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Polish Warehouse Market in 2023: Slower Growth, But Still Strong Fundamentals

REAL ESTATEPolish Warehouse Market in 2023: Slower Growth, But Still Strong Fundamentals

After very successful years in 2021 and 2022, known as the golden period of development of the warehouse market in Poland, 2023 was a period of greater challenges due to the change in the macroeconomic situation. The main reasons were high inflation, which affected consumers’ purchasing power, persistently high interest rates, and uncertainty beyond the eastern border. The market was growing, but more slowly, especially in the first half of the year, to speed up by the end of 2023. Developer activity from January to December 2023 was 3.7 million sq.m. (-16% YoY), as a result of which the total resources of the sector increased to 31.7 million sq.m. (+13% YoY). Another 2.8 million sq.m. (-16% YoY) are under construction, about half of which was not covered by a signed lease agreement. Gross demand (not including short-term leases) was 5.6 million sq.m., and despite being lower than in the years 2021-2022, it was significantly higher than in the pre-pandemic period, i.e., in the years 2018-2019. The largest Polish advisory company in the commercial real estate market, AXI IMMO, presents the report “Warehouse market in Poland 2023”.

Investments: investor caution continues

After a year’s break, in 2023 the warehouse sector returned to the top spot in the investment market. The share of industrial-logistic assets amounted to 966 million EUR (-52% YoY) and accounted for 46% of the realized volume. The five-year average for the investment market indicates that warehouse product acquisitions accounted for about 39% (2021 highest sector share 51%, 2019 lowest stake about 16%). Last year, the biggest registered were NREP’s acquisition of an 80% stake in 7R and the sale of Panattoni Campus 39 in Wrocław to P3.

Grzegorz Chmielak, Director of Capital Markets and Valuation Department, AXI IMMO, says, “Despite a generally weaker year, investors are still interested in industrial and logistics assets and see the greatest stability in this sector. Since the middle of last year, we have observed that capitalization rates are in an upward trend and at the end of 2023 for prime products, they were around 6.5-6.75%. The market is waiting for ECB and FED decisions regarding interest rate cuts, which can trigger greater investor activity, but only at the end of 2024. Other anticipated positive news includes the stabilization of inflation and the resolution of the conflict beyond Poland’s eastern border. In the long term, they may be crucial for decisions to relocate production to our part of Europe”.

Demand: past the bottom

As expected, due to the economic slowdown in 2023, some of the previously active tenant groups decided to limit expansion and acquisition plans. In annual terms, these decisions slightly affected gross demand statistics (excluding short-term contracts), which at the end of December was 5.6 million sq.m. (-15% YoY). Ultimately, the third highest market result in history seemed difficult to achieve in mid-2023, considering that tenant activity included transactions of just over 1 million sq.m. Net demand, taking into account new contracts and expansions in 2023, was 3.4 million sq.m. (-24% YoY), which clearly indicates that tenants more often decided to extend contracts, which accounted for about 40% of completed transactions. The three most active regions were Mazowieckie (1.4 million sq.m., +4% YoY), Dolnośląskie (1 million sq.m., +23% YoY) and Śląskie (910 thousand sq.m., -25% YoY). In 2023, individual transactions of over 100,000 sq.m. were again completed, including for an e-commerce client in P3 Wrocław Park (265.1 thousand sq.m.), a confidential fashion industry client in DL Invest Psary/Czeladź (120 thousand sq.m.) and the entry of logistics to CTPark Warsaw West (Wiskitki) at 110 thousand sq.m.

Anna Głowacz, Director of the Industrial and Logistics Space Department, AXI IMMO, discusses: “In 2023, we could observe two paces in demand in the Polish warehouse market. The first half of last year was rather cautious, with AXI IMMO advising on the largest transaction of this period. The logistics operator MCG EastBridge, who will occupy 56,200 sq.m. in GLP Kraków III Logistics Centre, decided to move to the vicinity of Kraków. The second half of the year was the culmination point and a clear rebound in demand, when three large contracts for a total of about 0.5 million sq.m. were signed. Nevertheless, in all of 2023, consolidation was a clear trend due to the desire for optimization, while in the case of relocations, tenants were solid and chose new space within the same micro-location”.

