Over the last decade, industrial supply has more than tripled from 6.3 million sqm at the end of 2010 to almost 21 million sqm in 2020. However, this rapidly developing real estate sector is now showing signs of maturity. This is illustrated by new formats appearing especially in the largest agglomerations. An example of this is the urban warehouse segment analysed together by JLL and SEGRO in the first report of its kind, "Logistics Avenue: city logistics market in Poland".
“City warehouses are becoming increasingly popular among tenants in Poland. Recent years have seen a sharp increase in new developments in this format. In SEGRO's portfolio such projects account for 67% of its total value. The development of urban logistics is a result of, among other things, the growing populations in metropolitan areas, the development of the e-commerce sector and the trend towards same-day delivery as well as the transformation of supply chains”, comments Bożena Krawczyk, Investment Director, Central Europe, SEGRO.
What is city logistics?
Urban logistics assets are by definition located within city limits. However, this definition doesn’t give us the whole picture. “Until recently, most urban warehouses in Poland were designed as standard big-box facilities that were not necessarily directly related to the logistics service of the city. However, the warehouse stock located within city boundaries also includes a number of alternative mixed-use formats with a predominantly warehouse function. Therefore, in order to accurately classify the urban logistics market in Poland, it is necessary to consider not only geographical criteria but also functional and technical aspects as well”, explains Tomasz Mika, Head of Industrial Poland, JLL.
The types of operations carried out in such warehouses, which are usually used for sorting and distribution, are therefore important. “In many cases, especially regarding the largest retail chains, urban warehouse space complements much more complex logistics chains, and handling last mile deliveries in a particular city. This is reflected in the smaller sizes of individual modules. For example, in Warsaw, the average size of new deals since 2018 was around 2,000 sqm, compared to 6,000 sqm in suburban locations”, adds Maciej Kotowski, Research Analyst, JLL.
Other features include a much larger share of modern office space (up to 20-30% of total GLA) and dedicated parking spaces for employees and clients, as well as increasingly common solutions in the area of sustainable development and placemaking.
Demand for urban warehouses is increasingly sophisticated
“The urban warehouse market has been largely dominated by occupiers from logistics, retail and related industries such as FMCG, food and electronics. However, manufacturing companies, seeking to benefit from their proximity to urban areas and wider access to skilled labour, also generate a significant share of demand”, says Waldemar Witczak, Regional Director, SEGRO.
Rising purchasing power, increased sales volumes and the growth of e-commerce are driving demand from courier companies. While the expansion model observed earlier was mainly based on companies building their own facilities to fill gaps in global supply chains, today, in parallel with the huge increase in the number of parcels being delivered, these firms increasingly prefer to rent warehouse space.
”It is expected that the structure of demand for urban facilities in Poland will slowly transform towards that observed in Western Europe, where warehouses of this type attract start-ups, companies focused on new technologies, data centres and niche manufacturers, as well as operators of research and development laboratories. This will make the urban real estate segment even more diverse and sophisticated”, adds Waldemar Witczak.
The development of this market segment will also continue to be influenced by the changing shopping needs of Polish consumers. "The growing volume of online sales in Poland, which has further accelerated due to the pandemic, will certainly become the main driver for new demand for last-mile facilities and developer activity operating in this market segment, especially as the sector is already facing insufficient product supply. This applies both to cross-docks, small courier hubs, as well as new mixed-use formats, which may also include old industrial, retail and office buildings located in city centres", concludes Bożena Krawczyk.
Supply – market is heating up
The supply of city logistics properties currently stands at around 1.6 million sqm, accounting for nearly 7.5% of the total commercial logistics and industrial space in Poland.
"Interestingly, up to 70% of the supply located in cities still comes in the shape of standard big-box warehouses. A significant part of the market - over 20% - is made up of small business unit facilities, i.e., buildings offering small business modules. Cross-dock warehouses, which are mainly used by courier companies, are also gaining in popularity. Projects vary in a number of ways including size, shape, and technical specifications. Because there is no one-size-fits-all template for a city warehouse, it further hinders new speculative investments. However, the unrelenting demand, combined with growing interest in urban locations among investors, allows us to look to the future with a great deal of optimism. As of 2015, urban warehouses accounted for around 11% of total transactional value in the warehouse sector. However, taking into account rapid urbanisation and changing consumer behaviour, we can expect their share of the market to grow in the coming years", comments Tomasz Puch, Head of Capital Markets in Poland, JLL.
Warsaw has the largest share (40%) in city logistics’ supply. Upper Silesia with its well-developed road infrastructure near the region’s main urban areas comes next. The third largest market is Łódź. This can be attributed to the size of the agglomeration, its historical development and industrial character.
“The industrial market in Poland has the potential to reach new heights, as 1.8 million sqm of logistics and warehouse space was under construction in Poland. 80% of this total has been built in and around the largest agglomerations, with more than 25% of this space located in inner-city locations. In the case of Warsaw, 25% of the space under construction was within the administrative borders of the capital”, adds Tomasz Mika.
Historically, the vacancy rate in city logistics parks has fluctuated considerably, ranging between 0% and 22%, which can be put down to the relatively small supply (base). However, the total vacancy rate rarely exceeded 200,000 sqm. In December 2020, it stood at 230,000 sqm (approx. 9% of urban stock).
Rents
Rents for warehouses vary based not only on location but also on leasing terms, technical standards and numerous other factors. For Warsaw, the difference between upper and lower rental bands (inner city vs suburbs) can be as high as €1.45/sqm/month. The less expensive warehouses located in the inner city offer space for €0.5/sqm/month more than the prime properties in the suburbs.
