Amazon Entry Boosts Demand for Warehouses
March 3, 2014
Poland’s improving economic situation combined with an optimistic outlook and the entry of Amazon, the world’s largest internet retailer, into this country have boosted demand for warehouse space.
According to a report by consulting company Jones Lang LaSalle, net demand on the Polish warehouse market grew from one quarter to the next in 2013 in step with GDP, reaching a total of 1.26 million square meters at the end of the year. Lease agreements signed by Amazon in Wrocław and Poznań accounted for 26 percent of that figure. Last year, Amazon announced a plan to enter Poland to not only offer its products here, but also move its distribution centers—or large warehouses from which goods are shipped to customers across Europe—from Germany to Poland. In total, Amazon will have three facilities in Poland, each with an area of about 100,000 sq m—the largest warehouses ever built in this country. The largest distribution centers to date were about 60,000 sq m in size.
The first facility will be built by the Goodman company at Bielany Wrocławskie near Wrocław, in the district of Kobierzyce, under a plan announced in October 2013. The opening of the logistics center is planned for the second half of 2014. The construction of the second facility will be handled by the Panattoni company at Bielany Wrocławskie; that project began this January and will be completed in October. The facility is being built in the immediate vicinity of the Nowa Wie¶ junction at the intersection of the A4 and A8 freeways. The third facility will also be built by Panattoni at Sady near Poznań, about 2.5 km from the S11 expressway and 16 km from the A2 freeway.
The agreements signed by Amazon have influenced the role that individual regions play in demand for warehouse space. Poznań and Wrocław now top the list, with total demand along with renewals at 423,000 and 415,000 sq m respectively. Poznań advanced from fifth to first place among the most popular destinations for warehouse space compared with a year earlier.
According to the magazyny.pl website, at the end of the fourth quarter of 2013, 850,000 sq m of space, or 11.4 % of the total stock, was vacant. The slight increase in the vacancy rate at the end of the year (from around 10 percent to 11.4 percent) resulted from high tenant turnover rather than increasing supply; there were also cases of bankruptcy. Markets in central Poland have the largest percentage of space that is available immediately (15.8 percent), followed by Warsaw (14.6 %) and Wrocław (11.7 %). Among the major regions, the lowest vacancy rate is in Poznań, at 4.4 percent.
Big projects under construction
At the end of the fourth quarter of 2013, the total supply of warehouse/industrial space in Poland was 7.45 million square meters, 305,000 sq m more than at the end of 2012, according to a report by Jones Lang LaSalle. This was the second lowest annual increase after 2010, and 41 percent lower than in 2012. The small number of new buildings was due to a number of factors, including tenants increasingly showing a preference for existing facilities, significant turnover and optimization of occupied space, and delays in starting new projects due to prolonged winter.
The regions with the most developer activity last year were Wrocław (117,000 sq m), Warsaw (78,000 sq m) and Upper Silesia (51,000 sq m). The smallest number of new projects were carried out in Poznań (6,000 sq m) and in central Poland (23,000 sq m). Among developers, Panattoni was the most active in 2013 (90,000 sq m of new supply), followed by Segro (85,000 sq m), Prologis (42,000 sq m), Goodman (25,000 sq m), and MLP Group (20,000 sq m).
Five build-to-suit (BTS) projects were carried out in 2013, with a total area of 82,000 sq m, due to an increased interest in Poland as a destination for tenants from the manufacturing sector. While most companies in the sector prefer to do business out of their own buildings, some decide to rent space because that kind of deal is more flexible.
In December 2013, 714,000 sq m was under construction, the most since 2008, with almost half of that area resulting from transactions concluded by Amazon—it is no accident that the most space is being built in Wrocław and Poznań.
The high tenant activity in 2013 did not significantly influence rents. The main factor determining asking rents is the vacancy rate in a given region. The rent also depends on the location, type of project, the length of the lease, the size of the leased area, and technical improvements and amenities requested by the customer, as well as the assessment of the tenant’s credibility and his long-term payment ability. Rates for small business units are much higher. In turn, modules in large warehouse parks located on the outskirts or suburbs of cities usually come with lower rents.
