Accelerating e-commerce trends and consolidation of supply chains proving to be COVID-19’s silver lining for Polish logistics sector

Rosebank, South Africa, 23 October 2020: While sentiment towards global real estate has fallen sharply, the outlook for the Polish logistics sector is proving to be COVID-19’s silver lining. Exceptional demand from tenants for space close to urban clusters, growing preference for e-groceries and a rethink of supply chains are combining to drive the sector forward according to Poland-focussed European Logistics Investment (ELI).

Since 2018, Netherlands based ELI, in which Redefine Properties has a 46.5% equity interest, has developed eight assets, with another five under construction, and six under due diligence for future development. ELI consists of a Polish-focused logistics platform of approximately 527 000sqm of standing assets, 145 000sqm of assets under development and over 1 million sqm of potential development pipeline.

Andrew Konig, CEO, Redefine Properties says, “We continue to prioritise efforts and leverage opportunities to expand through the development of well-located assets occupied by high quality tenants. Our strategy 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 sector’s buoyancy can be attributed to factors like construction lead times, which tend to be relatively short, as well as low capital expenditure. In times of volatility, assets that require smaller capital outlay can be appealing because of their capacity to preserve investor returns.

“We see a huge potential to create a large and diversified portfolio with a good mix between built-to-suit, inner -city, multi -tenanted and single -tenanted developments in prime nodes. Over the next five to seven years, we will be looking to increase our Polish industrial assets to up to 2 million sqm in size and target EUR1 billion in gross asset value,” adds Konig,

“Poland is a prime location for the logistics sector due 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 cashflow.”

Occupier demand in Poland continues to be driven, among other factors, by e-commerce with small warehousing units within the inner city areas and last mile facilities close to urban centres much in demand and 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.

“The industrial sector had its best six months, until June 2020. Twenty deals with a total volume of almost EUR1.2 billion were recorded, mainly driven by large portfolio transactions. Prime warehouse yields stand at 6.25% with quality assets, with long leased assets trading at sub 5.00%, and Warsaw inner city projects at around 5.50%,” says Pieter Prinsloo, Redefine Europe CEO.

“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,”

The sector 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 is also seeing a wave of new businesses wanting to move manufacturing away from Asia and closer to customers in Europe. The supply chain disruptions from COVID-19 is proving to be the biggest motivator.

“Quality assets are our competitive edge and we have a substantial development pipeline in prime investment markets and locations. Our efforts to strengthen the balance sheet continue and where we can, we will refinance developments on completion at better interest rates as the lending market improves,” concludes Konig.

“We follow a simple recipe for success, secure long-term leases with high-quality tenants, maintaining low operational expenses while optimising capital structures, as well as ensuring transparency and regulatory compliance. We focus on creating sustained value.”