Investment market: High demand, low supply
After the previous record year for the warehouse sector, figures for the investment market for the first three quarters of 2019 can also be considered successful. Although the value of investment transactions was 23% lower and amounted to EUR 634 million compared to the same period last year, this is mainly due to a lack of supply and not low investor interest. Logistics and production projects are highly sought-after investment products today.
“The main inflow of capital came from Asia, but investors from the Czech Republic and Western Europe are also visible. Yields show a further downward trend, although they are still 100-150 basis points higher than offers on Western European markets”. – comments Renata Osiecka, Managing Partner AXI IMMO.
Demand: Almost 40% of take up in Warsaw region
2.63 million sq m has been leased since the beginning of the year, of which 830,000 sq m was in Q3 2019. 56% of total demand in Q3 was comprised of new lease agreements and expansions. However, there is a downward trend in this type of contract. 5 main warehouse markets accounted for 87% of total demand.
The leader of demand in the period was the Warsaw region, where a total of 319,000 sq m of warehouse and production space was rented, of which 94% was located outside the city limits. The Warsaw region accounted for 38.5% of total demand in the period from June to September this year. Upper Silesia was in second place with 175,000 sq m, then Poznan, Wrocław and Central Poland with over 70,000 sq m rented. In the demand structure, as in previous quarters, logistics operators took first place with a share of 42%. Retail chains and distributors came second (17.5%), followed by production companies (9%).
“Tenants already present in Poland are leading the way in adapting supply chains to support e-commerce and thanks to new logistics contracts they are invest in the rental of modern warehouse space. The situation applies to both large entities, including operators and retail chains, as well as medium-sized companies that are raising the standard of their space by moving to modern distribution centres. The second, smaller group are new companies that are investing in Poland to save money on rent and labour costs”. – comments Anna Głowacz, Head of Industrial at AXI IMMO.
Supply: 60% of the new supply thanks to BTS projects
The total supply of modern warehouse space in Poland at the end of September 2019 exceeded 17.5 million sq m. This was the result of the commissioning of nearly 2 million sq m since the beginning of the year, of which 990,000 sq m are investments completed in Q3 this year. This result is 56% higher compared to the same period last year. It is also worth noting that 60% of the space delivered to the market from June to the end of September this year are BTS projects.
Developers delivered most new A-class space in the Upper Silesia region – as much as 368,000 sq m, followed by Central Poland with 218,000 sq m and Lower Silesia with 173,000 sq m. The five main warehouse and logistics hubs accounted for 86% of the new supply delivered to the market in Q3 this year. Developers are not slowing down, which can be seen in the 1.85 million m2 under construction at the end of September this year. The largest area under construction is in the Warsaw region with 456,000 sq m This is followed by Lower Silesia with 330,000 sq m and Upper Silesia with 298,000 sq m. The share of speculative projects remains, like in the previous quarter, at a high level of 50%. It is a typical market practice to start investments with a significant speculative component. This takes place both in major markets and in new locations.
Vacancy rates in upward trend patch
In the last quarter, the average vacancy rate increased by 1.2 p.p. and at the end of September 2019, the level amounted to 6.2%, which is still low. However, in the coming quarters, we can expect an increase in the availability of space in most markets, due to many investments with a speculative component. Among the main markets, the highest vacancy rate was recorded in Warsaw city (10%), followed by Central Poland (8.3%), the Poznan region (8%) and Upper Silesia (7.2%).
Rental rates depend on regional competitivness
Headline rates in the last quarter of 2019 remained stable, although in selected locations there is still an upward trend associated with higher costs of purchasing land and building materials. On the other hand, in highly competitive markets, where there is more space available, rents showed a slight downward trend.
The highest headline rents are invariably in the Warsaw market within the city (EUR 4.80-5.25/sq m/month), where most transactions involve smaller areas below 4,000-5,000 sq m. Headline rents in other warehouse markets, for larger Big-Box units, are EUR 2.60–3.80/sq m/month. Effective rents are on average 25-35% lower than headline ones. The lowest headline and effective rents can be obtained in the vicinity of Warsaw, Central Poland and Poznan.
Market results for the last three quarters of this year show that the warehouse sector remains in good condition. The time for breaking records is in the past, but at the end of the year, we can expect that the demand for warehouse space will remain high at a level of at least 3.5 million sq m.
On the supply side, we will see new projects in medium-sized cities, where transport accessibility is improving, and the ability to find qualified staff is higher than in large logistics centres. Locations such as Olsztyn, Elbląg or Radom are waiting for their chance.
In most major markets, in the following quarters, the vacancy rate will increase due to a large number of speculative investments and relocations of companies to new facilities.
Source: AXI IMMO