Persisting Demand for Polish Warehouses Despite Market Contraction

Poland’s Industrial and Logistics Market: Insights from BNP Paribas Real Estate Report, Amidst Challenges, Poland’s Industrial and Logistics Market Shows Resilience

The most recent report from BNP Paribas Real Estate Poland indicates a moderate slowdown in both demand and supply during the last quarter of 2023, although they maintained relative strength. By the close of the year, there was a slight uptick in vacancy and rental rates.

As we move forward, there is an anticipated rise in the appeal of urban warehouses and built-to-suit projects. This trend suggests a shift in preferences within the real estate sector, potentially influenced by evolving market dynamics and changing consumer behaviors. Investors and developers may increasingly focus on tailored projects that cater to specific needs and capitalize on the opportunities presented by urban areas.

This forecast underscores the importance of adaptability and foresight in navigating the fluctuations of the real estate market, encouraging stakeholders to stay attuned to emerging trends and seize strategic opportunities for growth and investment.

A Deceleration in Demand and Development Activity

By the close of December 2023, gross warehouse take-up had reached 5.6 million square meters, marking a 15% decrease compared to the previous year. This decline in leasing activity can be primarily attributed to the exceptionally high demand observed during the peak years of 2021–2022 for industrial and logistics spaces. However, in the last quarter of 2023 alone, transactions amounted to 1.9 million square meters.

In terms of new completions, nearly 0.58 million square meters of warehouse space became available in the fourth quarter of 2023, contributing to a total supply of more than 3.7 million square meters for the year.

Tomasz Arent, Head of Industrial and Logistics at BNP Paribas Real Estate Poland, notes, “The Polish industrial and logistics market experienced a slowdown in 2023, but there are indications that it will rebound in 2024. Despite challenging macroeconomic conditions, last year’s figures for take-up, supply, and new project starts remained robust.

Additionally, the volume of industrial and logistics space under construction increased to 2.8 million square meters by year-end. In 2024, Poland’s total stock is expected to surpass 34 million square meters, with the Warsaw market (Warsaw I & II) solidifying its leading position at nearly 7 million square meters.”

During the final quarter of 2023, the highest concentration of development activity was observed in Lower Silesia (729,400 square meters), Central Poland (402,900 square meters), and Warsaw II (376,800 square meters). Notable additions to the market in Q4 2023 were recorded in Upper Silesia (127,500 square meters), Warsaw II (125,900 square meters), and Central Poland (86,800 square meters).

Significant projects in progress during this period included the expansion of P3 Wrocław, with over 200,000 square meters set to be delivered in buildings 1 and 3, and the introduction of Panattoni Park Wrocław Logistics South Hub, a new 90,000 square meter scheme. It’s also noteworthy that projects in the pipeline exhibited an average pre-let rate of approximately 51%, indicating a positive trend observed over the last two quarters of 2023.

Vacancy and Rental Rates: Trends and Projections

In the realm of real estate, the winds of change are palpable as vacancy rates experience a noticeable uptick. Over the course of the past year, the overall vacancy rate has steadily climbed, marking a significant rise of 3.2 percentage points compared to the previous year.

However, amidst this upward trajectory, there are subtle shifts indicating potential stabilization in the near future, as noted by BNP Paribas Real Estate Poland.

Although there was a marginal decrease of 0.4 percentage points quarter-to-quarter, settling at 7.4% in Q4 of 2023, the broader trend remains on an upward slope. Despite this, experts anticipate a deceleration in the pace of increase in vacancy rates in the forthcoming quarters.

Simultaneously, the burgeoning vacancy rates signify heightened competition within the industrial and warehouse market. Tenants, leveraging this surplus in available space, find themselves in a more favorable position to secure suitable accommodations. The landscape of lease agreements reflects this dynamic, with a notable prevalence of renewals comprising 40% of all transactions.

Additionally, there is a discernible inclination towards prolonged deliberations in lease decision-making processes, suggesting a cautious approach among stakeholders.

