Logistics market
According to JLL 1Q23 data, total net demand for logistics space decreased in 1Q23 by 35% y/y to 1.0m sqm, concurrently with an increase of lettable area of 21% y/y to 30.5m sqm (we note that the developers delivered 1.5m sqm in 1Q23). The most active group of tenants were industrial and e-commerce companies. The vacancy rate amounted to 6.3% (+1.2pp. q/q; ca. 1.9m sqm).
As major risk factors we point to:
• Risk related to the demand for dwellings. The company’s results are dependent on pre-sales, which took place in previous quarters. Thus, in most cases a drop in demand will negatively affect the financial data and profitability. We note that in 2021- 22, Marvipol Development pre-sold 376 and 207 apartments, respectively, due to a limited offer and the above-mentioned deterioration in demand. Hence, we predict that the developer will deliver 442 flats in 2023E, in comparison with 910 units in 2022.
• Risk related to interest rate volatility. In 2022, demand surged, which was driven mainly by interest rate hikes implemented by the MPC. The clients lost their creditability, which decreased by 60-70% (according to market data). Moreover, the share of credit-buyers fell from 70-80% to ca. 20% as of end-2022. Nevertheless, starting from 1Q23, creditworthiness started to slowly recover, which has underpinned pre-sale volumes. Given recent BIK data, the number of granted mortgages in June present an increase in y/y terms for the first time since Dec21.
• Risk related to the mortgage bank’s policy. The demand change may also be affected by the bank’s attitude to mortgage policy. According to the latest NBP survey, the majority of sector representatives are planning to tighten credit policy in coming months, despite an improving market environment.
• Risk related to costs. The profitability of residential projects depends on two key factors on the cost side:
1) material prices, and
2) landplot prices.
We observed increased volatility of core material prices in 2022, due to the negative impact of the war in Ukraine, which could leave a footprint on future projects. Nevertheless, the developers decided to increase selling prices and we suppose that the companies will be able to mitigate the above-mentioned factor. Furthermore, the developers reported that in 2023E the key material prices, have at least stabilized, which sounds quite supportive to us. Regarding landbanks, prices continue their long-term trend of hikes and the share of the landbank in the selling price grew from 20% to 22-24% as of now. In our model, we assume that gross profitability will gradually fall to nearly 23% (vs. a long-term average of 23.7%).
• Risks related to the logistics market. The logistics division is a supplementary activity within the company’s business model. As of end-2Q23, the group has invested > PLN 200m in logistics projects and will regain this, if the projects are sold. As of now, we observe a slowdown in the investment market, which is caused by a deterioration in the macro environment and increase in exit yields, which has left a footprint on valuations.
