Marketbeat: Poland warehouse market - Q3 2018 [REPORT]

13 november 2018

At the end of Q3 2018, Poland’s industrial and logistics stock surpassed the 15 million sq m mark following the completion of 1.42 million sq m since the beginning of the year.

Global real estate services firm Cushman & Wakefield presents a summary of Q3 2018 on the Polish industrial and logistics market in its latest report MARKETBEAT – POLISH INDUSTRIAL MARKET IN Q3 2018.

At the end of Q3 2018, Poland’s industrial and logistics stock surpassed the 15 million sq m mark following the completion of 1.42 million sq m since the beginning of the year. Around 687,000 sq m of warehouse space was delivered across 23 projects in June-September 2018. Central Poland led the way in terms of new supply with 210,000 sq m coming onto the market, including Media Expert’s 74,000 sq m Central European Logistics Hub developed by Panattoni and SEGRO’s 55,000 sq m extension of SEGRO Logistics Park Stryków (39,000 sq m of which was for Corning Optical Communications). Other large completions included Goodman Wrocław V Logistics Center (57,000 sq m for The Hut Group), Hillwood Krosno Odrzańskie (41,500 sq m) and Panattoni Park Białystok (41,000 sq m).

Development activity continues to accelerate, driven by robust occupier demand, say Cushman & Wakefield’s analysts. As at the end of September 2018, the development pipeline stood at 2.1 million sq m across 61 projects, 78% of which was secured under pre-lets. The highest concentration of construction activity is in Central Poland (584,000 sq m), Upper Silesia (383,000 sq m) and the Warsaw region (259,000 sq m), followed by Poland’s northern and western regions including Tricity (183,000 sq m), Wrocław (145,000 sq m) and Szczecin (130,000 sq m).

“The development pipeline is dominated by large-scale distribution centres along major transportation routes and BTS projects developed for Amazon, Zalando, Leroy Merlin, BSH, Ideal Automotive, Metsa Tissue and K-Flex. Developers are also stepping up activity in the segment of urban logistics facilities in response to the rapid expansion of e-commerce and rising pressure to shorten delivery times,” says report author Adrian Semaan, Consultant, Industrial and Logistics Agency, Cushman & Wakefield. “The largest volumes of space underway that has not been secured under pre-lets are in Warsaw Suburbs (91,000 sq m), Tricity (91,000 sq m), Wrocław (61,000 sq m), Poznań (52,000 sq m), Upper Silesia (44,000 sq m) and Central Poland (38,000 sq m),” adds Adrian Semaan.

Occupier demand for modern logistics and industrial space remained healthy in Poland throughout Q3 2018 with 789,000 sq m transacted. In the first three quarters of 2018, total take-up hit a record high 2.89 million sq m, which represented a 15% increase on the same period a year earlier. Traditionally, the strongest leasing activity was recorded on Poland’s five core markets, accounting for nearly 2.18 million sq m transacted. Upper Silesia led the way with 515,000 sq m leased, followed by Central Poland (495,000 sq m) and Warsaw Suburbs (460,000 sq m). Take-up predominantly came from logistics operators (33%), retail chains (17%), e-commerce (15%) and manufacturing (8%). Net take-up comprising new leases and expansions amounted to 2.19 million sq m, accounting for 76% of the leasing volume, while renegotiations made up the remaining 24% or 700,000 sq m. The biggest transactions in the last three months included Amazon’s expansion at its BTS scheme in Gliwice (60,000 sq m) and Jysk’s 35,000 sq m expansion at P3 Mszczonów.

At the end of September 2018, Poland reported total vacant warehouse space of approximately 672,000 sq m, which accounted for 4.5% of total stock. The vacancy rate was up by 0.5 pp on Q2’s level but down by 0.8 pp compared to last year. The largest amounts of vacant space were noted on Poland’s four markets: Warsaw Suburbs (184,000 sq m), Upper Silesia (178,000 sq m), Poznań (86,000 sq m) and Warsaw Inner City (78,000 sq m). There was no vacant space available in Szczecin, Western Poland, and Bydgoszcz-Toruń. The highest vacancy rates were in Warsaw (10.6%, up by 0.2 pp on Q2 2018) and in Krakow (7.9%, down by 0.5 pp) while the lowest were in Tricity (1.4%, up by 1.3 pp) and Central Poland (1.5%, up by 1.1 pp).

“Due to rising construction costs, developers are becoming less flexible in negotiations of rental rates, which is leading to a narrowing of the gap between headline and effective rents. Speculative development activity is picking up, which is likely to ease the upward pressure on rents in the next few months,” says Adrian Semaan.

The highest headline and effective rents are in Warsaw at EUR 5.25/sq m/month for a Small Business Unit and EUR 4.50/sq m/month, respectively, and in Krakow at EUR 4.50/sq m/month and EUR 4.00/sq m/month, respectively. On other markets, big-box facilities of more than 2,000-5,000 sq m fetch much lower headline rents of up to EUR 3.60/sq m/month while effective rents are generally below EUR 3.20/sq m/month.

“Key drivers behind the Polish industrial market’s growth include the rapid expansion of e-commerce, rising household consumption and strong economic fundamentals. The large development pipeline is a response to the growing occupier demand, coming largely from operators expanding their distribution networks across the country and new market players moving some of their logistics and production to Poland. The rapid growth of e-commerce will undoubtedly translate into continued strong occupier activity with new warehouses developed for e-commerce retailers - mostly BTS schemes with technical specifications meeting sector requirements, partly automated and in locations suitable for distribution purposes and affording easy access to labour markets. The outlook for the logistics sector in Poland and across Europe remains positive, boding well for the upcoming year 2019. Key challenges, however, include the rapidly changing labour markets and the demand for employees, particularly on the core industrial markets,” said Joanna Sinkiewicz, Partner, Head of the Industrial and Logistics Agency, Cushman & Wakefield.

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