Tentative optimism

After a record-breaking 2015, this year is unlikely to be equally as good for the warehouse sector. WBJ Observer asked Robert Dobrzycki, managing partner at Panattoni Europe, to sum up the events of the past year and explain how the current political and economic changes in Poland could impact the warehouse market Interview by Beata Socha WBJ Observer: Last year was exceptionally good for the warehouse market, with a record-breaking 2.2 million sqm of space leased and net take-up close to 1.5 million sqm. Where did the demand come from? Robert Dobrzycki: While previous years brought more capital to the warehouse market, in 2015 we saw a significant improvement in the tenant market. We saw increased demand from the automotive sector as well as from e-commerce. Interestingly, the latter involves companies that are moving their logistics to Poland from Western Europe. Until recently, Poland served Western European markets in a manufacturing capacity. Now, it also serves its consumption needs. These days it’s not unusual to have goods moved from Germany to distribution centers located in Poland, only to have them shipped back to German customers. In terms of liquidity and capital, the market has been developing very nicely over the past year. The market saw nearly 1 million sqm delivered over the past year, with Panattoni having the biggest share in recent completions (443,000 sqm). How many projects are you working on right now and where? Currently, Panattoni Europe is expanding its own parks at key sites in Central Poland, Silesia, as well as in secondary locations, outside the mainstream – in Szczecin, Bydgoszcz and Lublin. We are also building a BTS scheme, which includes manufacturing. As of the end of 2015, 567,000 sqm of new space (73 percent of the total pipeline) was in the process of development. JLL’s recent report states that 35 percent of all space delivered last year was speculative. Isn’t that too much? It’s still far from the levels we saw in 2006 and 2007, when the majority of space was built speculatively. Presently, there are few projects built entirely on a speculative basis, usually some of the space is already pre-leased. Besides, most of the speculative space gets leased while the scheme is still under construction, so there is no real cause for concern. Furthermore, construction costs for warehouse space are at an all-time low. Back in 2007, construction costs were somewhat inflated, which, coupled with a downturn in demand for warehouse space, resulted in a sharp increase in vacancies. Now, the situation is stable. The government is working on a bill that will regulate land trading. Some versions of the bill include a provision that land without a master plan will be almost impossible to sell. Could that have an impact on warehouse developers? Depending on the final version of the bill, it will likely have some impact on land supply and availability. As always, limited availability leads to a temporary imbalance on the market and could lead to an increase in rents. For investors who already have a portfolio, this would be a positive, as the assets they already have will only get stronger. For developers, it might spell some difficulties. What about the other legal changes in Poland, the retail tax for instance, which will impose a tax on large retail tenants? Will these affect the warehouse market as well? The tenant market is rather stable and will not be influenced much. Competition has not changed, after all. What will be affected by the new tax is the investor market. It is the sensitive element here. Many market players find the current situation uncertain. Some transactions will be put off while investors wait for the dust to settle. This uncertainty is the biggest threat right now. Has the bank tax, introduced in February, increased the cost of capital for you? Yes, our cost of capital has risen due to the tax. Do you expect it to affect your business in any way? Of course, to some extent it will affect it, but it should not restrict the development of the market. All in all, do you think 2016 will be as good as 2015? I wouldn’t expect this year to be better than 2015, given the general geopolitical unrest, China’s slowdown, and the Russian banking sector. But, I would say it could be almost as good as last year.