7R's project portfolio totals 3 million square meters.

We currently have 3 million square meters of warehouse and manufacturing space in the planning and construction stages. With this portfolio, we are able to respond flexibly to market needs. We will now build selectively, at a lower rate than we anticipated a year ago, because market conditions have changed. High-quality facilities and strengthening their long-term value are key for us,” explains Tomasz Lubowiecki, CEO of 7R.

Grażyna Kuryłło, Property News: Are warehouses immune to inflation?

Tomasz Lubowiecki, CEO of 7R: Yes and no. Construction costs have skyrocketed. I believe this will lead to fewer projects being completed. At the same time, rents have to rise, so warehouses, as a product, are resilient in a sense because they generate good revenue. Rates are indexed, so the property owner is protected.

Tenants have to pay, but won't these increases dampen demand?

It's hard to predict today, but in my opinion, demand will fall. However, with supply also down, this won't be very noticeable.

Could the war in Ukraine reverse this trend?

Yes. Companies from Ukraine, Russia, and Belarus are considering relocating, so they’re already inquiring about our warehouses. So we’ll see the nearshoring we expected during the pandemic—only back then it was about shortening the supply chain from Asia, whereas now we’ll see an influx of companies from across our eastern border. I think we’ll soon be building BTS facilities for specific companies leaving those markets.

On the other hand, however, doesn’t our proximity to a country engulfed in war cause concern among foreign investors?

It’s also worth mentioning the reconstruction of Ukraine. That’s a big opportunity too, isn’t it?

Yes, this will certainly be a major challenge for us. Companies that get involved in this process will rent warehouses from us or set up production facilities here. So there is great potential here for the Polish market. We also intend to participate in this project.

On your own, or with a partner? After all, you guys like to invite your competitors to collaborate. That’s a bit unusual.

Indeed, our strategy involves both selling properties to funds and collaborating with competitors. We have already carried out projects with Hillwood, GLP, Segro, and now CTP, among others. Our philosophy shows that we enjoy working with competitors because we are able to deliver high-quality projects to them. We are a dynamic player, and our competitors appreciate that.

Today, the market is struggling not only with inflation, but also with a shortage of labor and certain construction materials, such as steel. How are your general contractors handling this?

This is a challenge. I believe that, paradoxically, a smaller number of projects will actually help general contractors, as the demand for workers will decrease somewhat. For example, general contractors are already being more selective when choosing projects because they want to work only with stable developers. We are fortunate to be among that group. So far, we haven’t had any problems finding a contractor. It must be admitted that the market is difficult right now.

Probably also because of the limited availability of land?

Yes, because today owners prefer to hold land in their portfolios rather than cash, obviously due to inflation. So acquiring land isn’t easy. For this reason, we’ve decided to keep some of the completed facilities in our portfolio. We know their value will increase over time. This way, we’ll strengthen the company’s value. We still intend to sell our warehouses, but we’re also becoming more open to managing our own facilities. We have no shortage of experience—we already manage over 1 million square meters of space—both our own and that entrusted to us by the funds we partner with. We specialize in technologically advanced and environmentally friendly projects. We strive for climate neutrality and care about the social environment surrounding our facilities. Investors appreciate companies’ actions that align with ESG criteria.

You certify warehouses under the BREEAM system. Your current rating is "Very Good." Do you plan to "jump" to "Excellent"? 

Of course, this is one of our goals, and we will be building more and more warehouses with Excellent certification—that’s what our customers expect. For example, our warehouse for Żabka, currently under construction in Radzymin near Warsaw, is in the final stages of completion. It received BREEAM Excellent certification as early as the initial phase of the project.

7R plans to expand abroad. Its first warehouse in the Czech Republic is set to open in the fourth quarter of this year. Is the Polish market becoming too small for you?

We made this decision early last year because we follow our customers, and they’ve been asking about our facilities abroad as well. We chose the Czech Republic because we’re in the “heart” of Central Europe and want to showcase our capabilities there as well. It will be a big-box facility in a prime location—right off the highway, 40 km from Brno. However, Poland remains our primary market.

At what level of commercialization will you be launching these projects, since I understand that speculative development is out of the question?

We’ve never been big on speculation. We always build on a solid pre-lease base—30% pre-leased space is the minimum we require before moving forward with a project. That said, we’ll be very cautious in completely new locations. On the other hand, when it comes to expanding existing parks where we know our partners and their expectations, we may be more inclined to make bold decisions.

Is it difficult to finalize pre-lease agreements these days?

The momentum remains strong. We’re seeing a high level of pre-leasing across many projects, but there’s also a palpable sense of uncertainty in the market. Under these conditions, every decision is made with greater caution. In short: there’s no stagnation, but there are signs pointing to a slowdown. Fortunately, in addition to the risks, the entire industry also faces plenty of opportunities, and I am certain that they will be properly capitalized on.

How will the pace of your projects change? Will you be able to maintain the announced rate of one million square meters per year?

The interview was published on the Property News website on May 18, 2022.