Not just another lemon tree

Tomasz Cudowski, ‘Eurobuild CEE’: As you’ve finally decided to acknowledge the existence of the industry press, it is a real pleasure for me that you have chosen to begin this with an interview for ‘Eurobuild’. However, you’re by no means newcomers to the market.

Bartłomiej Krawiecki, CEO, LemonTree: Thanks for the invitation! It’s true that the three of us and most of the thirty or so people who work at LemonTree are experienced professionals. We’ve been operating on the industrial and logistics real estate market for many years, and over this time we’ve built up a few million square metres of space under different logos. The reason why it’s only now that LemonTree is starting to make its presence felt in the media, because in our early days we wanted the brand to become known purely from the fruits of our work and not from our words. At the beginning of this year, we announced a new project in Zabrze and we want to say a little more about our comprehensive approach now that we already have an investment portfolio and projects under development.

Why did you leave your previous positions with other warehouse developers to set up LemonTree?

BK: Mainly because we have our own vision for creating industrial and logistics space. We want to develop exceptional buildings that are unlike those that came before, that are innovative, premium class and in balance with nature. We believe in sustainable development – and that includes sustainable construction and responsibility for the climate. We believe that this is the right direction and not a momentary trend or passing fad. The value of LemonTree is that our entire business concept, our DNA from the very beginning, has been based on a sustainable approach in all areas of our activities. In our opinion, this sets us apart from the market standard. This was our starting point and not merely adapting our activities to requirements that are talked about so much today. This gives us our competitive advantage because we have more flexibility. We can immediately offer products that meet the needs of today’s market and that even go beyond them.

It’s hard to find a warehouse developer at the moment that apparently doesn’t follow sustainable construction practices. So what makes you different?

BK: At LemonTree, sustainable development isn’t just the basis on which we develop our projects – it’s also the basis of our strategy and a key part of every one of the business decisions that we have taken since the beginning. From the choice of the location and the technology we use, to our relationships with our partners, the long-term effects on the environment and society… everything we do is thought through. Furthermore, each one of our projects has its own identity. We don’t want to repeat an existing metal box concept for a warehouse that only differs in terms of the logo on the façade. We have created a niche in which every location is chosen for the needs of a specific client. Of course, the selection of the site takes longer, but we are always certain that it is ideal in regard to its access to roads, its neighbourhood, the shape of the site, the design and finally its interaction with the environment. Because we concentrate on the biggest cities – Warsaw, the Tricity, Szczecin, Poznań, Wrocław, Silesia and Kraków and especially areas within their motorway ring roads – we generally develop on brownfield sites that we can bring back to life while taking into account the natural environment and the interests of local people. The environment and working to protect the planet and its climate have, from the very beginning, been important to us. Our brand was inspired by nature, which we want to protect. This inspired us to sign up to the United Nations Global Compact, which supports companies in implementing the UN’s sustainable development goals. We are also part of the Climate Positive Programme, which implements the goals set by the UN.

Maciej Krawiecki, COO, LemonTree: We spend a lot of time and effort at LemonTree on researching many aspects of each project before we take the final decision. We don’t move forward according to one key metric, even when it comes to the choice of materials. For example, in late May/early June we are launching our next project, WestSide Szczecin. Soon we will be handing over the site to our general contractor. Initially, we planned for it to have a wooden roof, which is more expensive and takes about two months longer to build, but we also see it as a better solution for limiting our carbon footprint in comparison to more traditional steel. Nonetheless, after a comprehensive study we decided to go with green steel that was 80–100 pct recycled and smelted using electricity from renewable sources, which allowed us to achieve a similar inherent carbon footprint level to what we would have had with wood. The specific conditions are very important to us. We don’t want to base all our work on one particular concept or use only one effective solution. We have also opted to install heat pumps, which when combined with the central ventilation system and the solar panel installations will save around PLN 450,000 a year for the tenants of the entire building, which comes to around EUR 0.35 per sqm of warehouse space. Around 10 pct of each project’s budget is designated for solutions to reduce the harm done to the environment, but the decision to use a particular material or technological solution is always taken after a careful study and matched to the requirements of each project.

Are you saying that other developers don’t do this?

