Sheds full of roses

The largest logistics markets in Poland are still Warsaw and its surrounding districts (accounting for 27 pct of the total stock), Upper Silesia (18 pct), Central Poland (14 pct), the Poznań region (13 pct) and Wrocław (11 pct). Most of the new space was delivered in Central Poland (259,000 sqm), Upper Silesia (131,000 sqm) and Warsaw (114,000 sqm). The strong interest in logistics facilities is down to the healthy economic climate, with GDP growth of 4.6 pct forecast for 2018, along with the continuing evolution of the retail sector towards e-commerce, as well as the expansion of the country’s transport infrastructure, which is helping the development of smaller regional markets and new locations in the main logistics hubs.

With the economy in such rude health, there is now 2.25 mln sqm under construction in 66 projects – a record level of development activity. Most of this new stock is being built in the Central Poland region, where eleven projects and a total of ​​628,000 sqm are under construction. The Upper Silesian market is also experiencing dynamic growth, with twelve major warehouse projects and a total of ​​338,000 sqm currently underway in this region.

Popular warehouses

H1 2018 also ended with a record-breaking figure on the demand side, with 2.11 mln sqm leased – an 18 pct improvement on the same period of the previous year. Net demand remains high, which is reflected by the fact that new contracts and extensions make up 76 pct of that total. Tenants were the most active in Central Poland (19 pct of the total demand), Warsaw and surrounding districts (19 pct), Upper Silesia (13 pct), Poznań (11 pct) and Wrocław (11 pct). The most active types of tenant were logistics companies (31 pct), retail chains (17 pct), e-commerce (15 pct) and light production (8 pct). “The demand forecasts remain optimistic. The growing demand for warehouse space and specialised logistics services will continue to largely stem from the dynamic growth in the turnover of the e-commerce segments,” believes Adrian Semaan, a consultant in the industrial and logistics department at Cushman & Wakefield. “Examples of the transactions related to the growth of this segment include those by two retail chains: Smyk in the Central European Logistics Hub project in Łódź (70,000 sqm, Panattoni) and H&M in Segro Logistics Park Poznań Gądki (30,000 sqm),” he adds.

Full to the brim

The strong demand has naturally led to a further contraction in the overall vacancy rate, which amounted to 4 pct across the country at the end of June – a decrease of 0.7 pp on three months earlier and of 1.4 pp over the year. It is also the lowest percentage share of available free space in the recorded history of the market. The highest vacancy rate was registered on the Warsaw-city market (10.4 pct), where the index was up by 3.5 pp y-o-y. This was due to the expiry of lease agreements in two older storage complexes. Kraków had the second highest vacancy (8.4 pct), where Cushman & Wakefield recorded a significant decrease of 4.3 pp over the previous twelve months. The vacancy rate did not exceed 5.7 pct on any of the other markets.

According to the analysts, with the high demand and the fact that pipeline projects are about 75 pct pre-leased, the vacancy rate in Poland should remain low until the end of 2018, at no more than 5 pct. After several years of stable rents, in 2018 rates are now increasing, closely following the rises in development costs. Although the base rates remain stable, effective rents, including financial incentives, have increased in some locations by around 5 pct since the end of 2017, according to Cushman & Wakefield’s report. In spite of this, rent levels in Poland are still among the lowest in the CEE region. Rents for the best class ‘A’ logistics areas in the Hungary and Czech Republic are 10 pct and 15 pct higher respectively.

Highways and super-highways

The e-commerce industry has been having an increasing impact on the warehouse market in Poland. In response to the present needs of this sector, developers are building large regional distribution centres along with smaller warehouse formats within cities or in their immediate neighbourhood. Logistics operators, couriers and online stores, for whom having the shortest distance to the consumer is crucial, are the most eager to use such locations. Meanwhile, the development of the expressway network in Poland has increased the warehousing potential of medium-sized cities, as is confirmed by the dynamic growth of new logistics projects along the S3 route, including Zielona Góra, Bolesławiec, Zgorzelec, Świecko and Krosno Odrzańskie, or on the S7 route (Kielce, Olsztynek) and the S8 route (Białystok). “The excellent figures on the demand side and the optimistic forecasts in this respect remain the main drivers of the Polish warehouse market. The growing demand for warehouse space and specialised logistics services are mostly consequences of the healthy economic situation, the growth in consumption and the rapid development of the e-commerce sector,” explains Joanna Sinkiewicz, a partner and director of the industrial and logistics department at Cushman & Wakefield Poland. “With its improved transport infrastructure, Poland has been gaining added importance as the largest logistics hub in the CEE region. Its central, strategic location on the map of Europe gives it the potential for efficient distribution on an international scale. In spite of the challenges ahead in the form of increasing project construction costs and labour market shortages, especially in the main warehouse locations, as well as the stable situation on the supply side and the substantial investor interest in the Polish market, the outlook for the next few months is still very rosy,” predicts Joanna Sinkiewicz. ν

Soren Rodian Olsen

partner, capital markets, Cushman & Wakefield Poland

During the period 2010–2017, the CEE industrial market has gone through a substantial transformation, with average vacancy decreasing from 13.5 pct to 4.9 pct, supply increasing from 600,000 sqm in 2010 to 3.7 mln sqm in 2017, and take-up more than doubling, mainly driven by activity on the Polish market. Poland has become one of the fastest growing logistics markets in Europe, as the growth of e-commerce and transport infrastructure improvements support the rapid expansion of smaller regional markets outside the five established key distribution hubs (Warsaw, Central Poland, Upper Silesia, Poznań and Wrocław). So far this year we have seen Polish industrial transactions in excess of EUR 630 mln, which is app. 57 pct of last year’s total volume; in the remainder of the year we are set to see the closing of several large portfolio transactions. We expect the level of 2018 industrial investment to be similar to that of 2017, or slightly above. Prime yields for multi-leased logistics remain stable at 6.75 pct, although due to the growing demand from portfolio and platform investors, we may see this level dropping over the next six to twelve months. Asian capital, in particular Korean, is continuing to seek out long term income producing logistics assets in Poland; but while the norm for leases is still contracts five or seven years, it remains difficult for the Asians to find the right product. Looking 12–18 months ahead, we anticipate strong activity from Asian and North American equity, most likely coming from Korea, Singapore, the US and Canada. Although the investment market for new product has for a long time been dominated by one developer, Panattoni, we are likely to see new projects and disposals from other groups, which will be good for a market that is nevertheless suffering from a lack of product availability. To summarise the situation, Poland and the CEE region will continue on their growth paths towards becoming core logistics markets in Europe. Platform investors who are not yet active in Poland will be competing for the best products and portfolios to establish a footprint in the CEE region’s fastest growing and most mature logistics market.