Strong and getting stronger

Sentiment in the warehouse market continues to be highly optimistic. After great results two years in a row, who could have hoped that this year could do one better than 2014 and 2013? By Beata Socha When Amazon entered Poland in 2013 with three built-to-suit facilities of 100,000 sqm each, the market was in awe as it finally saw the highest warehouse demand levels since before the 2008 crisis. Experts mused whether such great demand results could possibly be repeated in the future. Then 2014 came and managed to improve on the previous year’s results even without spectacular one-off deals. After two exceedingly good years for the market, could 2015 turn out to be another record-breaker? Over the first six months of the year, 1.17 million sqm of warehouse and industrial space was leased, with 781,000 sqm being new contracts, according to JLL’s latest data. According to Colliers, demand for warehouse space was 21 percent higher than the volume of transactions concluded in the corresponding period of 2014. Experts remain quite confident that the demand will continue to be strong throughout the rest of the year. “Strong results in H1 as well as continued interest from tenants allows us to assume that 2015 has the chance of being another record-breaking year for the Polish market and exceed 2014’s excellent performance,” said Tomasz Mika, head of the Industrial Poland department at JLL. Green across the board Developers, too, feel very positive about the future of the market. “The segment should see unwavering interest from tenants, developers and investors over the next few years,” said Magdalena Szulc, SEGRO Business Unit Director for Central Europe. “We expect slightly higher or comparable results to those from last year for the entire 2015. Naturally, this will be contingent on many variables, including the general macroeconomic situation, problems within the euro zone, as well as the geopolitical situation in Eastern Europe,” she added. Indeed, vacancies have hit the lowest levels in ten years and have been single-digit across all the main markets. They stand between 1.7 percent in the Tri-City area and 9.5 percent in the Warsaw inner-city area, as per Colliers’ H1 data, and are expected to drop even further. “Taking into account the current market situation, we expect general vacancy rates to be below double digits over the next few quarters,” said JLL’s Mika. [caption id="attachment_77292" align="alignleft" width="400"] SEGRO Logistic Park Gdańsk[/caption] Speculations galore Given the promising demand and vacancy figures, developers have been building even more than in the year before. Between January and June 2015, the total warehouse stock increased by 437,000 sqm, 47 percent more than in H1 2014, according to JLL. Interestingly, nearly half of all that space was delivered in Poznań (207,000 sqm), with Warsaw suburbs coming in second, with a significantly lower result of 74,000 sqm. Developers’ optimism is further evidenced by the amount of space being developed speculatively – nearly a quarter of the entire pipeline is being built without a pre-lease. Analysts are far from alarmed, though. “Although we are recording growth in speculative projects, which now account for 23 percent of the stock under construction, the market – driven by strong demand – should absorb that space relatively quickly,” explained Mika. Towards the end of last year, SEGRO went out on a limb and decided to build a facility in its Ożarów park that had only ten percent of its entire space covered by pre-leases. “Now, only 50 percent of the building remains vacant and it should be leased by the end of 2015. Such examples prove that you can be confident about finding tenants. Especially, since we haven’t seen any weakening of demand from the most active tenants in the warehouse market over the past few years, that is logistics operators, retail chains and the automotive industry,” Szulc concluded. [negative]"We expect slightly higher or comparable results to those from last year for the entire 2015. Naturally, this will be contingent on many variables, including the general macroeconomic situation, problems within the euro zone, as well as the geopolitical situation in Eastern Europe," Magdalena Szulc, SEGRO business unit director for Central Europe[/negative] North, south and east Another significant shift in the market is the increasing geographical diversification of warehouse development. “A few years ago, the share of the five major regions in net demand amounted to 80-90 percent, in H1 2015 it dropped to 74 percent,” said Jan Jakub Zombirt, associate director, Research and Consultancy at JLL. Even more space that is currently under construction is located outside the “big five” – an unprecedented 31 percent. “Locations that were previously viewed as peripheral, such as Kraków or Szczecin, as well as those whose first commercial industrial space has only been developed recently, such as Lublin or Rzeszów, have gradually grown in importance,” he added. The northern Tri-City, Poland’s number one transport hub, connecting sea transport with road and rail routes, is also becoming a hotspot for developers. “Apart from the main locations, that is Warsaw, Upper Silesia, Central Poland, Poznań and Wrocław, we also see potential in the Tri-City region due to its sea access and a connection with the south of the country via the A1 highway,” said Szulc. “In the first quarter of the year, we completed the construction of a modern logistics center of some 27,000 sqm for Żabka [a leading convenience store chain in Poland] within the SEGRO Logistics Park Gdańsk,” she added. [big percent= "23%"]of the space being built is developed on a speculative basis.[/big] Industrial hubs While the northern locations are ideal for logistics operators due to their multi-modal transport opportunities, the southern and eastern regions are increasingly favored by industrial occupants. The continually improving road infrastructure has resulted in new and exciting opportunities for industrial development in eastern Lublin and south-eastern Rzeszów. “Lublin has emerged on the warehouse map, with new logistics parks located near the S12 ring road. Completion of the next stages of the A4 highway and expressways around Rzeszów is also set to have a positive impact on development in this region,” said Agata Zając, associate director at the Industrial Poland department of JLL. The country’s capital is also about to benefit from an improved road network. “A new exit road from Warsaw towards Katowice has been opened and is planned to be extended. This may be an additional stimulus for initiating new industrial projects in the south-western part of Warsaw,” Zając added. With strong figures and so much optimism in the market, one can’t help but wonder: could 2016 be even better for the warehouse industry?