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The Warsaw Voice » Real Estate » September 28, 2012
The Real Estate Voice
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Demand for Warehouse Space Picking Up
September 28, 2012   
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Recent months have seen increased activity in all segments of Poland’s commercial real estate market. This also applies to warehouses and industrial space, a segment that experienced some stagnation in the last few years.

According to the latest report by real estate services company CBRE, the Polish warehouse market is slowly picking up, with new completions of 305,000 sq m in the first half of 2012, double the volume in the corresponding period of the previous year and more than twice as much as in the first half of 2010. In the first half of this year, builders started constructing a further 200,000 sq m of warehouse facilities.

According to real estate consultants Jones Lang LaSalle, warehouse space completions in the first half of 2012 were even higher, at 333,000 sq m.

Most of the new space was delivered in the Warsaw area (68,000 sq m). In Poznań, 59,500 sq m of new warehouse space was built, strengthening the region’s position as the third largest market for warehouse space in Poland. A substantial amount of new warehouse space was also completed in central Poland (41,200 sq m) and the Upper Silesia region (37,900 sq m).

According to CBRE, the total modern warehouse stock in Poland now amounts to 7.23 million sq m. Sector I, up to 15 km away from the center of Warsaw, offers 630,000 sq m of commercial warehouse and logistics projects. These are mainly mixed-use facilities offering smaller units to tenants, close to major roads and the airport. The vacancy rate in Sector I warehouses is now at 14 percent. Sector II, between 15 and 80 km away from the center of Warsaw, comprises large-scale distribution centers targeted mainly at logistics operators. It has a total of around 2.1 million sq m, with a 19 percent vacancy rate at the end of June 2012. Sector III are logistics parks located over 80 km away from Warsaw, in several regional hubs, the largest being Silesia; Central Poland; Poznań; Wrocław; the Northern Region including the Tricity of Gdańsk, Sopot and Gdynia; Szczecin; Cracow; and the Eastern Region, which includes the cities of Rzeszów and Dębica. They total 4.5 million sq m of space, with an average vacancy rate of 8 percent, compared to over 10 percent a year before.

Logistics sector driving the market
The latest data on warehouse space rental confirms that the sector has good prospects for the future. In the first half of this year, 560,000 sq m of warehouse space was leased. The vast majority of the space (70 percent) was leased under new contracts, according to a report by Jones Lang LaSalle summing up the first half of 2012 on the Polish warehouse market. Still at the top of the list of the most popular locations are Poland’s main logistics regions. In Upper Silesia, some 138,000 sq m of space was leased (which is 25 percent of total gross take-up in H1 2012). Slightly less space, around 108,000 sq m, was covered by deals in the Warsaw suburbs. The lease volume in Central Poland reached 101,000 sq m and that of Wrocław was 91,000 sq m.

“The biggest part of the take-up was once again accounted for by logistics operators. In the first half of 2012, companies from this sector leased 253,000 sq m, which represented 45% of total take-up,” says Tomasz Olszewski, Head of Industrial in Central and Eastern Europe at Jones Lang LaSalle.

The largest warehouse leasing deals in the first half of 2012 included build-to-suit (BTS) projects by Panattoni: 32,000 sq m for the automotive supplier Lear in Legnickie Pola near Wrocław, and 35,000 sq m for the glass manufacturer Pilkington in Chmielów near Tarnobrzeg. Other significant transactions included the lease of 33,800 sq m at Prologis Park D±browa in Silesia by DHL, part of the world’s leading mail and logistics group, and a renewal by Schenker logistics operator for 18,000 sq m in Prologis Park Teresin near Warsaw.

According to CBRE, the rents for prime warehouse space in Poland range from 2.80 to 3.50 euros per sq m per month in Sector II (15-80 km from Warsaw); 3.00 to 3.50 euros per sq m per month in Sector III (other regions of the country); and 4.50 to 5.00 euros per sq m per month in Sector I (up to 15 km from the Warsaw city center), and remain stable.

Time for speculative projects
Tenants should note that developers are still focusing on projects secured by lease contracts (pre-let and BTS). The proportion of speculative developments is marginal: at the end of the first half of 2012 just 8.3 percent of warehouse space was being constructed without lease contracts. “The shortage of speculative space has been noticeable for a long time,” says Olszewski. “Moreover, the Polish market now faces the decreasing potential of existing parks. Developers have built on almost all the sites which were bought during the boom of 2008.” The Polish warehouse market is facing a serious supply gap. Developers will probably respond to this situation soon and commence speculative projects.

The development of infrastructure and logistics services has contributed to the revival on the warehouse market. Real estate industry experts predict that Poland will become the key logistics center in Europe by 2020. According to the latest research by consulting firm Colliers International, the market for logistics and industrial space in Europe is on track to grow exponentially over the next 10 years, with Poland and Turkey set to benefit the most. Colliers International has analyzed the broad macroeconomic trends that are likely to drive change in Europe’s logistics markets over the next 10 years. The key factors include economic growth in Eastern Europe, which is expected to play a key role in influencing new infrastructure and supply chains within Europe. Poland in particular, is set to emerge as a major force as it benefits from new infrastructure, manufacturing and consumer demand growth.

In terms of investment, the number of warehouse transactions is still low compared to office and retail property, which is mainly due to the limited availability of high quality schemes offered for sale. In the first quarter of 2012, one investment transaction was finalized in the warehouse sector—Hines purchased a portfolio of Prologis projects for 96 million euros. In the second quarter, two investment deals were closed: Ideal Idea Park II in Warsaw was purchased by BPH FIZ and a project for Case Tech in Legnica was sold by Goodman. Prime yields for the best warehouse projects are now about 7.75 percent, remaining slightly higher than office and retail yields.


Commentary
Patrick Kurowski, Director, Industrial & Logistics, at CBRE Poland:
While the majority of new leasing deals are build-to-suit projects, we see the average vacancy rate steady at around 12 percent despite a growing volume of new warehouse completions. This is a sign of stability of the Polish warehouse market, reflecting the strength of Poland’s GDP growth of 3.5 percent in the first quarter of 2012 and a forecast 2.6 percent for the entire year, relatively high compared to other European markets. We are observing a growing tenant interest in logistics parks located in regional hubs in Poland, which may result from considerable infrastructure development in the last couple of years, creating new locations attractive for logistics. Development is also visible in regions which so far lagged behind the main hubs, including the Northern Region around Gdańsk, and the Eastern Region near Rzeszów and Dębica. As infrastructure in Poland sees further improvement, this trend is likely to continue.
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