Very good results for demand and supply and the lowest vacancy rate in years coupled with stable rental rates are the image that emerged of the warehouse sector in 2015. The record volume of transactions in 2014 was beaten. Last year the total rented volume was 2.53 million sqm, of which over 60% were new leases. The high activity among tenants also translated into action by developers who delivered on the market 920,000 sqm. The result of the growth in demand is a low vacancy rate, which at the end of the year amounted to 4.8% and was 5 percentage points lower year to year. The high level of activity in the rental market is having a positive effect on the investment market, according to the report prepared by AXI IMMO. If you want to download full version of the report, click the following link below.
|Download:||Report: Warehouse market in Poland in 1015||Download for free: PDF| 2 MB|
Good economic indicators, falling unemployment, investment opportunities associated with the new EU perspective and low-interest rates had a positive impact on investment activity in the commercial real estate sector. The total value of transactions in the investment market in 2015 exceeded 4.1 billion euros, of which the industrial sector accounted for nearly 470 million euros. The result in the warehouse sector was lower by 35% compared to 2014 due to the limited supply in the market. Large portfolio transactions took place in 2013-2014.
However, the high growth in the market, supported by high demand for space from tenants means that warehouse projects are valued by investors. The Polish logistics sector is among the top 10 fastest growing logistics markets in Europe. This year we can expect more sales of new projects delivered on the market. This sector has become an intrinsic element of the strategy of many investment funds. We are seeing high liquidity in the market, where value-added products with the potential to develop and increase their value are also being sold. The Polish warehouse market due to its scale and scope of activity will remain a key investment market for a growing number of institutional investors. Those actively working in the warehouse sector include Hillwood Europe, Deka Immobilien, Logicor, P3 and WP Carey. The yields in the warehouse sector compared to other sectors of commercial real estate remain the highest and are at a level of 7.0 to 7.5%.
This year, the sector will continue to develop based on e-commerce foreign and Polish chains and new mix production and warehouse investments. From tenants perspective, a key factor will be the availability of staff at that selected locations. On the supply side, we can expect new investments both in the main, as well as new locations. The share of speculative projects in new supply will be maintained at the level of 30-40%. The stock will exceed 10 million sqm in the second half of the year – comments Renata Osiecka, Managing Partner at AXI IMMO.
In parallel with the lease, market will increase investment market. We can expect new investors in the sector and the increased number of opportunistic purchases of industrial products, not only in major markets – adds Renata Osiecka, Managing Partner AXI IMMO.
In the whole of 2015, 2.53 million sqm was leased, of which 60% were new lease agreements and expansions. This is a figure nearly 1 million sqm higher compared to 2014. Like the year before, the last quarter was the best, when more than 650,000 sqm of modern warehouse space was leased. The great results on the demand side are the result of good economic indicators, the high growth in e-commerce and increased production among companies present in Poland. The highest demand was recorded in the Warsaw region (660,000 sqm), then in Central Poland (540,000 sqm). The highest share of new lease agreements occurred in the Warsaw area. The largest transactions took place in Central Poland. Besides the dominant warehouse regions in the country, it is worth noting the high demand in smaller regions and new locations such as Lublin, Rzeszów and Bydgoszcz, which were a feature of the warehouse map of Poland in 2015. In these three regions, a total of 257,000 sqm were leased.
Among tenants, the dominant group are logistics companies with a 43% market share. The high share of logistics operators is due to the increase by manufacturing companies of the outsourcing of logistics services and the increase in the e-commerce sector. In second place were retailers with an almost 15% share.
From January to December 2015, developers delivered on the market more than 900,000 sqm of modern warehouse space. The largest share of new supply in the region took place in Poznan (239,000 sqm), with Upper Silesia in second place (117,000 sqm) followed by Wroclaw (108,000 sqm).
In 2015, developers developed projects in new locations outside the major regions, with nearly 190,000 sqm being completed in Szczecin, Lublin and Rzeszów. The highest share, 70%, in new supply was taken by Panattoni Europe, followed by Goodman and SEGRO.
Speculative construction has fully returned to the warehouse market in Poland. At the end of the year, 840,000 sqm were under construction, of which more than 270,000 sqm constituted speculative investment. At the end of the year, most of the projects in progress were in the Warsaw area (218,000 sqm), followed by Upper Silesia (174,000 sqm) and Wroclaw (166,000 sqm). A total of approx. 35% of completed space was a speculative investment; this is an increase of 10% compared with the end of 2014.
At the end of December, the vacancy rate was at a record low level: 4.8%. This is the result of about 5 percentage points lower than a year earlier. In most regions, there is a lack of large units available immediately. The smallest amount of available space is currently in Lodz, with most remaining in the vicinity of Warsaw and Tri-City. In the coming months as a result of new investments completion, the vacancy rate should rise, but given stable demand, it will not be a significant jump. In subsequent quarters, the average vacancy rate will remain below 10%. A characteristic feature of the market is that logistics companies and networks are moving to new buildings, which is freeing space in older parks. On the other hand, some space is rented in the short term with the possibility of immediate termination at the time of signing the contract.
The falling vacancy rate has not resulted in an increase in rents. In order to obtain the largest contracts, developers competed sharply on price. As a result, in most regions, average rents remained stable, and in some locations, such as Upper Silesia, Poznan and the Warsaw area, they even showed a downward trend. Prices in Lodz remain quite high without declining, which is due to low vacancy rates and also the lack of speculative investments. Widening gaps between the amount asking and effective rents can be observed. To get important tenants, developers are able to offer a wide range of exemptions from rent; however, asking base rents are subject only to small negotiations. Average effective rates in the major markets fluctuated in the range: 2.0 – 2.5 EUR/sqm in Central Poland and the Warsaw area, 1.9 – 2.6 EUR/sqm in Upper Silesia and over EUR 2.5/sqm in Krakow, Rzeszow and Lublin.
A high level of activity from tenants and expanded development activity in the main markets, as well as in new locations will be stable in 2016. Among main markets the biggest number of new projects we can expect in Poznan and Warsaw region. The main factor determining the growth in demand and supply in the sector will depend on internal macroeconomic data associated with the investments of companies, an increase in export and domestic consumption. Additional risks are at external factors like a social and economic situation in UE and slowdown at Chinese economy.
It is worth noting that an important factor, especially for tenants is the availability of staff. A low level of unemployment below 10%, and in warehouse locations even in the vicinity of 2-3%, is an important indicator influencing the investment decisions of companies. Difficult challenges are facing the market regarding new projects in new well-communicated and still attractive locations, but with greater access to basic stuff. Therefore, the development of projects in new regions, but also discovering new locations in major logistics hubs, will be a natural process in the market.
Another issue will be the availability and the possibility of purchasing land for development in the face of the new law on land sales. Last year, purchases of land for industrial projects rose by at least 40% compared to the previous year. This year, it will be difficult to maintain such good results. Average prices for quality plots in logistic locations are between 70 to 150 PLN for sqm, except the plots in Warsaw Inner City and Cracow region.
More information about the regional warehouse market in full version of the report.
Author: Renata Osiecka