Explain how deep the turmoil in the production sector is right now.
The production sector, especially automotive, is down and that trend is probably going to continue. It’s quite simple. If in the old days, the classic standard car engine had something between 1000 and 2000 parts, electric car engine has less then 100. We’ll see how quickly the whole economic environment reacts to that. It was interesting at the last EASTLOG logistics conference to see how the sponsorships have shifted. In the past years it was mostly real estate companies that were the gold and silver partners. Nowadays, it’s companies that are linked with automation, robotics and AI. It’s like you can feel that the whole market is changing and that new money is coming into these young sectors of business. Real estate will still be needed by tenants like Rohlik, but they are investing far more money into automation than before, even as much as the value of the property itself.
Doesn’t that make it a different sort of investment?
The biggest thing is that a warehouse depreciates over a long period of time. But with this new technology, you need to depreciate much faster. You need to make your money back within three, four or five years. So, you have to calculate things differently. It’s more like a piece of machinery. But if you have a robotic staff, who’s going to take it over?
I always assumed the more a company invested in their own space, the longer they would want to stay there. And that developers preferred long-term leases.
Developers were really happy in the past to have a long-term lease. They still are, really. But at the same time, you’re seeing a new approach from some of the developers and investors that it might be later to make 10 years as the maximum. Then you can step back and look at the market to see where it actually is. As we saw during COVID, rents can rise dramatically. If the inflation clauses in your lease didn’t give you sufficient protection, then you would fall behind. Today, some developers, at least in some locations, are thinking about limiting leases to five or max 10 years. Instead of looking for long-term leases of 15 or more years. Because if the market changes, you could be stuck.
It used to be manufacturers that needed hi-tech, high-investment sheds. These days, logistics companies have to invest heavily in their warehouses.
Absolutely. It’s changed so much. These days, the biggest ones will only hire people with at least secondary school education. In the past, working in a storage hall, it didn’t matter if you only had primary school. Today, you need to be skilled on the computer, you need to be able to run digital technology. It’s changed dramatically.
How will the growth of automation impact the locations tenants are willing to open sheds in? I mean, if they don’t need to employ as many people, what does that change?
In the long run, it will have an impact. But in the short-term, they still need a lot of labor. At least in CE, where the labor is still significantly cheaper than Germany.
One of the reasons I got in touch with you is because your company FH+ real estate and a few other agencies have formed a collective called BREG. What’s going on?
There’s been a sort of shift on the agency market. The big corporate groups have been growing over the past 15 years and many of them now employ tens of thousands of people, up to 100,000. In the process, most of the middle-size companies have disappeared because they were eaten up and merged with these big ones. At the same time, you started seeing boutique agencies start to evolve in all of the sectors, including industrial, retail, offices, and residential. There are now plenty of other independent companies like us with deep, specialized expertise
So, we decided to present ourselves as a multi-sector grouping that offers a complete platform called the Boutique Real Estate Group (BREG). We already cover all commercial real estate sectors. Each of us has in-depth knowledge and a very senior person sort of running it.
Who else is in it?
The other companies are DSP collective, RAF Advisory, Simona Industrial Advisory, Veritas Consulting and W-REALESTATE. We put this together so that together we could offer all of our clients a complete range of services. So, if any of my industrial clients has office space to lease, they can use Katerina Wojtusiak, the founder of W Real Estate. There’s been more interest in this than we expected.
We’re offering it as a sort of alternative to the big corporates, and there’s been more interest than we expected. Because if you go to the bigger companies, you’re not going to get this sort of personal touch. And unless you’re a big corporate company, you’re not going to get a senior agent. You’re also going to be encouraged to give them all of your business (leasing, property management, asset management, investment). We are absolutely happy to service only one line, one instruction. The client is absolutely free to do whatever, and he’s not under pressure at all to really give us more business. And the client has 24/7 senior agent on board.
Fred Hlobil is founder and director of FH+ Real Estate
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