Poland: Warehouse properties - many willing to share in the success

In brief

The Polish warehouse market saw a record year in 2020, with the value of transactions closed last year reaching EUR 2.7 billion. Taking into account transaction volumes from previous years, a steady upward trend is evident. No wonder that more and more entities are interested in investing in this segment of the real estate market. As the number of investors grows, so does their diversity - alongside traditional institutional investors, more and more transactions are concluded by private investors or in the form of joint ventures.  


A symbiosis of developers and investors

Many investors choose to cooperate with experienced warehouse developers operating on the Polish market, which also include dynamically developing companies with Polish capital. Depending on the level of risk the investor is willing to assume, this cooperation may consist in:

  • the acquisition of completed and commercialized projects by institutional investors, with the lowest level of risk

  • forward funding transactions with the participation of more passive investors (often private ones) − which, however, are broadly secured by the developer and often guarantee the investor a certain return on investment and the developer a profit with smaller equity capital commitment

  • all the way to joint venture transactions, which often involve investors with extensive development experience, but who do not have the appropriate platform to operate in the Polish market, which would enable them to carry out such projects on their own

When the first projects turn out to be successful and give credibility to the investor-developer relationship, such cooperation may soon expand to include joint implementation of further projects. Due to the pace of warehouse projects, the key to success is the speed of decision making, for which it is necessary to develop trust between partners. This guarantees the possibility of fairly rapid creation of warehouse property portfolios, which in turn are products sought after by institutional investors. 

Such cooperation with a developer is advantageous for both parties to the transaction: under a development management agreement, the developer manages the entire investment process and carries out the commercialization of the project. Complicated legal status of land, obtaining permits and approvals, negotiating lease agreements, often complex issues related to zoning, coordination of the construction process, appointing an architect and general contractor - all this often requires the involvement of a large group of specialists from various fields who have extensive experience in the implementation of warehouse projects. The developer's role is rarely limited to coordination of the investment process - it usually takes the form of substitute investment, and in return for its services the developer receives a specific monthly remuneration from the investor, constituting a certain percentage of the construction works' costs. A separate regulation covers the division of profit after the sale of the project.

The cooperation and number of projects is also fostered by the fact that warehousing projects are characterized by a relatively (compared to other commercial properties) lower "entry" cost, i.e. the cost of purchasing or developing an investment. This enables smaller investors to invest as well, while larger players can develop more projects at the same time or acquire entire portfolios of warehouse properties.

There are also different types of warehouse properties available on the market, each of which can be attractive to a potential investor. Some warehouses are intended to be leased to several or a dozen different tenants (so called "multi-let projects"), which allows the landlord to diversify the risks involved in leasing space. Other warehouses are so-called BTS ("built-to-suit"), i.e. buildings designed and constructed with a particular tenant in mind, who will lease the entire available space in the building. Fit-out of premises required for the needs of such a tenant is usually much more expensive, often such space is intended for production with the use of modern technology and specialized machinery. Implementation of such facilities may also be somewhat longer due to a more complicated process of obtaining all permits allowing for the implementation of such a facility. Due to the high level of such investments, lease periods in this type of agreements are longer than in multi-tenant warehouse buildings. Additional collateral is also expected at the corporate level, allowing the receivables due from the tenant to be enforced against an economically strong entity in the tenant's capital group. 

Many warehouse developers are now choosing to introduce innovative and pro-environmental solutions in their projects - e.g. "green" building roofs, installation of photovoltaic batteries or other solutions reducing the environmental impact of the investment. This undoubtedly increases the quality of each project and may encourage to invest those investors who pay special attention to environmental protection issues.

Developers are also constantly looking for new solutions for their products that will differentiate them from the competition and attract new tenants. Such new products include urban warehouses (the so-called "last mile") located within city boundaries and thus allowing for shorter delivery times at their final stage. Such products are also gaining popularity among tenants looking for relatively small warehouse space with the possibility of running an office and showroom. Tenants' interest translates into demand for such commercialized facilities among institutional investors.

At the same time, such facilities pose an interesting challenge for warehouse developers in the area of shaping the urban fabric. The existing classical warehouses located outside of city boundaries have not, in principle, fulfilled any social function, while the new urban form of warehouses must not only correspond architecturally to the surroundings, but also respond to the social needs of city residents.

The future of the real estate warehouse market

The current situation related to the COVID-19 pandemic has strengthened and accelerated the dominance of the warehouse properties sector in Poland, especially in view of the weakening of other traditional commercial real estate sectors such as offices, retail and hotels. The warehouse sector seems to be immune to the current pandemic situation, and the rise of e-commerce only deepens this dominance. Developers are responding to the growing interest of new investors in this market segment by offering various cooperation and investment models to potential investors. This gives hope for further dynamic growth of the Polish warehouse market in the coming years.

This alert can also be viewed in Polish

 

Please note that this article was originally published in Outsourcing & More magazine on 1 May 2021. 

Contact Information

Copyright © 2022 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.