BTS, or a warehouse built to order
Who today constructs buildings for industrial production? Most Poles are convinced that the production companies do it themselves.
Piotr Miodek, Head of BTS at 7R: Most investors, however, turn to developers for this. Few companies today have appropriate sites, on which such centres can be built, and this is where the process starts. These days, the location of a factory or a warehouse is crucial to a business’s success. A developer will have a whole catalogue of locations and can also secure construction land for an investor in a region that interests him. That is how we operate at 7R. As well as a location, our client will receive our technical know-how. If he were to build for himself, he would have to have a strong technical department that includes construction engineers but maintaining such a department is economically unjustifiable when construction work is required only once every few years, which is normally the case. An investor who works with a developer will benefit from the entire construction process being conducted for him, from the acquisition of the land, securing the permits and selecting the general contractor to taking possession of the property. We will ensure the quality of the work, provide the legally-required construction oversight and take care of every detail.
Why is location so important? Companies don’t want to start building just over the fence?
Access to employees and communications today are crucial. Sometimes a company will have its own land in a location but will not want to build on it since the company knows that a project in this place will not work well. If a given region is saturated with production plants, companies will compete over workers in a bidding war over who will pay more. For example, that is what is happening in some sectors in Lower Silesia.
Of course, many companies will construct in the regions from which they come from, as you put it “just over the fence”. It will already have its skilled workers and will want to use them. Yes, you can do it this way, but you can also work with a developer and as a result, the project will be far more flexible.
Build-to-suit is a form of development that is reliant on the developer and the investor working especially closely together. What are its defining features?
Built-to-Suit is the construction of bespoke centres to meet the needs of particular clients and the specifications that they present. It is not a solution for a client looking for a small area in a business park to be leased for a short period. BTS buildings are for companies looking to use them over a longer period: 15-20 years. They are mainly intended for production companies, larger logistics operators serving the rapidly expanding e-commerce market and possibly for companies that require cold storage facilities.
We have fewer BTS clients than those that typically occupy our parks – the operators and tenants of warehousing space. Very often BTS clients are large international corporations that have precise expectations for their buildings and are to be built in a specific location. But it is not just them. BTS buildings are also constructed for Polish companies.
Can you say more about this from 7R’s point of view? When did the company start taking interest in this form of development? What BTS constructions have you already completed? And for whom?
We have been operating as a company that develops warehouse space for over 13 years. BTS was always a part of what we offered. What is new is that for the last few months we have had a dedicated team that works exclusively on this. We have come to recognise that a BTS client is a little different to a tenant in one of our parks. So, as a result, they have their own separate team made up of people with a lot of construction experience in the warehouse and production sector for individual clients and they have been involved in some of the biggest developments of this type in the construction market.
Returning to your question, we have completed both larger and smaller projects, I could mention the building in Balice near Kraków for the BWI Group, which is a global supplier of automotive suspension components. Altogether, it comprises 10,000 sqm, but it is a very interesting building, which is neither a production plant nor a warehouse. It houses a testing laboratory. It includes temperature- and moisture-controlled areas as well as an outdoor testing track. It received the 2020 Property Prize for the Green Building of the Year. I believe it was the first time in Poland that it was awarded to an industrial building and not to an office block. It is energy self-sufficient due to the trigeneration system installed, its own water intake and the rainwater management on the property. Only gas is supplied to the site for heating water, cooling and generating electricity.
Our catalogue also includes a recently-completed production building for Valeo Siemens eAutomotive in Czechowice-Dziedzice. We built a warehouse building of around 30,000 sqm in Goleniów for the Hultafors Group. It is fully automated including robots that transport goods and are charged with power from solar panels. We have also completed a chilled warehouse facility for Polmarket in the north of the country.
What are your main locations in Poland?
