situated very close to the centres of large cities. Around 20 pct of the total modern warehouse stock in Poland is located within large city boundaries; however, the purpose, design and functionality of these in-town schemes has been changing. The ‘new age’ city warehousing concept is important to not only accommodate small and medium sized enterprises, but also to support the growth of e-commerce, which is now driving the demand for in-town logistics space as a means to shorten delivery times to customers, provide showroom space and enable product returns. The growth in online fresh food distributors also requires modern space in large urban areas, so we certainly expect to see the roll out of more in-town warehouse projects across the major sub-markets in Poland over the next few years.

Do you also foresee a rise in BTS development?

Yes. Build-to-suit developments are clearly a popular option for occupiers, as companies can see a lot of value in having a building purely designed for their internal operations – rather than vice versa. In addition, companies are becoming much more strategic when it comes to where exactly they should locate their operations – and a BTS provides that flexibility of location. Technology has and will continue to play a major role in how buildings are designed for different occupiers and this will result in companies deviating away from market standard designs in order to fulfil their technological needs and internal fit-out requirements.

But is there still a place for speculative development??

Prior to Covid, the proportion of speculative space being developed was constantly on the rise and accounted for around 40–50 pct of the new space under construction, as developers were comfortable in taking a greater risk in developing out their land banks without having lease agreements signed. In the majority of speculative developments there is usually at least one sizable tenant committed, since this is required by lending institutions before granting the financing and thus allowing construction to start. As expected, Covid has resulted in some industrial developers downgrading the amount of speculative space they will actually deliver as they re-assess the market potential, the competition and the demand levels in the short-to-medium term in locations where they plan to launch new projects. Of the space currently under construction, app. 38 pct is speculative in nature.

Could you tell us something about the investment market? What’s your prediction for this year’s volume? How will it compare to the previous years? And how is the situation set to evolve going in the future and why?

The transaction volume in the investment market in H1 2020 came to more than EUR 1.1 bln, which was an all-time high – almost three times higher than the volume achieved in H1 2019. High quality investments with long-term lease agreements coupled with strong demand levels from tenants are attracting more and more investors as they look to deploy capital in this asset class. In H1 2020, 16 major industrial capital market transactions – mainly portfolio deals – were concluded. We expect a great deal of activity from institutional investors in this market segment in the years to come, especially bearing in mind the uncertain impact Covid is having on other asset classes. There’s a lot of capital in the market seeking quality industrial investments; however, the challenge will be product availability, especially for funds planning to enter the Polish market.