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Warehouse space market - a winning streak continues

2019.09.18
The logistics industry faces many difficulties and challenges on a daily basis: lack of drivers, growing customer demands, punctuality of deliveries, congestion... However, this list does not include the availability of warehouse space or cooperation with developers. The warehouse real estate market has been in an excellent condition for several years now and there are many indications that it will continue to be so. Logistics operators are the beneficiaries of this situation, and at the same time they are the driving force behind it.

Constantly expanding available warehouse space, which is growing at a rate of approx. 2 million m2 per year, is approaching 17 million m2 (16.6 million at the end of Q1 2019)[1]; low vacancy rate; investors from Germany, the USA, Asia and even South Africa - these are just some of the evidence that the warehouse space market in Poland is doing well. Paradoxically, the crisis from 10 years ago contributed to this situation - as a result, the number of risky speculative investments was reduced to a safe level. The growth that followed in the middle of this decade has gained exceptional momentum and despite the huge supply so far, there are no signs of a slowdown and the market can be described as mature and healthy.

Poland is one of the leading European countries most often chosen as a location for setting up or moving a warehouse. Only Germany and the Netherlands are ahead of it, whereas Poland leaves France, Russia, Spain and Italy[2] behind. This is largely due to the geographical location, which from the logistics point of view is optimal - at the intersection of routes from the East to the West and from the North to the South. Low construction costs, relative availability of land for development and competitive, although slowly increasing rental rates, and finally high standard and equipment of warehouse facilities - today not only the price, but also the quality and ability to meet customer requirements determine the lease of a given investment project.

However, the dynamic development of the warehouse space market is primarily affected by the growing domestic consumption which translates, among other things, into the activity of logistics operators serving customers from various industries. Logistics companies have a significant share among all tenants of real estate - in 2018 they accounted for 33% of the total demand (almost 1.4 million m2 of leased space)[3] and already 55% in the first quarter of this year (approx. 320 thousand m2)[4]. Next in line are retail chains and light manufacturing, whereas the fast-growing e-commerce sector, although currently outside the top three, will probably be there any moment now. Internet shopping is a powerful stimulus for the warehouse real estate market - in 2018, Prologis calculated that spending of around 1 billion Euro in the online channel would generate a demand for approximately 235,000 m2 of new logistics capacity. Taking into account the growth forecasts for the e-commerce sector, it means that within five years it will be necessary to build an additional 45 million m2 of warehouse space in Europe - and some of these investments will be located in Poland.

It should be noted here that despite the dynamic growth (in 2017 and 2018 as much space was developed as in the previous seven years, in 2018 alone over 2.2 million m2 was developed), the Polish market is still poorly saturated in relation to the countries of Western Europe. Countries such as Germany and the Czech Republic have twice as much warehouse space per capita as Poland, and the Netherlands, for example, has more than four times as much. So, we still have room for improvement and the economic situation is conducive to investments.

The relationship between the logistics market and the warehouse real estate market is a kind of feedback. Logistics operators generate significant demand, drive the market, and at the same time benefit from an increasingly better, more competitive and innovative offer of developers. As already mentioned, since the last global crisis the amount of free warehouse space in Poland has been kept at a low level (currently approx. 5%). There is relatively little speculative space, i.e. space built by the developer before he finds a tenant. As a result, if a logistics service provider needs warehouse space, it is rather rare to use ready-made warehouses. The provider talks to the developer about the space to be created, so that it can be tailored exactly to his needs. Today, almost every new construction is preceded by detailed arrangements between the future tenant and the developer, and almost every project is a BTS (built-to-suit). At the end of the day, both parties are more satisfied - from the developer's perspective, the investment risk is reduced, and the logistics service provider receives a better warehouse.

Real estate development in Raben Group is a consequence of two main business needs: the expansion of our transport network and the need for capacity for contract logistics projects. The first one requires specialized cross-dock warehouses located all over the country, in locations not always objectively the best from the perspective of real estate investments, but always optimal for the transport process. Such high requirements for the location are very difficult for our western neighbours for instance, because in Germany local administration does not create too many alternatively situated industrial zones, which in turn forces the industry to make many compromises when choosing a location for a logistics centre. In Poland, land with local zoning plans is still more accessible (although the supply is slowly decreasing), and the investment process is slightly easier. Developers are increasingly flexible: until a few years ago, they were reluctant to construct less typical buildings (such as cross-dock warehouses) in less typical locations, but their attitude has changed with the development of the market. As a result, logistics companies no longer need to invest in their own cross-docks. Projects of this type can also be considered attractive from the point of view of investment developments, since the lessee even requires long-term lease agreements. For companies like Raben, frequent relocations of cross-docks to other locations will never be and interesting option.

Availability of land is also of key importance for the acquisition of space for contract logistics projects. When a logistics service provider is asked to provide a solution for his customer in a specific location (dictated for example by the focus on transport services or the proximity of the customer's production site), he has to deal with different situations in different countries because of the availability of land. The overall predictability of the investment process is also a problem. In the Czech Republic or Germany, the absence of a conflict between the zoning plan and the planned investment is not a guarantee for obtaining a building permit, as the local administration may still refuse to accept a specific project. In Poland it is enough if an investor downloads copy of the zoning plan from the local administration website and, if planned development is allowed, he can buy the land and start the project.

This is another market advantage of Poland over Western Europe and the rest of Central and Eastern Europe, apart from the ones mentioned above. One can hope that all these circumstances will continue to drive the warehouse real estate market for a long time to the benefit of investors, their customers - including the logistics sector - and the entire Polish economy.


[1] Source: Colliers International, May 2019.

[2] Source: JLLL, as at the end of the first half of 2018.

[3] Source: Savills, “Market in minutes. Warehouse market in Poland", February 2019.

[4] Source: JLL, May 2019.