Amidst the afterglow of the industrious years of 2021 and 2022, celebrated as the pinnacle of Poland’s industrial market evolution, the landscape in 2023 was characterized by a shift towards graver challenges, influenced by macroeconomic shifts.
The year was marked by formidable hurdles, including soaring inflation rates, which exerted pressure on consumer purchasing power, alongside persistent high interest rates and geopolitical uncertainties along the eastern border. Despite these obstacles, the market persevered, albeit at a more measured pace, particularly in the initial half of the year, before gaining momentum towards the latter part of 2023.
Notably, the development activity spanning January to December 2023 witnessed a moderate decline, tallying at 3.7 million square meters, marking a 16 percent decrease year-on-year. Consequently, the sector’s cumulative stock ascended to 31.7 million square meters, reflecting a 13 percent year-on-year increment.
Presently, another 2.8 million square meters, indicative of a 16 percent year-on-year decline, remains under construction, with approximately half of this space not yet contracted under a signed lease. Gross take-up, excluding short-term leases, stood at 5.6 million square meters, showcasing a slight decrease compared to the prosperous period of 2021-2022, yet significantly surpassing pre-pandemic levels observed in 2018-2019.
These insights are drawn from the comprehensive analysis unveiled in the “Polish Industrial Market 2023” report by AXI IMMO, Poland’s premier commercial real estate advisory firm.
Amidst the afterglow of the industrious years of 2021 and 2022, celebrated as the pinnacle of Poland’s industrial market evolution, the landscape in 2023 was characterized by a shift towards graver challenges, influenced by macroeconomic shifts.
The year was marked by formidable hurdles, including soaring inflation rates, which exerted pressure on consumer purchasing power, alongside persistent high interest rates and geopolitical uncertainties along the eastern border. Despite these obstacles, the market persevered, albeit at a more measured pace, particularly in the initial half of the year, before gaining momentum towards the latter part of 2023.
Notably, the development activity spanning January to December 2023 witnessed a moderate decline, tallying at 3.7 million square meters, marking a 16 percent decrease year-on-year. Consequently, the sector’s cumulative stock ascended to 31.7 million square meters, reflecting a 13 percent year-on-year increment. Presently, another 2.8 million square meters, indicative of a 16 percent year-on-year decline, remains under construction, with approximately half of this space not yet contracted under a signed lease.
Gross take-up, excluding short-term leases, stood at 5.6 million square meters, showcasing a slight decrease compared to the prosperous period of 2021-2022, yet significantly surpassing pre-pandemic levels observed in 2018-2019. These insights are drawn from the comprehensive analysis unveiled in the “Polish Industrial Market 2023” report by AXI IMMO, Poland’s premier commercial real estate advisory firm.
After a hiatus in 2023, the industrial sector made a notable resurgence in the investment market arena. Industrial logistics assets commanded a significant share, amounting to €966 million, albeit marking a 52 percent decrease year-on-year, yet still constituting 46 percent of the realized investment volume.
An analysis of the five-year average for the investment market underscores the sector’s resilience, with industrial product acquisitions averaging around 39 percent. This trajectory highlights the sector’s enduring appeal, with notable transactions including the acquisition of an 80 percent stake in 7R by NREP and the sale of Panattoni Campus 39 in Wroclaw to P3, among others.
Grzegorz Chmielak, Head of Capital Markets and Valuation at AXI IMMO, comments on the prevailing market sentiment, stating, “Despite a generally subdued year, investor interest in industrial and logistics assets remains robust, underpinned by the sector’s perceived stability.
He notes a discernible upward trend in yields since mid-last year, with prime products boasting yields of around 6.5-6.75 percent by the end of 2023. Chmielak highlights that market anticipation of decisions from the European Central Bank (ECB) and the US Federal Reserve regarding potential interest rate cuts could potentially catalyze increased investor activity, albeit not expected until the culmination of 2024.
Additionally, he underscores the significance of stabilizing inflation rates and the resolution of conflicts along Poland’s eastern border as potential catalysts for long-term market dynamics, potentially influencing production shifts to the region.
The industrial landscape in 2023 witnessed a nuanced trajectory in take-up dynamics, reflecting the broader economic context and tenant behavior amidst prevailing uncertainties.
As anticipated, the subdued economic climate prompted certain tenant groups to recalibrate their expansion strategies, leading to a marginal impact on gross take-up statistics, which tallied at 5.6 million sqm, marking a 15 percent decline year-on-year by the end of December 2023.
Despite the overarching downturn, the market demonstrated resilience, with notable bursts of activity punctuating the year. The mid-2023 peak, recording a third-highest result in market history, starkly contrasted with the subdued pace of total tenant activity, closing deals for just over 1 million sqm.
Meanwhile, net take-up, encompassing new agreements and expansions, amounted to 3.4 million sqm, reflecting a 24 percent decline year-on-year. Notably, approximately 40 percent of completed deals comprised contract extensions, underscoring tenant preferences for continuity amidst uncertainty.
