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The Warsaw Voice » Special Sections » September 29, 2014
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Growing Demand for Warehouses
September 29, 2014   
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As the economy improves, demand for warehouse and logistics space in Poland continues to run high.

According to the Poland Industrial Destinations 2014 report by real estate services company CBRE, the total stock of modern warehouse and logistics properties in Poland amounted to 7.9 million sq m in the first quarter of 2014. The stock has increased by around 500,000 sq m over the past year. Demand for modern warehouse space in 2013 ran at 2.1 million sq m, a record in the history of the Polish logistics market.

The report shows that the strongest Polish regions, in relation to the amount of leasing activity, were Wroc³aw (485,000 sq m leased) and Poznań (432,000 sq m). This was largely due to Amazon, which leased 224,000 sq m of warehouse space in Wroc³aw, almost half of the total volume, and in Poznań it leased 100,000 sq m, or 25 percent of the total volume of transactions on this market. Those were the largest BTS (built-to-suit) transactions in Poland last year. Warsaw I (city) and Warsaw II (region) recorded a moderate increase over previous years, with total leasing activity at 482,000 sq m.

“This year should bring a further strengthening in demand for warehouse space, due to an improving economic situation and the growing role of Poland with each year as a logistics center for the markets of Central and Eastern Europe,” said Patrick Kurowski, Head of Industrial and Logistics at CBRE in Poland. The fact that construction of warehouse facilities with a total space of 650,000 sq m was initiated last year, twice as much as a year earlier, is the best evidence of this, Kurowski said.

The vacancy rate in Poland currently stands at 10 percent. Single-digit figures were recorded only for Cracow, Wroc³aw, the Gdańsk-Sopot-Gdynia Tricity area, Poznań and Szczecin. CBRE analysts expect 2014 rents to remain stable in regions with high vacancy rates, including in markets such as Warsaw I (up to 15 km from the city center), Warsaw II and central Poland. Slight increases in rents can be expected in the regions of Wroc³aw and Poznań.

The supply of modern logistics space within Warsaw’s city limits amounted to 635,000 sq m at the beginning of 2014, according to CBRE, with the vacancy rate at 19 percent, and demand at 100,000 sq m. Warsaw warehouse facilities are particularly characterized by smaller storage space often accompanied by high-quality office space. This space is intended for tenants looking for small spaces (500-1,000 sq m) complete with office space. These are mostly companies that supply goods to the local market and need quick and easy access to customers.

Due to high maintenance costs and labor costs, larger tenants are increasingly eager to move away from Warsaw, choosing cheaper locations outside the city. This trend is expected to continue, given the improving road infrastructure (including the next stages of the Warsaw ring road project), which will improve access to the center and make it easier to move around the city. Asking rents in Warsaw run at 4.20-5.00 euros per sq m per month, with effective rates at 3.60-4.50 euros per sq m per month.

The total supply of modern logistic and industrial space in the Warsaw region reach nearly 2.2 million sq m, with a vacancy rate of 12 percent. Last year 50,000 sq m of new warehouse space was completed, with demand reaching 382,000 sq m. Due to the proximity of the Warsaw conurbation, the market attracts both tenants ready to choose from among high-quality warehouse facilities and developers looking for vast land resources for new logistics projects. Asking rents in the Warsaw region reach 2.50-3.60 euros per sq m per month, with effective rates at 1.90–3.10 euros per sq m per month.

Regional markets

Traditionally, Upper Silesia and Wroc³aw compete strongly on the warehouse market. Upper Silesia, Poland’s second largest market with nearly 1.5 million sq m of modern industrial space, recorded an increase in vacant space last year—by around 5 percentage points. The vacancy rate reached 10 percent, with Wroc³aw at 6.5 percent and Cracow at 5.1 percent. Relatively high labor costs and environmental pollution are detrimental to Upper Silesian locations. However, due to lower rents, developed transport infrastructure and incentives for developers, accompanied by evening out differences between individual cities in the region, Upper Silesia may reverse this disadvantageous trend. Wroc³aw’s troubles resulting from delays in road projects—the S3, S5 and S8 expressways, which are about to connect Wroc³aw with Warsaw, Poznań, northern Poland and the Czech Republic—work to Upper Silesia’s advantage.

