DL Invest, as a large Polish investor in the real-estate sector, focuses on warehouses, offices and retail parks. How did these three different segments of your business deal with the effects of the pandemic – and what are the wider macro trends for industrial real estate, retail parks and office parks in Poland?
It was a difficult period, which emphasised the value of our company, our extensive internal structures. Today, we have a team of over 140 specialists, thanks to whom we can consistently implement our strategy and long-term goals: development in the sectors of logistics, offices and retail parks based on our in-house competencies. The rightness of our business model is confirmed by the level of commercialisation: around 97% of the existing space in real estate belonging to DL Invest Group is currently leased. Other confirmations of the quality of our structure and competence in preparation, implementation and project management is the fact that we have obtained financing from EBRD, and our selection by DHL Supply Chain as joint managing partner of the joint venture between DHL and DL.
We want to build long-term relationships with our tenants – that’s why we focus on the proactive management of properties in the DL Invest Group portfolio throughout the lease period of our partners. This is crucial for building a business and employee structure in predictable, safe and long-term conditions.
Flexibility and the ability to meet the expectations of tenants are guaranteed by the group's structure. It allows us to prepare the investment independently, beginning with the planning stage, through implementation, leasing, through to management. Most of the projects we implement have the potential for further development. For our tenants, this means the possibility of expanding and taking up additional space as part of business development within the same property, without the need for costly relocations, changing employee habits, and thus the need to reconfigure teams of employees.
During the pandemic, we completed the modern DL Piano office building in Katowice (now fully commercialised); we started work on the DL Prime office complex in Gliwice (over 80% already leased, the project will be put into operation in the fourth quarter of 2022) and we continued the construction of another office building – DL Tower located in Katowice (over 85% of the space has already been leased). In the warehouse market, we signed an agreement with DHL Supply Chain, preceded by several months of negotiations and verification by DHL in terms of organisational, financial and legal aspects. We have also completed a number of build-to-suit (BTS) projects for InPost, Hutchinson, GTX Hanex Plastic and others. We have finalised the purchase of a 26-hectare plot in Teresin near Warsaw, with the 36,000m2 Stokrotka central warehouse, one of Poland’ largest retail chains. The potential of this location is 100,000m2 usable area). And we continued the reconstruction and re-commercialisation of a 24,000m2 shopping centre (which we bought in December 2019) in Zgorzelec on the Polish-German border. The centre was sold in 2021 – the return on equity was 253% and the return on investment was 63%.
Covid certainly influenced the way we operate, but it hasn’t changed our plans, which we are consistently implementing, assuming that – in addition to the construction of new office buildings – we will provide over 500,000m2 of modern warehouse space based on the land bank, which we will have built by 2024. The current value of the property portfolio belonging to DL Invest Group is over €332 million. We plan to increase this to at least €743 million by 2024. To sum up: we implement all business plans in accordance with the previously adopted schedule.
The future of the office is now a topic that is widely discussed by business leaders. It is known that after the pandemic, some form of hybrid work will be the norm - how do you think this will affect the demand for office space in the future?
For many companies, the consolidation of employee structures in one place has become crucial during a pandemic so that they can make decisions and quickly react to changes, not only social but also business. Companies that have decided to separate their activities so that part of the work does not take place in the office but at employees' homes have begun to incur additional costs due to issues such as data security and IT support. According to a survey by the Ifo Institute for Economic Research in Munich, only 5.7% of companies saw a productivity improvement with the introduction of remote work, 30.4% of companies didn’t notice a change, and 27% saw a decrease in productivity.
However, you have to look at it from a broader point of view: a company's productivity is also about how well employees work as a team and how smoothly its operations run. Unless specific new procedures are created and new technologies and business tools are introduced, an employee left without support is likely to become less efficient. Teleworking works in specific situations for specific industries and professions, but its daily use is unlikely to be visible in most organisations.
Over the last ten years, living conditions in Poland have improved significantly, but 42% of Poles still do not have sufficient living space to find additional work rooms, and during a pandemic, they often had to crowd into a relatively small area. It is difficult for them to organise a comfortable and undisturbed work space. Working from home is not suitable for everyone. According to the report Remote work 2019. A privilege or a new standard? published by Talent Place, when asked about the features that make up an effective remote employee, employers most often replied that employees must be able to organise their own time, that they must be independent and goal-oriented.
Employees can acquire these qualities, but it takes much effort and self-discipline. It’s also important to pay attention to the debilitating effects, as the differences between private and work are blurring. The lack of a clear border can cause fatigue and stress. The monotony of being always in the same environment, whether someone’s doing household chores or doing their job, can harm a person's well-being and frustrate them. People need contact with others, communicate on an informal level and feel that they are part of the group. With modern technology, we have many options for remote communication, but the technology still cannot replace direct contact with another person.
After the pandemic, it will be time to summarise the situation and assess the effects of using remote work on a massive scale. The situation in the world is changing rapidly and it is currently difficult to assess the impact of remote and hybrid working models on the future of the labour market.
Market expectations have undoubtedly evolved during the pandemic, and some tenant groups expect flexible office space. In response to market needs, DL Invest Group has developed our proprietary DL Space concept and introduced it to the market. The concept offers short-term rental of high-quality, ready-to-use office space in the group's buildings. DL Space is a comfortable serviced office space, fully furnished and rented in the form of offices with the possibility of using also fully equipped conference rooms, as well as access to the kitchen, dining room and relaxation zones for the tenant. Such a plan limits the cost of the lease to the space actually used, and because there is no long-term lease agreement, tenants have peace of mind, freedom of action and flexibility in managing costs when circumstances start to change quickly. Some companies that currently occupy offices in DL Space use them to divide their teams and minimise interactions between large groups of people, while many other tenants have given up other locations to use DL Space to build their structures with perfectly suited space to their size and expenses.
