Are brownfields attractive for investors? What are their biggest dangers? Can they be compared to greenfield constructions? Are their hidden shortcomings dangerous? We talked about brownfields with Pavel Sovička, Managing Director CZ&SVK of the developer Panattoni Europe.
What is the situation regarding the availability of land today? What issues are you facing the most these days and on the other hand what is working well?
A few years ago it seemed that the most lucrative land in big cities was hopelessly occupied. However, possibilities for industrial construction have expanded considerably thanks to revitalized brownfields. Development is now going to minimize greenfield construction and the transformation of non-functional areas into modern industrial spaces. This trend is particularly excellent in terms of sustainable development. Traditionally, we are faced with the fact that land-use planning in the Czech Republic does not work very well and that anyone in the process can intervene in the permitting process at any stage. On the other hand, I consider the degree of brownfield mapping and the state’s willingness to invest resources in their revitalization as a positive trend.
Are brownfields interesting for investors? And why is that?
Brownfields are very attractive for investors because they are mostly in already existing build-up area, and with a good transport connection if need be. Of course, not all brownfields are suitable for industrial use, as some are too close to residential areas or city centres, making them more suitable for constructing hotels or other commercial premises.
What are the drawbacks?
First of all, I would mention the complicated ownership. Larger areas are often owned by more private entities that cannot be determined or ask for unrealistic price. Of course, the other drawbacks that must be reckoned with are that you never know to what extent the territory is contaminated, how high the environmental burden will be and what funds will have to be invested to remove it.
How is the economic profitability of brownfields determined? Is regenerating them mostly a positive, and are they lucrative?
This is a very complicated topic, but in general it can be said that a private investor would never pay for any significant revitalization. The explanation is simple. Investment costs are often in the order of hundreds of millions of crowns, so the total investment couldn’t be made without state intervention.
How are brownfields in terms of sustainability? Are there any drawbacks concerning their “life span” in managing them in the future? Are there “hidden defects” and other dangers?
The advantage of industrial areas is that even any hidden defects practically cannot endanger the functioning of the entire area. I personally believe that life span is similar to that of greenfield constructions.
Do brownfields vary by location? Can we say that they are more interesting somewhere and worse elsewhere? In the Czech Republic, in Europe or in the world?
Brownfields a little further away from the city will always be more interesting for industrial developers, thus allowing for an eventual increase in traffic load. Czech brownfields are unique in that they are a legacy of communism and a remnant of the period of wild privatization. This problem has gone unsolved for a long time because politicians were concerned with other problems after the revolution. The first databases on brownfields began to emerge after 2000. Western Europe had a head start in this respect, where issues concerning revitalization have been in the forefront for a long time.
What about numbers? The further to the east, the more there are – or does this not apply?
In terms of the Czech Republic, the Liberec Region is first with 83 brownfields and the South Moravian Region has 81. This data comes from the CzechInvest database, which is not entirely complete. It is estimated that the observed number of brownfields accounts for about one quarter of the total number of these sites. The amount of brownfields is high in relation to the size of our country, which is based on our rich industrial history. A particularly high concentration of industrial brownfields is in the Ostrava, Ústí nad Labem and Brno regions. In terms of Europe in general, the former Eastern bloc countries have more brownfields than the more developed West.
Does the approach to renovating brownfields differ between us and the world?
It is the same, but Western Europe has been solving the problem longer and as such has more experience.
Can you say which kind of brownfields is the easiest to renovate? And the most demanding?
Brownfields can be classified into three subgroups. The simplest are the so-called whitefields, meaning a situation where the value of the land is higher than the cost of regenerating it. Only in this case can revitalization be considered without public sector participation. So-called greyfields are already on the verge of profitability, return on investment and sufficient profits are not guaranteed, making funding for public-private partnerships appropriate. The worst group is blackfields for which regeneration costs are significantly higher than the value of the land. These areas are characterized by a high ecological burden and are usually revitalized with public funds.
Are some kinds of brownfields more popular with investors or are they always evaluated by their location?
In general, the investor is mainly interested in the geographical location, including transport connections and the availability of a skilled workforce.
How can brownfields be found?
Through various databases, direct communication with local authorities and individual field research and so on.
How are local authorities supporting brownfield renovations? Are they generally favourably inclined and helpful? Is the permit process easier than other projects?
Local authorities are very helpful with the revitalization process. For example, we are now preparing a new industrial zone on the territory of the former Škoda-Ostrov plant in Ostrov nad Ohří, where trolleybuses were produced. Negotiations were very quick and agreeable, so everyone, including the locals, should be happy. However, I fear the permitting processes will be as complicated like other projects. Look at Žatec, where the industrial zone is located on the former airport, where the Korean company Nexen has long been faced with absurd comments from activists about constructing a factory.
And what is the approach of local communities? Are people happier that something new will be created from ugly, neglected places even if they’re commercial?
People are mostly happy when they make the acquaintance of the real situation, when they find out that a functional and prosperous area will emerge again from a deprived or devastated area, offering them hundreds of new jobs.