Another of Wroc³aw’s problems is that the structure of the supply does not fully match tenant demand, leading to somewhat limited access to free industrial and warehouse space. Cracow’s limitations, in turn, result from a small amount of available land set aside for industrial purposes, the market being dominated by local developers. Another problem is the reluctance of local companies to work with large industrial developers, which last year led to a limited supply of high-quality industrial and warehouse space. Only 9,000 sq m of such space was completed in Cracow, compared with 56,000 sq m in Upper Silesia and 129,000 sq m in Wroc³aw.

Northern Poland is the region with the lowest vacancy rate, with Szczecin at 1.3 percent and Tri-City at 2.5 percent. Szczecin has been recently undergoing visible changes with an increasing role for new technologies and the service sector. The proximity of Scandinavian countries, the German border, a direct highway connection with Berlin and the S3 road, which will soon connect Szczecin with Wroc³aw and the Czech Republic, mean the city has potential to become an important international logistics center. The Tri-City area does not offer a lot of modern industrial and warehouse space at the moment, yet thanks to the planned expansion of Poland’s most modern container terminal, DCT Gdańsk, and the construction of the S6 expressway to Germany, it may gradually improve its position on the warehouse and industrial market.

Emerging markets

The north-central Kujawy-Pomerania region is becoming increasingly important on the logistic map as road connections between the coastal city of Gdańsk and central Poland improve thanks to the A1 freeway, according to CBRE experts. The £ysomice Special Economic Zone (SEZ), which has attracted many electronics and telecommunications companies as well as businesses active in the fast-moving-consumer-goods (FMCG) sector, promotes the development of the warehouse market in Bydgoszcz and Toruń. The modern warehouse stock in this region is currently at just over 87,000 sq m, while last year’s supply reached 10,000 sq m. The region’s advantages over its main competitors—the Tri-City, £ód¼ and Poznań—include attractive labor costs and rents.

Eastern Poland is yet another emerging warehouse market with its main cities of Lublin and Rzeszów. The current supply of modern warehouse space there is around 100,000 sq m, while in 2013 demand reached 8,000 sq m. Notably, the first logistics park will be built in Lublin, with the first buildings scheduled for completion in early 2015.

Low land costs are the region’s key advantage over other markets, followed by labor costs, access to a cheap and well-qualified labor force, the developing Mielec SEZ, the growing significance of local airports and the prospective development of road infrastructure. The region also stands a good chance of taking advantage of its location in the context of new regulations on EU funding programs.

According to experts at the BNP Paribas Real Estate consultancy, the intensive development on the industrial and warehouse property market in the last several quarters results from Poland’s improving economic situation, growth in the manufacturing sector as well as increased exports. The company’s At a Glance: Industrial & Warehouse Market Review, Poland, Q2 2014 report says the decrease in the vacancy rate is a sign of increased tenant activity on the industrial and warehouse property market. Transactions finalized in the first half of the year included the completion by Goodman of a BTS facility for Polo Market in Poznań with an area in excess of 39,000 sq m, renegotiation of 45,800 sq m in the Distribution Park Bździn facility by Carrefour, and the signing of a lease for over 30,000 sq m in the Distribution Park Wroc³aw facility by Geodis.

Anna Staniszewska, Head of Research and Consultancy CEE at BNP Paribas Real Estate, said, “Over the coming quarters we are expecting a further decrease in the vacancy rate, which will be strongly affected by tenant activity, in particular from within the e-commerce industry sector.”

No rent fluctuations were recorded in the first six months of 2014; for Warsaw’s zone I and central Poland they remained at a level of 5.00 euros and 1.80 euros per sq m per month respectively. An increase in rents was recorded for markets with a low vacancy rate, i.e. Cracow and Tricity. The recorded increase was at a level of 5 percent.

Katarzyna Py¶-Fabiańczyk, Industrial and Logistics Department Director at BNP Paribas Real Estate, said, “The industrial and warehouse property market is facing new challenges resulting from the ever changing situation on Eastern markets. The European Union and the United States have now introduced sanctions that will adversely affect the Russian economy. In turn, Russia has imposed restrictions as to the volume of goods imported from Europe and the United States. When looking at the Eastern markets and analyzing the position that our clients—logistics and transport companies—are now finding themselves in, we are observing certain disturbances in cooperation and difficulties stemming from the customs sanctions. The logistics and transport market in Poland is, however, mature enough (...) to seek solutions that would support the development of new forms of cooperation.”
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