21:25 9 November 2020
Post by: WBJ

A Flourishing Tale

Despite the pandemic-fuelled economic downturn, Robert Dobrzycki, Panattoni Europe’s boss states that the logistics sector has flourished as compared to the retail and office sectors. INTERVIEW BY SANKHYAYAN DATTA

A Flourishing Tale

WBJ: How does the forecast for Q4 2020 look? How is the logistics sector doing compared with other asset classes? Do you see anything fundamentally changing?

Robert Dobrzycki: The logistics sector turned out to be more resilient to the restrictions of the pandemic than the rest of the real estate asset classes. Moreover, in comparison to the retail and office sectors, which have been the most affected, it has flourished. Over the first half (H1) of 2020, Panattoni signed lease contracts for more than 1 million sqm, which is more than twice the space leased over the same period of 2019. This is due to several factors and changes in the market. We have seen a shift in consumer behavior as they switch from classic channels to the internet on a large scale. As a result, e-commerce has been developing very rapidly – investment in this segment accounts for nearly 50 percent of the projects Panattoni currently operates. Specifically, the demand that comes from online shopping is much bigger than the loss of demand from traditional retailers.

What is the most important lesson Panattoni has learned from the pandemic and how have the relationships been with the tenants?

In difficult and changing circumstances, the most important thing is the ability to act flexibly and react to changes in trends on an ongoing basis. Therefore, as soon as the pandemic took hold in March, we started helping our clients to endure this difficult period. This mainly involved renegotiating contracts we had signed with our tenants. In the case of the industry that has been most hurt, which is the retail sector, we have held discussions individually about deferring the rents so that they will be able to quickly return to their normal activities as soon as the economy revives. It is worth pointing out that the effects of the pandemic and the ensuing restrictions intensified during the initial phase. Currently, the number of our customers in a difficult situation is much smaller.

What investments are in the pipeline and how do the finances look? Are deals being driven by rental growth projection?

By the end of June, Panattoni had 857,395 sqm under construction in Poland. By the end of this year, the total supply of industrial space in Poland will be over 20 million sqm. Under current circumstances, rental growth is one key metric for companies seeking to thrive in an ever more demanding market. Definitely, we are going to see it growing steadily, especially in locations where land supply is tightest such as urban areas or clusters around large cities. We have seen an increasing allocation of capital coming from other sectors because the logistics market has remained open, unlike retail and some office markets. After the pandemic, we should see further growth in capital flows since investors really want to allocate more to logistics assets. In particular, when it comes to interest rates, there is still a positive yield gap between cap rates and bond yields. This gives investors confidence and helps to attract capital to the sector.

What potential is there in last-mile opportunities alongside bigger box out-of-town formats? Is there a settled definition of the last mile?

Last-mile should be treated as something more than just simply delivering an order to the final customer as quickly as possible. In a time of rapidly developing e-commerce and changes in consumer attitudes, you also need to think about handling returns and complaints quickly. For this to happen, such points must be equipped with the technology to handle the quick rotation of goods. For this reason, smaller warehouse centers located within city limits, perhaps even in the centers of large urban areas are gaining key importance and their use is also becoming more diverse. They can be used both for storage and light production, as well as for creating distribution or sales points in a city. Such centers usually have a large office component so they can serve as the headquarters of a company. City locations work well for many types of service companies as well as for showrooms and, of course, startups. There is also interest from local businesses, such as cosmetics or pharmaceutical firms, whose customers and suppliers are nearby.

The potential of the urban facilities can be clearly seen with our City Logistics concept. So far we have delivered seven such complexes in Łódź, Warsaw and Wrocław. The next ones - City Logistics Katowice and City Logistics Warsaw V are in the pipeline. The total space we offer in this format in Poland, in both completed and pipeline developments, will be around 217,000 sqm.

What role does ESG play?

Environmental, social and governance (ESG) factors are becoming one of the top priorities for developers, tenants and investors. While keeping a focus on employees in mind Panattoni introduced such solutions as glazed facades, increasing natural lighting in a building and we enlarged the green zones and the relaxation zones by moving the parking areas farther from the buildings. In the warehouse and industrial space market segment, Panattoni has submitted many more projects for certification than any other developer. So far over 30 centers in Poland (with a total area of 1.6 million sqm) were delivered in compliance with BREEAM and LEED guidelines and another 1.7 million sqm of space is currently under the certification process. This means that already one-third of our investment projects have met these strict environmental criteria. From the beginning of this year, BREEAM certification with a minimum rating of ‘Good’ has become mandatory for all our newly-built facilities.

Do 3PL and end-users also recognize the need to introduce environmentally-friendly solutions in the facilities they order?

More and more investors want their warehouses and production halls to be constructed in accordance with sustainable development principles. And this is especially true considering that the transition to green energy also entails a significant reduction in operating costs. As a result, there is increasing pressure from customers and the logistics operators (3PL) acting on their behalf for such solutions not only when it comes to constructing warehouses and production halls, but also in the very way goods are transported. Panattoni is also following the market's needs, introducing sustainable development concepts and creating a new standard for its warehouses in Europe. That minimizes the impact of a project on the natural environment. For example, all the facilities built by us have extra insulation in their roofs and walls and the buildings are airtight which reduces exhaust gases and CO2 emissions and can add up to 20 percent in energy savings when heating the facility.

A good example is the logistics center for Reconext, which is currently under construction in Bydgoszcz. On the tenant’s explicit request we are going to install solar panels of capacity 300 kWp. Additionally, all our newly built projects implement numerous modern technologies, such as automated electricity management and systems to minimize water consumption, not to mention the mandatory BREEAM certification.

robert dobrzycki

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