2022 was record breaking for warehouse real estate in Poland, with 4.4 million sq m completed, the best result in the sector’s history. This means 42% more facilities built compared to 2021. 52% of space was rented by logistics companies, 15% by commercial networks and 10% e-commerce and production. It seems that the demand side is still strong as companies want to make their supply chains more efficient. What does this all mean for Poland?
Sylwia Ziemacka talked to Szymon Ostrowski, Managing Director at Newport Logistics Fund.
We met recently at Mipim in Cannes. I think that’s the best place to gain insights from around Europe. Where are we now as Europe in terms of the logistics market and what are the forecasts?
Generally, logistics are doing very well in Poland and also across Europe. There is high demand for logistics space, which together with insufficient supply, creates opportunity for developers. Logistics is a very interesting part of real estate because this is something that you can build very quickly compared to other assets. In the case of warehouses, we are talking about six to nine months. Logistics, similar to other real estate assets, provides a stable fixed income for investors, who are the final owners that buy and hold the assets. However, even more importantly, logistics is doing very well in these challenging times. On the one hand the current situation is demanding due to geopolitics, high inflation and interest rates. But on the other hand, there are also opportunities for logistics and warehouses, because among other things the war has created supply chain issues that, in turn, have driven demand for more warehouse space. Also worth keeping in mind is the situation with COVID. I know we claim to live in a world where COVID is gone, but the consequences are still with us.The Zero-Covid policy in China was just recently terminated, but supply chains are not back to the previous stage and they won’t get back there soon.
Then we need to mention the biggest contributor to this growth and why logistics and warehouses are so interesting, and that is e-commerce, which grew significantly during COVID and is still growing, although slower. And as we have changed the way we do shopping, the e-commerce part will stay with us forever. Although it’s not growing as fast as it was during the pandemic, it is still growing 15-18% on an annual basis. And this requires more modern warehouses.
Can we come back to the disruption in the supply chain and nearshoring trend that has had an impact on our market? Or is expected to have an impact.
For many years we were discussing this topic, but we didn’t see any projects. Now we can actually see that with COVID, which really hit supply chain lines, and the war, which affected it even more, the trend of nearshoring is becoming real.
And it’s not about closing factories in China, but about building a new factory closer to the market where you are selling the product. Poland, Central Eastern Europe, or generally Europe is an attractive place. It might be slightly more expensive in terms of workforce, but on the other hand, it’s much closer to the customer and you don’t have this element of uncertainty and issue of transport, logistics and the supply chain.
Being closer to almost 450 million customers is something that is important. In this regard it’s not only about Poland or CEE but the whole of Europe?
The statistics show quite a big speed up in the investment in Europe and Poland is a dark horse in this race. At the Newport Logistics Fund, we are looking for investments across the whole of Europe. We are a Luxembourg-based fund focusing only on the full investment cycle related to development of warehouses in Europe. In the nutshell we are buying land with permits, building the warehouses, leasing them out, and then finally selling to a final institutional investor.
In a record-breaking time of 10 months, we have raised over €50 million and also invested all the proceeds into three projects located in: London, Amsterdam and Zgierz. The first project is in central Poland, the second in Amsterdam’s Almere district and the third is in London, close to Heathrow Airport. Currently, we are working on a second fund, which will be €100 million and we will be looking at assets in Western Europe with a focus on France, Spain, Germany, UK and Belgium, among others.
It is important to understand that investors are also looking at diversification and we can provide them not only geographical diversification, but also asset diversification. That’s why telling an investor you will have four assets in one country compared to having four assets across four countries makes a difference from an investment point of view.
It’s a very interesting and wise way to do business because spreading risk is always good, as diversification is important.
But if you also add rental levels, construction costs and so on, what’s the balance when looking at Poland versus Western Europe?
I think we can say that in Poland and CEE, land is very cheap compared to Western Europe. Rents in Poland are going up, last year by 20-30%, but they are still 60% lower than in Western Europe.
On the other hand, supply and demand are more or less the same. So there is a huge need for modern warehouses in Western Europe. It is also very important to remember that a warehouse built 15-20 years ago doesn’t fit the expectations of many clients or tenants.
You mean ESG criteria?
Yes, 20 years ago nobody knew what ESG was. Today it’s different. Even in terms of all the technical elements – 20 years ago they did not exist. That’s why we are also looking for brownfield projects.
Actually in our project in London, we acquired a piece of land with two warehouses, which we are taking down and building a modern warehouse. Why are we doing it? Because we can get even more rent from it. Because it will be a modern warehouse.
The pressure for ESG is growing – is it coming mainly from the investors’ side or also the tenants’ side?
Without a doubt. Something that at the beginning was more of a marketing idea, became a reality. The European Union made a huge effort to launch its taxonomy and put ESG high up the agenda. Today it is also almost impossible to get bank financing or insurance for a project that is not in line with ESG.
So both perspectives are important, including requirements from tenants who also have their own shareholders. And their shareholders are asking about ESG, how green you are. The same with investors.
On top of this, I think it’s important to understand that ESG is not a problem. It’s a solution by paying lower bills and contributing to the road to net zero. Energy or water efficiency, etc. is an important element, especially today with extremely high energy prices. Being energy efficient, having solar panels, having water containers, having all those things in place, makes sense because at the end of the day, the bill is lower.
So, in a way, the whole ecosystem is expecting it. It’s much more developed in Western Europe, but is already coming very strongly to Poland. It’s a good thing to do to help the planet and, of course, there is a business effect as well. You will be more successful in renting a high standard warehouse. So it means it will be easier to sell, which means it will be easier and quicker to give back money to investors. And that’s the whole idea.
What are your forecasts for Poland?
For many years, Poland has been and will be a very good place for investing in logistics, in warehouses, etc, because of its proximity to Western Europe, its very good highways and infrastructure, etc.. Also when the war started, there was a huge trend of friendshoring.
A lot of companies from Ukraine have moved their operations to Poland. Also the flow of supply, including military, which is going through Poland, has really boosted the market. A growth in terms of logistics and warehouses, especially in the eastern part of Poland has been noticed. I don’t want to say that before the eastern part of Poland was neglected, but for many years it was not really developing as there was no real need there. Because at the end of the day, we need to remember that everybody is building where there is the demand and demand creates supply.
But now due to the war and future reconstruction of Ukraine, the eastern part of Poland is gaining momentum in logistics and warehouses. That’s without a doubt. Once the war ends, and we all wish it will end as soon as possible, this area will flourish because of the need to get money, equipment, etc. in to rebuild Ukraine.