The Polish warehouse market saw a record year in 2020, with the value of transactions closed last year reaching EUR 2.7 billion. Taking into account transaction volumes from previous years, a steady upward trend is evident. No wonder that more and more entities are interested in investing in this segment of the real estate market. As the number of investors grows, so does their diversity – alongside traditional institutional investors, more and more transactions are concluded by private investors or in the form of joint ventures.
A symbiosis of developers and investors
Many investors choose to cooperate with experienced warehouse developers operating on the Polish market, which also include dynamically developing companies with Polish capital. Depending on the level of risk the investor is willing to assume, this cooperation may consist in:
the acquisition of completed and commercialized projects by institutional investors, with the lowest level of risk
forward funding transactions with the participation of more passive investors (often private ones) − which, however, are broadly secured by the developer and often guarantee the investor a certain return on investment and the developer a profit with smaller equity capital commitment
all the way to joint venture transactions, which often involve investors with extensive development experience, but who do not have the appropriate platform to operate in the Polish market, which would enable them to carry out such projects on their own
When the first projects turn out to be successful and give credibility to the investor-developer relationship, such cooperation may soon expand to include joint implementation of further projects. Due to the pace of warehouse projects, the key to success is the speed of decision making, for which it is necessary to develop trust between partners. This guarantees the possibility of fairly rapid creation of warehouse property portfolios, which in turn are products sought after by institutional investors.
Such cooperation with a developer is advantageous for both parties to the transaction: under a development management agreement, the developer manages the entire investment process and carries out the commercialization of the project. Complicated legal status of land, obtaining permits and approvals, negotiating lease agreements, often complex issues related to zoning, coordination of the construction process, appointing an architect and general contractor – all this often requires the involvement of a large group of specialists from various fields who have extensive experience in the implementation of warehouse projects. The developer’s role is rarely limited to coordination of the investment process – it usually takes the form of substitute investment, and in return for its services the developer receives a specific monthly remuneration from the investor, constituting a certain percentage of the construction works’ costs. A separate regulation covers the division of profit after the sale of the project.
The cooperation and number of projects is also fostered by the fact that warehousing projects are characterized by a relatively (compared to other commercial properties) lower “entry” cost, i.e. the cost of purchasing or developing an investment. This enables smaller investors to invest as well, while larger players can develop more projects at the same time or acquire entire portfolios of warehouse properties.
There are also different types of warehouse properties available on the market, each of which can be attractive to a potential investor. Some warehouses are intended to be leased to several or a dozen different tenants (so called “multi-let projects”), which allows the landlord to diversify the risks involved in leasing space. Other warehouses are so-called BTS (“built-to-suit”), i.e. buildings designed and constructed with a particular tenant in mind, who will lease the entire available space in the building. Fit-out of premises required for the needs of such a tenant is usually much more expensive, often such space is intended for production with the use of modern technology and specialized machinery. Implementation of such facilities may also be somewhat longer due to a more complicated process of obtaining all permits allowing for the implementation of such a facility. Due to the high level of such investments, lease periods in this type of agreements are longer than in multi-tenant warehouse buildings. Additional collateral is also expected at the corporate level, allowing the receivables due from the tenant to be enforced against an economically strong entity in the tenant’s capital group.
Many warehouse developers are now choosing to introduce innovative and pro-environmental solutions in their projects – e.g. “green” building roofs, installation of photovoltaic batteries or other solutions reducing the environmental impact of the investment. This undoubtedly increases the quality of each project and may encourage to invest those investors who pay special attention to environmental protection issues.
Developers are also constantly looking for new solutions for their products that will differentiate them from the competition and attract new tenants. Such new products include urban warehouses (the so-called “last mile”) located within city boundaries and thus allowing for shorter delivery times at their final stage. Such products are also gaining popularity among tenants looking for relatively small warehouse space with the possibility of running an office and showroom. Tenants’ interest translates into demand for such commercialized facilities among institutional investors.
At the same time, such facilities pose an interesting challenge for warehouse developers in the area of shaping the urban fabric. The existing classical warehouses located outside of city boundaries have not, in principle, fulfilled any social function, while the new urban form of warehouses must not only correspond architecturally to the surroundings, but also respond to the social needs of city residents.
The future of the real estate warehouse market
The current situation related to the COVID-19 pandemic has strengthened and accelerated the dominance of the warehouse properties sector in Poland, especially in view of the weakening of other traditional commercial real estate sectors such as offices, retail and hotels. The warehouse sector seems to be immune to the current pandemic situation, and the rise of e-commerce only deepens this dominance. Developers are responding to the growing interest of new investors in this market segment by offering various cooperation and investment models to potential investors. This gives hope for further dynamic growth of the Polish warehouse market in the coming years.
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Please note that this article was originally published in Outsourcing & More magazine on 1 May 2021.