JLL summarised another quarter in the warehouse market, analysing the behaviour of investors, developers and tenants. The data after the first three months of the year shows that:

• The net demand for warehouse space in Poland increased by 5% compared to the record performance of Q1 2021, with new tenants still most likely to choose one of the Big Five markets.
• In Europe, the e-commerce sector gave way to the manufacturing sector in terms of demand, whose market share increased by as much as 20%. In Poland, the logistics industry and retail chains saw the most interest in leasing, totalling almost 900,000 sqm, in the shape of new contracts and expansions.
• Developers are successively implementing their plans to build speculative developments. This includes existing vacant space, with around 3.5 million sqm currently available.
• New supply in Poland hit a record 1,260,000 sqm, which accounted for 25% of the space delivered in Europe. Most space was delivered to the markets of Poznań, Central Poland, Warsaw and Wrocław.
• The sector saw the first visible increase in rental rates recorded in the country. This was most noticeable in urban locations – in Warsaw, base rental rates stood at almost €6/sqm/month at the end of the first quarter.

The Big Five and…Tri-City

The level of demand for warehouses is unrelenting. In the last quarter, Poland ranked third in Europe in terms of new demand. In practice, this meant a net increase of 5% compared to Q1 2021.

The Big Five markets traditionally had the largest share of new demand, with as much as 770,000 sqm leased, accounting for 70% of transactions nationwide. Upper Silesia topped the ranking, and also outperformed other locations in terms of renewed and extended leases. The Tri-City market was another standout location, where a total of 130,000 sqm (net) of warehouse space was leased in the first quarter.

For years, demand has been shaped by the logistics and retail sectors. The total space contracted for both of these sectors was close to 900,000 sqm. Most of the demand was generated by large and medium-sized agreements, with the largest transaction of 100,000 sqm being completed in Gdansk.

"In the first months of the year, logistic companies and retail chains further developed their warehouse facilities on the wave of online sales growth. Demand was generated throughout Poland and mainly concerned large areas. What's more, there are still new start-ups on the Polish market that need a warehouse right away," says Paulina Dziubińska, Senior Director of Industrial Agency, JLL.

Developer market at full pelt

Thanks to high developer activity, new supply in Poland during the first quarter was 1,260,000 sqm, which represents as much as 25% of new supply in Europe. The largest increases in stock, exceeding 200,000 sqm, were recorded in Poznań, Central Poland, Warsaw and Wrocław. Despite record results, only 15% of this space remained unleased at the time of completion, indicating high demand for space that was immediately available.

Developers increasingly chose to build speculative warehouses. At the end of Q1 2022, there was 2.2 million sqm of space unsecured with lease agreements under construction, which is likely to come onto the market later this year. In total, over 4.7 million sqm was under construction at the end of March. Most of the new logistics space will be built in the regions of Upper Silesia, Wrocław, Central Poland and Lubuskie.

The vacancy rate in Q1 2022 recorded a slight increase compared to the previous quarter. The availability of warehouse space exceeded the 5.3% mark, which translates to 1.3 million sqm of space available off-the-shelf.

Rents are going up

The beginning of 2022 saw previously announced increases in rental rates. This is the first visible movement in several years. Base rental rates for big-box units in the Big Five markets increased by 5-10%. The highest rates were registered in urban locations such as Warsaw, where the base amount was up to €6/sqm/month. The most attractive rates can be obtained in suburban locations in Central Poland, where rates start from €2.6/sqm/month.

"Despite the apparent impact of economic and political factors on the national economy, the warehouse market did very well in the first quarter. We continue to see an increase in the number of transactions. At the same time, we try to monitor the changes taking place in order to provide tailor-made solutions to support business development," comments Tomasz Mika, Head of Industrial Agency in Poland, JLL.

Capitalisation rates about to change?

"For the first three months of the year, the value of warehouse investments in Poland totalled approximately €190 million. The warehouse sector continues to attract foreign capital and, looking at the ongoing talks and potential transactions, the growth dynamics of volumes in this area is expected to continue as the year goes by," explains Sławomir Jędrzejewski, Head of Industrial Investment in Poland, JLL.

In the first quarter of this year, smaller deals from two different risk spectra, i.e. core and value-added, prevailed, with the former leading the way. The risk-averse buying strategies of large funds gave small and medium-sized players a chance to purchase good projects for their financial vehicles.

Current yields are dictated by the dynamics of demand for warehouse space, the value of money and the low availability of product. For typical multi-let warehouses with a five-year average lease length, projected yields are close to 5.0%.

Warsaw projects are estimated at 4.5%. Assets with longer leases of around 10 years are trading below 4.25%-4.50%, while exceptionally leased assets can reach a maximum level of 4%.