BTS – still the name of the game

Poland now has around 26 mln sqm of warehousing and around a third of this has been developed to the exact specifications of the tenant, in what are otherwise known as built-to-suit or BTS projects. This part of the market has grown so much that developers have established departments specifically for these types of buildings. This is what we have done at 7R, where we have set up a specialist BTS team. BTS clients have different requirements than those who lease space in our warehouse parks or flex centres. For them, what counts is more of a flexible, individual approach, as well as being able to find solutions to the many challenges that the eventual usage of the building entails.

What is BTS?

A BTS development is a highly specialised project, for which a client has personal and clearly defined expectations. It is not something for companies that need a small area in an industrial park for a short lease period. BTS buildings are built to serve companies over long periods of at least 15–20 years. This might be a little less when a building is situated in an area considered to be a warehousing location. The decision to build a BTS centre comes about when the tenant feels that none of the developments available on the market meets its required specifications or has the features it needs to operate its business. One of these might be a specific location. With standard projects, however, developers concentrate on the universal needs of given groups of tenants.

BTS is widely regarded as a solution for large stable companies that are fully aware of the conditions required for their businesses. That might indeed the case, but it is not the final word on this subject. Sometimes relatively young companies are interested in BTS, even those that have only been on the market for 2 or 3 years. However, their businesses have grown so quickly that they need new facilities. More often than not, BTS clients are large companies, either Polish or international, that have a long-term development strategy and need a building in a specific region where they have planned out their development for the next few years.

Building a BTS centre normally takes around 8–12 months, depending on how complicated it is, but often the preparatory work takes much longer because it requires identifying the client’s expectations and working out exactly how it operates, for the facility that will eventually be delivered to meet their needs a closely as possible. Sometimes a building turns out to be just the packaging for what is inside it. Therefore, the installations, the technology, the automated machinery and how all of these systems work together are extremely important. Working with the client has to be the basis for constructing the building, even before the first spade breaks the ground. And every client has its own requirements. The needs of the businesses that opt for BTS differ depending on their type of business, but generally it is production, e-commerce and automotive sector companies that opt for BTS.

Driven by automation

The pandemic of the last couple of years has spurred on the rapid growth of the warehouse sector. This growth has been fuelled by online retailers and the logistics operators that serve them. In logistics, questions related to labour and automation have also moved to the forefront. One such example is the flagship development that 7R has built for Żabka near Warsaw. This is a high bay warehouse, with a ceiling height of 40m, and is one of the most advanced distribution centres in Europe. Eventually, the warehouse is to be powered by a tri-generation system and solar cells. It is also to be fitted with the most cutting edge warehouse automation systems.

The trend for more warehouse automation is only going to intensify as technology advances. Many are now talking of using drones in warehousing and even in logistics more generally. This raises the spectre of workers being replaced by new technology. It seems, however, that even though some tasks can indeed be fully-automated, human beings are still essential, even though in the future they will require new skills.

Profiting from BTS

High-profile projects such as the one for Żabka can be particularly attractive for investors. The building on the outskirts of Warsaw was acquired during the construction stage by Macquarie Asset Management for its Macquarie European Logistics Real Estate Fund.

There are many ways to commercialise a BTS building. Who the owner is of a tenant-occupied building depends on the business model that we draw up with the client. Often we build such centres in partnership with an outside investor, who, as the owner, will in the end sell it back to the user. In other cases, we lease out the building for a few years before the ownership is passed on to our investment partner or the users themselves.

What is crucially important from the tenants’ point of view and also for the investor is how green the building is. Both types of clients insist that a centre meets sustainability criteria and is certified under a system such as BREEAM. Factors such as energy efficiency, clean energy, low or zero CO2 emissions, water saving systems, and employee well-being are only some of the features that are taken under consideration when buying or selling a property.

A promising future

The warehouse industry is one of just a few sectors that have come out unscathed from the pandemic, and it could also benefit from the current geopolitical turmoil. E-commerce is now ubiquitous and is still growing. Factors such as the reorganisation of supply chains due to the pandemic and the current geopolitical situation, as well as shifting production back closer to its eventual markets, will most probably provide additional boosts for the warehouse sector. And when you consider Poland’s location, a large proportion of this investment is already being placed – and will continue to be placed – here, in our part of Europe.

7R

is a dynamically growing developer operating on the commercial real estate market, specialising in providing modern warehouse and production space for lease. The portfolio of 7R includes large-scale logistics parks, municipal warehouses, which form the 7R City Flex Last Mile Logistics network, as well as BTS facilities. The company is committed to ESG activities and acting responsibly in its interaction with the environment, local communities, and corporate governance.