Łukasz Jachna, CIO, LemonTree: What we are seeing is that most of our competition approaches sustainable development in a schematic way. For them it is business as usual. We, however, sometimes swim against the tide, but our clients understand this and appreciate it. Since the establishment of LemonTree, we have been looking for new ideas and ways to completely integrate sustainable development into every aspect of our operations. This was somewhat easier for us, because we are a young company and could build ourselves up from the beginning based on these principles, while more established firms often have to go through a deep restructuring process for this. We could see that the market was evolving and is now governed by different rules than those of 10 or 20 years ago. Poland has become the heart of Central Europe and is quickly catching up with Western markets. We are aware of how we operate and we do so in a sustainable manner – and we look at the segmentation of the market in the same way. This was the strategic decision we took, because we are convinced that we are creating new opportunities that we fully intend to make use of. Our approach is innovative and suited to modern-day challenges, and this is what our clients see.

When it comes to ESG, most companies have problems with the governance aspect. I understand that at LemonTree you don’t have such problems...

BK: Each aspect of ESG at LemonTree is important to us, including the governance. We have a responsibility to report as a member of the UNGC and we also prepare CSRD reports. We’ve also set up an internal group responsible for implementing every initiative covered by all three aspects of ESG, which we call Future Minds. We regularly consult with Deloitte for our governance strategy, and it requires a lot of work to create all the codices and procedures that we are slowly incorporating into our company.

Do financial institutions also see you as exceptional?

BK: They certainly do, but for our part we always have work to do in patiently presenting our approach and offering other products. So far, we have met with a very positive response from financial institutions. We believe that in a couple of years’ time banks will no longer want to finance projects other than those of the highest standard. We want to stand out through our transparency with all our stakeholders and investors. We understand that for financial institutions – and banks in particular – how our product fits into EU taxonomy is extremely important. We are currently working on this as a major project and are aiming to be completely in line with the taxonomy soon. We will also be ready for the CSRD reporting that our tenants will soon be faced with.

But if the results are bad, this won’t be a good sign for future tenants.

BK: If something goes wrong, we will fall back on our experience to clearly show the market what is happening. This is what the role of an educator is. It’s also extremely important when it comes to our relationships with tenants. We want to support them and help them implement their own ESG strategies by giving them energy-efficient space built with low-emission materials. We also want our tenants to be aware that LemonTree’s buildings provide as standard many solutions for the climate as well as for people – those that use the buildings. Our clients are our ambassadors because they go out into the market and there they strongly express their expectations. At the moment, the reaction of most developers is to squeeze out the related costs. That is definitely how most of them react, by concentrating on short-term margins. However, the current market and its trends require higher investment and this will result in long-term profits, not to mention every other consequence of acting in line with sustainable development. This is something that we are hearing more and more in our conversations with our business partners – both our tenants and investors. That’s why we include such solutions in the price – and that’s where the difference lies.

There’s no room for compromise? You can afford to walk away from commissions and leases?

MK: We have a totally different strategy. We develop buildings that are environmentally friendly from the ground up with the use of the best quality materials. We offer them at market rates under the assumption that if a client wants a particular location, the higher standard will be the final argument for them in choosing our project. A sustainable approach brings better results over the long term and greater profits for both the tenant and the developer – and it also benefits the environment. You can already see the difference this makes, but in the future it will be more black-and-white. Soon we will be receiving data for the entire year from one of our tenants and we’ll find out how things are in terms of the utility usage and what the effect has been of the sustainability solutions applied. We are going to see that there is no better investment than in renewable energy and technology to reduce harm to the environment. This is the best kind of investment because it brings the biggest returns, but right now, at the beginning of this road, it’s sometimes hard to understand and quantify this. When research is published into the application of such solutions, everyone will start to follow this trend. I hope by then we will be two steps ahead.

BK: We are fully aware that the real estate sector is responsible for over 33 pct of global CO2 emissions. And if we include transportation, which is closely related to warehousing, the total comes to over half of all emissions. So it seems logical that fixing this state of affairs should start with companies in our sector – and we need to do this together. Therefore, we cannot take the approach that this is our own unique know-how and we’re not going to share it with anyone, or we’re not going to help to save the planet at all. Educating the market must encompass the entire sector – tenants, banks, investors and even competitors. And there can be no education without transparency and communication and also without us inspiring each other.

And how do you apply your ideas to specific projects?

