Catching the wave

ALEX HAYES, 'Eurobuild CEE': In January we wrote that Panattoni had developed 164,000 sqm over 2011, that it had leased an area of 350,000 sqm and that 100,000 sqm was under development. What has happened since then?
ROBERT DOBRZYCKI, managing partner for the CEE region of Panattoni Europe: Since the beginning of 2012 we have completed 100,000 sqm in Poland for such clients as Delphi, Recaro and Manuli Hydraulics and now have under construction another 135,000 sqm. In the spring we started a number of new developments. We've been extending our parks with new BTS schemes. We have a number of new sites and we are starting our first retail box development in the autumn. We've also signed leases with clients such as Pilkington and Lear. Our parks in Mysłowice, Łódź and Wrocław are all expanding. All these projects began this year.

What about speculative development?
There has not been much. We might add a speculative development to a pre-leased warehouse, but only in locations where it makes sense, meaning our existing sites, such as Gliwice, Gdańsk, Mysłowice or Wrocław, as well as in cases where there is very limited availability of space in the submarket.

Is it true that the roads are allowing new competitors to enter the market?
It's true that new roads are changing the industrial layout of Poland. Many of the old roads are becoming local roads. They are still good, but now they are being put to different use. But the thing is the plans for the highways have been in existence for a long time. It's not as if these roads have suddenly appeared out of nowhere. Panattoni's strategy has always taken into account the proposed new highway system.

Goodman said that it sees its advantage on the market as its financing, allowing it to develop more than the competition.
Over the last five years Panattoni has continuously developed both speculatively and with BTS facilities. We are not linked to any specific fund that has investment criteria or allocation criteria, but we are linked to multiple capital sources with different views of financing. Of course, some of our competitors are differently structured and represent more a source of investment product for investment vehicles, but for us sources of capital are more the means for us to do business. Our goal is to do good business and be fair to all of our business partners. As long as we do that we'll be fine in the long term.

Goodman expects to become the top developer of warehouse space in Poland.
From the very beginning of Panattoni in Poland, we have been continuously improving our performance. The competition landscape has always been changing, but still we do what we do best and try to run the business properly. Being number one is the result of our actions and not the goal.

PointPark Properties has just announced the first BREEAM certified warehouse in Poland. Where do you stand on green issues?
We're pretty open to green issues. We will apply for certification wherever we can. We are certifying our first building with BREEAM right now. We are trying to improve green friendly aspects in a way that benefits everybody.

What do you mean by that and where is that first warehouse?
In Łódź. It's definitely the first of many. A certificate is just a structured way to follow the rules that get you to more sustainable development. Many of our buildings already have green features, especially the build-to-suit projects involving such solutions as heat recovery from production processes, solar panels, rainwater recovery, special efficient façades, etc.

Where do you see future development taking place on the Polish market?
Lower labour costs are still the main driver. We are experiencing a slowdown across Europe and various sectors are implementing cost savings. This means that many are moving from Western to Central Europe and this is still the main driver of industrial development in Poland. Secondly, the new infrastructure is changing the layout of Poland and bringing cities together. This means that you don't have to have facilities in each and every city, but you can centralise. For example, there is no good quality warehousing in Bydgoszcz, but now Stryków or even Gdańsk might be able to serve the city. As a result of the new infrastructure, we are going to see more core hubs being developed with BTS developments.

Does this mean that there are not going to be any warehouse developments in smaller towns where there is already a motorway, for example near the Ukrainian border?
In such regions there is potential for warehouses which serve local distribution, and for production facilities based, for example, in economic zones. However, the biggest warehouse markets will be located in Upper Silesia and Central Poland.

And in what locations do you expect to see growth?
Central Poland and Silesia for logistics, and west and south Poland for industrial.

I've heard that the growth in e-commerce is going to boost the demand for warehouse space, since goods sold over the internet require less shop space and more warehousing.
I agree. Companies like Amazon don't sell through shops, so clearly additional stock is being stored in warehouses. Instead of having a store in Złote Tarasy you lease from us. Indeed, we have developed a warehouse in Poznań for H&M, and mail order for the company goes straight through us. This will be the trend in Poland, though it won't be as visible as in Western Europe.

But you don't believe that the market is in any way saturated?
In Poland there is around 7 mln sqm of stock, with a population of around 40 mln people. California has around this number of people and twenty times more stock. The market in Poland is still very small and is going to grow. There is still a lot of room, but there are limits of saturation. If you saturate the market one year, you can fill it the next. On a huge market it's hard to control 30-40 pct of the stock. We, together with Prologis, own a large percentage, but it's hard to imagine that this position can be maintained long term. When we came in 2005, someone said that there was no room for a third player on top of Prologis and Parkridge. Now the competition is being limited by the credit crunch.

Where do you see yourself in a year's time? Are you optimistic about the near future?
I'm definitely optimistic. If you do a good job you will be in good shape. By the end of the year we should have completed what we have started. We are continually looking for new developments for the pipeline and are adjusting to meet the market for the coming year. If we do that right and catch the wave, then I'll be happy.

So I take it that so far you feel that you have - as you put it - caught the wave?
I'm pretty happy with our judgement so far. We are number one in terms of delivered space, having delivered double the area of the number two developer since the credit crunch. And post-crisis activity is a really good measure of a developer's performance.

Robert Dobrzycki
began his career at Panattoni as managing director for Poland in July 2005, when the US company first entered the Polish market. After a year he was made a partner of the group for the CEE region. Prior to Panattoni, Robert was the director general of Menard Doswell & Company. He graduated in management from the University of Warsaw. Panattoni currently has a 1.4 mln sqm portfolio in Poland with a vacancy rate of under 2 pct. It also has two projects in the Czech Republic and another two in Slovakia. The Panattoni Group was founded in 1986 by Carl D Panattoni in the US. The group first entered the European market in 2004 and is currently present in ten countries throughout North America and Europe. Panattoni has opened offices in the Czech Republic, Paris, Amsterdam, Luxembourg, Barcelona, Milan, Rome and Germany.