AXI IMMO presents the latest report “Polish Warehouse Market in H1 2020.”

The Polish warehouse market maintained its robust momentum in the first half of 2020, with a record 2.38m sqm leased. Gross take-up in the second quarter of 2020 – during a time of strict Covid-19 lockdown measures – was as much as 50% higher compared to the same period in 2019, at 1.36m sqm. Such good outcomes were the result of high demand for space on the back of booming e-commerce trade and numerous BTS transactions that commenced earlier in the year. 

REPORT – Polish Warehouse Market in H1 2020″ Download PDF | 3 MB

 Investments in the warehouse market

The warehouse real estate market has proved resilient to the global shock caused by the COVID-19 pandemic. The volume of logistics investment transactions closed in the first half of the year stood at almost EUR1.2bn and accounted for almost 40% of total investment into Polish commercial real estate. Among the largest transactions carried out in Q2 2020 were a sale of Mszczonow Park (158,000 sq m) by P3 to Elite Partners Capital and a purchase of Logistic City Piotrkow (135,000 sq m) by Polish Logistics LLP, an investment platform established by REINO Capital, IO AM and Grosvenor Group. Yields on big-box assets currently stand at 6.25%, while prime logistics assets in Warsaw-city fetch 5.5%. Yields remained unchanged in the first six months of the year due to the stable nature of the sector and robust occupier fundamentals combined with high investor demand.

„Although the real estate investment market in Poland is facing challenges in the near future, recent transactions give cause for optimism. Indeed, H1 2020 saw record investment volumes of around 1.2bn EUR. In the coming quarters, we are likely to experience further diversion of capital from the retail and office sectors to the warehouse sector. The availability of prime products on the market will remain a challenge” adds Renata Osiecka, Managing Partner, AXI IMMO.

Strong occupier demand on the warehouse market

The first half of 2020 saw record occupier activity. In that period, gross demand amounted to 2.38m sqm (+25% compared to H1 2019), led by Warsaw with 602.4k sqm leased, followed by Upper Silesia and Central Poland (396k sqm each) and Poznan (257k sqm). Moreover, 1.36m sqm of space was leased in Q2 2020 – 50% more than in Q2 2019. In addition, short-term leases amounting to 326k sqm were signed during the first half of the year – the highest level on record. New contracts and expansions accounted for 73% of overall take-up. The most active sectors in H1 2020 were: logistics (25.5%), electronics (18%), retail (14.5%), e-commerce (14.4%), and production (7.5%).

„Tenant activity was very high in Q2 2020 due to a high number of BTS transactions that began earlier in the year and also – due to exceptionally high demand for space dedicated to e-commerce. Additionally, a record amount of space was leased on a short-term basis – under 2 years – between April and June. A total of 262k sqm was subject to temporary leasing agreements. Some tenants decided to fulfill expansion plans partly through temporary leasing contracts, in anticipation of market conditions normalizing after the end of the Covid-19 lockdown period,” says Anna Głowacz, Head of Industrial and Logistics Agency, AXI IMMO.

The largest warehouses for e-commerce

The largest leasing transaction of H1 was signed by an undisclosed e-commerce occupier at Panattoni BTS Świebodzin for over 200k sqm. Other notable deals included a 73,400 sqm lease by Euro Net at Prologis Park Janki, a new contract for 72,900 sqm signed by Amazon at Hillwood Łódź Górna, a lease by a clothing producer for 67,000 sqm at Panattoni Park Czeladź IV as well as a 51,900 sqm new lease by a confidential tenant at Exeter Park Stryków.

“One of the long-term consequences of the COVID-19 pandemic is redefining the warehouse market in terms of online retail. Currently, we do not know the decisions of all the tenants, but we expect that a number of companies that decide to exit their physical stores will still want to be present in the e-commerce channel. Therefore, a withdrawal from shopping centers or retail parks will not necessarily mean a company’s complete exit from the Polish market. This will provide a stimulus to the development of the warehouse sector, including smaller warehouse formats such as the SBU (Small Business Unit) projects, which offer not just warehouse space but also showroom space,” adds Anna Głowacz.

Will development activity decline in H2 2020?

During the first six months of the year, industrial developers completed a total of 1.1m sqm of space (+9.6% compared to H1 2019), raising the total warehouse stock in Poland to nearly 19.5m sqm (15.9% y/y). The highest level of completions was recorded in Warsaw (over 325k sqm), followed by Lower Silesia (200k sqm) and Upper Silesia (192k sqm). The three largest new completions of H1 2020 were Panattoni A2 Warsaw Park  (103,670 sqm), P3 PepsiCo BTS in Mszczonow (58,500 sqm) and Hillwood Wroclaw East II (52,400 sqm).

In terms of the pipeline, 1.77m sqm of space was under construction as of the end of June (-24% y/y). The largest amount of space is currently under construction in Warsaw and Lower and Upper Silesia. Lower activity is driven by caution among developers due to uncertain market conditions. Developers have also become more reluctant to develop space on a speculative basis. The share of speculative space in total space under construction fell from 45.3% at the end of March 2020 to 33.6% at the end of June. More limited development resulted in a significant decrease in the amount of space available immediately. The vacancy rate for the Polish market overall fell from 7.8% at the end of March 2020 to 6.8% at the end of June. The highest amount of space is available in Lower Silesia (10.1%), followed by Poznań (7.4%) and Central Poland (6.9%). In terms of the smaller markets, high development activity is underway in the Gdańsk region, where an equivalent of 29% of this market’s stock is under construction, and Western Poland where the pipeline translates into 71% of this market’s current size.

Rental levels remain stable

Rental levels remained unchanged in most markets in the first half of 2020. Average headline rents in big box facilities range between EUR 3.20 and EUR 3.60 per sqm while Warsaw-city remains the most expensive logistics location in the country (starting from EUR 4.8/sqm). Effective rents have decreased slightly during H1, mainly in the regions with high vacancy rates and a high level of competition between developers. The lowest effective rents are still available in the suburbs of Poznan and Warsaw (Błonie and Grodzisk Mazowiecki in the latter).

“We expect that total warehouse stock in Poland will exceed 20m sq m by the end of the year, but the number of speculative projects will be limited due to caution on the part of developers. The spotlight will be on the quality and financial stability of the occupier. Further declines in the amount of space available immediately can be expected. On the demand side, logistics firms and e-commerce players are likely to remain the most important sources of activity. Some occupiers will be concerned about the re-introduction of lockdown measures and may pre-emptively increase stockpiling to mitigate potential supply chain disruptions and delays in production,” summarizes Renata Osiecka.

About AXI IMMO

AXI IMMO offers commercial real estate advisory services. As part of the offer, the company provides b2b and b2c chain management services. The company conducts market analysis and provides reports on the commercial real estate market.

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The greatest advantage of AXI IMMO is the combination of international service standards with reliable knowledge of the local market. The company received the title of the best Local Agency of the Year in 2012 – 2019 in the prestigious CiJ Awards organized by CEE CiJ Journal magazine. She also received the Award for Best Team in the Warehouse Sector from 2016 to 2017.