Impressive results in the warehouse and production market in Q3 2016. Supply volume is approaching 11 million sq m. High demand dynamics – a 76% increase compared to the same period last year. Decisive reaction from developers. They are building extensively and preparing the first projects in new markets – according to a report prepared by AXI IMMO.
Demand
In Q3 2016, exceptionally high tenant activity was recorded in the warehouse real estate market – within 3 months, transactions with a total volume of over 960,000 sq m were concluded. Compared to the same period last year, this is a result 76% higher. A particularly large number of lease agreements, including extensions, were signed in Warsaw (approx. 234,000 sq m), Upper Silesia (225,000 sq m), and Szczecin (160,000 sq m).
The highest demand for warehouse space in the months of July – September was reported by logistics operators. Since the beginning of the year, they have signed contracts for 850,000 sq m of warehouse space, which accounts for 43% of gross demand. For 2 years now, a strong influence of companies from the e-commerce sector has been observed, which also reported significant demand in Q3 of this year (including the largest contract by Zalando for 130,000 sq m in the Szczecin region) and increased the activity of logistics operators. The most active tenants also include companies from the following sectors: FMCG (13% of gross demand) and construction (11% of gross demand).
Among the largest contracts were BTS investments: in the Szczecin market for Zalando (130,000 sq m) and in Upper Silesia for IFA Rotorion (34,000 sq m) and Toy Story (27,000 sq m) – all implemented by Panattoni, as well as the expansion of Jysk in Central Poland (20,000 sq m in Logistic City).
– Large lease transactions for e-commerce giants, business growth in the logistics sector, and expansions and relocations of companies from the FMCG and manufacturing industries mean that at the end of this year, we can expect to break another record on the demand side. A transaction volume in the leasing market at the level of 2.7 to 3 million sq m, which is a result we can expect at the end of the year, is comparable to results in mature markets such as France or the UK. The Polish warehouse market is not only a regional leader but also a significant market on a European scale – comments Renata Osiecka, Managing Partner at AXI IMMO.
Supply
In Q3 2016, the total supply of modern warehouse space in Poland approached 11 million sq m. The dynamics of supply maintained the pace from last year – similar to Q3 2015, 390,000 sq m were delivered to the market. The largest amount of space made available to tenants was in Upper Silesia (105,000 sq m), which accounted for over a quarter of the new supply volume. The Warsaw region and Lower Silesia also had high shares in the total new supply – 74,000 sq m (19% of new supply) and 65,000 sq m (16.6% of new supply) were delivered there, respectively. In smaller markets such as Szczecin or Eastern Poland, no new projects were delivered this quarter.
Among the largest facilities delivered in the third quarter of 2016 were multi-tenant projects Panattoni Sosnowiec III (41,400 sq m) and Panattoni Kraków III (34,500 sq m), as well as a BTS for Tesco in Segro LP Poznań (30,000 sq m).
At the end of September 2016, the volume of warehouse space under construction amounted to 955,000 sq m, i.e., 59% more compared to the same period last year. 70% of the space under construction was secured by lease agreements, while the remaining 30% were speculative or partially speculative investments. Due to the Zalando project, the most construction is taking place in Szczecin (170,000 sq m), followed by Poznań (158,000 sq m) and Bydgoszcz (130,000 sq m), as well as in Lower and Upper Silesia (114,000 sq m and 110,000 sq m, respectively). Furthermore, nearly 100,000 sq m is being built in the Central Poland region, where the lack of available space has been most acute for several quarters.
Vacancy rate
At the end of the third quarter of 2016, the vacancy rate in the Polish warehouse market was 5.5%. Compared to the same period last year, the rate increased slightly by 0.2%. High developer activity alongside high demand means that the rate of unleased space remains at a stable, low level.
Following record demand in the first half of the year for warehouse space in Szczecin, Toruń, and Bydgoszcz, the availability of space in these regions dropped to zero at the end of Q3. A low vacancy rate was also maintained in Central Poland (2.4%) and Poznań (3.5%).
Rents
Record demand from tenants in Q3 did not lead to an increase in rental rates. Although there was no shortage of those willing to lease industrial space, the appropriately increased supply of warehouses blocked potential hikes. Base rents remained in the range of 2.4 to 3.5 EUR per sq m in most locations. The cheapest warehouse spaces were offered in the vicinity of Warsaw and Poznań. We can expect rate increases in markets with low vacancy levels. Attractive offers apply to the last modules in most projects.
Forecasts
On the demand side, we expect the high dynamics to be maintained and further records to be broken. The last months of the year are a period when the most negotiation processes related to both new contracts and extensions are closed. A good macroeconomic situation, high internal consumption, and new investments by foreign companies contribute to high results on the demand side.
High developer activity will continue. New investments will be prepared not only in the largest logistics and warehouse hubs, such as Warsaw, Upper Silesia, and Poznań, but also in smaller, previously unexplored markets such as Zielona Góra, Białystok, or Kutno, where developers are preparing to implement their first projects. Consequently, a larger pool of potential relocations will appear for clients, and previously popular locations will have to fight harder for tenants from selected segments. This is a new, interesting situation for both tenants and landlords. An increase in rates may occur in markets with a low vacancy rate.