Polish warehouse market hits new record

After the first half of 2022, the volume of investment transactions involving warehouse assets closed at €0.7 billion (-25% y/y). The low result is caused by the high base in 2021 and low product availability in the market. Additional factors contributing to the current state remain rising inflation and the war in Ukraine, which divides investors into two groups of stakeholders. The first includes those just discovering the realities of the real estate market in Poland, while the second includes funds that have been investing in domestic assets for years. Examples of this activity are the purchases of 7R's portfolio by CTP (127,500 sqm) or Panattoni by EQT Exeter (about 500,000 sqm). Despite temporary turbulence, the situation in the sector remains stable. Warehouse products will remain an interesting asset in the coming quarters due to rising rental rates or the still high demand observed in the Polish warehouse market.

“The lack of quality warehouse projects to buy immediately, which we have been highlighting for several quarters, has resulted in an expected decline in the volume of transactions involving the logistics sector in the investment market. Possible changes and renewed interest in logistics and industrial assets are expected closer to the end of this year when a significant portion of the space currently under construction will be delivered. Fully commercialized, ESG-compliant warehouses, which have also received high ratings for environmental certification, will remain in demand. We expect, also that facilities that are slightly older but located in key logistics markets will have to undergo a process of modernization to maintain their status as core and core+ investments,” explains Renata Osiecka, Managing Partner, AXI IMMO.

At the end of H1 2022, gross demand in the Polish warehouse market amounted to 3.7 million sqm (+12% y/y). New leases and expansions (net demand) accounted for 68% of the total, reflecting a result of 2.5 million sqm (0% y/y). During the period under review, the highest tenant activity was registered in Upper Silesia (725,000 sqm), the Warsaw region (620,000 sqm), and Poznań (506,000 sqm). On the other hand, in markets outside the so-called big five, the most noteworthy were Tricity (360,000 sqm) and Western Poland (290,000 sqm). In terms of the most interesting transactions signed in H1 2022, one should point out a new deal signed by an e-commerce client at Panattoni Park Sulechów III (88,500 sqm), an extension and expansion of a retail chain at Segro Logistics Park Gliwice (65,300 sqm), or two transactions involving logistics in turn at Mapletree Wrocław I (extension; 64,000 sqm) and P3 Poznań I (extension; 53,000 sqm).

Developer activity in the warehouse market in the second quarter of this year totalled nearly 700,500 sqm, bringing the total to 1.8 million sqm (+63% y/y) at the end of June 2022 and expanding the sector's total stock to nearly 27 million sqm (+25% y/y). The top three macro-regions with the largest new supply in H1 2022 included Poznań (nearly 333,000 sqm), Central Poland (nearly 329,000 sqm), and Upper Silesia (over 295,000 sqm). Meanwhile, the most interesting projects include the largest completed projects in the first half of 2022. Hillwood Bydgoszcz (BTS) of 105,000 sqm, P3 Poznań II (82,300 sqm), Panattoni Park Sosnowiec III (78,000 sqm), 7R Park Goleniów II (62,500 sqm) or Exeter Park Szczecin II (45,000 sqm).

"The volume of space delivered in H1 2022 and the scale of projects currently under construction was considered surprising to all observers of the Polish warehouse market. The vast majority expected that factors such as persistently high prices for construction materials or supply chain difficulties resulting from the war in Ukraine would affect a slight slowdown in new supply. The warehousing market is overgrowing in every corner of Poland, both in the so-called big five and in more niche locations, i.e., Kielce, Opole, or Radom," says Anna Głowacz, Head of Industrial and Logistics, AXI IMMO.

According to developers' announcements, as of June 2022, there is more than 5.3 million sqm (56% y/y), a record amount of warehouse space under construction. Most projects in the initial or advanced stages of development are in Upper Silesia (over 887,000 sqm), Western Poland (nearly 801,000 sqm), and Warsaw (nearly 727,000 sqm). In contrast, about 53% of the space currently under construction is speculative development. New supply has slightly impacted vacancy rates, which stood at 3.4% (-2 p.p. y/y) at the end of June this year. The smallest space available for immediate lease is in Poznań (2.3%), while the largest is in Upper Silesia (4.6%). High construction costs affect developers' pricing policies, raising rental rates in all projects. The market is witnessing an average rate increase of €0.2 to €0.5/sqm/month.

"Rising construction costs and an average 3-4 month extension of the delivery date of completed warehouse developments may directly impact the demand result at the end of 2022. With a meager vacancy rate, 4.5 million sqm of leased space will succeed wildly. The mood in the sector is also regulated by rising rents and the difference in rental costs between new and existing projects. We expect this trend to continue in the coming months, with material and contractor prices playing a significant role. Finally, the warehouse sector remains under the watchful eye of investors. We expect that the finalization of the sales process for several large projects will traditionally take place in the fourth quarter of the year," concludes Renata Osiecka.