While six key regions account for nearly 80 percent of Poland’s total industrial stock, we are seeing some changes in the distribution of power. Lower Silesia is poised to overtake Central Poland as the third-largest regional industrial market, says Jakub Kurek, Head of Industrial and Warehouse at Newmark Polska. At the end of the first quarter of 2024, there was 2,323,000 sqm of industrial and warehouse space under construction compared to 2,123,000 sqm a year ago and as much as 4,737,000 sqm in 2022.
What do these figures tell us about the current market situation? Where are we now and where are we heading?
Long story short: the market is in good shape and growing at a healthy, steady pace. Figures are not everything, though. Poland’s warehouse development pipeline soared in 2022 following sudden changes triggered by the pandemic and the war in Ukraine, which led to the reconfiguration of global supply chains and saw retail, work and other aspects of our lives move online. Although initial forecasts for e-commerce growth proved exaggerated, this sector maintains momentum and continues to generate strong warehouse take-up. However, the 4.7 million sqm in the pipeline in 2022 was extraordinary, a market anomaly rather than a norm or a long-term trend, in comparison with the years that preceded and followed 2022. This is also borne out by stock under construction in the other first quarters since 2018 – it never exceeded 2.51 million sqm.
This is why I wouldn’t compare the market’s recent performance to 2022’s result. There were more than two million square metres of warehouse and industrial space under construction in the last two years – this is clear evidence that the market is stable and continues to grow at a good, steady pace. The production and warehouse sector is, however, facing some challenges that need to be solved, but with new projects being announced all the time, tenants will have plenty of choice.
What are the biggest challenges facing the warehouse sector?
We are experiencing another year of rising construction and financing costs due to high inflation. Interest rate cuts that might come after the summer holidays are, however, likely to encourage funds to invest more in commercial real estate.
Another big challenge facing companies is high electricity bills pushing operating costs up to new highs. This challenge could be addressed, among other things, by energy transition and a shift to greater use of renewable energy sources that will not only deliver real savings but is also becoming mandatory due to EU regulations. As a result, more and more owners of logistics parks are investing in photovoltaic installations, energy management systems, recycling and technologies reducing carbon emissions.
An interesting example of eco-friendly trends in practice is GLP Warsaw VI Logistics Centre in Stary Konik. This 38,000 sqm park contains buildings constructed using PEFC-certified timber that was sourced exclusively from sustainably managed forests. Another notable development is MDC2 Park Łódź South, whose embedded carbon was reduced by as much as 49 per cent compared to the national average.
The green policy is also creating some growth opportunities for the warehouse market, isn’t it?
That’s true. Poland pledged that by 2030 the share of RES in its energy mix would reach 31.5 percent. This will require huge investments not only in its grid but also in warehouse facilities to store construction components of solar and wind farms. Another significant theme that Newmark Polska has frequently raised is coastal wind farms whose construction has fuelled strong demand for production and warehouse space near the harbours in Gdansk and Gdynia. RES investors are also targeting Szczecin, especially after Vestas and Windar Renovables confirmed the construction of two factories of wind farm turbines and components earlier this year.
Last year, renewals accounted for 40 percent of industrial take-up, the highest share on record. Why was that?
Surging construction and financing costs that led to rental growth in newly built warehouses were among the reasons why many tenants decided to renegotiate their leases and stay on in their current locations. This growth widened the gap between rental rates commanded by new and existing projects. Another reason for the increase in lease regearing was labour shortages and concerns about the risk of losing some staff as a result of relocation. Such concerns are warranted given workforce shortages in some locations. Bear in mind that recruiting staff successfully, particularly skilled workers, may be very costly and time-consuming. New hires need to undergo long onboarding training that may take up to one year before they become fully self-reliant workers.
What are the advantages of the Polish industrial market over the rest of Europe? What could incentivise companies to lease production and warehouse space in Poland?
Poland still has many strengths. Our economy has remained on a growth trajectory for over 20 years, with healthy new warehouse supply levels. Each region offers ready-to-occupy production and warehouse facilities. Rental rates are another incentive – they stand at €3.50–5.50 per sqm and are still very competitive compared to the rest of Europe, not only Germany and France but also Central European countries such as Romania (€4.25–4.80 per sqm), Hungary (€5.00–5.90) and the Czech Republic (€6.00–7.75).
A total of more than 3.7 million sqm came on stream last year, followed by another 852,000 sqm in the first quarter of this year. What are the hot spots for new warehouse development?
Warehouse space is being built across Poland, but the highest concentration of developer and tenant activity is still on the Big Six markets: Warsaw, Upper Silesia, Lower Silesia, Central Poland, Poznań and Tricity. These regions account for over 80 percent of the total national warehouse stock. We are, however, seeing some reshuffling within the Big Six. Lower Silesia is poised to overtake Central Poland as the third-largest regional industrial market. The gap between the two is just over 80,000 sqm. The Wrocław region has also recently seen the strongest construction activity, with 215,000 sqm of warehouse completions in 2023-Q1 2024 in Panattoni Park Wrocław Logistics South, which accounted for nearly 33 percent of Lower Silesia’s total new supply in that period. In addition, it recorded the highest level of development pipeline at the end of the first quarter of this year, with almost 686,000 sqm underway, including more than 345,000 sqm in one of the largest warehouse hubs in Kąty Wrocławskie. The project has a total of 430,000 sqm of warehouse development opportunities.
The Polish industrial market has slowed after years of rapid growth but is experiencing qualitative changes. What trends can we expect to see shortly?
With a strategic warehouse location becoming a key factor, logistics centres located close to main transport corridors will increase in importance. And so will locations allowing for the use of several different transport options and intermodal transport. Cities with limited stock are also seeing an uptick in demand for multi-level warehouses maximising the use of available vertical space. Warehouse flexibility and easy customisation to business needs will also matter.