According to Jones Lang LaSalle, at the end of 2013, the highest rents were traditionally noted in Warsaw (3.60-5.10 euros per sq m per month), Wrocław (3.40-3.90 euros per sq m per month), and ŁódĽ (2.75-3.70 euros per sq m per month). High rents were also found on markets with low supply, such as Cracow (3.30-4.00 euros per sq m per month) and Szczecin (2.80-3.40 euros per sq m per month). Lower rents for warehouse space were paid by tenants in the vicinity of Warsaw (2.10-2.80 euros per sq m per month) and Upper Silesia (2.40-3.30 euros per sq m per month).
Wrocław, Poznań move up
At the end of 2013, the total supply of industrial and warehouse space in Poland was 7.45 million square meters. Of this, 6.88 million sq m (92 percent) was in five major markets: Warsaw, Upper Silesia, Poznań, Central Poland, and Wrocław. Other locations can be described as less important, mostly local, markets.
Tomasz Olszewski, Head of Industrial Agency, Central & Eastern Europe at Jones Lang LaSalle, said, “There are increasing differences in specialization among regions. Upper Silesia, in addition to logistics operators, has attracted the majority of the automotive and manufacturing tenants. Poznań and Wrocław are gradually becoming the logistics base for Western Europe and a destination for export-oriented production. The Warsaw market is primarily about logistics services for the Warsaw conurbation and the headquarters of many companies from the retail sector. In contrast, Central Poland, which is increasingly becoming integrated with Warsaw, is the main distribution center for companies operating throughout the country.”
Warsaw remains by far the largest warehouse market, where at the end of the year the supply of retail space was 2.63 million sq m, followed by Upper Silesia (1.43 million sq m) and Poznań and Central Poland (tied, each with 1.02 million sq m). This year, however, the rankings will see some reshuffling, because after the facilities currently under construction are completed, Poznań will decidedly outpace Central Poland, and Central Poland will compete for fourth place with the Wrocław region.
According to many forecasts, Poland can expect to see a period of increasingly rapid GDP growth. As the general state of the economy and trends on the warehouse market are highly correlated, it is possible to expect that this will be reflected in the demand for warehouse space. “The optimistic scenario is 1 million square meters in new demand in 2014. We also expect more and more new space being built as part of BTS projects. Speculative projects will appear in several regions, but their share in the constructed space will remain at a low level. The market is currently in a state of relative balance between supply and demand. Our analysis shows that the demand for warehouse space will grow at a rate that will reduce the available space in key warehouse regions, combined with the maintenance of, or a slight increase in, the current rental rates,” says Olszewski.
The warehouse sector is expected to grow in 2014 at a similar rate as in previous years. Tomasz Kasperowicz, head of the Industrial and Logistics Agency at consulting company Colliers International, said, “Currently close to 707,000 sq m of modern warehouse space is under construction, of which 91 percent has already been leased. Therefore, we can expect a gradual decline in the vacancy rate, which will likely result in a slight upward trend in rents on selected markets, combined with their increased differentiation depending on the attractiveness of specific space.”
, development director for Central Europe at Segro:
We’re looking into the future with optimism and expect that in the coming months the industrial market will continue to see the same trends as those in the previous year. BTS projects will continue to enjoy great popularity. We can see only moderate interest among developers in carrying out projects not secured by lease agreements and the vast majority of the new space is pre-let. We expect that in 2014 interest in warehouse space in Poland will remain at a constant level and a further increase in demand will be generated by not only domestic tenants, but also foreign investors, who are increasingly deciding to move their manufacturing and logistics operations to Poland. This is facilitated by the country’s stable macroeconomic situation, combined with the development of the road infrastructure and access to a qualified work force. We expect that the demand for new warehouse space will still be largely driven by companies from the retail and automotive sectors as well as by industrial companies—these industries are reacting to changes in economic conditions the most quickly. In recent years, projects located in key logistics regions in Poland—the Warsaw conurbation, central Poland and Lower Silesia—have been the most popular. We expect that this trend will continue this year.
Member of the Management Board, UBM Polska:
UBM first came to Poland 21 years ago and we have since gathered experience on the local markets for office space, residential real estate and hotels. Our portfolio also includes two shopping centers. Over the years, we have worked with such excellent partners as the InterContinental Hotels Group, Warimpex SA and CA Immo.
Our company now has three branches in the main Polish cities of Warsaw, Cracow and Wrocław. These locations are the primary focus of our interest at present. We have become acquainted with the distinctive features of each of them and we know what kind of projects are in demand, allowing us to put our plans into practice effectively.
