News Article CFO CTP development financing industrial interview logistics Poland
by Ákos Budai | Interview

Bogi Gabrovic, CFO of CTP Poland talked to Property Forum at MIPIM about the current situation in the Polish warehouse market, the main drivers of demand and the developer’s plans for growth.

It looks like that uncertainty is here to stay. What are your projections and plans for 2023?

As CTP Poland, we expect to grow. Uncertainty is an international factor. We all face the same geopolitical challenges - the war in Ukraine, broken supply chains, and the conflict between US and China. On top of that, there are also inflation and surging interest rates. All these factors create a situation in which we all are looking for ways to optimise our prices and improve our position in the market. And with this shift, we think that this is a good opportunity for CTP Poland to grow.

The labour force in Poland is very good quality and is still very reasonable cost-wise. The rental rates for warehousing and logistics space in Poland are lower when compared to CEE countries. Another selling point is the fact that we're centrally located, very close to the crucial German market. International companies, which are planning optimization, consider Poland as a solution, a place where they can stay for a longer period and they can find a financially stable, reliable partner. And that's where we, as CTP, see our potential. We have an occupancy rate of 93% and we are a long-term asset holder, which means that we don't sell our developments. So whoever is looking for a partner - not just for just 5, but for 15-20 years – can do business with us. We also manage our own properties and we build parks in a way where tenants can grow within them. They can expand the operation and stay in the same location. When we invest in parks, we usually build many buildings in one location, so it's much easier for us to also invest in the infrastructure and surrounding area. We build community houses, basketball courts, medical facilities, clubhauses, conference rooms – everything for the people working in our parks.

Bogi Gabrovic

Bogi Gabrovic

CTP Poland

A seasoned and inspirational team leader, Bogi brings 25+ years’ experience from PricewaterhouseCoopers PWC and finance executive roles from multiple international organizations to her role as CFO for Poland, where she plans to help develop a strong local team and build CTP’s presence in CEE’s largest economy. She also brings an entrepreneurial spirit to CTP Poland, having incubated her own businesses in the US, which provided her with an owner’s view on business opportunities and risk. More »

How big is CTP’s current stock in Poland? How do you wish this figure to change within the next five years?

At the end of last year, we had 216,000 square metres of GLA, but we are planning to build around 600,000 sqm each year. That means that by the end of 2026, we would be able to reach around 3 million square metres of leasable area for our potential tenants. In the beginning, we had 7 people in our Polish office, right now we have 75, so the team is growing quickly. We want to operate independently, without general contractors, so that we are able to build exactly what we want, in the most profitable way.

What are the main drivers of demand in logistics? From which sectors are your tenants coming from?

Definitely e-commerce. It continued to grow in the last year, boosted by the closeness of Germany and the German market’s high e-commerce penetration rate and we expect that the sector is going to grow further, although probably at a slower rate for the time being due to geopolitical instability.

Secondly, the industrial sector is also growing in Poland – by 60% last year – because of the disruption of global supply chains. Large manufacturers are looking to locate factories within the continent and many of them prefer to allocate production in Poland, a market with lower costs compared to Western Europe.

Construction costs have significantly risen in the past couple of years. How are you dealing with it? You mentioned that you are opting for in-house construction which, I guess, is also a way to keep costs in check.

Exactly. To improve internal performance, we employ skilled people who know the market and individual areas of the construction processes so that they can find the best solutions at the optimal price. And we also optimize our production by defining exactly the same elements of each development. That way, we can look for vendors that are able to provide us with solutions for 600,000 sqm, not just 30,000 square meters. And that's our way of looking for cost optimization.

I have to mention that rents have also responded to the increase in construction costs and have recently risen on average by 20%. Is that enough? No, it's not, because previously rents in Poland had not increased for over 10 years. But we expect rental growth to continue.

How are you handling sky-high energy costs as a developer?

In response to rising energy prices, we are investing a lot in solar panels installed on the roofs of our parks. As tenants are getting more conscious of energy security, there is a clear demand for such solutions. By investing in sustainable and secure energy solutions for our tenants, we're starting to create the next-generation warehouse. We are already thinking about what a Class A warehouse is going to look like in five years. We have a group of skilled architects and engineers, who are thinking about what solutions we have to implement in our parks today. For example, there are still not many electric trucks on the road. But we are already planning to add charging gear in our docking bays, so in the future, electric trucks could be charged during loading and unloading.

Let's talk about financing costs. Obviously, they increased, together with the interest rates. How has that impacted your operations?

Financing conditions are getting a little more difficult to be met for a lot of developers. We are seeing that some of our competitors are starting to struggle with getting financing for individual projects. We are in a fortunate situation because CTP was able to secure financing at a relatively inexpensive rate back when the market was more stable. We have secured another few years of our growth and we can build speculatively because of this relatively cheaper financing. So, all in all, we find our situation very stable.

How do you decide where to build in Poland? Are there any particular cities or regions where the competition is smaller or there is a need for more supply?

The vacancy rate in Poland right now is about 3.6%, so it`s very low. Generally, whatever you build, you should be able to rent it. But of course, there are locations which are more favourable than others. We look at this issue from two angles. As CTP is a global company, we have thousands of clients in our database. By reporting their demand, they indicate to us which way we should grow. The other way is to listen to the market and talk to the local municipalities. Most of the cities in Poland are really investment-oriented. They understand investors and want to help them.

CTP is a market leader in many countries but it’s a relatively small player in Poland, a very competitive market. What's your strategy to change that?

Indeed, there is very strong competition in Poland There are two types of developers here. The first group are the traders who build to sell. They are very good at this, they are the main players in the Polish market and we cannot compete with them. But because of the difficulties in getting the financing, maybe they're slowing down a bit. It creates a much better environment for the asset holders like us. We've already found our niche to build strong relationships with the local communities. We are not just providing warehouse space - we're providing a living space, a living ecosystem where businesses can grow.