The Polish warehouse real estate market remained stable in Q1 2022, with a slight decline in demand observed, amounting to 1.56 million sqm (-2.5% y/y). On the supply side, developers completed projects with a total area of over one million sqm (+44% y/y). A record 4.9 million sqm remains under construction, with factors such as inflation and rising costs of materials and construction affecting the gradual increase in rental rates. The tense geopolitical situation beyond Poland’s southeastern border also remains significant for the entire sector, which may lead to a temporary increase in demand from tenants relocating their businesses from Eastern Europe in the coming quarters of the year. AXI IMMO presents the results of the Polish warehouse market for the period January – March 2022 in the report “Polish Warehouse Market in Q1 2022”.
The first quarter of 2022 was clearly quieter in terms of transactions involving warehouse properties or portfolios. The generated approx. EUR 190 million accounted for 11% of the total investment market volume. Among the largest transactions by the end of March this year were the purchase of the Amazon Świebodzin BTS project by a Korean entity from Panattoni in Western Poland (200,000 sqm | 4 stories), the acquisition of the Cromwell/White Star property portfolio with an area of 72,500 sqm (ultimately up to 150,000 sqm) in the Warsaw region by Partners Group & Peakside Capital Advisors (JV), and the purchase of an investment plot in Lesser Poland by Revetas Capital from Panattoni, where an industrial and logistics property of approx. 55,000 sqm may be built.
– The clear, over 50% share of warehouse assets in the investment market, which has persisted for over two years, seems to be slowing down. According to scenarios signaled for several months, we are in a phase of a lack of high-quality products, although we expect this situation to normalize in the coming quarters. In addition, the fact of rising rental rates may contribute to a reconsideration of purchasing warehouse assets by investors who have so far delayed entering the Polish market. The third important factor remains compliance with ESG guidelines, which, firstly, will facilitate the financing of a new project and, secondly, will guarantee a higher return on sale. – analyzes Renata Osiecka, Managing Partner, AXI IMMO.
Demand for warehouse space
At the end of March this year, gross demand in the Polish warehouse market amounted to 1.56 million sqm (-2.5% y/y), while in terms of new contracts alone, tenants signed agreements for over 1.12 million sqm (approx. 72% of gross demand). The highest activity at the beginning of the year was traditionally recorded in Upper Silesia, Warsaw, and Central Poland. Among the largest lease transactions in Q1 2022 were, among others, the extension of the agreement and expansion of a retail company for 65,300 sqm in SEGRO Logistics Park Gliwice, then a client from a retail chain will occupy 47,700 sqm in Hillwood Łowicz Południe, and a logistics operator will lease 45,500 sqm for the needs of an e-commerce company in Hillwood Słubice II.
– Similar to previous quarters, we are recording the highest tenant activity from the logistics, retail chain, and e-commerce sectors. We consider this state to be a permanent trend that will remain with us for a long time. Possible unexpected demand, which will be more visible in the second quarter and the second half of 2022, will be generated by companies that have so far been developing in Eastern Europe. As a result of Russia’s aggression in Ukraine, they are looking for a safe place for temporary or permanent relocation. We already observed in Q1 2022 great interest in wanting to rent warehouse space right at the border with Ukraine, as well as along the A4 motorway. The continuation of this trend may contribute to a significant reduction in vacancy levels across Poland in the coming months, – explains Anna Głowacz, Head of Industrial and Logistics Department, AXI IMMO.
Supply is not weakening, rents are on an upward trend
New realities, such as persistent high inflation, shortages in the supply of key materials and raw materials for warehouse construction, and rising construction costs, which significantly affect the completion time of new investments, remain significant for the condition of the warehouse market. Despite unfavorable circumstances, developers are not slowing down, and in Q1 2022 they delivered 1.02 million sqm (+44% y/y), which allowed for an increase in total warehouse space resources to 27 million sqm (+27% y/y). Among the largest delivered projects were Hillwood Bydgoszcz (105,000 sqm), P3 Poznań II (82,300 sqm), Hillwood Stryków BTS (72,900 sqm), and 7R Park Goleniów II (62,500 sqm). In the context of new supply, at the end of March this year, 4.9 million sqm was under construction (+113% y/y), of which over 58% were speculative projects. The most construction is taking place in the Upper Silesia region (over 900,000 sqm). Next is Lower Silesia (725,000 sqm) and the Warsaw and Central Poland regions (over 680,000 sqm each). New supply slightly influenced the increase in the vacancy level, which at the end of March this year amounted to approx. 4% across Poland. The regions with the highest percentage of space availability are the Kuyavian-Pomeranian market (16%), Szczecin (13%), and Eastern Poland (11%). On the other hand, the vacancy level oscillating below 3% is found in Poznań, Lower Silesia, and the Tri-City. In Q1 2022, we observed a continuation of the trend related to rising rents, which translates into an average increase in offered rental rates from 0.2 to 0.4 EUR/sqm.
– An analysis of the first three months of 2022 clearly indicates that the warehouse market in Poland has prospects and opportunities for further steady development in terms of demand. Despite factors affecting the limitation of supply, we do not expect stagnation in the sector. The high ratio of speculatively built projects and rising rental rates may affect slightly lower dynamics on the demand side. Important in the context of the coming months of 2022 will be government decisions regarding policy related to inflation or finding new alternative supply chains for energy raw materials and building materials after Russia’s aggression in Ukraine. In the face of the mentioned challenges and in the context of entering the next phase of maturity, the Polish warehouse market is no longer the cheapest in Europe, while it will still remain attractive to tenants and investors. As a result, starting rental rates are beginning to compete with those observed in Western Europe. – summarizes Renata Osiecka.
The report is available at https://www.axiimmo.com/raporty-i-publikacje/raport-polski-rynek-magazynowy-w-1-kw-2022-r