Marketbeat: Poland Warehouse Market - Q2 2020 [REPORT]
10 august 2020
Despite the strong performance we are cautious about prospects of this year being a record year for the industrial market. Such sectors as automotive or manufacturing that play an important role in the Polish economy have been hit hard by the pandemic. Recent months, however, have revealed positive trends, with companies gradually returning to normal business activity as restrictions are being eased further. As some companies are negotiating or finalizing new projects, we expect that the entire sector will be better prepared for a potential risk of a second wave of the pandemic - says Joanna Sinkiewicz, Partner, Head of Industrial & Logistics, Cushman & Wakefield.
Warehouse take-up hit 1.3 million sq m in Q2 2020 with nearly 2.3 million sq m transacted since the beginning of the year. Net take-up comprising new leases and expansions remained robust, amounting to almost 1.7 million in H1, which accounted for 74% of the total leasing activity. Renewals made up the remaining 26%, or 582,000 sq m, of the transaction volume. By region, the strongest leasing activity was on three core markets: Warsaw Suburbs, Upper Silesia and Central Poland, where a total of 1.2 million sq m was transacted, accounting for more than 50% of the total take-up in January-June 2020.
These statistics would indicate a record level of leasing activity in a non-pandemic environment, but it should be underscored that some take-up was generated by lease agreements or renewals on preferential conditions offered to tenants on account of COVID-19. Some transactions expected to be finalized in later years were renegotiated earlier due to the exceptional situation. Companies that were the worst hit by the pandemic fallout asked landlords for support that most often consisted in deferment or temporary reduction of costs in exchange for a lease extension– adds Joanna Sinkiewicz.
Take-up predominantly came from logistics (28% of the total leasing volume in H1 2020), retailers (16%), e-commerce (14%), and light manufacturing (12%). Other leading sectors included construction (6%), courier services (4%) and food (4%).
The full impact of e-commerce on the Polish warehouse market is stronger than revealed by pure statistical data that includes solely online-only stores and platforms. There are many other companies from various sectors rapidly developing omnichannel strategies, thereby generating additional demand for logistics and courier services, and consequently for warehouse space. In addition, IT companies looking for modern warehouse space for data centres are a relatively new source of demand in Poland. The Warsaw market reported two such deals for a total of 28,500 sq m in the first half of the year, with more projects underway – says Adrian Semaan, Senior Research Consultant, Cushman & Wakefield.
More than 1 million sq m of warehouse space has come onto the market since the beginning of the year. Of that total, 600,000 sq m was completed in Q2 2020. Around 70% of the new supply was delivered to three regional markets: Warsaw Suburbs, Wrocław and Upper Silesia.
Poland’s total warehouse stock will soon surpass the 20 million sq m mark. Development activity remains strong with 1.9 million sq m of warehouse space under construction in June, down from 2.2 million sq m in the same period last year. The highest concentration of the development pipeline is in Upper Silesia (435,000 sq m), followed by Warsaw Suburbs (324,000 sq m), Western Poland (256,000 sq m, of which 80% is under construction in a BTS project in Świebodzin, close to the Polish-German border), Tricity (237,000 sq m), and Wrocław (158,000 sq m).
Due to the higher market risk caused by the COVID-19 pandemic, developers will be exhibiting more caution with regard to commencing speculative projects, especially in locations with relatively high volumes of vacant warehouse space in existing schemes or projects underway such as Wrocław and Upper Silesia.
Headline rents have remained flat throughout 2020, standing at EUR 2.50–3.80/sq m/month for big-box warehouses and at approximately EUR 4.00–5.25/sq m/month for SBUs in the largest conurbations.
With competition among developers still strong, tenants will continue to enjoy attractive packages of financial incentives, especially in the case of large, long-term leases – says Adrian Semaan.
Effective rents range between EUR 2.00–3.20/sq m/month for big-box warehouses and EUR 3.00–4.50/sq m/month for SBUs.
At the end of June 2020, there was nearly 1.4 million sq m of vacant space, accounting for 7% of Poland’s total industrial stock. Although the overall vacancy rate edged down by 0.4 pp compared to the previous quarter, it was notably higher than a year earlier. The largest falls in warehouse space availability were recorded in Central Poland (down to 6.8% from 10.1%) and Krakow (down to 5.2% from 7.5%), while Warsaw Suburbs experienced a slight increase from 5.3% to 6.8%. Vacancy rates remained stable on other regional markets in the past three months.
E-commerce remains the major driving force behind the growth of the Polish industrial market. During the pandemic it experienced a rapid expansion, with online sales hitting a double-digit share of total retail sales. This figure is, however, gradually returning to its pre-pandemic levels, but its organic, long-term growth will be favourable for logistics and the entire Polish industrial sector, which successfully serves both national and cross-border distribution needs – says Joanna Sinkiewicz, Partner, Head of Industrial & Logistics, Cushman & Wakefield.