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Fueled largely by increasing online sales, the warehouse market is poised to hit record figures this year. However, logistics operators agree that gearing up for the e-commerce boom in Poland will involve overcoming several major obstacles By Beata Socha After three quarters, it has become clear that 2015 will be the best year for Poland’s warehouse industry in eight years. “Despite the slightly lower tenant activity in the third quarter, compared to the previous quarters, levels of demand since the beginning of this year are at record levels,” said Tomasz Olszewski, head of Industrial Department in Central and Eastern Europe, JLL. Since the beginning of the year, gross demand for warehouse space in Poland amounted to 1.6 million sqm with the third quarter accounting for 433,000 sqm. New lease agreements with extensions amounted to 247,000 sqm and an additional 186,000 sqm were renewals of existing contracts. The largest deal in 2015 has been the lease of 53,000 sqm by Leroy Merlin in Panattoni Park Stryków II. “If the fourth quarter results are similar to those of the previous quarters, we can expect demand to reach record levels for the third time in a row,” added Olszewski. Logistics still on top [caption id="attachment_85287" align="alignleft" width="300"] Image: shutterstock[/caption] Logistics is once again the leader among tenants, accounting for 30 percent of net demand. “Logistics companies appreciate Poland’s geographical location and improving infrastructure. Also, logistics companies represent all industries. This means that when a sector starts to grow there is a similar growing trend in logistics. The logistics industry is subject to an overall market performance and the tendency of companies to outsource logistics services,” explained Olszewski. A recent report prepared by Prologis and JLL stated that e-commerce companies may need to lease another 700,000 sqm of warehouse space by the end of 2020, assuming stable e-commerce growth rates of 15 percent per year. “We’ve seen the e-commerce market grow at a double-digit pace for years. The boom in e-commerce, combined with Poland’s investment attractiveness, creates new opportunities for the warehouse market along with the expansion of companies already present here, plus an inflow of foreign firms to the market as well as the launching of new brands,” said Paweł Sapek, senior vice president and country manager at Prologis Poland. Handbags, blenders and groceries In 2014, online sales accounted for 3.9 percent of total sales volumes in Poland, while in 2020 the share of e-commerce in all retail is forecast to exceed 10 percent. The areas of online retail where warehouse demand is growing the fastest right now include clothes and accessories, white goods and small household appliances, cosmetics, consumer electronics, multimedia and food. The increase is bound to translate into much higher demand for modern warehouse space. Sapek stated that the Polish warehouse market is well-placed for the increase in demand and that the majority of existing space meets tenants’ expectations. According to Jan Zombirt, associate director, Research and Consulting at JLL, both international corporations bringing their business to Poland and domestic firms will contribute to increasing demand. “This take-up will be sourced from three types of lease agreements: direct leases of pure-play online stores and e-fulfillment centers by traditional retailers, 3PL leases where a logistics operator fulfills online orders on behalf of a retailer, and omni-channel leases where only part of the floor space is dedicated to e-commerce,” Zombirt explained. Major challenges While growing at an impressive rate year after year, the e-commerce business also poses a number of [caption id="attachment_85288" align="alignleft" width="300"] Image: shutterstock[/caption] challenges to all market players. Logistics operators polled by JLL unanimously pointed to same-day deliveries as the greatest challenge of all, followed by return logistics (60 percent of those polled), and handling cross-border sales (40 percent). Security, increasing labor costs and short-term contracts vs long-term leases were major issues to 20 per cent of respondents, while sourcing appropriate warehouse space was cited by only 10 percent – after all, developers have been churning out new warehouse space in preparation for e-commerce growth. “Around 50 big warehouse modules will be available for lease in Poland in the next six months. Furthermore, around 280,000 sqm of warehouse space is currently being developed on a speculative basis – that is without binding lease agreements. These factors combine to make Poland well-equipped to receive e-commerce led demand,” said Zombirt. What do they need? As the Polish warehouse market continues to mature, it is becoming increasingly similar to Western European markets. It will continue to develop and specialize in the same way as the developed markets where e-commerce warehouses feature certain specializations including: a dedicated e-fulfillment center, parcel hub/sorting center, parcel delivery center and urban logistics depot, returns processing center, and a Dot.com warehouse for online food fulfillment. A survey conducted by JLL among third-party logistics providers (3PLs) and retailers show that some warehouse functions will also be increasingly in demand in Poland. For instance, 71 percent of 3PLs will need more space for return processing centers over the next five years, the research suggested. What logistics operators in the e-commerce industry need now is the flexibility to expand or contract leased space, mezzanine levels, a high security level, more power, intensive HVAC, and an abundance of parking lots for employees. In terms of location, the key factor is availability and access to staff, access to an extensive road network, and proximity to the end-customer.