It is no secret that the logistics sector is developing fast, and warehousing is certainly no exception. One European nation that’s seen huge growth in construction of modern warehouses is Poland.
With that in mind, we caught up with Maciej Szczepański, Business Development Manager at warehouses experts Cushman & Wakefield, to discuss warehouse trends in 2020 and beyond, the challenges in upgrading warehouses, and the costs involved in constructing a modern, sustainable warehouse.
Hi Maciej, thanks for talking to us.
Back in February, before the pandemic gripped Europe, some of your colleagues in Ukraine made a number of predictions about the warehouse property market in 2020, including increased demand for larger warehouses, dedicated spaces for robots and better amenities for staff. With the benefit of another 9 months of hindsight, have those predictions proved accurate despite the shock of the pandemic?
Honestly, we don’t see any significant changes in trends regarding what’s happening in the industrial market. Despite the pandemic we have faced in the last year, we still see high activity in the market. There are still increasing demands when it comes to how property should be prepared.
In addition, there’s a very fast growing industrial property sector. This is growing very rapidly – mostly because of the ecommerce sector and the multi-channel strategy of retail companies. This, in turn, is creating the need for warehouses to change. And yes, this means changes like you’ve described, lots of robots inside, better areas for staff and so on. Nevertheless, this is and will be important in the sector.
For example, we have two nice projects in Poland, one of them was started just before COVID and finished in the middle of 2020.
The first is a building that was prepared by Panattoni for Amazon in Gliwice. What is important is that there are only 1,000 people working there and almost 4,000 robots inside. This is the most advanced warehouse of Amazon in Europe, at least in terms of the use of robots inside. However, it’s important to point out that the first warehouse in Europe using those robots was also located in Poland – in Wrocław to be exact.
Another interesting construction started earlier this year, although it’s a little bit different [compared to the Amazon warehouse] because it’s from a fast-growing Polish local developer called 7R.
The warehouse is only 30,000 square meters (in comparison to Amazon). It was prepared for the Hultafors group and is located in the northwest of Poland in the Szczecin area. Again, what is important here is that they are also using robots. Indeed, in the storage area there are no staff.
These machines can deliver products using a storage system that’s very modern and energy efficient. These robots for example, use energy equivalent to one toaster. Thus, solutions like this are also very ecological. Moreover, the building itself received a Very Good BREAAM certification, which is now available in Poland. These certifications are growing in importance and you can see that the pandemic has not stopped this drive towards more ecological solutions.
The demand for better facilities remains too. The e-commerce sector requires more people than standard warehouses, especially when it comes to handling, because it cannot yet be done by robots or other machinery. Someone is needed to take a package, check it visually and then decide how it should be processed.
Therefore, warehouses need to attract people to work there, and they need better areas for staff. The concept of having gyms outside is no longer something unusual to see at a warehouse. So this is another trend that you cannot stop for sure.
How has the pandemic changed the way people think about warehouses? Could it spark significant changes in design?
Well, fortunately, we haven’t observed too many difficult situations in warehouses in relation to the pandemic. If you take into consideration the number of people working in logistics and in warehouses in the industrial sector, the amount of people who are sick is relatively small.
Of course, all companies have prepared themselves somehow, particularly doing the first stage of the pandemic, when some procedures were introduced.
Unfortunately, in older buildings, it’s quite difficult to make significant changes to the infrastructure. But what is possible has been done based on the procedures and some changes in the buildings. One important change was that in a lot of places, there was one way traffic.
Nowadays, there’s a lot of tasks that can be done from home and you don’t have to go to work. In our company, we are using a concept which is called the Cushman & Wakefield 6-feet office, which involves having 6-feet of free space around yourself for social distancing. Of course, this is applied to the office, but it could be modified and implemented somehow in industrial buildings as well.
Something that has changed a little bit due to the pandemic is that beforehand there were two types of tenants on the market, especially on the ecommerce market. One of them was middle-sized companies that used warehouses of 15 to 20,000 square meters, and the other one was the big players like Zalondo and Amazon, who have 100 to 200,000 square metres per building.
Now that’s changed, as a lot of small companies are expanding very rapidly, and they have started to increase the scale of their operations and to start looking for modern warehouse spaces.
As a consequence, a lot of e-commerce is coming to A class warehouses. Before, there was some B or C class, smaller warehouses that were located in some strange areas, and now they want to have 5 to 10,000 square metres. This has created huge demand for such subspaces and that’s why developers are preparing themselves to cooperate with these kinds of companies.