We have a few in every large region. The Upper Silesian Metropolitan Area remains very popular. Lower Silesia and around Wrocław – even though there are problems with workers there, our clients are still very interested in the place due to its proximity to the western border. Poznań and its surroundings, Lódź, which continues to develop, Warsaw and the TriCity, these are also leading locations. Szczecin and Rzeszów are a little less obvious. We also have a large park in Lublin next to the S19 and a few locations in Częstochowa that have a lot of potential due to the A1 motorway.
A BTS development is somewhat like the work of a tailor if, of course, you ignore the fact it takes a year. What kind of measurements and fittings do you take?
That depends on the client. International concerns, for example, often have their own expectations for their buildings because they will have few of them or even several dotted around the world. Their expectation for these buildings is that they all have to be the same standard. They will have a location already chosen, specifications already prepared and even model drawings. We have to adapt these to Polish and local conditions. Another client might come to us and say: I need x sqm of warehouse and production space, 70 pct is to be warehousing and 30 pct production. I’m going to employ 400 people so what do you propose for me? We will work with both the former and the latter.
Indeed, our work is somewhat like a tailor making a suit to measure. We will forget what the specifications are for a standard building and build exactly what the client expects. If he wants a sky-coloured façade, that’s what he gets. I tell our clients that a building that they are going to be using for 15-20 years has to meet all of their expectations, so the more time we spend on the design and finding the best solutions to meet those expectations, the better the effect.
Are there clients who know about construction?
Of course. I even encourage them to find out. Then it’s easier to explain why certain things are done one way and not another and we avoid creating a gap at the final stage between reality and what the client expects. What we stand for is to help resolve problems so our clients can concentrate on their operations. There is no requirement for them to know about construction because that’s why they are working with us.
How long does it take to construct a building?
8-12 months, depending on how complicated the building is. What is important is what is going to be inside, what equipment, what technology and what kind of automation as well as how it is all to fit together. Our client is after all not going to make money on the building but on what is inside it and right now building automation is becoming more advanced and sometimes a building becomes only a housing for what is later installed within it. That’s why it’s well worthwhile to talk everything through before the first spade breaks the ground.
Are corrections sometimes made?
Do you mean changes? Of course, they are. It's like building a home. When you construct a building that is to be used for 20 years, placing an extra window or constructing an additional wall to improve how it can be used is more important than any other changes that may result. Except for when the client says that the building is in the wrong place, but that never happens (laugh).
They say that BTS is for large stable companies…
That’s just about true. However, sometimes young companies that have only been on the market for 2-3 years are interested when their businesses grow so quickly that they need new buildings. But normally, BTS clients are large companies including both Polish and international firms, with a long-term development strategy and they need buildings in specific regions because they have planned their development there over the next 10-15 years.
What are the financial implications of BTS for a company? Who owns the building?
That depends on the business arrangement we come to with the client. We often build in partnership with an external investor, who being the eventual owner of the facility, sells it back to the user. In other cases, we rent out the building for a few years and later the ownership passes on to our investment partner or the user.
Have there been any cases in Poland when a customer left a BTS building before the expiry of the contract? And since a BTS building is built to measure, can it be converted?
That happens rather rarely. As I stated earlier, companies that opt for BTS have long-term plans. On the other hand, when it comes to adapting it for another client, then of course it is possible, but it is rather difficult to move a high-storage logistics provider into a former factory building. It is easier to convert a warehouse into production space.
How is the pandemic affecting warehouse and production space in Poland?
More warehouses are being built than before the pandemic. Mainly for e-commerce. Large projects are sure to continue appearing over the next 2-3 years. Smaller ones will do so too because they follow on from large investments. Last year, the total warehouse space in Poland came to over 23 million sqm. Over the next few months, analysts say that we will pass the 25 million sqm mark. You can also see the greater demand for warehousing in 7R’s operations. What’s key in our operations, is that we abide by ESG criteria, and we are seeing growing interest in this from our clients too.
This conversation was first published on February 8th, 2022, on the WNP.pl website https://www.wnp.pl/logistyka/fabryk-nie-buduje-sie-za-swoim-plotem-decyduje-co-innego,536866.html