Good day sunshine!Report
At the end of June 2017, total class ‘A’ warehousing stock in the country had reached 11.79 mln sqm, after a 12 pct increase y-o-y in H1, with new warehouse supply totalling 707,000 sqm – up by 9 pct on the same period of 2016.
The largest supply levels were noted in the Bydgoszcz-Toruń region (113,000 sqm), followed by Poznań (112,000 sqm), central Poland (91,000 sqm), Upper Silesia (85,000 sqm) and the Warsaw suburbs (82,000 sqm). A total of 34 projects were completed in H1 2017, the largest of which were: the extension of P3 Błonie park (47,000 sqm), a BTS project for Agata Meble at Prologis Park Piotrków II (42,000 sqm), as well as two BTS projects in Bydgoszcz-Toruń for Kaufland (45,000 sqm) and Carrefour (38,000 sqm) developed by Panattoni. By the end of the period there was more than 1.6 mln sqm of warehouse space under construction – more than twice as much than a year earlier.
Despite the high supply, much of the new warehouse space is being absorbed prior to completion. At the end of June 2017, around 23 pct of the development pipeline (378,000 sqm) remained vacant, while around 800,000 sqm or 48 pct of the pipeline is being developed in BTS projects. The highest concentration of development activity is in Warsaw’s suburbs (375,000 sqm), followed by Szczecin with 293,000 sqm (projects for Amazon and Zalando), Upper Silesia (282,000 sqm – of which 135,000 sqm is for Amazon) and central Poland (214,000 sqm). Other markets with high levels of development activity include Poznań (129,000 sqm) and western Poland,where Panattoni is developingtwo build-to-suit warehouses: 60,000 sqm for H&M in Bolesławiec and 30,000 sqm for Reuss Seifert in Nowa Sól.
As for speculative projects, the largest volumes at the end of the period were being constructed in Warsaw’s suburbs (115,000 sqm) and Upper Silesia (65,000 sqm).
It’s not just the supply
Tenant demand for logistics and manufacturing space grew rapidly in the first half of the year, with warehouse take-up rising to a record 1.79 mln sqm, representing a 39 pct increase on H1 2016. The strongest leasing activity was seen in central Poland, where 423,000 sqm of warehouse space was taken up by twelve lease agreements. Most of this space was for large BTS projects. Slightly lower leasing volumes were recorded in Upper Silesia (414,000 sqm) and in the Warsaw region (367,000 sqm – of which 333,000 sqm was transacted in Warsaw’s suburbs). Among the smaller logistics markets, the highest leasing levels were seen in western Poland (106,000 sqm) and the TriCity (84,000 sqm). Previously under-developed areas, such as Kielce and Bialystok in eastern Poland, are also expected to grow, due to improvements to the local road infrastructure. New lease agreements accounted for 67 pct ofall transactions, while lease renewals and extensions made up 24 pct and 9 pct respectively. Take-up came mostly from logistics operators and retailers, respectively accounting for 32 pct and 30 pct of all deals. Demand from other sectors is also growing, such as light manufacturing (10 pct), e-commerce (9 pct), the automotive sector (7 pct) and household appliances (6 pct). Cushman & Wakefield does not expect leasing activity to falter any time soon, due to the booming economy and the rapid expansion of e-commerce in Poland.
Still a tenant’s market
At the end of the period the country’s overall vacancy rate remained almost unchanged, with a y-o-y drop of 0.01 percentage points to 5.4 pct, which equates to 634,000 sqm. Over the last twelve months the vacancy level has never been higher than 6.3 pct. The end of Q2 saw a slight q-o-q rise in Poznań (8.3 pct) and Wrocław (7.3 pct), while vacancy fell in the Warsaw city area (6.9 pct), the Warsaw suburbs (5.7 pct) and Upper Silesia (3.7 pct). The lowest warehouse vacancy rate, 0.3 pct, was recorded in central Poland, where demand continually outstrips supply. In the smaller warehouse markets of Kraków, Szczecin and Lublin, vacancy rose to 38,000 sqm, 19,000 sqm and 18,000 sqm respectively, due to the high level of development activity. There has not been much change with rents, either. The highest headline rents are in the Warsaw city area (EUR 4–5.25 per sqm per month) and Krakow (EUR 3.5–4.5), while the lowest are in central Poland (EUR 2.4–3.6) and Warsaw’s suburbs (EUR 2.5–3.6). Despite these figures, in the two latter locations effective monthly rents are lower, due to the financial incentives offered to tenants, and vary at around EUR 1.90–3.20 per sqm. The highest effective rents are in the Warsaw city area (EUR 3.5–4.6) and Kraków (EUR 2.8–3.6). The upward pressure on rents from growing tenant demand has been compensated for in recent years by a proportional increase in supply and therefore tenants have continued to enjoy the upper hand on the industrial market. This is the result of intense competition between developers on such markets as Poznań and Kraków, as well as some locations in Warsaw’s suburbs. Presently rents are edging upwards in Łódź and Bielsko-Biała, where vacancy rates are falling.
Overall rents are expected to remain flat by the end of 2017, but will come under more upward pressure in the longer term due to rising development costs, including the prices of building materials and services.
Let the good times roll
Cushman & Wakefield concludes that the growth of the market is set to continue. Tenant demand is expected to stay strong, as the forecasts for the country’s GDP, consumption and retail sales for 2017 remain optimistic. This year’s total leasing volume is expected to surpass last year’s record take-up of 3.1 mln sqm. With the development pipeline having hit 1.67 mln sqm, this year’s supply is also expected to hit a record high. But due to the low number of speculative projects the agency still expects no real change in vacancy rates or rental costs by the end of the year.