Waiting for peace to break out

Podkarpacie, or Poland’s Subcarpathian province, has around 18,000 sq km (the eleventh biggest out of all 16 regions) with a population of 2.09 mln (the 8th largest). It doesn’t rank well in terms of average earnings, but it attracts tourists, it’s a base for the aerospace industry, and will soon have the tallest residential building in the country (Olszynki Park in Rzeszów with a height of 220m and which is to be completed in December this year). It borders both Slovakia and the huge but war-disrupted Ukrainian market A string of cities in the region are linked by the Via Carpathia, which is to become a major motorway route between Lithuania with Greece.

According to Michał Samborski, the head of development at Panattoni, one of the advantagesof the region is the specialist knowledge of the companies based there, many of which employ graduates from the Rzeszów University of Technology. “New projects often involve modern solutions and research – and not just in the aerospace industry but in the automotive sector, electronics and e-commerce,” he points out.The Podkarpacie economy has been growing rapidly in recent years, outstripping the growth seen in other regions along the country’s eastern border. Without doubt, it has substantial potential, but whether this can be realised could, unfortunately, depend on factors beyond our control.

A warehouse with a mountain view

At the end of June 2024, the total stock of modern warehouse space in Podkarpacie province came to 515,700 sqm with a further 33,400 sqm under construction,” reveals Agnieszka Giermakowska, the director of market research and advisory and ESG leader at Newmark Polska.

Marta Nowik, the industrial and logistics director for the Małopolska and Podkarpacie regions at Axi Immo, points out that it is difficult to compare Podkarpacie with other provinces. “Of course, the difference is the volume of stock. The Big Five regions have a few million sqm of warehouse space each. But the entire stock of Podkarpacie would be around enough to fill the vacant space in Central Poland, which at the end of Q2 2024 itself came to almost 500,000 sqm,” she admits. However, she does point out that when compared to eastern Poland (including the Lubelskie region with 400,000 sqm and Podlaskie with 400,000 sqm) Podkarpacie is very different. “This is where the most warehouse space is and where it’s growing the fastest.” she claims.

Agnieszka Giermakowska also emphasises the rate of growth of the local warehousing market over the last few years. “Developers delivered almost 60 pct (almost 305,000 sqm) of the space on the market between 2020 and Q2 2024,” she points out.

Relocating in the pandemic

As Marta Nowik of Axi Immo explains, during the pandemic the need for industrial space was mainly being driven by manufacturing moving from Asia to Europe. “At that time, foreign investors started looking at Podkarpacie – both because of its access to labour and due to its overall costs,” she says. “We had a lot of enquiries regarding available space; however, it takes a relatively long time to provide this. Most projects in the planning stage fell through or were suspended when the war broke out in Ukraine. Investors walked away, believing the location to be too risky.”

Following the Russian invasion in 2022, the demand was generally driven by short-term requirements including humanitarian aid and the need to build military facilities. “We were counting on greater demand, both from manufacturers and the logistics sector, but you have to remember that the market in Podkarpacie had grown a lot in the last three years. Over the longer term, the market will continue to grow again and investors will return, but for this we need peace to return over the border.A ceasefire is not enough. Both investors and tenants need to feel safe,” insists Marta Nowik.

Please don’t speculate

The expansion of the Podkarpacie warehouse market began with BTO and BTS projects and such projects are still the most numerous. “Later, multi-tenant projects began to appear due to the demand from local companies and logistics operators,” explains Marta Nowik of Axi Immo, who adds that most of these developments are located in the Rzeszów Dworzysko Science and Technology Park and near Rzeszów-Jasionka Airport. Other locations where industrial and warehouse space has appeared include Dębica, Stalowa Wola and a cross-border project in Korczowa.“BTS and BTO projects are the most characteristic of Podkarpacie. Almost 47 pct of the modern warehouse space in the region is made up of projects of this type,” explains Agnieszka Giermakowska. “Aerospace companies are particularly fond of Podkarpacie, which is why it is called the Polish Aerospace Silicon Valley. International companies such as Pratt & Whitney, Boeing, EME Aero, MTU Aero Engines, UTC Aerospace Systems and Lockheed Martinhave their operations here,” explains the director of market research and advisory of Newmark.

According to Michał Samborski, the head of development at Panattoni, his company has already delivered over 330,000 sqm of warehouse and manufacturing space in the region, half of which is BTS space. “The growing demand for modern warehouse space in this region shows that saturation rates in this market are still low. The vacancy rate in Podkarpacie is one of the lowest in the country at just 1.6 pct. Rzeszów is the last big city in Poland that has yet to undergo a boom in such development,” he argues.

According to Agnieszka Giermakowska, the developers active in Podkarpacie include DL Invest Group, GLP, Logicor, Panattoni, CTP, Reino, Waimea and LCube. “Rzeszów and Podkarpacie are not an obvious direction in which to develop the warehouse market in Poland and it has very interesting characteristics due to the needs of the tenants,” says Agnieszka Zawadzka, the leasing manager at LCube responsible for the LCube Rzeszów Airport park. “We have quite a lot of demand for small areas. Of course, the war in Ukraine casts a shadow on the development of the market in the region and the risks due to the war are being calculated by investors. Apart from individual cases, we are still seeing wariness when it comes to warehouse projects – both speculatively and in cases where a lease has been signed,” she points out.

“This isn’t a good time for speculative projects, even though they are appearing here due to the strategies of specific developers,” admits Marta Nowik. “It’s a risk but they should win out when it’s time to rebuild Ukraine,” says the Axi Immo director.

