In order to fight the increasing costs, companies must further review their assets and find ways to release equity. Properties owned by a company are one of the possible sources of financing which is rarely taken into account. In the case of manufacturing/warehousing companies, these assets are a significant part of the balance sheet, often funded with the equity, which is difficult to liquidate. Sale and leaseback transaction is a very convenient solution. Regaining the funds frozen in the property and reinvesting the revenue in the core business may not only help companies survive the period of growing costs and protect human capital, but also ensure equity required for the long-term growth and success.
Sale and leaseback consists of two interconnected stages. Firstly, the company sells its property to an investor, and then signs a lease agreement, thus continuing to run its business within the same scope and on the same property. The agreement often guarantees a pre-emption right to the seller following the lease period. The benefit of this type of transaction is that the company may reinvest this equity immediately in its core business. Due to current high inflation, these funds could be used to compensate for growing costs of running a business and to fund long-term initiatives. Moreover, the company retains complete operational control over its assets during the leaseback agreement, which means that nothing limits its activities.
Right now, it is a perfect time to consider sale and leaseback transactions. If the company decides to conclude a sale and leaseback transaction now, it previous rates can still be blocked, which are lower than the next-year rates due to the expected economic slowdown. In Western Europe and the USA, the number and the volume of sale and leaseback transactions are continuously growing. In Poland, this form of funding is gradually becoming popular among big company owners aiming at increasing their development, as well as those struggling with restructuring.
Investment plots are real properties which, in accordance with the local development plan or development conditions decision, can be used for an investment project related to conducting business activities. These can be factories, warehouses, manufacturing or logistics halls, office and commercial buildings. No residential buildings can be erected on this type of land. Buildings used for business activities are often very burdensome for local residents; therefore, investment areas are mostly located at suburbs or outside of the cities, in the vicinity of trunk roads, express roads or motorway junctions. Exceptions include office and commercial buildings, which are erected in well-connected places inside the cities.
This depends mainly on the size and location of the plot, as well as the provisions of the local development plan (or development conditions decision) and the state of access roads. Different types of buildings can be erected on an investment plot depending on the combination of the above-mentioned elements. These include mainly:
Large-area warehouse developments used by more than one tenant. This type of real properties are located in the vicinity of large cities, although mostly just outside their boundaries, along the largest communication routes and near motorway junctions.
Large facilities located in the area of the largest urban agglomerations, mostly 10–50 km away from city boundaries, with access to express roads and motorways. The main tenants of big-box warehouses are e-commerce companies, retail networks, distributors and logistics companies.
SBUs are smaller warehouses with the area from 500 to 5000 sqm. Such facilities feature warehouses and offices, and sometimes light production. This type of real property is mostly selected by the tenant who, except for perfect location, cares for visual and aesthetic qualities of the building. Small business units are located in the industrial urban districts located close to city centers.
The plots intended for manufacturing facilities are usually determined in detail in the local development plan. Complicated parameters and detailed requirements mandatory to construct this type of buildings limit the possibilities of land usage – not every plot meets the provisions for manufacturing facilities.
This type of building is intended for storing IT infrastructure, as well as processing and distributing data. It is characterized by very high electricity demand, and location far away from the main roads, but in a well-communicated area.
This is one of the most active investment property sectors. At the end of the third quarter of 2022, the total volume of office investments in Poland reached the level of 1.8 billion euro. Naturally, such investment projects are implemented in large cities, such as Warsaw, Wrocław, Kraków.
The demand for plots of land intended for the construction of large-area commercial halls, so-called retail parks, is still high. This type of investments are implemented throughout Poland, both within and outside of the boundaries of large cities.
The most important legal act which can help to determine the status of a plot is the local development plan. This document contains information which set forth the requirements applicable to the particular area. Pursuant to Article 4 item 1 of the Spatial Planning and Management Act, the local development plan provides for “determination of the intended purpose, deployment of public utility investments and identification of the development and its conditions for the land.” The local development plan not only sets forth what can be built on a particular land, but also describes the parameters, such as building height. The data on the actual status of the land plot can be found on the Internet or at municipality offices. If a real property is not subject to any local development plan and the investor plans to change its development manner, they can apply for a development conditions decision to be issued. The development conditions decision can be issued when several conditions are met, such as the presence of at least one adjacent plot accessible from the same public road, developed in a manner allowing for the determination of requirements for new development.