Supply: slight improvement in mood

Like the situation in demand, AXI IMMO analysts indicate that on the supply side, we could also observe two paces of development. Annual developer activity ended with the delivery of 3.7 million sq.m. (-16% YoY) of modern warehouse space at the end of December 2023, which increased the total resources of the sector to approximately 31.7 million sq.m. (+13% YoY). In last year, significantly more space was delivered in the first half of the year, i.e. 2.59 million sq.m, accounting for about 70% of all projects completed in 2023. In the case of lower supply volume delivered from July to the end of December 2023, it is worth mentioning the change in the financing structures of new investments, which required a higher share of pre-lease contracts before construction started. Nevertheless, the regions with the largest new supply were Mazowieckie (702 thousand sq.m., 19% of delivered resources), Śląskie (almost 600 thousand sq.m., 16%) and Lubuskie (437 thousand sq.m., 12%). In the case of the latter market, it should be mentioned that no new project was delivered there in Q4 2023. Among the largest completed investments of over 100 thousand sq.m. the following were listed: Panattoni BTS Zalando Bydgoszcz (kujawsko-pomorskie, 146 thousand sq.m.), Panattoni Park Wrocław Logistics South Hub (dolnośląskie, 125 thousand sq.m.), DL Invest Psary/Czeladź (śląskie, 120 thousand sq.m
.) and CTPark Iłowa (lubuskie, 111.3 thous. sq.m.). According to the developers’ announcements, at the end of December 2023, approximately 2.8 million sq.m. (-16% YoY) was under construction, of which about 49% remained without signed lease agreements. The unquestioned leader among the regions is Dolnośląskie voivodship (829 thous. sq.m. under construction), outpacing the Mazowieckie (478.8 thous. sq.m.) and the Łódzkie (402.9 thous. sq.m.).

Vacancy level: possible further increases

At the end of 2023, the coefficient of unrented space on the Polish warehouse market was 7.4% (+3.2 pp. YoY). The highest vacancy rate was recorded in the Świętokrzyskie (18.4%), Lubuskie (14.2%) and Łódzkie voivodships (10.2%). On the other side of the scale are the Pomorskie and Podkarpackie provinces (1.7% each), Małopolskie (2.2%) and Warmińsko-Mazurskie (2.6%). In absolute terms, the most space immediately available for rent is in the Mazowieckie (503 thousand sq.m.), Łódzkie (461 thousand sq.m.), Śląskie (334 thousand sq.m.) and Dolnośląskie voivodships (333 thousand sq.m.).

The average base rates on major markets, in big box investments, ranged between 3.6 – 4.3 euro/sq.m./month for older facilities, and 4.0 – 4.7 euro/sq.m./month for new investments. A downward trend was visible in the effective rates, especially in locations with high competition. Warsaw City remains the most expensive location, where average offer prices in new investments reach up to 7 euro, and in older ones they remain at around 6 euro/sq.m. In addition, in selected projects in the Krakow region, offer rents even reach 6.5 euro.

Renata Osiecka, Managing Partner, AXI IMMO, summarizes: “We expect that in 2024 we will continue to observe balanced development of the warehouse market in Poland. Taking advantage of the maturity of our sector, established patterns, experience and location on the map of Europe, we remain an important market for companies interested in shortening supply chains and relocating production from Asia closer to markets. On the demand side, we anticipate that many companies will continue to strive for further cost optimization, including consolidation, while developers focus on the development of projects in locations with less available space. In this situation, we expect a gradual stabilization of the vacancy level. Macroeconomic indicators, especially those related to the consumer market, show positive sentiment, which may positively translate into demand for warehouse space from this group of tenants. On the other hand, the still weak moods among manufacturing companies in Western European countries may limit the development of tenant-suppliers present in our country in the short term”.

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