Podcast: Lower Silesia warehouse market as important logistic and production hub

Damian Kińczyk, Consultant in the Industrial Department of AXI IMMO, on the structure of the Lower Silesian warehouse market. Read on or listen to the podcast (only Polish version)  about demand and supply as well as other factors shaping the real estate market in the Lower Silesia Voivodeship, as well as about the opportunities for the region

Lower Silesia – the fourth-largest warehouse market in Poland – continues to grow. Developers completed approx. 200,000 sqm of modern logistics space in H1 2020, which combined with somewhat lower demand, contributed to an increase in the vacancy rate in this market. AXI IMMO experts have checked the situation in the region, new projects developments, and tenants performance.

The investment market in Lower Silesia

Four warehousing and logistics assets were subject to investment transactions in the first six months of 2020 in Lower Silesia. The largest of those was Panattoni Wrocław IX with a GLA of 46,000 sqm, which was acquired by Savills Investment Management. Meanwhile Segro decided to add Panattoni Park City Logistic Wrocław, with a GLA of 38,000 sqm, to its portfolio, while the Chinese CGL Investment Holdings bought a real estate portfolio of Hines Poland, including a scheme in Legnica with 26,000 sqm. Finally, Singapore’s sovereign wealth fund GIC became the owner of DHL’s distribution centre in Wrocław, as part of its acquisition of the Maximus European portfolio from Apollo Global Management.

Stock of modern warehousing and logistics real estate in Lower Silesia increased by 200,000 sqm in H1 2020 (+60% compared to H1 2019), bringing the total to 2.5m sqm (+8.2% y/y). Looking at the last 12 months, 526,000 sqm was completed, which is the third-highest result in the country, following Upper Silesia (649,000 sqm) and Warsaw (523,000 sqm). The current size of the market is 46% larger than two years ago. High developer activity in recent years has helped the region maintain its position as the fourth largest logistics real estate market in Poland.

Factors shaping the commercial real estate market in Lower Silesia

“The Lower Silesian warehouse and logistics market has been growing in size in the last several years. The region is considered an excellent base for distribution centers and production facilities serving Western Europe, thanks to its proximity to the German and Czech borders. It also boasts high-quality road infrastructure, including two motorways – A4 and A8 – and three expressways – S3, S5, and S8. Lower Silesia has also been successful in attracting warehouse investment thanks to its high supply of good quality investment land, which is less fragmented compared to other parts of the country, has access to utilities, and is covered by zoning plans. In addition, occupiers are attracted to the region thanks to its relatively good access to labor and a large pool of students, who are available for seasonal work as well as more skilled jobs following graduation. A very good business environment in Lower Silesia has been appreciated by many domestic and international companies, who pursue expansion plans in the region” – comments Damian Kińczyk from the Industrial Department at AXI IMMO.

We expect a slowdown in development activity in the Wrocław market over the coming months. Of the 187,000 sqm warehouse space currently under construction (-56% y/y), almost 100,000 sqm is built on a speculative basis. All major players that are active in the market, such as Panattoni, Hillwood, Goodman, MLP, and 7R, have availability in their parks. Three parks were under construction as of the end of June 2020, and they were all due for completion in Q3 2020. These are Hillwood Oleśnica (53,000 sqm), phase II of Hillwood Wrocław East II (11,500 sqm), and two buildings at Panattoni City Logistics Wrocław with a combined GLA of 23,200 sqm.

“Looking at the submarkets of Upper Silesia, Wrocław-city is chosen by FMCG firms, couriers, and light production companies. Wroclaw-south (including Bielany Wrocławskie, Nowa Wieś Wrocławska, Tyniec and Pietrzykowice), with its convenient location on the crossroads of the A4 highway and the S8 expressway, attracts production and logistics companies. Locations north of the city are suitable for companies seeking good access to Poznań and Central Poland. E-commerce companies have a preference for the Żurawina and Wojkowice areas thanks to their good access to labor, including the availability of seasonal staff during online sales peaks, combined with attractive rental levels. Legnica is a good choice for companies serving the German market. Finally, Oleśnica, Jawor, and Bolesławiec are the emerging warehousing locations within Lower Silesia” – adds Damian Kińczyk from AXI IMMO.

High development activity in Lower Silesia contributed to an increase in the vacancy rate in the market. Only at the end of 2019, 3.7% of the total stock was immediately available for occupation. At the end of June, this share jumped to 10.1%, above the national average of 6.8%. This change in market conditions has made developers more open to rent negotiations. Currently, headline rents in A-class buildings in Wrocław stand at EUR 3.3 – 3.7 per sqm.

Gross demand, excluding short-term lets, amounted to 175,000 sqm in the first half of 2020, which is almost 45% lower compared to H1 2019. Short-term leasing activity was at a high level in H1, however. It accounted for 33% of total space leased in Q2 – well above the national average of 16%. Key transactions in H1 2020 include the Żabka supermarket chain taking 22,800 sqm at Panattoni Park Wrocław XII and VS Transport leasing 13,400 sqm at Panattoni Wrocław VII. Logistics operators have been the most active group of occupiers in recent quarters, followed by producers and distributors of electronics and white goods. The COVID-19 pandemic has negatively affected the automotive and clothing industries in the region.