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The Warsaw Voice » Real Estate » March 1, 2013
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Diminishing Demand for Warehouses
March 1, 2013   
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As the economy slows, Poland’s warehouse market is feeling the pinch—but there are signs of better times ahead.

According to real estate services company Jones Lang LaSalle, 1.35 million square meters of industrial space was let during the whole of 2012, with net demand (gross demand minus renewals) at 755,000 sq m. This means that gross demand for warehouses in 2012 was 305,000 sq m lower than in 2011. Worsening take-up resulted from the fact that tenants became cautious and tended to delay final decisions on deals.

In turn, according to analysts at Colliers International, 2012 was similar to 2011 in terms of the transaction volume. In the full year 2012 approximately 1.7 million square meters of warehouse space was leased. And demand in each quarter was distributed relatively evenly. The most space was rented in Warsaw and central Poland. Another optimistic fact is that more than 430,000 sq m of modern warehouse space was completed over the year, nearly 10 percent more than in 2011. At the moment, the total stock of warehouse space in Poland amounts to more than 7.27 million square meters.

Last year brought no visible change to the ranking list of the most attractive locations for tenants in terms of warehouse space. Data by Jones Lang LaSalle shows that the highest demand was recorded in Warsaw suburbs (395,000 sq m of leased space), central Poland (270,000 sq m), Wroc³aw (211,000 sq m), and Upper Silesia (200,000 sq m). The biggest deals of 2012 were contracts signed by: Leroy Merlin Polska and Panattoni (56,000 sq m at Panattoni Park Stryków, a renewal); DHL and Prologis (33,800 sq m at Prologis Park D±browa, a new deal); and Lear and Panattoni (a built-to-suit facility in Legnica with 32,000 sq m).

Interestingly, the economic situation in 2012 had an impact not only on the volume of take-up but also on the breakdown of demand by sector. As in previous years, logistics operators played the biggest role in demand for warehouse space; they accounted for 653,000 sq m of the space leased. A significant volume of space was also let to companies from the automotive sector (129,000 sq m) and the food sector (120,000 sq m). New deals clinched in 2012 totaled 755,000 sq m, with a further 599,000 sq m of renewals. This result meant that renewals accounted for 44 percent of total demand, up from 40 percent in 2011.

Vacancy rates stable

Vacancy rates remained relatively stable in 2012. According to Jones Lang LaSalle, there was 713,000 sq m of vacant distribution space across the country at the end of December, meaning that the vacancy rate amounted to 10.1 percent. In comparison, at the end of 2011 the figure was 11.2 percent.

The vacancy rate may rise due to the current economic situation and the fact that some of the lease contracts that are due to expire in 2013 may not be extended. “Due to the limited availability of existing space and its fragmentation, companies should start looking for a suitable facility early enough and take seriously into account the possibility of having a developer build a warehouse for them,” says Tomasz Olszewski, Head of Industrial in Central and Eastern Europe, at Jones Lang LaSalle.

According to Colliers, the vacancy rate in Poland at the end of 2012 stood at 9.2 percent, translating into 670,791 sq m of space and representing a significant decrease from 2011 when the figure was 11.4 percent. In Warsaw, the vacancy rate in 2011 showed a downward trend and was 11.7 percent at the end of the year, compared with 16 percent at the end of 2011. When it comes to regional markets, compared with the end of 2011, the vacancy rate fell in Wroc³aw, Upper Silesia, Gdańsk and Szczecin (this last city saw the biggest drop, from more than 50 percent to under 20 percent). The lowest rate was recorded in Gdańsk, Poznań and Upper Silesia, while the highest—as in previous years—in Szczecin.

At the end of 2012, a total of 222,000 sq m of new space was under construction, most of it in Wroc³aw (91,000 sq m), Warsaw suburbs (43,000 sq m) and Upper Silesia (36,000 sq m). Speculative projects still accounted for only a small part of the new projects. Only 11.3 percent of the space under construction was not secured by lease contracts, down from 18 percent at the end of 2011.

Warehouse rents remained unchanged. Differences in the rates, however, could be significant, not only between regions, but also between sites within the same region. Rents largely depended on the vacancy rate. The highest rents were within major cities. This was due to both the shortage of suitable land for development and its prices. Besides, in big cities, so-called small business units are frequently offered to tenants, which means premises offering small warehouse modules combined with prestigious office space. Such facilities are more expensive than typical large warehouse buildings. Effective rents for warehouses within Warsaw city limits ranged from 3.60 to 5.30 euros per sq m per month. Warehouse space in Cracow was also relatively expensive, at 3.30-4.00 euros per sq m per month, and rents in £ód¼ ranged from 2.80 to 3.85 euros per sq m per month.

Tenants in parks located in and around large cities can count on lower rents. Rents in Warsaw suburbs ranged between 2.20 and 2.80 euros per sq m per month. Attractive rents were also offered in central Poland (not including £ód¼): 2.10 to 2.60 euros per sq m per month. In other regions, rents ranged from 2.30 to 3.40 euros per sq m per month.

Conservative projections

It is estimated that the new supply in 2013 will be at a slightly lower level than in 2012. Notably, approximately 88 percent of the space currently under construction has already been leased out. Therefore, it is possible to expect that the vacancy rate will gradually fall, leading to a slight increase in rents on selected markets. Tomasz Kasperowicz, Partner at Colliers International, Logistics and Industrial Department, says, “We expect that next year will not be worse than 2012. We are seeing interest in our market among businesses that are not yet active in Poland. We are also taking part in the preparation of a number of transactions that are significant in terms of size—we are talking about single transactions in the order of 50-60,000 sq m across the country. We expect to see the most activity in the Poznań, Wroc³aw and Silesia conurbations.”

Colliers experts predict a further decline in the vacancy rate. However, this is unlikely to lead to an increase in the number of speculative projects. According to Colliers, in 2013, BTS and pre-let deals will continue to dominate, involving mainly space in western Poland, close to freeways.
A.R.


Commentary
Tomasz Olszewski, Head of Industrial in Central and Eastern Europe, Jones Lang LaSalle:
In 2012, logistics operators continued to play the biggest role in demand for warehouse space. Their position grows every year, which is a direct consequence of the economic slowdown. It forces companies to look for savings and optimize their costs; therefore they often decide to outsource logistics and distribution.

The rate at which the Polish warehouse market is developing depends on the economic condition of the country, which in 2012 deteriorated substantially. According to forecasts by economists, there should be signs of improvement in the second half of 2013. If these predictions prove to be true, the warehouse market will immediately take advantage of returning economic buoyancy.
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