Marketbeat: Poland Warehouse Market - Q3 2020 r. [REPORT]

• Quarterly take-up surpasses 1.25 million sq m for the second time in a row.
• Rents hold firm but likely to edge down in the short term.
• Development activity down by 18% on September 2019.
• Healthy supply and relocations pushed the overall vacancy rate up to 8.5%..

The industrial market is the fastest-growing commercial real estate sector. Robust demand was boosted by such factors as the requirement for increased inventory holdings among companies wanting to ensure continuity of supplies, continued e-commerce growth, and the development of omnichannel strategies that are becoming increasingly relevant given restrictions on brick-and-mortar retail. This is confirmed by warehouse take-up that hit a record 3.5 million sq m in the year to date, of which 71% was transacted under new leases and expansions.

Poland is becoming a major industrial and logistics hub for Western Europe. Companies that are present on this market or planning projects in Central and Eastern Europe will be securing additional space to safeguard against potential supply chain disruptions in the future– says Joanna Sinkiewicz, Head of Industrial & Logistics, Cushman & Wakefield.

Take-up

Leasing activity totalled 1.28 million sq m in the July-September period, the second-highest quarterly take-up figure on record. Demand predominantly came from logistics operators who accounted for 29% of all deals, and retailers (23% of total take-up), with grocery and discount stores being the most active market players. Other leading sectors included light manufacturing (7%), automotive (7%), food (7%), and online retailing (7%).

By region, approximately 46% of total take-up in the quarter was shared by Upper Silesia, which reported a record level of leasing activity at 387,000 sq m, and Warsaw Suburbs, which saw 221,000 sq m transacted. Strong demand was also recorded in Wrocław, Central Poland, Poznań, and Tricity, with each market reporting more than 100,000 sq m of deals, and their combined share of total take-up at 40%.

Supply

Industrial completions reached close to 1.7 million sq m in the year to date, of which 676,000 sq m was delivered in Q3 2020. At the end of September 2020, Poland’s total industrial stock amounted to 20.4 million sq m. The largest volumes of newly completed warehouse space were recorded in Warsaw Suburbs, Upper Silesia, and Wrocław, which saw a total of almost 1.14 million sq m come on stream. With a substantial increase in its warehouse stock, Tricity quickly jumped to sixth place in the table of Poland’s largest markets. Development activity slowed temporarily in Central Poland following the region’s strong supply in recent years and the relocations of some major tenants to larger BTS facilities, which pushed the vacancy rate up. At the end of Q3 2020, there was close to 1.54 million sq m of warehouse space under construction (-18% year-on-year).

Development activity - albeit strong - continued to fall, which in our opinion will be short-lived and results from rising vacancy rates and more restrictive pre-letting policies, all leading to less speculative construction. The focus is still on large conurbations that benefit from their strong positions and continued growth of last-mile logistics –  says Adrian Semaan, Senior Research Consultant, Cushman & Wakefield.

Smaller regional markets are also active thanks to improvements to their transport infrastructure and favourable locations that will shorten overseas supply chains. New projects are underway in Eastern Poland, Bydgoszcz, and in Western Poland, where a large project is being developed for an international e-commerce company.

Rents

Rental rates remained largely unchanged in the third quarter. Headline rents ranged between EUR 2.50–3.80/sq m/month for big-box warehouses and EUR 4.00–5.25/sq m/month for SBUs in urban areas of the largest conurbations. Effective rents stood at EUR 2.00–3.20/sq m/month for big-box units and at EUR 3.00–4.50/sq m/month for SBUs. Due to the temporary oversupply on some markets, including Warsaw, Upper Silesia, Central Poland, and Tricity, tenants are likely to be offered more financial incentives, which could push effective rents down short term.

Vacancies

At the end of Q3 2020, there was nearly 1.7 million sq m of unoccupied warehouse space, accounting for 8.5% of Poland’s total industrial stock. The overall vacancy rate edged up by 1.5 pp on the previous quarter and by 1.9 pp year-on-year. The highest increases in unoccupied warehouse space across the core regional markets in the last three months were recorded in upper Silesia (from 6.7% to 10.8%), Warsaw Suburbs (from 6.8% to 8.8%) – largely due to high levels of new supply on both markets – and in Central Poland (from 6.8% to 9.6%), where the growth in vacancies was driven by tenants vacating space and relocating to new facilities. Vacancy rates fell in Wrocław(from 10.4% to 8.4%) and Poznań (from 8.0% to 7.1%).

Outlook

Despite the second wave of the Covid-19pandemic, occupier activity remains robust, indicating that the industrial market is in good health. As demand is strong, tenants can benefit from improved availability of warehouse space, especially when looking for units to lease within a short timeframe from the day a decision is made. In addition, there are also companies looking for new facilities and bespoke BTS projects on the market, which will drive the growth of the Polish industrial sector going forward– adds Joanna Sinkiewicz.