Our company comes from Austria and when we arrived in Poland we needed to start by working hard to fathom out the intricacies of Polish red tape. Today I know there are certain bureaucratic procedures you just can’t circumvent, so I just patiently fill out one form after another, knowing that it’s worth it.
, Vice President of Karmar:
Twenty-five years is a whole epoch for the construction industry in Poland. In 1989 the rapid political and social changes had a huge impact on the industry. I was involved in the construction of the metro. Our firm was using Lada Niva off-road vehicles and trucks used to transport concrete that were given to us by the investor behind the metro project (GDBM) as a “bribe”—an incentive for the builder to sign the contract. In 1990, currency prices became more realistic and competition appeared—something that had been unknown in the mainstream building industry before. The appearance of private business was a game-changer. Big state-run construction firms started to collapse because of organizational problems and because they found it hard to be competitive.
At the same time, private business was expanding. New construction businesses were mushrooming and the first Polish developers appeared on the scene. Some of the firms have survived until today, with a large number taken over by foreign companies.
In the mid-1990s, there were already foreign investors operating in Poland. The construction sector was quickly catching up in terms of technology. However, its steady expansion encouraged not only optimism, but also carelessness in making investment decisions. The first troubles appeared at the end of the decade. Payment backlogs and bankruptcies became commonplace, but the market continued to grow.
The industry entered the 21st century more consolidated. Industry leaders with links to Western corporations emerged, followed by medium-sized Polish companies, which were able to compete with the giants on smaller projects . The crisis of 2002-2004 passed quickly.
2005 marked a change in economic trends and the start of uncontrolled expansion in the sector. The peak came in 2007-2008, but growth continued until the end of the decade in all segments of the construction industry, especially in the road-building sector, where projects were worth tens of billions of zlotys. In order to meet demand, huge technical potential was accumulated. Prices skyrocketed, with properties being bought at any price, causing another investment bubble. Finally, the global crisis came to Poland as well.
The past three years have proved the worst period ever for the industry. A destructive price war broke out, preventing companies from being able to develop and putting construction projects at risk. Some developers, acting in tandem with contractors, exploited their dominant position and the scale of bankruptcies was much bigger than during previous crises. A huge number of projects awarded to incompetent companies were completed with a delay of many years by new contractors.
The difficult years have changed our way of thinking. Developers now plan their projects more professionally and builders have restructured their businesses. Those who have survived have a chance of emerging from the crisis stronger and more competitive. The construction sector provides jobs for hundreds of thousands of Polish people. It will always remain a great school of life, teaching people responsibility and respect for hard work—a very stressful occupation, but one that keeps you hooked like a drug.
, Country CEO at HB Reavis Poland:
The Polish property market is on track for another strong year. Poland is now established as a top 10 destination for capital in Europe and a growing target for cross-border players. In the near future HB Reavis will focus on the Warsaw market specifically. From our perspective, the city has great potential to grow, powered by 2.8-percent GDP growth forecast for 2014.
HB Reavis is present in Warsaw with three administrative complexes. The Konstruktorska Business Center is already finished. The two other complexes, the Gdański Business Center and Postępu 14, are under construction; both can be seen at HB Reavis’s MIPIM stand. There are also two more projects in the works: West Station and a premium project on Chmielna Street in the very center of the capital.
All HB Reavis projects can be easily distinguished by their high quality, effectiveness and high comfort for tenants and their employees. Nowadays, that is what matters most on the market. What’s more, the fact that we apply for green building certificates reflects our ongoing commitment to good corporate citizenship as we strike a balance between development and the growing need to incorporate sustainable best practice into our activities.
The quality of our projects and strong position on the market can be confirmed by the contracts we have signed with our clients. We lease the premises to first-tier tenants including P&G, T-mobile, AT&T, SwissRe, Unilever and KPMG, and sold our projects to international investors such as Heitman, Unibail-Rodamco and Generali.
HB Reavis is now in a crucial moment of its history and developing dynamically. The company entered debt capital markets with its inaugural bond issue of zl.111 million (26.5 million euros) in November 2013. Funds raised will predominantly be used to finance HB Reavis’s development in Poland. The decision was critical from the strategic point of view. Despite very challenging market conditions, the company was able to enter debt capital markets diversifying its funding sources and broadening the investor base at the same time.