Cemented into Pole position

“We were waiting to summarise the data for the first six months with a degree of uncertainty, but it paints a positive picture. The Polish industrial market continues to power ahead, with 1.15 mln sqm of warehouse space delivered in the second quarter alone. Another 4.35 mln sqm is underway. Speculative construction accounts for 48 pct of the total development pipeline, equating to 2.1 mln sqm, up by 0.9 mln sqm from a year ago. The overall vacancy rate currently stands at 3.3 pct, which represents a decrease of close to 2 pp on the same time last year,” reveals Damian Kołata, a partner, head of the industrial and logistics agency in Poland, and CEE e-commerce head at Cushman & Wakefield.

Record high H1 leasing activity

More importantly, the total demand in the first half of the year reached 3.8 mln sqm, of which over 2 mln sqm was leased in the second quarter. This means that the figure for the first six months increased by 12 pct y-o-y and by 70 pct compared to the first half of 2020. Net take-up exhibited a similar scale of growth, accounting for 73 pct of the total take-up. The high demand for warehouse space is being generated by the logistics, distribution and retail sectors. We are also witnessing an increase in activity
from manufacturing companies, driven by the need to secure such supplies as the parts and components used in the automotive industry. Also evident is the continued growth in the e-commerce and courier segments, as can be seen with the many large transactions in excess of 50,000 sqm in the first half of 2022. Although the share of e-commerce in total retail sales has fallen in Poland, with online retailing being seasonal in nature, online spend in July increased again compared to previous years. “This year’s online penetration rate stands at 8.4 pct, compared to last year’s figure of 7.4 pct and just 6.5 pct in the pandemic month if July 2020, which when the e-commerce boom got going. While the data provided by GUS (the Polish Bureau of Statistics) is usually understated, PwC estimates that online sales now account for 13 pct of the total retail spend. In addition, from the point of view of industrial properties, e-commerce should be viewed with a broader perspective, because Poland has for some time now been a major European hub and – with the investment volumes listed above – it is continuing to cement its position,” adds Damian Kołata.

Vacancy shrinks by a third in a year

Almost 1.15 mln sqm was completed in Q2 2022. Of that total, about 250,000 sqm was available for lease in June 2022. The overall vacancy rate remained at a record low of 3.3 pct, representing 867,000 sqm, down by 38 pct y-o-y. A clear decrease in availability was recorded in the Silesia region (by around 86,000 sqm), while increases occurred in the Łódź market (by 77,000 sqm) and in Western Pomerania (by 67,000 sqm).

“Despite the low vacancy rate, we are witnessing a gradual reduction in new projects breaking ground, especially when it comes to speculative development. This is due to the market uncertainty, high construction costs and the considerable volume of warehouse space underway without pre-leases. Projects begun in the second quarter amount to app. 800,000 sqm, down by 46 pct compared to the average for the previous four quarters, i.e. from Q2 2021 to Q1 2022. This may indicate a temporary slowdown in development activity, but if it continues for longer, some regional warehouse markets are likely to remain undersupplied throughout 2023,” adds Adrian
Semaan, a senior consultant in the consulting and research department at Cushman & Wakefield.

Rents still under upward pressure

The low vacancy rates and rising development costs fuelled strong rental growth in the first half of 2022. The largest y-o-y increases of up to EUR 1 were recorded on the Kraków and TriCity markets, which experienced low vacancies and an imbalance between demand and planned supply. At the end of June 2022, headline rents overall stood at EUR 3.40–4.80/sqm/month for big-box warehouses and at EUR 5.00–5.75 for city logistics/small business units. Financial incentives offered to tenants are being scaled down in the current market environment, pushing effective rents up. Effective rental rates range between EUR 2.80–4.50 for big-box units and EUR 4.50–4.80 for city logistics/SBUs – depending on the location.

Investor demand remains strong

The first half of this year closed with a volume of EUR 700 mln for logistics transactions, above the average of the last four years. “Rising financing costs fuelled by interest rates hikes across Europe are translating into real estate values but are not affecting the appeal of logistics. Investor activity bounced back following the uncertainty in the March–June period due to the war in Ukraine, and was further driven by strong warehouse rental growth,” comments Paweł Partyka, a capital markets partner at Cushman & Wakefield.

What’s next for the Polish industrial market?

The long-term outlook for the sector remains positive. In the light of the disrupted supply chains and high inflation, companies from many sectors will seek to improve logistics processes, including through the relocation and optimisation of supply chains and shifting operations to new locations. These processes will be facilitated by further improvements to transport infrastructure and the growing supply of modern class A industrial space built in line with sustainable construction standards. According to a report by the Polish Green Building Council (PLGBC), the proportion of certified warehouse space in the total stock rose from last year’s 28 pct to 41 pct at the end of Q1 2022. It is also worth noting that developers are actively securing new development sites, for big-box, BTS and urban logistics projects, signalling strong confidence in the long-term and diversified growth of the Polish industrial market. “The data on land banks indicates a total development potential exceeding 20 mln sqm, which is likely to be delivered in the next few years,” concludes Damian Kołata.

Macroeconomic indicators are also playing a role in the industrial market. Poland is facing a decline in economic activity due to the shock to energy and commodity prices caused by Russia’s invasion of Ukraine. The high inflation levels are expected to continue at least until 2023 and Poland’s GDP growth will weaken but will not lead into another recession. Although Poland is not as export reliant as other Eastern European countries, supply chain issues are likely to slow down export growth. According to Poland Statistics (GUS), the country’s unemployment rate in June was 4.9 pct, compared to 5.1 pct in May. Based on the Polish Association of Construction Employers’ estimates, around 90,000–100,000 workers, or 20–30 pct of employed Ukrainians, left the Polish construction sector following the outbreak of war in Ukraine.