Inflation-proof investments

Two years on, the long-term economic effects of the pandemic are finally becoming apparent. On the one hand, we are seeing a rise in the importance of nearshoring and online sales; on the other, inflation may turn out to be the most worrying macroeconomic trend, says Christopher Zeuner, Chief Investment Officer and member of the 7R Executive Board.

According to Christopher Zeuner, Chief Investment Officer and member of the management board at 7R, there is still plenty of international capital seeking investment opportunities. “ There is no longer any doubt that inflation will not prove to be a fleeting phenomenon. It will last longer than most central banks initially predicted, ” says Christopher Zeuner.  Rising interest rates and government bond prices may curb short-term inflationary pressure. “ Real estate is a solid asset that provides income capable of helping to alleviate this pressure, ” explains Christopher Zeuner.

Surviving the Pandemic

The main effect of the pandemic was to accelerate many trends already visible in the market, while at the same time significantly worsening the short-term outlook for several real estate sectors, including hotels, offices, and shopping centers. However, the pandemic had a somewhat less significant impact on logistics and warehousing. “These changes led to increased business demand for logistics and warehousing, which helped the sector remain resilient to everything that happened during the pandemic, as well as to the challenges many companies faced, ” notes a member of 7R’s management board. Furthermore, people have realized that buying certain goods and services online without leaving home has its advantages. “This trend has already become clearly evident, and I think it will continue to be a very strong growth driver in the logistics and warehousing sector, ” says Christopher Zeuner.

But it wasn’t just e-commerce that shook up the logistics and warehousing sector. COVID-19 disrupted international supply chains, and global manufacturers began considering moving their factories back to Europe—closer to consumers.

Although the trend is clear, it has not yet proven to be as groundbreaking as some had predicted.

Taking a broader view

7R is currently the second-largest logistics developer in Poland and holds a market share of approximately 20% each year. Building on this strong position, the company is currently considering international expansion. “We provide our tenants with significantly better building specifications and services compared to what many other developers offer, and that is something our tenants and clients appreciate. They come to us and say, ‘We really like what you’ve done for us in Poland. Can you do something similar in Germany and the Czech Republic?’” “We will continue to grow strongly in Poland, but there are new markets we can enter to achieve even higher growth, ” says Christopher Zeuner.

Low operating costs are a major draw for manufacturers in the Czech Republic, and the country’s long border with Germany is an added advantage. However, this does not mean that warehouse developers have an easy time of it here. “ The challenge is that, unlike Poland, which is a relatively flat country, the Czech Republic is very mountainous and small.” When you need to find a site for large logistics projects, it turns out that there is significantly less suitable space available. This certainly affects rent levels and land prices and is linked to their limited availability, ” says Christopher Zeuner regarding market challenges.

Furthermore, obtaining administrative permits is also a challenge. “In the Czech Republic, these procedures can take significantly longer than in Poland. It is a rather lengthy and complicated process.” Industry groups, such as the Czech Association of Developers, and the government are working to improve this situation, and we are seeing progress; however, there is still much to be done before the situation in the Czech Republic is comparable to that in most EU countries, ” explains Christopher Zeuner.

Christopher Zeuner also compares Czech procedures with German ones. “What makes it difficult to issue permits is, above all, a shortage of land. Furthermore, due to the limited amount of land suitable for logistics projects—a situation caused by the sector’s rapid growth—local authorities prioritize programs supporting light manufacturing and attempt to limit the number of new logistics and warehouse projects.” This results in very limited land availability,” says Zeuner. In his view, Germany is a demanding market, but also a very stable economy where interest rates are lower and rents are higher. “ There are many benefits to conducting development activities in Germany, but in terms of acquiring land, Germany is very demanding,” he adds. The difficulties stem from the fact that the land registry does not disclose who owns a given plot, so establishing contact with the owner is not an easy task. A member of 7R’s management board explains that one must have in-depth local knowledge and use the services of good local agents to be able to acquire land for the company’s development.