These companies still want to be close to the city, because of the access to workers and the cost of running buses like Amazon do. In this case, the staff can walk or use public transport. Therefore, in order to be located in a city, or very close to the city with good transport links, those buildings need to be prepared to give to the tenants some compartments of maybe 3,000, 5000 or 7000 square metres. Flexibility is required here, so we need to prepare the building in a way that you can just put a wall wherever it is needed by the tenant.
City logistics is important here, and we also have to remember all that has happened in 2020 with the development of courier companies. The demand on their side is very high, and they also require a completely different type of warehouse.
What we have observed in the last year is that both developers and investors are starting to fight to have a courier company as their tenants, so it’s changed the way they think about those companies.
As customer expectations on delivery times rise and more items end up being delivered to homes, we’ve seen companies like Glovo establish what are being called ‘Dark Stores’, i.e warehouses in or around major cities that are essentially giant supermarkets dedicated to home deliveries. Is this a trend that you can foresee growing?
Yes, although the city logistics I referred to earlier are not quite the same thing as dark stores.
It may not be effective to locate a dark shop in a typical warehouse building. If you take a typical dark store, which is being used primarily in the US, it tends to be a bricks-and-mortar store that’s been turned into a dark store. That means that there are no customers – just warehouse operators and people picking products for couriers.
But in Europe, this is only in Spain so far. As far as I know, they (Glovo) have 22 dark stores in Spain. What they do in Poland is a little bit different, because of course, they have started with food deliveries from restaurants.
However, during the first phase of the pandemic in the spring, they started to cooperate to get stronger in smaller Polish markets. As a result, you could make an online order on the Biedronka supermarket website and have a Glovo courier deliver those products to your home. It was also possible to get a delivery on Sunday, even though supermarkets are not permitted to open. So that was the way they started to operate in the store fulfillment area. This is quite popular now in Poland; we don’t have so many typical dark stores yet.
Piotr i Pawel, a Polish supermarket chain that has now been taken over by Spar, actually started this 8-10 years ago. Now, the same service is offered by a variety of chains from supermarkets to clothing and consumer electronics. And they can even sometimes offer delivery from a store within one hour.
You even have some stores that are technically warehouses, such as those run by eobuwie.pl. Customers can turn up at the store and order shoes via a tablet before picking them up, trying them on and validating their purchase.
So I think I would say that the dark store concept is more popular in the US than it is in Europe. But it will grow here for sure, as everything has been changing rather rapidly in recent months.
Is it true that modern warehouses have been springing up at a rigorous pace lately? There seem to have been a lot of major sites constructed in recent years. What has fostered this development?
Well, in short it’s true. However, we can observe here in Poland that there were also lot of warehouses constructed at the turn of the millenium. When we compare them with the modern ones, there’s a huge gap regarding technical specifications.
It’s important to remember that 50% of the warehouses in Poland are modern warehouses constructed in the last five years. Indeed, you can even go a step further and say that 25 % of the warehouses were constructed in the last two years.
One of the reasons that they’re better constructed than previous models is a significant law change back in 2013, which very strongly increased walls and roof transfer coefficients.
Now, since then, it’s been changed every three years or so. And this year there will also be a change. But now those changes are very small and will be a few percent only. However, in 2013 it was a huge step, almost 50%, which was very, very important. If you compare those warehouses to the ones from the start of the millenium, there’s really a huge difference.
Then, of course, there’s a lot of things that are now standard in modern warehouses in many countries, such as LED lighting or air distractors systems.
How easy it is to bring an older warehouse to up to modern standards? Is it not better to start from scratch?
Well, it depends, of course. So far, all the warehouses constructed after 2001 have not depreciated since, so it makes more sense to renovate them rather than to demolish them. Naturally, there are limits to what you can do though.
A number of these older warehouses have now been fitted with LED lighting, air distractors systems or rainwater recovery systems. You can also add things like outdoor gyms for staff to improve the facility as a whole.
On the other hand, there are some examples of demolishing warehouses. As I said, there are still limitations. It might be that limitations to the roof or flooring mean it is not possible to have a taller warehouse with more goods. That’s why the significantly older warehouses tend to get demolished.
There is an example of this happening in Krakow’s Nowa Huta district, where an industrial facility will be knocked down to make way for a new Pannatoni warehouse. There was a similar story in the Czech Republic last year too.
