Report: The Warehouse Market in Q1 2018 Poland

The Polish warehouse market remains in very good shape. The demand side saw a record-breaking start to the year for the third time in a row. From January to the end of March 2018, 1.16 million sq m of modern warehouse space was leased, 20% more than in Q1 2017.

Developers completed 314,000 sq m, but almost 2 million sq m are under construction. Developers’ unwillingness to build speculative investments resulted in a low vacancy rate, which at the end of March this year was 4.2% – according to the report summarizing Q1 2018 prepared by AXI IMMO experts.

DEMAND

Yet another first-quarter record was broken this year with 1.16 million sqm of modern warehouse space being leased, of which new lease agreements and expansions accounted for 70%. This result is 20% higher compared to the same period last year. In just three years, demand in the first quarter has grown by 86%.

From January to the end of March this year, most new lease agreements were signed in Central Poland, where 236,000 sq m were leased, of which new lease agreements accounted for nearly 94%. Warsaw region came second with over 200,000 sq m, followed by Wrocław with 172,000 sq m.

“Worth noting is the further development of new warehouse locations in Eastern Poland and Western Poland. Improved infrastructure, in particular the completion of sections of the S8 and S7 expressways, combined with a relatively greater availability of staff, has created greater interest among investors in new locations in the Warmia-Masuria and Podlasie provinces” – comments Anna Głowacz, Head of Industrial at AXI IMMO.

Demand is dominated by logistics companies (32%), followed by retail chains (21%) and e-commerce (19%). These are the three main drivers of demand, the increase in which is directly related to high levels of consumption in Poland and Europe, as well as changes in sales models and new supply chain organisation.

SUPPLY

The total supply of modern warehouse space at the end of the first quarter of 2018 was nearly 13.9 million sq m; by the end of 2018, it will exceed 15 million sq m. From January to the end of March this year, only 314,000 sq m were completed, 34% fewer than in the same period last year, which was mainly due to breaks in construction because of low winter temperatures. The largest amount of space was completed in Central Poland (over 150,000 sq m), followed by the Warsaw area (40,000 sq m) and Upper Silesia, Szczecin, and Western Poland (32,000 sq m each).

However, an impressive 1.98 million sqm are under construction. This is the effect of high demand from the last two quarters, including the signing of contracts for over 100,000 sq m of BTS investments for the e-commerce and retail sectors. Currently, Central Poland is the largest construction site in the country, where 462,000 sqm are being built. This is followed by Upper Silesia (386,000 sq m) and Warsaw (258,000 sq m).

“With nearly 2 million sq m, speculative space makes up 25%. In most cases, though, investments that were already 30–40% leased before construction have space not secured by rental agreements. Developers are working intensively on new projects, however, their willingness to take the risk with entirely speculative projects (100%) is limited on both main markets and new locations” – adds Anna Głowacz, Head of Industrial at AXI IMMO.

VACANCY RATE

The average vacancy rate at the end of March this year dropped to 4.2%; however, in some large markets, it increased. There is low availability or a lack of ready space in new locations and young markets, where there is no speculative development and the number of new investments is limited. The highest vacancy rates are in the Poznań region (7.5%) and Kraków (7.3%). A slight increase can be observed in existing facilities from which tenants have relocated to newly built warehouses.

RENTS

Due to higher investment costs, rental rates are maintaining their upward trend in most locations. Despite the increase in base rents, developers are still offering the lowest effective rates in the Warsaw area, starting at EUR 1.9/sqm. An upward trend is clearly visible in Wrocław and Upper Silesia, while rates are stable in Central Poland.

FORECASTS

The market is in peak condition, and excellent economic indicators mean that the forecasts for the warehouse market for the remainder of the year are optimistic. If demand indicators and the pace of new investment remain at similar levels, we can expect last year’s record of 3 million sq m leased over 12 months to be broken.

This year will also see greater activity among developers in the Small Business Unit Storage segment. This comes as a response to demand from tenants, who are increasing efficiency and shortening delivery times to the end customer.

The low availability of staff in the main logistics hubs means that large e-commerce and production investments will go to the eastern part of the country, where staff availability is higher and infrastructure is getting better. Large markets will continue to develop due to their scale and the number of businesses already present in those regions.