Time for value-added warehouses – Marcin Malka interview with PropertyNews.pl
“We want to focus on warehouses with higher technical specifications,” says Marcin Malka, CEO of Real Management. “They are labour- and cost-intensive, but their tenants accept long lease terms. This means high value for the fund that buys them.”
· Real Management has secured plots of land for three logistics projects with an area of roughly 200,000 m2.
· Real Management is looking for sites for warehouses within 30 km of Warsaw. The optimum area is 10–20 hectares.
· In addition to warehouses, Real Management is also active on the premium residential market in Warsaw, currently building the Neo Natolin housing estate.
· Real Management is also eager to expand into the mid-range housing segment. It is now negotiating terms of purchase for one plot in Łódź and one in Gdańsk.
Real Management is in the process of selecting the general contractor for the first stage of its next warehouse project. Today, with the noticeable investment slowdown, are these negotiations easier or more difficult?
Marcin Malka, CEO of Real Management: Contractors are less busy now, so it is easier to negotiate terms. This is a time when developers have to look for new solutions. In a bull market, almost everything is simple: everyone is buying and building. Just two years ago, during the pandemic, warehouses were in high demand, but at the same time it was very difficult to buy land or find general contractors. This required very aggressive price negotiations. It is difficult for a medium-sized company to grow in such conditions, as it allows large players to grab an even larger share of the market. But today the situation is likely to return to normal.
What new solutions is Real Management looking for today?
We want to focus on warehouses with higher technical specifications. Such facilities are more labour- and cost-intensive, but of high quality, and their tenants accept long lease terms, such as 10 or even 20 years. Ultimately, there will always be high value for the fund that buys such a building in the future.
“During the pandemic, warehouses were in high demand, but at the same time it was very difficult to buy a plot of land or find general contractors,” says Marcin Malka, CEO of Real Management. “This required very aggressive price negotiations. It is difficult for a medium-sized company to grow in such conditions, because it allows large players to grab an even larger share of the market. But today the situation is likely to return to normal.”
Is it difficult to find such tenants these days?
Today we have a sort of a bipolar situation. On the one hand, developers do not have large budgets for tenant incentives. And tenants, in turn, take longer to decide on a new location and usually ask for a calculation of three possible contract options: for five, seven, and ten years. However, they have to accept that prices are higher and there are fewer benefits on offer. On the other hand, there is quite a lot of speculatively built warehouse space on the Polish market. Even though it is true that rents have risen by around 10% this year, we are closer to market equilibrium today than we were just a year ago, so I would not expect further major increases.
As a matter of principle, Real Management does not build speculatively. What percentage of pre-letting enables you to begin the construction process?
We have never started construction without pre-letting at least 50%. This has been one of the reasons banks have always liked us.
Today they are said to require as much as 75%. Are you ready for this?
Yes. In the fourth quarter of 2023, we will start building warehouses in the municipality of Łubna. We are just finalizing two leases for this facility, precisely so that we have 75% of the preliminary agreements in place. In our last two projects, we started with 100% and 75% occupancy, regardless of the banks’ expectations, because at that time they required 30–45%. It is simply encoded in our company’s DNA to keep commercialization risk low.
Are you only interested in the last-mile delivery segment?
We want to be a partner not only for the e-commerce industry, which is mainly associated with last-mile delivery, but also for manufacturing and logistics companies. For us, the added value of the facilities matters a lot. To give you an example, we are currently discussing a 10-year lease with a cosmetics manufacturer. Their requirement is increased quality of the warehouse associated with storage. Also, we already have a life-science project, that is, a laboratory combined with an office—with lab space of about 1,800 m2 and office space of about 2,000 m2. This niche market is also interesting to us. We are preparing another such project in Warsaw, where we are negotiating with a potential tenant.
What is in your pipeline for the near future?
We have secured plots of land for three logistics projects with an area totalling about 200,000 m2: in Łubna in the Góra Kalwaria municipality (a 13-hectare plot with 44,000 m2 of industrial space designed), in Karczew (17 ha with a development potential of 85,000 m2 in two buildings), and in Żabia Wola (13 ha, 65,000 m2, probably also divided into two warehouses). We are about to start construction of three out of the four buildings planned at the Good Point V park in Łubna. They will cater to the needs of e-commerce tenants. We plan to complete construction in the third quarter of next year. We also have SBU facilities of 7,000 m2 at that location.
There is quite a lot of speculatively built warehouse space on the Polish market. “Even though it is true that rents have risen by around 10% this year, we are closer to market equilibrium today than we were just a year ago, so I would not expect further major increases,” says Marcin Malka, CEO of Real Management.
When are you planning to exit from this investment? Is it even possible to talk about this today, when foreign funds are less eager to close deals?
Well, today there is quite a difference of opinions between sellers and buyers when it comes to property valuation. Compared to the same period a year ago, the number of transactions in the second quarter of this year fell by double-digits. However, I believe that the market will soon stabilize. We intend to exit these investments in 2026.
At the same time, you continue to look for plots of land near Warsaw. What kind?
Preferably within 30 km of Warsaw. The optimum area is between 10 and 20 ha. We currently have our eye on sites for a further 250,000 m2 of warehouse development. Real Management is building an estate in the Natolin district, where houses with a total area of 45,000 m2 are planned on 25 hectares, with 17,000 m2 now under development. Photo: Neo Natolin.
In addition to warehouses, Real Management is also active on the premium residential market in Warsaw. You are building the Neo Natolin housing estate. Aren’t you tempted to offer flats?
Indeed, we are preparing to build them. We are of course looking for projects in the premium segment, which we specialize in, but we also want to develop in the mid-range segment. We are land-banking. Currently, we are negotiating terms of purchase for one plot in Łódź and one in Gdańsk. At the same time, we want to continue to develop “Neo,” our brand of luxury homes, mainly in Warsaw. We are building an estate in the Natolin district, where we have planned houses with a total area of 45,000 m2 on 25 hectares. Of the planned area, 17,000 m2 is under development. Real Management is preparing to build flats. It is looking for projects in the premium segment, in which it specializes, but also wants to develop in the mid-range segment. Photo of the interior of a house in the Neo Natolin estate.
Is the investor you are looking for expected to help in this portfolio diversification?
We can carry out the projects we have already prepared using our own resources, but in order not to limit the company’s growth, we are considering finding an additional investor to allow us to scale up. Indeed, we are already negotiating with potential partners—for now in the warehouse segment. We want to start offering flats by ourselves, but in the future, to offer a greater variety of flats, we will also be open to similar cooperation.