The warehouse real estate sector is in excellent shape.
From January to the end of June 2017, more than 1.82 million sq m was leased, of which 70% was made up of new lease agreements and extensions.
Developers are preparing further investments, resulting in 1.71 million sq m of warehouse space under construction and 720,000 sq m completed in the first 6 months this year.
Development of the sector is being helped by changes in sales patterns as well as the good economic situation in Western Europe -– according to the AXI IMMO report summarising for the warehouse market in 1 half of 2017.
In the first six months of 2017, more than 1.82 million sq m of modern warehouse space was leased, which is historically the best result for the first half of the year. Agreements were signed for 32% more space than over the same period last year. It is worth noting that 70% of the volume of transactions were new leases and expansions.
This high level of demand demonstrates the good condition and further rapid growth of the sector. The best result was recorded in the Central Poland region where 444,000 sq m was leased within just 16 rental agreements. Three of the contracts represented 52% of total demand in the region, for the implementation of BTS projects for companies: Castorama (100,000 sq m), BSH (79,000 sq m) and OBI (50,700 sq m). Upper Silesia (401,000 sq m) and Warsaw (392,000 sq m) were also on the podium – comments Anna Głowacz, Head of Industrial – Leasing Agency at AXI IMMO.
In the first half of 2017, the main markets dominated, in which 1.6 million sq m was leased, while only 11% of gross demand was recorded in smaller markets. Compared to the first half of 2016, the greatest demand-side dynamics were observed in Central Poland, where a gigantic increase of 158% was recorded. A significant jump was also observed in Upper Silesia, where demand rose by 89%.
In the demand structure, retail chains with a share of 35% took the lead, followed by logistic operators (30%).
Developers are taking advantage of the good market conditions and are actively preparing new projects. From January to the end of June, 720,000 sq m were completed. This result is 10% higher compared with the first half of last year. Most new projects were created in the Warsaw area (115,000 sq m) and Bydgoszcz (113,000 sq m) and in the Poznan region (111,000 sq m). At the end of June, the total stock of modern warehouse space in Poland reached 12 million square metres. The following developers had the largest share in new supply at the end of June this year: Panattoni (47%), then Prologis (12%) and Hillwood/7R (11%).
The level of new supply is high, but BTS and pre-let are predominant. 1.71 million sq m of industrial space is under construction. Compared to the same period in the previous year, this is an increase of 100%. The largest number of new projects under construction are in the Warsaw region (360,000 sq m), Upper Silesia (330,000 sq m) and in Szczecin (293,000 sq m).
The share of speculative investments in the volume of projects under construction is falling, and at the end of June their level was 24%, down 18% compared to the same period in the previous year. This is a result of large BTS projects, but also more cautious developers, who in most cases start a new investment after signing at least one pre-let contract. Speculative investors prefer the main markets, with most space not secured by lease agreements being built in the Warsaw, Upper Silesia and Wroclaw regions. – adds Anna Głowacz, Head of Industrial – Leasing Agency at AXI IMMO.
The high demand for warehouse and industrial space set against a stable number of completed projects means that vacancy rates are low, standing at 5.9% at the end of the second quarter, 0.2 p.p. lower than in the previous quarter. The largest amount of space available for immediate rent is located in Szczecin (8.7%) and Wroclaw (8.5%). The lowest availability at the end of June was reported in Łódź (0.7%). In essence, there is no available class A space and there is no prospect of the situation changing up to the end of this year.
At present, rental rates are a stable, low level, with an upward trend observable in Lodz and selected locations in Upper Silesia. For medium-sized warehouse rental transactions between 2,500 and 5,000 sq m, developers are not willing to make concessions on base rents, though there is room for negotiation on effective rates.
The most attractive effective rents were obtainable in the Warsaw area (EUR 1.9-2.4/sq m) and in Poznan (EUR 1.9-2.4/sq m) Quite high rates, above EUR 3.0/sq m, were found in Lodz and the Bielsko-Biala sub-region.
At the end of 2017, we can expect that last year’s 3 million sq m of leased modern warehouse space will be beaten. The further development of the e-commerce channel and the good macroeconomic performance of the economy in Poland, as well as in Germany and EU countries, will be factors in the good results. Poland is becoming a developed warehouse and industrial market with a volume comparable to the United Kingdom. We are the undisputed leader in the CEE region and, thanks to relatively low labour costs, the still high availability of land and competitive rental rates, we are a good alternative to Western Europe’s markets.
The key issue for large projects will be not only the location and well-developed road infrastructure but above all access to staff. New locations in the Lubuskie province, Bialystok and Kielce, where staff resources have not yet been exhausted, can count on large investments.
Intense competition between developers will still be decisive in maintaining the current level of rents. Slight increases will only be possible in selected locations where restrictions will arise from an inability to implement new projects, e.g. due to the low availability of land.
Developers will continue to invest in major markets as well as in new locations, but only a few projects will be speculative. At the second half of the year approx. 1 mln sq m will be delivered on the market, what will bring another supply record at the end of 2017.