Indeed, at the time, this Pannatoni warehouse in the Czech Republic was the only warehouse in Europe that had the BREAAM Outstanding certificate. In its construction, they reused 90% of the building materials used in the building that was originally demolished.
What this shows is that it is not only important to talk about green warehouses that have energy efficient lighting, better isolation of roofs and so on, but also to concentrate on the construction of warehouses and the reuse of old building materials.
At present, landlords are trying to refurbish buildings, but I think that within a maximum of five years it will be necessary to demolish some of the warehouses and prepare new ones in their place. This is not a trend that will be much visible in Poland, as we still have a lot of land available for the construction of the new buildings.
However, in Western Europe where there is a lack of suitable land and the land is quite expensive, this trend will appear.
Does it make business sense to convert old supermarkets into warehouses?
Well, we actually carried out some research for one of the hypermarket stores on this matter.
As it turns out, it actually makes no economic sense for them to convert stores to warehouses. There are a lot of technical issues which are not possible to be modified, such as floor load. For example, the commercial part of the building, which occupies the most space, can in most cases support 500 kilos of weight, and in a warehouse we need at least five tonnes.
In addition, there is only a small warehouse section in those buildings that is prepared to have trucks operating in and out. Then there’s the perennial problem with zoning, because, at least in Poland, it’s rather unusual that a zone is allowed to be used for both commercial and industrial purposes.
Therefore, we came to the conclusion that it is better to demolish such a building and prepare a new one, possibly in the same place. This is especially true when it comes to the large hypermarkets that were constructed in the 90s, the likes of Auchan, Real and others.
There is a good example here; an Auchan in Sosnowiec was demolished and replaced with a warehouse. The site was very well located near major roads, which made it an ideal site.
In Autumn of last year you published the results of your report on green-certified warehouses in Poland. The report states that the CTPark Opole and Tetra Pak in Tomaszkowo were both BREEAM-certified with an “Excellent” rating. What kind of steps need to be taken for existing facilities to meet this standard?
Yes, it’s quite difficult. As I said before, there’s only a few changes you can make with the aim of achieving certification from BREAAM. But, again, as I said, there are a lot of limitations.
For example, you may not be able to have solar panels on the roof of an existing building because it’s not strong enough. Perhaps you can’t have a full water recovery system because the pipes are not prepared for it. Changing these things in an existing warehouse is quite difficult.
There are some things developers can do though. For instance, they can install LED lighting together with an intelligent system managing that lighting. Such systems manage light based on the amount of natural light outside, and according to people moving inside the building.
Another area that can be invested in is air distractors. These are very simple tools, basically fans installed on the interior of the roof that push hot air down. That then makes the difference in temperature between the shop floor and the roof more or less the same. Normally, in a warehouse the difference is about five degrees.
If these changes are made to an existing warehouse, it will ultimately pay off within a maximum of two years, and you don’t have to invest a lot of money to do it.
Of course, you can have rainwater recovery as well, but the infrastructure in the building could make that difficult. On the other hand, the law which was introduced in Poland last year does allow warehouses with rainwater recovery systems to save some money and reduce costs due to tax incentives.
This saving is admittedly not so big; for a warehouse of 10,000 square meters it amounts to between 5-6000 złoty. Even so, that is still some money you can put towards charging stations for electric electric cars, bike shutters or an outdoor gym.
The general assumption regarding sustainable warehouses is that they are more costly than their conventional counterparts. Is this actually true? If not, why?
It depends on the kind of building. Nowadays of course, there is a very strong trend to be more eco, more green and so on. And this trend is growing among tenants, who want to present their companies as eco friendly, but also by the investors, who are beginning to pressurise the developers to construct their warehouses in a more economic and ecological way.
But, of course, ultimately it’s money that makes the world go round. Therefore, you have to look at the cost of the construction, you have to take a look at the lifetime of the warehouse. Nowadays, if you want to have a modern ecommerce warehouse that’s prepared for robots and conveyor belts, you need to look at the investment paying off after a minimum of ten years.
So if you are thinking about renting a warehouse for 10 years, then you can also take into account all the extra costs that make the warehouse greener but pay themselves off within that time, thereby making all those ecological investments economically viable. The short-term approach that was common a few years ago, when everybody wanted to have a warehouse for two years, just doesn’t make sense any more.
But now, when lease agreements of 7-10 years are being discussed, it makes sense to incorporate the most popular ecological innovations. Though it will not prove profitable in the first couple of years, It is arguably worth doing so anyway for the environment, for our children, and of course, for other people too.