Looking at the capital inflow to Polish real estate as an asset class, what do you consider to be the main drivers of the current boom in warehouse space and retail parks?
We have noticed a great interest in warehouse space in the e-commerce and automotive sectors. In this respect, Poland is a hot spot on the European map of warehouse space. We are also observing changes in supply chains and the growing importance of smaller warehouses located in urban centres – SBUs (small business units) and last-mile logistics. We are currently building at least five such facilities in different parts of the country. City warehouses, last-mile warehouses are a solution that streamlines deliveries, a necessary link in the logistics of deliveries to the consumer, it saves time, money, and is environmentally preferrable. Time and convenience of delivery are also part of the competitive struggle in the highly competitive e-commerce market.
A consequence of changes in the e-commerce market and changing consumer behaviour, largely forced by the pandemic, is the growing popularity of smaller retail formats, including retail parks, characterised by being closer to customers. Their smaller format allows for flexible adaptation to the requirements of local communities. Retail parks also complement the e-commerce offer, playing an important role in the supply chain of products ordered online by the consumer. Therefore, we plan to further develop our portfolio of smaller retail formats that allow retail chains to be close to their customers.
How do you think the Green Deal will affect the DL Invest Group?
DL Invest Group is introducing a green financing strategy for its investments, launching the first financing package based on the environmental parameters of investments with a target value of over €100m. The financing will be entirely dedicated to the development of high-quality real estate in the warehouse and office sector. The company is also preparing to obtain refinancing of its logistics real estate financed with a €72m credit line obtained in 2021 from the EBRD.
Last year, the company also announced its sustainable development strategy – DL Green. The strategy assumes several points. All new real estate projects implemented by the company will be BREEAM certified, and there is BREEAM In Use certification for existing projects (in December 2021, the BREEAM In Use certificate at the Excellent level was obtained by the company's Katowice office building - DL Piano). There is a focus on planting trees, shrubs and other plants, and creating natural habitats around the investment and in areas indicated by local organisations for insects and other animals. Green technologies are to be implemented, including the energy balance of our properties. Ultimately, we want to produce energy ourselves, which will fully cover the electricity demand of buildings in our portfolio. The company plans to achieve energy neutrality by 2027 thanks to our initiative, DL Energy, based on the use of renewable energy sources to power existing properties. We cooperate with local communities to increase residents’ environmental awareness and understanding of environmental protection.
All your new projects are BREEAM certified, you implement projects whose key parameter is sustainable development. What future do you see for older properties in Poland?
As part of our strategy, we are actively looking for older properties throughout the country with the possibility of generating added value both through their renovation and repositioning on the market, and keeping them in our portfolio for the long term, as well as their possible sale after obtaining a satisfactory offer. For example, in 2021 we sold the DL City shopping centre in Zgorzelec, acquired in December 2019 after renovating and re-commercialising it with a return on investment of 63%. Earlier, we commissioned a restored building of the former historic main post-office building in Gliwice (DL Vintage Post) with an area of 8,000m2, which now houses modern offices as well as service and catering space. The restored building, under heritage protection, is an example of our company's high competence and is the jewel in the crown of our portfolio.
Your geographical orientation concerns Silesia and the surrounding area. What are the specific attractions of Silesia as an investment destination? How do foreign investors perceive the competitive advantages of the region compared to other parts of Poland or even Central and Eastern Europe?
Silesia has a strategic location in this part of Europe. It is located at the intersection of the main communication routes. There are three international airports serving the region, the local transport infrastructure is well developed, with a dense network of modernised roads and railways. The Śląskie Voivodeship is the most densely populated part of Poland with the highest degree of urbanisation (369 people per km2, compared to the national average of 123 per km2). Over 4.5 million people live in the region (over 12% of the country's population) - in an area that is less than 4% of the entire country; 8.5 million people live within 100 km from Katowice.
The attractiveness of Silesia is due primarily to its location, strategically located at the intersection of the main communication routes for this part of Europe, including railway lines (E30, connecting Germany, Poland and Ukraine, and E65 and CE65, connecting the Baltic countries with the Adriatic and Balkan countries) and road routes such as A1 motorways and A4 as well as the S1 and S86 expressways, as well as international highways such as the E40 (connecting France with Kazakhstan) and E75 (between Norway and Greece). Silesia has access to three large international airports within a radius of 90 km from Katowice - Katowice-Pyrzowice, Kraków-Balice and Ostrava. The road infrastructure network is the most developed in Poland, along with other forms of transport infrastructure (such as 757km of bicycle paths per 10,000 km2 against the national average of 445km in 2018). Silesia has access to a qualified workforce, driven by higher education: in the academic year 2020/2021, over 106,000 students studied in the Śląskie Voivodeship. Silesia has a large retail market and a population with ever increasing purchasing power. Because of its location,
Silesia attracts major business events, such as the European Economic Congress.
Silesia is an important region in the international business market and is well perceived by the international business community. An important role in its development was played by the Katowice Special Economic Zone, which was ranked first in Europe and second in the world in the prestigious Financial Times fDi Business 2019 survey (after the Dubai Multi Commodities Center in the UAE). More than 390 companies have invested in the area of 36 billion złotys, creating 80,000 jobs.