Despite sentiment towards global real estate having fallen sharply, the outlook for the Polish logistics sector has improved significantly as a result of Covid-19, says Redefine Europe CEO Pieter Prinsloo.
Speaking during real estate investment trust (Reit) Redefine Properties’ Polish market update webinar on October 23, he elaborated that the European market in 2020 saw “exceptional demand” from tenants for space close to urban clusters, as well as a growing preference for e-commerce and a rethink of supply chains.
These factors have combined in driving the sector forward, according to Poland-focused European Logistics Investment (ELI), a Redefine Properties subsidiary in which the company has a 46.5% equity interest.
ELI comprises a Poland-focused logistics platform of about 527 000 m2 of standing assets, 145 000 m2 of assets under development and more than one-million square metres of potential development pipeline.
The Polish logistics sector buoyancy can be attributed to factors such as construction lead times, which tend to be relatively short, and low capital expenditure. During the webinar, Redefine Properties CFO Leon Kok said the company’s strategy with this European region is “centred on creating a well-diversified and leading Polish logistics platform capitalising on the strong economic and real estate fundamentals in the sector”.
“[The company has seen] huge potential to create a large and diversified portfolio with a good mix between built-to-suit, inner-city, multitenanted and single-tenanted developments in prime nodes,” Redefine Properties CEO Andrew Konig commented in a separate statement.
Redefine will, over the next five to seven years, look to increase its Polish industrial assets to up to two-million square metres in size and target €1-billion in gross asset value.
“Poland is a prime location for the logistics sector [owing] to the country’s position in central Europe. Moreover, it is a liquid real estate market with high investor appeal and producing hard currency free cash flow,” Konig added.
Meanwhile, Prinsloo added during the webinar that occupier demand in Poland continues to be driven by e-commerce, with small warehousing units within the inner city areas and last-mile facilities close to urban centres in high demand leading to higher rentals and asset values.
“Poland is also fast becoming a significant logistics hub for international players and is very competitive compared with Western Europe in terms of rental rates and labour costs.”
Prinsloo added that the industrial sector “had its best six months”, where until June 2020, 20 deals (valued at nearly €1.2-billion), mainly driven by large portfolio transactions, were recorded.
Prime warehouse yields stand at 6.2% with quality assets, with long leased assets trading at sub 5%, and Warsaw inner city projects at around 5.5%.
“As the popularity of online shopping grows, the demand from occupiers will also increase. During the pandemic, consumers rediscovered the convenience of online shopping, even adding groceries to their checkout baskets. As retailers and logistics firms race to deliver a seamless experience and faster services, demand is likely to rise sharply for light industrial properties in close proximity to city centres,” Prinsloo said.
He explained that the sector had benefitted from a spike in e-commerce and courier service activity during the Covid-19 period resulting in some tenants taking short-term leases to secure additional space.
This was as a result of many companies holding greater amounts of inventory to buffer their supply chain responsiveness.
Poland was also seeing a wave of new businesses wanting to move manufacturing away from Asia and closer to customers in Europe, said Prinsloo, who noted that the supply chain disruptions from Covid-19 are "proving to be the biggest motivator”.
Redefine considers quality assets to be its “competitive edge” and the company has a substantial development pipeline in prime investment markets and locations.
The company indicated that it would continue its efforts to strengthen the balance sheet and would, where possible, refinance developments upon completion at better interest rates as the lending market improves.
Redefine Properties’ year-end results will be available on November 30.