An overview of the Warehouse sector for 2019

In 2019, the investment transaction volume for the warehouse sector came to EUR 1.48 bln, 17 pct lower than the record set in 2018. It was lower because a number of negotiations were delayed and are expected to conclude in 2020, transactions might be worth in excess of EUR 1 bln. Both European funds and Asian investors are interested in the Polish industrial market. The low availability of product has resulted in a rising number of share deals and transactions being closed at a development stage. While 2018 was a year of portfolio transactions, 2019 was dominated by single tenant deals. Assets that changed hands include Amazon’s warehouses in Bolesławiec and Cental Poland as well as Zalando’s in Olsztynek. Yields continue to be squeezed. The best single warehouse projects trade at under 5 pct, while multi-tenant parks in the most popular logistics locations remain above 6 pct. However, the best assets on the outskirts of Warsaw hover at around 5.5 pct.

For the third year in a row, take-up in 2019 reached nearly 4 mln sqm, 67 pct of which were new lease agreements. The country's five main logistics and production hubs accounted for 80 pct of the total demand. The largest amount of space was leased in and around Warsaw (1.27 mln sqm), followed by Upper Silesia (600,000 sqm), Central Poland and Wrocław (590,000 sqm each). Warsaw also saw the highest number of new leases signed.

Logistics operators made up a high share of the total demand accounting for 35-45 pct of the take-up in 2019, which rose to 49 pct by the end of the year. Logistics operators are leasing additional warehousing space in order to fulfill new contracts but also to modify their supply chains to meet the requirements of online retail. As a result, there is demand for space is growing in order to handle returns as well as for high-throughput warehouses and regional distribution centres.

Last year, developers delivered 2.72 mln sqm of new warehouse space, 23 pct up on 2018. As a result, total modern warehouse stock in Poland was more than 18.6 mln sqm at the end of 2019. Most of the new space was delivered in the Central Poland (656,000 sqm), followed by Upper Silesia (573,000 sqm) and Lower Silesia (430,000 sqm). The warehouse market in Poland has been growing by an average of over 15 pct per year.

At the end of 2019, 1.9 mln sqm was under construction, most of which was in Upper Silesia (478,000 sqm), followed by in and around Warsaw (470,000 sqm) and Lower Silesia (270,000 sqm). Over 260,000 sqm is being built in the TriCity region, which constitutes a third of the region's existing supply. Developers are not afraid of speculative projects. The share of speculative developments in the total new supply was around 35-45 pct during the year rising to 49 pct at the end of the year.

As well as the five main markets, we are seeing smaller, new locations such us Szczecin, Kielce, Legnica, Gorzow Wielkopolski, Bialystok, Lublin and Olsztyn being developed. The total stock in these markets came to 3.3 mln sqm in 2019, up by 26 pct on 2018. The most significant increase in new supply took place in the Warmia-Masuria region, which was largely a result of a 120,000 sqm BTS project for Zalando. Take up in these new locations was in excess of 770,000 sqm, 95 pct of which was due to new lease agreements.

A high number of speculative development projects combined with tenant relocations has led to a rise in the vacancy rate, which came in at 6.5 pct in 2019, up by 200 bps compared to 2018. This marks the most significant rise over the last five years and the rise is likely to continue over the coming months. The highest vacancy rates were recorded in Central Poland (11.2 pct) and Upper Silesia (8.2 pct). In smaller markets, the highest vacancy was seen in Bydgoszcz and Torun (8.1 pct), Tri-City (8.0 pct) and Kraków (7.5 pct).

Headline rates rose in the first part of 2019, but stabilised at the end of the year. Average headline rents for big-box centres were between EUR 2.90 and EUR 3.80 per sqm, which translated into effective rates of EUR 2.10 to 3.20 per sqm. The lowest rents were in the Poznań region and around Warsaw. Warsaw’s inner-city remains the most expensive location, with headline rents of between EUR 4.90 and EUR 5.50 per sqm. Over the coming months, headline rents should remain stable, while effective rents should come under slight downward pressure where vacancy rates are rising.

The warehouse sector is expected to continue to expand. The rise of e-commerce and the resulting increase in urban logistics projects will shape the structure of the market over the coming months. Development activity should remain high, albeit with a likely fall in the development of speculative space. On the occupier side, demand is likely to be driven by smaller transactions due to supply chains being expanded and reconfigured. Large BTS deals are unlikely to have a significant impact in the near term.

Demand for warehouse space could fall as a result of economic factors. The spread of Covid 19 could result in supply chains going down across the world, which would constrain manufacturing. Constraints on supply could in turn result in reduced consumption. Labour shortages and its rising costs will continue to weigh down the sector's potential for growth.