MK: Let’s begin with Booster in Zabrze – this is our latest project and a good example of the application of our philosophy in practice. The complex is being built in the middle of the conurbation, not next to the A4 motorway but off the DTŚ, the city’s internal bypass, which is mainly used by the people of the city. Booster is an urban technology park – an office and logistics centre. We are planning to develop five buildings of various functions there. The largest of them is to be around 40,000 sqm and is fully leased to a single client. We can’t name the company for the time being, but I can say that the client demanded a specific standard for the building, including a range of innovative features that will improve the company’s links to the CEE region. These include the installation of a cooler based on energy-saving cooling technology that will act as an ammonia chiller for a glycol system. The building is to be provided with heat from the chillers and the heat pumps. In addition to that, solar panelling is to be installed that will have an eventual power output of 3 MWp for the entire Booster complex. Part of this installation is to be connected to an energy storage facility. It’s also worth mentioning that we have decided to install experimental algae panels in this project to test their energy efficiency. Originally, the site was earmarked for a shopping centre, but the local community were happy to accept our project, which is modern and environmentally friendly. Additionally, following sustainable development principles, we have set aside some of the site for the use of the local community. A cultural venue for artists is to be established along with recreational facilities, restaurants and sports facilities including a playing field.

So, not just a gym for truck drivers?

MK: At LemonTree we want to go beyond the current standards of the sector, but, of course, a great deal depends on the location and the projects themselves. It’s worth pointing out that our main tenant in Booster has an issue with the limited access to natural light in the offices at their current location. For this reason, we took the approach of ensuring that the top office floor was above the roofs of the warehouses so that every room on this level could have windows on all sides. We also proposed a separate building for training, which is to be located next to the water tank. This is to be an elegant wooden construction built in the style of the region where the project is being developed. I, for one, can’t wait until the work is finished by our general contractor, which is scheduled for Q2 2025. The second building in Booster, which is being built at the front of the complex, will be an office building and has been designed so that the neighbouring logistics operations won’t disturb anyone and that the pedestrian and road traffic are kept separate. It is a nice comfortable building designed for the well-being of the employees with good access to transport. This is what tenants are looking for because, as a result, they will have no problems with hiring and keeping their staff.

And what about your latest project in Szczecin? When this issue of ‘Eurobuild’ comes out the construction work should be well underway.

MK: As I’ve previously said, at the end of May we will be handing the building site over to the general contractor. The location is once again within the city’s motorway ring-road. Kołbaskowo is nearby, where the Amazon centre is situated. In this case, the project is being added onto a retail park. It is a simple building but its technical aspects are fully thought through, such as the internal road being completely separate from the entrances for passenger cars and trucks. The warehouses are intended for last-mile logistics and light production. They have their own branding and a unique design.

Let’s move on to what you’re busy with in Warsaw.

MK: We’re completing the construction of Fresh Warsaw in the city’s Targówek district and expect the use permit to come through in the summer. The centre is already 80 pct leased. The tenants we’ve signed up appreciated the high standards and the technology as well as the environmental solutions. We are especially proud of retaining the poplar trees on the site. They would have been cut down for a standard project and thujas planted in their place. And we should also talk about the project in Mysłowice that we’re now finishing. This is a 10,000 sqm building intended for light production and advanced technology – and it has been fully leased.

And what do you think the sectors of the future are going to be?

MK: At the moment, there is no life science sector in the Polish industrial market, so we can see some potential there. Data centres are expanding very rapidly – only in the Warsaw region for the time being, but they could soon be appearing in other large Polish cities. We also hope that we are blazing the trail for others and specialist mixed-use space combined with logistics will become more popular.

What kind of timeframe are you planning in terms of the future activity of your company?

BK: We hope to begin another pipeline in five years’ time and complete the 500,000 sqm we have under development.

ŁJ: In ten years? Well, we hope that our buildings will indeed turn out to be zero emission and that the technology used to achieve this will confirm beyond all doubt that we chose the right path and achieved our goals. We want to position ourselves as a developer that does not create typical industrial buildings but unique logistics and service centres intended for tenants who demand the latest technology and who are, moreover, aware of and educated about environmental issues and the changes the world is going through.

BK: It’s also very important to note that 70 pct of the leases we sign today are 10- to 15-year contracts and some are even for as long as 20. This proves that our clients are aware of these issues and so they treat their leases as a long-term investment. As a result, they are prepared to accept the slightly higher costs of LemonTree’s environmental solutions because they know they will benefit from them over the long term.