An office near the border

When it comes to the local office market, Michał Grabowiecki, a senior negotiator at Cushman & Wakefield, puts the total demand in Rzeszów at around 120,000 sqm, which makes the city one of the key markets in eastern Poland. “Average monthly rents are around EUR 14–16 per sqm,” he says.“2022 saw a significant increase in the demand for office space as a result of the Russian invasion of Ukraine,” points out Michał Grabowiecki. “Rzeszów, being a key logistics hub, became a strategic point for companies looking for office space in southeast Poland. But the supply wasn’t able to fully keep up with this dramatic rise in demand, which led to the most attractive space being taken up and a massive fall in vacancy,” he adds.

According to Agnieszka Gułaś, a senior negotiator at Cushman & Wakefield, over the last few years the Rzeszów has been expanded by a number of projects, with each building being around 2,000 sqm (including the buildings at ul. Technologiczna 40 and ul. Litewska 6 as well as the renovation of the Stara Szwalnia Office). “By the end of this year, the Olszynki Park mixed-use project is scheduled for completion, which will also contain office space. A number of other buildings are also at the planning stage, but new space is not going to appear on the market earlier than H2 2016,” she cautions.

Cushman & Wakefield was involved in the largest recorded transaction in the region of the last few years by representing Boeing in the lease of almost 7,000 sqm of office space in the Skyres building. “Between 2022 and 2023, there was a clear need for larger areas. Now we are mostly seeing demand for smaller areas of 300 to 400 sqm. This is also due to the lack of such large office areas on the market,” points out Michał Grabowiecki.

Blank spaces for retail

As with the rest of Poland, the number of retail parks continues to grow in Podkarpacie and they are also following the trend of appearing in smaller towns and locations. Refield is developing two projects in this region: in Leżajsk (7,000 sqm gla), while the other is Brama Bieszczad in Sanok with an impressive area of over 23,000 sqm gla, which is almost fully leased. “We reach out not only to cities but also to smaller towns and we make use of tourists. Everyone who travels to the Bieszczady mountains is going to be somewhere near one of our projects,” claims Fabian Eryk Barbarowicz, the chairman of the board of Refield. “We are also preparing a third project and we want to come out onto the market with it at the end of September. We are going to develop a further 10,000 sqm gla and that’s a really pleasing figure,” he states.

According to Fabian Eryk Barbarowicz, his company is not targeting large towns where modern retail centres already operate. “Our business model is to look for the blank spaces on the retail map and from our point of view the advantage of Podkarpacie is that it is a market that has not been saturated with retail centres,” he explains.

It turns out that Podkarpacie poses some hidden difficulties for developers. “It is a challenge to find suitable sites that are flat. This is a mountainous area. It is beautiful but difficult to build on. The cost of preparing a site is often so high that a project stops being profitable,” explains Refield’s CEO. He also admits that Podkarpacie is not a very affluent region. “We know that discount tenants do well there just like in other small towns of eastern Poland, unlike in the large cities, where premium brands are appearing. Tenants know that they are going to have lower sales than in, for example, Wielkopolska and this is mirrored in the rents, but everyone can see huge potential,” argues Fabian Eryk Barbarowicz.

Are investors looking at projects in Podkarpacie? “Rzeszów is a region of low liquidity,” says Marta Nowik. “Buildings in Podkarpacie are subject to investment transactions but mainly as part of larger portfolios that include properties in other regions.”

Refield is preparing exactly such a transaction. “We are in talks about another portfolio transaction [Refield recently sold three retail parks to Falcon Investment Management] and it includes three developments in Podkarpacie. I hope we will be able to officially announce it in the second half of September,” reveals Fabian Eryk Barbarowicz of Refield.

The prospects for development

“Podkarpacie has a great deal of potential,” argues Marta Nowik. “It’s a strategic location for serving markets in Southeastern Europe and Ukraine. Euro-Park Wisłosan in the Tarnobrzeski Special Economic Zone offers the highest tax relief in Poland for companies that invest there. The availability of labour is also important, which includes workers from Ukraine.”

She also says that developers are ready and have already secured land. “According to Axi Immo, 200,000 sqm of industrial and warehouse space could be built,” says Marta Nowik. Agnieszka Giermakowska believes that even more space could be developed. According to Newmark Poland, developers have secured land for as much as 350,000 sqm of potential industrial space.

In Podkarpacie, an intensive road construction programme is currently underway. “The fact that Podkarpacie is increasingly better connected to the rest of the country as well as to Europe is an important factor in its further development. Construction work on the S19 expressway in the south of the region has now begun. This will form part of the Via Carpathia, which is to connect Klaipėda with Thessalonikiand will make it easier to distribute goods to Slovakia and Romania. Due to this, Rzeszów should become an important logistics hub – not only for the east and west (with the A4 motorway) but also for the north and south,” claims Michał Samborski.

Agnieszka Zawadzka also has a positive assessment of development opportunities in Podkarpacie. “The market development forecasts for Podkarpacie remain good, but they are to a large extent tied to the future opportunities related to reconstructing our eastern neighbour when the military conflict ends,” says the manager from LCube. “The region is already an important link in the supply chain for many sectors, including the aerospace industry, it could also become one when there comes a breakthrough in the geopolitical situation,” she suggests. Fabian Eryk Barbarowicz believes that the expectation for the increased development of the region and its improving prospects for investment can be seen with the rising price of land. “Before the pandemic, we were looking hard for good sites, but today the same land can cost up to three times more and that can’t be explained just by inflation. The presence of the US military in the area raises certain expectations,” says the CEO of Refield.

Agnieszka Giermakowska also points out that the regional authorities in Podkarpacie are actively supporting the growth of the region. “We also expect that when the war ends, the most important shipment centres will be built in Podkarpacie ready to take part in the reconstruction of Ukraine,” she argues. “However, the speed the warehouse market in Podkarpacie develops will depend on both the economy in Poland and across the world,” she concludes.