To fairly determine the price of an investment plot, you need to first answer the question: what part of the plot area can be used for an investment. This type of analysis will help to estimate the initial price, which will be appropriately specified in detail after the technical parameters determining the investment potential are established. The most important of them are set forth in official documents issued by the self-government bodies at level of municipality, poviat or voivodship (e.g. local development plan). Based on the available documents, the useable surface area can be calculated, which will provide the answer to the question asked in the first sentence. This is one of the parameters necessary to determine the value of a land plot. If a plot is subject to additional conditions (it is located in a restoration zone, the real property has been entered into the list of heritage sites, it is located in a downtown development area or infrastructural investments are planned nearby) or an environmental decision is required, more documents will need to be obtained. Using a specialist support to obtain a reliable and accurate valuation report is recommended.
Interest rates have been increased since October 2021 as follows (by dates of the Monetary Policy Council meetings):
on 6 October 2021 the reference rate was increased to 0.50%
on 3 November 2021 the reference rate was increased to 1.25%
on 8 December 2021 the reference rate was increased to 1.75%
on 4 January 2022 the reference rate was increased to 2.25%
on 8 February 2022 the reference rate was increased to 2.75%
on 8 March 2022 the reference rate was increased to 3.5%
on 6 April 2022 the reference rate was increased to 4.5%
on 5 May 2022 the reference rate was increased to 5.25%
on 8 June 2022 the reference rate was increased to 6.00%
on 7 July 2022 the reference rate was increased to 6.50%
In July 2022, according to the Statistics Poland flash estimate, CPI inflation reached 15.5% YOY. In accordance with the July 2022 report published by the National Bank of Poland, the main contributor to the increase in inflation was the growth in the prices of energy, including fuel and energy carriers, as well as:
A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments. When drawing liabilities with a bank, many entrepreneurs are not aware of the opportunities that are offered by sale and leaseback transactions, which may turn out to be a cheaper and faster alternative to obtaining financing than loans. As a result of signing this type of contract, the property owner sells it to the investor, and continues to operate in the same scope and in the same location. Sale and leaseback is a solution providing many companies with significant resources for development, which can be allocated for any purpose, and the funding amount reaches the market value of the property, which is a significant advantage over bank financing that requires own contribution.
Advantages of sale and leaseback:
INWI is actively seeking real properties owned by companies with annual turnover above 100 million PLN. Feel free to contact us: daniel.radkiewicz@inwi.pl / tel. +48 516 192 856
The key challenges that Polish construction companies are facing consist in the dynamic increase in construction material prices, which, together with further interest rates hikes, high inflation and high fuel prices, contributes to an increase of overall production costs. The threat of a wave of bankruptcies in the construction sector is becoming real. Add to that the material shortages and the outflow of workers from the construction sites to their country at war and we may soon be facing an investment slowdown. Are moods in the construction industry really that bad?
Small and medium companies must prepare for a crisis. It is them in particular that will feel the staff shortages, as here the percentage of employees from Ukraine is clearly higher. In 2022, there were nearly 373,000 Ukrainians legally employed at construction sites. How many of them came back to their homeland? We do not know yet, but experts are expecting another wave of returns when the reconstruction process after the war begins. Construction companies in Poland are considering replacing Ukrainians with workers from the Caucasus, Belarus or Moldova. In the companies sector, we are also facing the greatest salary pression in the 21st century. In March 2022, it was 15.7% YOY.
The steel market is one of the industries severely impacted by price increases. We have been reporting increasing prices already back in 2021. The pandemic shook supply chains and limited steel availability threatened both private and commercial construction sites. When the prices settled in 2022, a geopolitical crisis came. It brought about new uncertainty which, unfortunately, provokes stocking up on inventories. Companies are buying massive volumes of materials, which further aggravates shortages. Both Ukraine and Russia are huge steel manufacturers. In 2021, nearly 20% of the steel used in Poland was from Ukraine (approx. 1.37 m tons) or Russia (approx. 1.36 m tons). Such serious problems with supply liquidity may disturb completion of investments or even put new ones on hold.
Increasing prices of construction material are also the result of the high oil prices and the dwindling zloty-dollar exchange rates. Prices of cement, concrete, aggregate or coking coal used in steel production are also beating all-time highs. High fuel costs translate to transport price increases. All of this is happening against a background of high demand, while construction companies are trying not to slow down. This is confirmed by wholesalers, whose profitability has increased in comparison to the pre-pandemic and pre-war time, although it cannot be denied that even then we could see rising costs.
We can rest assured that there will be some perceivable the negative consequences. What remains to be seen, for the moment, is the scale. We can probably expect lower margins in big contractor companies, worse financial position of SME subcontractors, along with a drop in demand for construction services in the private sector. What would be necessary would be an increase in public sector contracts and indexation of fees to accommodate actual cost increases. This might be the salvation for the industry.
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