The spectacular net take-up of 3.5 million sqm at the end of Q3 was better than any other total for the first three quarters of a year. The Polish market was also one of the driving forces behind the record demand in Europe. Advisory company JLL analyses the industrial market at the end of Q3 2021 and outlines the key trends and developments for the sector in the coming months.
The dominance of the Big Five and the continued impact of e-commerce on demand
"For another successive quarter, we have seen record-breaking results in Poland’s industrial market. The record net take-up of 3.5 million sqm at the end of Q3 could well be topped up by another 1.1 million sqm plus from contract renegotiations and extensions. The total take-up of 4.7 million sqm would be a 35% increase on the same period last year. This means that there will be another record set at the end of 2021", says Tomasz Mika, Head of Industrial Poland, JLL.
The first nine months of 2021 were inevitably dominated by the Big Five markets (Poznań, Upper Silesia, Wrocław, Warsaw and Central Poland) accounting for 73% of new demand. Poznań came in first with over 600,000 sqm in Q1-Q3 2021.
"Upper Silesia, the Warsaw area and Wrocław also recorded a very good third quarter, narrowing the gap between these three markets and Poznań. Almost one million sqm of space for logistics was leased outside the Big Five markets. The markets in the northern regions of Poland – Kujawy, Tri-City and Szczecin, where a total of over 550,000 sqm was leased, really stood out", explains Maciej Kotowski, Senior Research Analyst, JLL.
The continued rapid growth of e-commerce is reflected in the increased operational levels from logistics companies and retail chains, which accounted for 70% of the new demand. Furthermore, these two sectors attracted this year's 20 largest contracts totalling 1.1 million sqm. These included new contracts involving Action, Amazon, Arvato, Auchan, DHL, ID Logistics, JYSK, Westwing and Zalando.
Another 3.4 million sqm of industrial space under construction
Developers were keeping up with demand – between January and the end of September as much as two million sqm was delivered to the market. As a result, the total industrial stock in Poland stood at 22.9 million sqm, an increase of around 12% y-o-y. The Big Five markets accounted for as much as 80% of this stock with Upper Silesia seeing the biggest increase – by 400,000 sqm over the three quarters. Lubuskie took second place, mainly due to the completion of an Amazon investment. At the end of September, most of the new warehousing space, totalling over 500,000 sqm, was being built in the Wrocław and Poznań markets.
"The first three quarters saw record levels of development activity with 3.4 million sqm under construction at the end of September. In addition, it is worth noting that the positive sentiment is also reflected in the greater share of speculatively developed space. At the end of Q3, it was 43% compared to a 30% share at the end of 2020. That's almost 1.5 million sqm available for lease. Each of the four largest speculative projects exceeds 50,000 sqm and is very likely to attract e-commerce players", says Maciej Kotowski.
Rents up while vacancy rates down again
New projects drove up rates. Urban locations remain the most expensive destinations, with base rents in Warsaw ranging between 4.2 and 5.50 euro/sqm/month. The most attractive financial conditions were offered by big-box facilities in Central Poland (2.6 to 3.60 €/sqm/month).
"Currently, only 6.2% of existing industrial space in Poland remains vacant. Strong demand and a slightly smaller share of speculatively built space in 2020 led to another reduction in the vacancy rate. Total vacant space along with speculative developments under construction meant 2.9 million sqm of stock was available at the end of September. However, it is worth noting that there are few large spaces available on the market, even though this format is most in-demand", explains Tomasz Mika.
Record prices and the second-best performance in Poland’s investment market history
"Portfolio transactions continue to dominate the industrial investment market. Since the beginning of the year, assets with a total value of over 1.6 billion euro have changed hands. Huge investor interest combined with a shortage of prime product has resulted in prices rising to record levels. Moreover, the strong competition in the sector is expected to continue into next year, as illustrated by the aggressive bidding for ongoing projects", comments Sławomir Jędrzejewski, Head of Industrial Investment, JLL.
The largest transaction in the first three months of the year was the acquisition of four schemes from Panattoni by Ares Group. Q3’s landmark transaction was the acquisition of A2 Warsaw Park by Savills Investment Management from Invesco Real Estate. The transaction’s value of approximately €112.5 million translated into an unprecedented cap rate for a multi-tenant warehouse.
At the end of Q3 2021, prime warehouse yields for multi-tenant schemes with an average of five-year lease agreements were estimated at around 5.25%. Warsaw projects stood at approx. 4.50%. Facilities with long leases (10 years) achieved rates below 4.50% and exceptional projects leased for more than 15 years may even be 4.00% with further prospects of compression.
