The way, the shape and the formTrends
‘Eurobuild CEE’: Urban warehouses have already grown into the market landscape, but their formats are still evolving. What has changed and what has been the reason for this?
Magdalena Szulc, Segro managing director, Central Europe:
Warehouses in Poland are associated with large buildings located on the outskirts or far away from the cities. But constant innovations, and events like the pandemic, have helped shift this image. Since the outbreak of Covid-19, we’ve entered a golden era for e-commerce – and this has had a significant impact on the warehouse market. Companies are more than ever focused on fast deliveries to demanding end-customers. More and more warehouses are therefore being located close to the cities or constructed within their boundaries, such as small business units. SBUs usually combine a warehouse and office space, making it possible to meet all the company’s needs. What has also changed in our country is the type of usage of city warehouses have been put to, as they have increasingly become dark stores, dark kitchens or laboratories. Another up-and-coming city warehousing customer sector has to be the data centre. In Poland, in contrast to other EU countries, there are still some plots within city limits that could be used for warehouse development. In Western Europe, such sites are already becoming scarce and thus they are starting to be built upwards, such as Segro Paris Air 2, as well as mixed-used buildings, like Segro Park Hayes in London, which will combine warehouses, offices and residential space. What we surely have to bear in mind is that the more a warehouse becomes a part of the city’s fabric, the more deliberate and prudent the decisions regarding its environmental impact need to be. In Poland we are proud to be a market leader in this regard, having many years ago insisted upon BREEAM certification across the country for each new development and we also paved the way for the entire sector when it came to implementing proptech.
The ever-continuing growth of e-commerce, which has been driving the demand for both SBUs and big box facilities for shipping companies, has also been fuelling the warehouse market’s growth. Which other segments of the economy have been having a significant impact on the shape of the warehouse market, both in Poland and across Europe?
For many years, there has been just one leading segment: logistics, which currently accounts for over 43 pct of the net take-up. Retail is also one of the main segments for the Polish warehouse market, leasing more than 31 pct of the existing space. A large part of this demand, both from logistics and retail, is certainly due to the growth of e-commerce, which, before the pandemic, was responsible for only about a 5 pct of share of retail consumption but this went up to 14 pct in 2020 alone. Market experts estimate that e-commerce in Poland will have tripled its value by 2026 in comparison to pre-pandemic levels! Certainly, it is having and will continue to have a massive impact on the size of the warehouse market. The third big slice of the market is production, which accounts for over 23 pct of the demand. This is definitely a sector that is having a growing impact. Many companies have reviewed their strategies after the hard lockdowns in China and are switching to nearshoring, thus the tendency to move production closer to the customer. This will play a big part in the demand in the sector going forward.
You also take on commissions for BTO and BTS facilities. Which types of building formats and customer profiles currently dominate in this sector?
At Segro, we don’t build BTOs. Regarding BTS projects, we always bear in mind that we are the developer and long-term manager of our warehouses and industrial space, so we have to look at the lifecycle of a facility from a long-term perspective. Even if the building is pre-leased to one tenant, we are aware that after 10–15 years we may need to lease it to one from an entirely different industry. For this reason, each warehouse is built with this in mind, by using the best available technology and materials. Our BTS projects in Poland are generally leased to retail and production companies, as well as to couriers. One of the newest, largest, and greenest buildings of this type that we have developed for the retail sector was for HSF E-commerce – 50,400 sqm in Segro Logistics Park Poznań, Gołuski. In order to tailor the space to the tenant’s needs, a range of green solutions was introduced, such as an efficient heating system. The company also requested that the facility should have increased fire resistance, a specially designed sprinkler system, and offices with glass façades to provide employees with the best working conditions.
Given the current demand, what’s the biggest challenge warehouse developers are having to face? Rising building material prices, problems securing plots, or perhaps the shortages on the labour market?
Compared to the beginning of the year, the overall situation on the market could be said to have stabilised, as can be seen, for example, in the prices of construction materials. Regarding new plots, there are clearly some new challenges on the horizon due to the local zoning plans in big cities. In general, the labour market has been challenging across Europe, due to the low unemployment rates, and that has been forcing warehouse sector clients to speed up space automation processes.
In the current economic climate, is it more profitable to build speculatively or rather for a specific client’s order? How does the format of the project translate into investors’ interest in the finished buildings?
The vacancy rate on the market has hit a record low of 4.6 pct (according to a H1 2022 report by JLL), which proves that the demand is there for all types of available warehouse formats. In our Polish portfolio, speculative development makes up less than 20 pct of the current buildings under construction, in line with our strategy to mostly develop on the basis of pre-lease agreements, which has for a long time secured our position in the top three warehouse players on the market. We always evaluate the opportunities for speculative development depending on the region or on the type of the project, and we adapt our approach depending on the factors shaping these markets. Regarding the investment appetite after the first half of the year, the overall real estate investment volume in Poland reached EUR 2.9 bln, which was the third highest figure for the first half of a year since 2016. 24 pct (EUR 0.7 bln) of this total was for industrial property. The outlook for the second half of the year looks quite positive too.
What’s your view on the future of the market over the coming months, especially with a recession looming? Are we facing a retraction of the market or, in fact, further increases after such a great H1 2022?
Our vacancy rate in Poland is very low, below 3 pct, which is even lower than the market average, and we’re carrying on with our projects according to the plan. Moreover, we are continuing to receive many queries from potential tenants for both existing space and new developments. Therefore, we are not expecting any slowdown to occur just now. Nevertheless, we are faced with a challenging macroeconomic situation across the continent, as well as political challenges. So it’s really difficult to make any long-term predictions.