Regionally, Mazovian (1.4 million sqm, +4 percent y/y), Lower Silesia (1 million sqm, +23 percent y/y), and Silesia (910,000 sqm, -25 percent y/y) emerged as the three most active regions. The market also witnessed several significant transactions, including those exceeding 100,000 sqm, such as an e-commerce client at Park P3 Wrocław (265,100 sqm), a confidential fashion client at DL Invest Psary/Czeladź (120,000 sqm), and a logistics entry at CTPark Warsaw West (Wiskitki) for 110,000 sqm.
Anna Głowacz, Head of Industrial & Logistics at AXI IMMO, offers insights into the nuanced market dynamics, stating, “In 2023, we observed distinct phases in take-up trends within the Polish warehouse market.
The initial half of the year was characterized by cautious anticipation, culminating in the largest transaction of the period, with logistics operator MCG EastBridge’s entry into the Krakow area, securing 56,200 sqm at GLP Krakow III Logistics Centre. Conversely, the latter half of the year witnessed a notable resurgence in activity, marked by three significant deals totaling approximately 0.5 million sqm.
Throughout the year, a consistent trend of consolidations prevailed, driven by optimization imperatives, while relocations were characterized by tenants opting for new spaces within the same micro-location.”
In a reflection of the nuanced dynamics observed in the take-up trends, AXI IMMO analysts discerned two distinct development trajectories within the supply landscape. The culmination of developers’ annual activity saw the delivery of 3.7 million sqm (-16 percent y/y) of modern industrial space, augmenting the sector’s total stock to approximately 31.7 million sqm (+13 percent y/y) by the end of 2023.
Notably, the bulk of new supply was unveiled in the first half of the year, with 2.59 million sqm completed, constituting around 70 percent of all projects concluded in 2023. Conversely, a notable decline in supply delivery was observed from July to December 2023, attributable in part to shifts in financing structures necessitating a higher proportion of pre-leasing agreements prior to construction commencement.
Regionally, Mazovian (702,000 sqm, 19 percent of delivered stock), Silesia (nearly 600,000 sqm, 16 percent), and Lubuskie (437,000 sqm, 12 percent) emerged as the frontrunners in terms of new supply.
Noteworthy is the absence of new projects delivered in Lubuskie in Q4 2023. Among the largest completed projects exceeding 100,000 sqm were Panattoni BTS Zalando Bydgoszcz (Kuyavian-Pomeranian, 146,000 sqm), Panattoni Park Wrocław Logistics South Hub (Lower Silesia, 125,000 sqm), DL Invest Psary/Czeladź (Silesia, 120,000 sqm), and CTPark Ilowa (Lubuskie, 111,300 sqm).
As of December 2023, developers announced approximately 2.8 million sqm under construction (-16 percent y/y), with nearly 49 percent remaining unleased. Lower Silesia led the pack among regions with 829,000 sqm under construction, followed by Mazovia (478,800 sqm), and Lodzkie (402,900 sqm).
By the conclusion of 2023, the vacancy rate within the Polish industrial market surged to 7.4 percent, marking a notable uptick of 3.2 percentage points year-on-year. Voivodeships witnessing the highest vacancy rates included Świętokrzyskie (18.4 percent), Lubuskie (14.2 percent), and Lodzkie (10.2 percent). Conversely, regions such as Pomeranian and Subcarpathian Voivodeships (1.7 percent each), Lesser Poland Voivodeship (2.2 percent), and Warmia and Masuria Voivodeship (2.6 percent) demonstrated lower vacancy rates.
In terms of absolute leasable space, Mazovia (503,000 sqm), Lodzkie (461,000 sqm), Silesia (334,000 sqm), and Lower Silesia (333,000 sqm) emerged as the provinces with the largest inventory of immediately available space.
Across big box developments, average base rates on primary markets ranged from €3.6 to 4.3 per sqm/month in older developments and €4.0 to 4.7 per sqm/month in newer ones.
Notably, a downward trajectory was observed in effective rates, particularly in locations characterized by intense competition. Warsaw City retained its status as the most expensive location, with average offer prices in new developments peaking at €7.0 per sqm, while older developments maintained rates around €6 per sqm. Similarly, select projects in the Krakow region commanded rents as high as €6.5 per sqm.
Renata Osiecka, Managing Partner at AXI IMMO, anticipates a continued balanced expansion of the warehouse market in Poland throughout 2024. Leveraging the sector’s maturity, established patterns, and strategic geographical position within Europe, Poland remains a pivotal market for companies aiming to streamline supply chains and localize production closer to Asian markets.
Expectations also revolve around companies pursuing further cost optimizations through consolidation, while developers pivot towards crafting projects in areas with limited available space. This strategic shift is poised to gradually stabilize vacancy levels. Moreover, positive macroeconomic indicators, particularly those linked to the consumer market, are anticipated to fuel demand for warehouse space from this demographic.
However, subdued sentiment among manufacturing entities in Western European countries could temper growth prospects for tenant-suppliers operating within Poland in the near term. Despite these challenges, the Polish industrial market continues to exhibit resilience and remains positioned for sustained growth in the foreseeable future.
