Excellent warehouse market figures for the third quarter this year show that growth is being maintained in Poland. Demand has exceeded 3 million sqm since the beginning of the year, with 870,000 sqm leased in the third quarter alone. This result is 20% higher compared with the same period last year. An impressive 2.16 million sqm of warehouse and production space is under construction, of which 33% will be delivered on the market by the end of the year, according to a report prepared by AXI IMMO.
Demand
Demand for warehouse space from occupiers is showing no signs of abating. In Q3 this year, 870,000 sqm was leased, over 20% higher than in the same period last year. More than 62% of total demand was made up of new lease agreements and expansions. From January to the end of September this year, over 3 million sqm of modern warehouse and production space was leased. AXI IMMO estimates that by the end of the year demand may reach 4 million sqm, a figure similar to last year.
The largest amount of warehouse space, nearly 250,000 sqm, was leased in Upper Silesia, 71% of which was made up of new lease agreements and expansions. The Warsaw region took second place, where lease agreements for over 175,000 sqm were signed. This was followed by Lower Silesia with over 150,000 sqm and Central Poland with more than 100,000 sqm.
In terms of new lease agreements, the situation was similar to the previous quarters this year, with logistic operators taking 33%, retailers/distributors 15.5% and e-commerce 9.8%.
“The high share of new lease agreements in demand makes for optimistic forecasts for the next quarter. Despite the fall in the availability of staff, Poland remains an attractive destination, both for logistics and production companies as well as distributors. The former choose regions closer to the border with Germany, where they have central warehouses created to serve Western Europe. Production companies are increasingly choosing locations in the interior of the country, including in Eastern Poland, where staff are widely available. For distribution companies, natural destinations are big cities and their surroundings, where organising fast and frequent deliveries is increasingly important,” comments Anna Głowacz, Head of Industrial at AXI IMMO.
Supply
The total supply of modern warehouse space in Poland in Q3 2018 exceeded 15.1 million square metres, which was the result of 1.34 million sqm being completed since the beginning of the year, of which 622,000 sqm were within investments completed in Q3 this year. This result is 29% lower compared with Q3 2017, but still high considering that more than 2.16 million sqm remains under construction.
Developers delivered on the market most new A-class space in Central Poland (over 210,000 sqm) followed by Upper Silesia (124,000 sqm). Development activity has been highest in these two regions for over a year. Also worth noting are the high figures for Eastern and Western Poland, where there were 75,000 sqm of modern warehouse space was completed.
The unquestioned leader in terms of the volume of space under construction is Central Poland (566,000 sqm), followed by Upper Silesia (365,000 sqm), Lower Silesia (325,000 sqm) and Warsaw (280,000 sqm).
The share of purpose-built investments is surging ahead at a level close to 20%, but also in comparison to the previous quarter of this year the share of speculative projects under construction increased reaching 41% by the end of September.
Vacancy rates
The average vacancy rate in Q3 this year remained low and at the end of September stood at 4%, which was the same as in the previous quarter this year. However, differences in availability in individual regions vary widely. Most free space for immediate rent was reported in Eastern Poland (9.5%). This is a significant jump, by as much as 7 p.p., compared to the second quarter. Among the main markets, the highest rate was recorded in Warsaw (7.4%), followed the Poznan region (6.9%). An increase in availability in a six-month perspective can be expected in Lodz, where new speculative projects are being carried out by Panattoni, Prologis and Segro.
Rents
An increase of 0.1 to 0.3 euro per square metre in rental rates is visible in almost all of the country's warehouse regions. Along with increases in construction costs, including building materials and labour, consolidations in the owner market have also played a role. Strong activity among Asian investment platforms and portfolio purchases in Poland have led to new owners raising the value of their properties and limiting rent holidays and other incentives for tenants.
Currently, the lowest effective rates of around €2.0 / sqm / month are still achievable in Błonie and Grodzisk Mazowiecki near Warsaw. An upward trend is clearly visible in the Wrocław region, Upper Silesia and in selected locations of Central Poland. Meanwhile, rates remain relatively high in new markets, such as Białystok, Szczecin and Bydgoszcz, where average effective rates range from €2.5 to €2.8 / sqm / month
Forecasts
The warehouse market will continue to record path in the coming quarters. AXI IMMO estimates that at the end of the year demand should reach a similar value of 4 million sqm as in the previous year, the main driver of which will be the e-commerce and retail sectors.
At the end of the year, total warehouse supply in Poland will exceed 16 million sqm, and the expected annual increase in warehouse space will be around 2.8 million sqm.
Investors are showing a lot of interest in the warehouse sector, which is currently the highest rated among all asset types in the commercial real estate sector. We will witness further major acquisitions and portfolio purchases in the CEE region and Poland, which may have an additional impact on the increase in rental rates in Poland.
In the long-term perspective, the low availability of staff will push many companies to develop automation tools, which in turn will require developers to adapt their space to the needs of tenants to an even greater extent. The effect of this will be an increased number of BTS investments, with varying technical parameters, for example, buildings over 10 m in height, above-standard load capacity of floors, mezzanines and increased demand for utilities.
