(MVCOSHOP, CC BY-SA)
European investment funds represented by INWI, a Warsaw-headquartered real estate firm, want to invest in the property market in Poland in the form of sale and leaseback transactions. Sale and leaseback is a financial transaction in which the owner sells an asset and leases it back for the long term, and therefore, the owner becomes a tenant and continues to be able to use the asset.
The firm and its financial partners are looking to buy existing manufacturing, logistics, warehouse and office properties for up to EUR100m per transaction. However, sellers do not have to move out. The investor is counting on long-term (10-20 years) lease agreements that will bring in a steady income. The funds have already carried out transactions for several hundred EUR in Poland, Germany, Spain and Italy. The purchases have included logistic assets, warehouses, manufacturing buildings, headquarters and office properties.
“Together with these funds, INWI plans to acquire these facilities in Poland to provide its investors with stable and long-term returns. For the sellers, this is an opportunity to quickly obtain the necessary capital for the development of their business. Most transactions concern existing buildings, however, we are also able to finance the construction of new buildings based on a build-to-suit agreement,” says CEO Daniel Radkiewicz.
While the lack of in-depth knowledge about sale and leaseback might act as a hindrance, he emphatically states that Poland has much to offer in that respect considering the rising number of investments. “According to INWI, there is a lot of potential for this type of transaction in Poland. The lack of understanding about this system of fundraising may be an obstacle, but this has been changing from year to year, which is confirmed by the number of transactions concluded in this investment model in Poland,” Radkiewicz adds.
Taking into account that Poland offers great potential for fabrics and logistics centers, in order to diversify the distribution and production networks that are currently in Asia, the EU nation may gain over the USD8bn yearly on the relocation of production from China. “The European Bank for Reconstruction and Development (EBRD) indicates that this year Poland will see a decrease of 3.5 percent of GDP and next year a rapid 4 per cent rebound will occur. Estimates for all other European countries are much worse,” emphasizes Radkiewicz.
Recently, the European Commission in its Spring 2020 Economic Forecast said that the Polish economy will shrink by 4.6 per cent in 2020 and will expand by 4.3 per cent in 2021, as the HICP inflation declines to 2.7 percent in 2020 and edges up to 2.8 percent in 2021. In May’s forecast, the EC expected Poland’s GDP decline at 4.3 per cent in 2020 and see a 4.1 per cent increase in 2021. Meanwhile the GDP of the EU will decrease by 8.3 per cent in 2020, and increase by 5.8 per cent in 2021.
The infrastructure in 2020 and beyond
The Polish freight and logistics market is expected to witness a CAGR of more than 4 per cent during the forecasted period of 2020-2025 with the road freight segment accounting for the highest growth, according to a report by reportlinker.com.
Poland continues to devote sizeable resources to the development of its transportation industry. The National Directorate for Roads and Highways (GDDKiA), the Polish Railway PKP, the Polish Railway Networks (PKP-PLK), Ministry of Investment and Economic Development, Ministry of Infrastructure, and Ministry of Maritime Economy and Inland Waterways are all responsible for nation-wide or regional projects. Besides, local governments are responsible for infrastructure projects for their communities. Many highway, railway, and inland-waterway projects are eligible for EU funding. While Polish resources are required as base funding, these EU funds are catalysts for making each project a reality.
It is important to note that the current EU budget, due to last until 2020, is likely the last one to feature such abundant resources for the development of infrastructure. Therefore, Poland is introducing important changes to the regulatory framework governing the distribution of these funds, intending to enhance infrastructure investments. With a strong investment in the industrial real estate warehousing segment, the market is also experiencing favorable growth. Investment volume has been growing every year, starting from 2015, when it was a mere EUR221m of transactions.
The figure for 2016 was almost EUR770m and EUR900m in 2017. In 2018, up to 90 parks with almost 3.2 million of square meters (sqm) of total space changed hands, representing over 20 per cent of total existing stock in Poland. The value of industrial investment transactions reached a historical high of the EUR1.84bn, with a significant proportion accounted for by large portfolio transactions. The growth in warehousing has been a result of rapid eCommerce development in the country. With government support and increasing investment in the freight and logistics sector, Poland is prepared to observe strong growth.
The road freight transport sector plays a key role in the economy. In terms of gross value added, both the Polish economy and the entire EU-28 economy is characterized by a high share of services. Over the last decade, the structure of the share of services, industry, and agriculture in the total value added in Poland has not changed significantly. However, over the period one can observe an increase in gross value added generated by the road transport sector within the services sector. In 2008-2016, at the EU-28 level, the added value generated by the sector grew by 1.7 per cent annually on average, and in Poland by 6.8 per cent.
In 2017, the total added value of the transport and logistics sector amounted to 6.6 per cent of the total added value generated in the Polish economy and 6 per cent of GDP. The increase in the value-added created by the road transport sector in Poland and the EU is higher than the increase in the total value-added created in the economy, which at the same time (2008-2016) amounted to an annual average of 4.9 per cent in Poland and 1.6 per cent in Europe. Also as per estimates during the 2018-2022 period road freight segment is expected to grow at a rate of 22.8 per cent. Road transport, which currently accounts for more than 50 per cent of all transport performance (ton-kilometers) in the EU-28, will remain the largest segment of the total transport sector in the coming years, due to its dynamic growth and slower growth in other transport modes.
Rapid growth of the eCommerce
At the end of December 2018, Poland’s eCommerce market was worth more than PLN50bn, accounting for over 2 per cent of the European online retailing, but is likely to hit PLN80bn in the coming years. The growth of eCommerce is largely being driven by the expansion of omnichannel and the rising penetration rate of online retailing (share of total sales). The growth of eCommerce shows no sign of abating, and pandemic helped its growth. In the Q1’20 the number of eCommerce retailers in Poland increased by 27 per cent.
Retailers are focusing on customer experience to enable convenient and quick shopping on any device. In response to customers’ needs, they are already developing additional mobile sales channels. This is expected to have a considerable effect on return logistics and improving processing times. With further technological advancements and new sales channels gaining in importance, eCommerce tenants will force the warehouse market to change.
As per industry survey, this sector’s tenants require up to three times more space than traditional retailers. 33 per cent of developers and 60 per cent of logistics operators who took part in the survey indicated that they were working on new eCommerce projects, and a vast majority of developers (82 per cent) confirmed that eCommerce tenants had expanded their warehouse footprints in the last three years. Poland’s total warehouse stock amounts to more than 16 million sqm, of which nearly 25 per cent is dedicated to eCommerce. Three voivodeships: Łódzkie, Lower Silesia and Silesia account for 56 per cent or more than 2.2 million sqm of the sector’s stock. With warehousing stock for eCommerce growing, it is clear that the rapid expansion of eCommerce in Poland will drive the warehousing segment.