Sheds to the city

City warehouse centres are growing in popularity with companies from more and more sectors filling the space. Many are also using these centres for their headquarters, with these offices taking up as much as 20–30 pct of the space. Warehouse and production facilities don’t normally make the most bedfellows with nearby residential developments, which are more of a priority in urban areas. So in a city district where the land is put to different uses, warehouses and estates can come into conflict.

Time for expansion

“Existing warehouse stock within city limits in Poland came to around 1.6 mln sqm at the end of 2020. At the end of the fourth quarter of last year, more than 230,000 sqm was under construction in new projects of this type. Additionally, around 59,000 sqm is being built in existing parks,” reveals Agnieszka Marczak, a consultant in the industrial department at Cresa Polska.

The increasing demand for urban warehousing is mainly being fuelled by the rapid growth of the e-commerce sector. The volume of online sales has accelerated even more due to the pandemic, but Poland is still actually lagging behind more developed markets in this regard. According to PwC, by 2026 the online retail market in Poland will be worth PLN 162 bln, which means it is set to grow by around 12 pct a year. And the larger the chunk that e-commerce takes out of retail sales, the greater will be the demand for urban warehousing.

Worthwhile investment

So it should come as no surprise that investors have suddenly fallen in love with urban logistics. According to the ‘Logistics Avenue – Urban Logistics in Poland’ report, prepared jointly by Segro and JLL, city warehouses made up around 11 pct of the total transaction value for the sector.

“Urban warehouses represent a solid investment product. Peakside Capital is focusing on warehouse space in Poland and on city warehousing in particular. This is a niche that the largest developers had until recently not been paying very much attention to. However, investor interest in this product has grown quite considerably over the last two years. The yields for urban warehouses average out at 5–6 pct and for out of town centres at 7.5 pct. In Germany, urban centres go for as low as 3.45 pct, which clearly shows that such investments will become more enticing,” predicts Fabian Kowalewski, the leasing and development director of Peakside Capital.

Looking for the ideal place

The big challenge for urban warehouses is the low supply of suitable development sites in cities and the high cost of such plots. Under such circumstances, brownfield areas have been taking on more significance. “A large percentage of all the available urban locations are plots where it is necessary to dismantle existing properties, or in other words, brownfield sites. When Polish cities were not as developed as they are now, industrial buildings could be found on the fringes of such districts as Targówek Fabryczny, Włochy, Śliwice and Żerań in Warsaw. Such buildings are being swept aside by residential and service developments, but increasingly often modern warehouse space is also being developed on the sites of old factory buildings,” points out Agnieszka Marczak of Cresa.

Examples of such developments include Panattoni City Logistic Kraków I (36,500 sqm), which is under construction in the city’s Nowa Huta district where the developer has demolished the old cement factory, as well as Segro Business Park Warsaw, Żerań where the developer has pulled down the old FSO automotive factory to build an office and warehouse building of more than 17,000 sqm in its place.

“Former industrial sites near large cities often become the only space available for development that’s reasonably close to the centre,” says Waldemar Witczak, the regional director of Segro. “Even though it is often more expensive to build in brownfield locations, such sites have numerous benefits: renovations return the site to the local residents and the investment creates jobs,” explains Aleksander Kuźniewski, the business development director of 7R, the owner of the 7R City Flex chain of urban warehouse centres.

The big question is where

According to the report by JLL and Segro, the largest number of city warehouses is to be found (in descending order) in Warsaw, Silesia and Łódź. “In Warsaw, Wrocław, Poznań and Łódź, the current supply of land for urban logistics is no bigger than 50 ha. The situation is a little better with urban plots in Upper Silesia, even though they can mainly be found around Gliwice and Sosnowiec. Only in the TriCity and Szczecin does the supply of land for industrial development come to more than 100 ha,” reveals Waldemar Witczak of Segro.

Warsaw, the country’s largest market with 40 pct of the total stock, is also a showcase for all the many challenges that investors in city logistics properties have to deal with. “The costs are higher for developing former industrial land that is legally contested and covered by highly detailed spatial plans. For all of these reasons, acquiring development land in the capital takes on average two years,” admits Fabian Kowalewski of Peakside Capital.

According to the ‘Investment Land for Warehousing and Production’ report by Axi Immo, the prices for fully prepared investment sites in key locations on the outskirts of Warsaw were between PLN 450 and PLN 650 per sqm in 2020. The most expensive were around Chopin Airport in the city’s Okęcie district, where they went up to PLN 600–650. On the eastern side of the Vistula in Żerań, prices go up to PLN 500–600 per sqm, while in Targówek Fabryczny the prices are between PLN 400 and PLN 500 per sqm.

Everybody needs good neighbours

Warehouse and logistics space clearly has an impact on the surrounding neighbourhood. Such buildings increase motor traffic, resulting in more noise and higher CO2 emissions as well as other types of pollution. Certain developments have increased the traffic levels for each hour of the day. All of this can be a serious issue in an urban setting where it is not always possible to avoid the kind of problem that arise from such projects not being sufficiently distanced from residential development.

Each warehouse project has a Development Information Card [Karta Informacyjna Przedsięwzięcia] that describes what effect the development will have on its surrounding area. If the predicted noise levels breach permissible norms, the investor then has to show how it’s going to counteract this, such as, for example, erecting noise barriers, soundproofed blinds, casing for the machinery or even by changing the location. “At 7R we quite often build additional roads around our warehouses as well as pavements and footbridge crossings for pedestrians, so that the new buildings do not disrupt the lives of the locals,” says Aleksander Kuźniewski of 7R.

Having the right tenant policy in place can also help when it comes to maintaining good relations with the locals, if this imposes regulations aimed at making the development less of an issue for them. “In certain circumstances, a maximum noise level is imposed and the number of tenants that use a large number of trucks is limited. And not every kind of production is acceptable,” points out Agnieszka Marczak. Occasionally problems only arise after many years and the developer is not always to blame – for instance, when it’s not the warehouse that has been built next to a residential estate but the other way around. “Since land needs to be used for residential developed, older warehouse and logistics centres can be pushed out. Sometimes a situation crops up in which companies are forced to change location due to pressure from local authorities and residents,” admits Fabian Kowalewski.

Challenges and benefits

We can probably all recall instances when local residents have blocked building sites or roads in protest against industrial developments that were to be built in their backyard (both figuratively speaking and sometimes even literally). Despite the friction that warehouse developments can cause, such conflicts in recent years can nevertheless be counted on the fingers of one hand. And when you take into account the avalanche of new developments in this sector, you can probably hazard the statement that developers have learnt the lessons of what happened at the turn of the 21st century and now understand the importance of getting along with the neighbours. This has also likely added to the growing popularity of environmental certification, which focuses not only on sustainable construction but also on the well-being of the users of industrial complexes and their neighbours. And. finally, it’s probably also worth mentioning that a well-designed urban warehouse should benefit the entire city. It creates new jobs, new roads, the road traffic is reorganised, and former industrial sites are brought back to life.