Delving into specific transactions, the final quarter of 2023 witnessed significant lettings that underscored the evolving market dynamics. Notably, an e-commerce giant secured over 220,000 square meters in P3 Wrocław, consolidating its operational footprint. Similarly, the renewal of the Musketeer Group’s lease, encompassing more than 80,000 square meters in GLP Poznań II Logistics Centre, further exemplifies the prevailing trends in lease activity.

Accompanying the rise in vacancy rates, both headline and effective industrial and logistics rents have experienced an upward trajectory since the outset of 2023. This growth in rental rates can be attributed to multiple factors, including escalating prices of fuel and building materials, amplified project financing costs, and a palpable dip in investor sentiment. However, analysts at BNP Paribas Real Estate Poland anticipate a nuanced shift in the rental landscape moving forward.

Despite the current demand-supply dynamics, characterized by relatively abundant space in existing industrial and logistics facilities, rental rates are projected to undergo a period of stabilization. The forecast suggests that the prevalent upward trend in rental rates may lose momentum, with certain locations witnessing marginal declines.

This projected moderation is largely influenced by the delicate balance between supply and demand dynamics, coupled with broader economic factors shaping the real estate landscape.

In essence, the evolving trends in vacancy and rental rates paint a picture of a real estate market in flux. While the recent past has been marked by a surge in vacancy rates and corresponding rental growth, the future landscape appears poised for a period of adjustment. As stakeholders navigate this shifting terrain, characterized by heightened competition and evolving market dynamics, strategic foresight and adaptability will be paramount in navigating the nuances of the industrial and warehouse real estate sector.

Rise of Urban Warehouses in Metropolitan Areas

There’s a noticeable uptick in the presence of urban warehouses, according to BNP Paribas Real Estate Poland. These warehouses, situated within city limits or even downtown areas, are tailored to meet the escalating demands of e-commerce.

These urban warehouses serve a dual purpose, not only accommodating the surge in online shopping but also potentially curbing the mounting costs associated with order fulfilment. By relocating logistics operations closer to city centers, the process of order fulfilment is streamlined, leading to shorter last-mile delivery times.

Nonetheless, last-mile logistics remains costly and fraught with risks such as delays, errors, or lost packages. The emergence of small urban warehouses serves to bridge the gap between central distribution centers and end consumers, mitigating these challenges.

Piotr Załęski, Associate Director of Industrial and Logistics at BNP Paribas Real Estate Poland, underscores the significance of these urban warehouses in optimizing logistics operations. These facilities cater to a diverse range of industries, spanning logistics, e-commerce, manufacturing, services, and laboratories. Rental prices for urban warehouse spaces vary depending on location, with rates in Warsaw I reaching as high as €9.75 per square meter per month.

Tailored Warehouses: Meeting Industry’s Evolving Needs

In Poland’s industrial landscape, there’s a noticeable surge in demand for tailor-made, or built-to-suit (BTS), projects, according to recent reports. This model involves developers committing to construct facilities precisely to a client’s specifications, delivering customized production, warehouse, or office spaces that cater to their unique requirements.

As technology progresses, conventional industrial structures may struggle to accommodate the sophisticated demands of contemporary manufacturing. Thus, the call for modern and efficient industrial spaces is on the rise.

BTS projects offer the flexibility to integrate state-of-the-art technologies, energy-efficient systems, and automation, ensuring they remain at the forefront of industrial innovation.

Moreover, these projects are built for the long haul, with a lifespan spanning anywhere from 10 to 25 years. This longevity ensures operational continuity and safety for tenants, providing peace of mind amidst evolving industry standards.

In response to the trend of nearshoring—where companies relocate manufacturing and logistics operations closer to consumers—the construction of BTS facilities is gaining momentum. Many of these buildings boast smart features, complete with full automation to enhance access security, energy efficiency, production optimization, and minimize carbon footprints.

Jann Confield
Jann Confield
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