Since the big changes at GLP took place, you’ve been able to go after a wider range of properties. How has that been working? What are you finding in the market and have your aims shifted?
It’s fair to say that a lot has change in the market and so have we. In Ostrava, we’re working on the pre-lets of further phases once we have the customer lined up. So, all the permits are there, all we need is the client. We have a solid pipeline in place.
Are you not building spec because clients tend to need very specific buildings, or is it more out of concern over the state of the market?
I think the ratio is 50-50. Very often clients want a specific space, so we wait until the last minute before starting construction. But market sentiment is also something we watch very closely. It’s not that we don’t do speculative construction at all. But we always assess each market separately. What’s the vacancy, what’s the real take-up in the market, what’s the supply? We’re talking about Ostrava right now. In Brno, we kicked off speculatively and now we have just the last 7,000 sqm left. The rest of the site was pre-let during construction. But in that case, the location and timing were perfect, so we started with a small building and just kept building.
On the one hand, take-up is still quite solid. On the other hand, we know what’s happening on the capital markets and how high the cost of financing is. No one knows what the yield is, so pricing anything is quite difficult right now. Who knows if the average rent is going to be €6 at the end of the year or €10?
That almost sounds like a threat to customers…If they could go to €10 by the end of the year, shouldn’t tenants sign now?
Exactly. But you don’t want to pre-let for a period too long into the future either. You can’t know if your financial model will still work in a year. All the detail you have to harmonize to make sure the project works financially can change. It’s a very challenging moment, so we try to assess each project individually.
With vacancy so low, aren’t developers in the driver’s seat?
You could say it’s a developer’s market now. But until we have a construction contract, we don’t know if the rent works. We had to change the rental conditions with a couple of customers before the lease signature, because we realized we were receiving such high prices from the construction companies that the rent wasn’t high enough to make the project feasible.
We’re hearing a lot that construction prices are stabilizing somewhat. That you can get serious bids again from contractors. Is that true?
It’s gotten easier. Back in May and June last year, if we asked six companies to quote, we’d receive two bids that would be valid for six days. That was very challenging. The prices are still high, but we’re receiving more quotes now and the pricing is valid for longer.
How much longer?
You can rely on a month or six weeks now. Last year was a very strange period. Some companies asked not to as them for bids. They were concerned it would hurt their relationship with us, so they asked us not to ask for bids in the first place.
Because they had too much work?
Too much work, or the materials weren’t available, or people weren’t available. Today, I think the issue with too much work isn’t valid anymore. This will definitely help improve the flexibility of the GCs. They will have more appetite for new jobs, so they’ll try to find cheaper materials, cheaper people or faster ones. I think a correction will happen.
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