Over the last 5 years, warehouse space in Poland has doubled. After the first quarter of 2022, it totals 24.7 million sqm, of which 3.5 million sqm was built in the last year. 4.7 million sqm remains under construction, almost twice as much as a year ago. CBRE experts point out that the sector is accelerating, but higher costs will translate into falling new supply, which will grow at a slower pace. It will also be more expensive. Rising material prices are translating into rents, which, depending on the market, have increased by 5-15 percent over the year, and this is most likely not the end of the increases.
– Warehouses are developing despite a difficult environment. The pandemic did not stop this pace, and the same will be true of the war in Ukraine. However, these factors are causing several global problems. The most important include the collapse of supply chains or limited availability of raw materials and goods. We will see the consequences of these phenomena clearly in our region of Central and Eastern Europe, including Poland. Demand, supply, and investments will all be affected – comments Beata Hryniewska, Head of Industrial and Logistics at CBRE.
In the first quarter of 2022, warehouse space in Poland exceeded 24.7 million sqm. This is 3.5 million more than a year earlier. 4.7 million sqm remains under construction, which means an almost two-fold increase compared to the beginning of 2021, when 2.5 million sqm of warehouses were being built. From the point of view of new facilities, rising construction costs are key. In 2021 alone, they increased by over 20 percent, and this year will be worse due to the limited availability of raw materials imported from Ukraine and Russia. This will ultimately affect the lengthening construction time of a single warehouse. Construction projects that started before the invasion will continue due to secured materials, but there may be a problem with starting new investments. This creates a risk of a supply gap. Especially since the vacancy rate in the first quarter of 2022 was historically low at 3.4%.
The increase in construction costs goes hand in hand with rising inflation, which also includes energy prices. This will boost the energy efficiency trend in the warehouse sector. The focus on eco-friendly solutions is visible both on the part of tenants and developers. The former are increasingly taking ESG issues into account when choosing the right building. Meanwhile, developers, wanting to stand out from their competition, are focusing on sustainable solutions that increase the building’s attractiveness.
Demand for warehouses in the first quarter of 2022 remained at a high level and amounted to 1.5 million sqm, similar to the year before. This state will continue in the coming months, partly due to possible relocations of companies from Ukraine or the still strong dynamics of e-commerce. Online sales are growing in Poland – customers who started buying this way during the pandemic have maintained this habit, which fuels the development of infrastructure necessary for the efficient handling of the growing number of orders. This includes, among others, distribution warehouses or return warehouses.
– A new wave of COVID-19 in China is causing further production and logistics disruptions – ordered goods will arrive in Poland and Europe with a delay. Companies will want to increase stocks in warehouses to protect themselves against further supply chain disruptions, driving demand for space – adds Hryniewska.
Rising material costs have their impact on rents, which were stable until the third quarter of last year. Later, the market shifted. Contract rents, depending on the market, have soared by 5-15 percent over the last year, and this is most likely not the end. In Warsaw, rental rates increased by 15 percent, in Łódź and Katowice by 8 percent, and in Gdańsk by 7 percent. It is worth emphasizing that rent levels in Poland were for a long time lower than in Western European countries and most Central European countries, so despite the increase, they will remain competitive. However, the PLN-EUR exchange rate is unstable, and rents are invoiced in EUR and paid in PLN, which may have a negative impact on tenants.
Industrial and logistics assets are perceived as a strong investment product, which was proven especially during the pandemic. In 2021, the total value of investments amounted to 5.71 billion euros, consisting of a record number of 164 transactions. More than half of the total amount concerned the warehouse market. Most investors came from Europe, and the value of Polish capital amounted to 4 percent. Importantly, in recent years, there have been no significant capital flows from Russia, Ukraine, and Belarus in industrial and warehouse investments. This means that the outflow of these investments will not significantly affect the overall result. Investors will continue to be interested in warehouses, although for the moment, due to the war in Ukraine, caution and waiting for the situation to develop prevail.
Source: CBRE.