Report - warehouse market in the first half of 2017 Great perspective for industrial market in Poland. The first half of the year has been with historically high demand thanks to large lease agreements. Net demand 1.27 mln sq m Gross demand 1.82 mln sq m New supply 720,000 sq m The warehouse real estate sector is in excellent shape. From January to the end of June 2017, more than 1.82 million sq m was leased, of which 70% was made up of Under construction 1.71 mln sq m new lease agreements. Developers are preparing further investments, resulting in 1.71 million sq m of warehouse space under construction and 720,000 sq m completed in Vacancy* 5.9% the first 6 months this year. Development of the sector is being helped by changes in sales patterns as well as the good economic situation in Western Europe. Rents Compared to the H1 2016 (*Q1 2017) Axi Immo Group Sp. z o.o Twarda 18 00-105 Warszawa + 48 22 111 00 01 office@axiimmo.com www.axiimmo.com
Demand I n the first six months of 2017, more than 1.82 million sq m of modern warehouse space was leased, those represented 52% of total demand in region. The contracts were for companies: Castorama (100,000 sq m), which is historically the best result for the first half of the BSH (79,000 sq m) and OBI (50,700 sq m). year. Agreements were signed for 32% more space than over the same period last year. It is worth noting that 70% of the volume of transactions were new leases and expansions. This level demonstrates the good condition and further rapid growth of the sector. The best result was recorded in the Central Poland region where 444,000 sq m was leased within just 16 rental agreements. Upper Silesia (401,000 sq m) and Warsaw (392,000 sq m) were In the first half of 2017, the main markets dominated, while 1.6 million sq m was leased. Only 11% of gross demand was recorded in smaller markets. Compared to the first half of 2016, the greatest demand-side dynamics were observed in Central Poland, where a gigantic increase of 158% was recorded. A significant jump was also observed in Upper Silesia, where demand rose by 89%. also on the podium. It is worth noting that the high result of Central Poland is the effect of the signing of large contracts for the implementation of BTS projects; three of In the demand structure, retail chains with a share of 35% took the lead, followed by logistic operators (30%). Demand in regions in sq m H1 2017 450 000 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 Central Poland Upper Silesia Warsaw Suburbs Wroclaw Poznan Tri-City Cracow Warsaw Inner City Torun/Bydgoszcz East Poland Szczecin New agreements Renewals 2
Selected lease transactions in H1 2017 Tenant Project Region Type of contract Space in sq m Amazon Panattoni BTS Sosnowiec Górny Śląsk 135 000 Castorama Panattoni BTS Stryków Polska Centralna 100 000 BSH Panattoni BTS Łódź Polska Centralna 79 000 OBI Panattoni BTS Łódź Polska Centralna 50 700 Dirks Consumer Logistics Hillwood Wrocław II Wrocław Renewal 28 000 Żabka MLP Gliwice Górny Śląsk 25 000 Thule Panattoni BTS Piła Poznań 13 500 Avery Dennison MLP Pruszków II Warszawa 13 300 Supply D evelopers are taking advantage of the good market conditions and are actively preparing new Compared to the same period in the previous year, this is an increase of 100%. The largest number of new projects projects. From January to the end of June, 720,000 sq m were completed. This result is 10% higher compared with the first half of last year. Most new projects were created in the Warsaw area (115,000 sq m) and Bydgoszcz (113,000 sq m) and in the Poznan region (111,000 sq m). At the end of June, the total stock of modern warehouse space in Poland reached 12 million square metres. The following developers had the largest share in new supply at the end of June this year: Panattoni (47%), then Prologis (12%) and Hillwood/7R (11%). under construction are in the Warsaw region (360,000 sq m), Upper Silesia (330,000 sq m) and in Szczecin (293,000 sq m). However, the share of speculative investments in the volume of projects under construction is falling, and at the end of June their level was 24%, down 18% compared to the same period in the previous year. This is a result of large BTS projects, but also more cautious developers, who in most cases start a new investment after signing at least one pre-let contract. Speculative investors prefer the main markets, with most space not secured by lease agreements being built in the The level of new supply is high, but BTS and pre-let are Warsaw, Upper Silesia and Wroclaw regions. predominant. 1.71 million sq m of industrial space is under construction. 3
Stock and vacanacy rate at the end of H1 2017 3 000 000 12% 2 250 000 9% 1 500 000 6% 750 000 3% 0 0% Warsaw Inner City Warsaw Suburbs Upper Silesia Poznan Central Poland Wroclaw Tri-City Krakow Torun/Bydgoszcz Szczecin East Poland Existing space (sq m) Vacancy rates (%) Vacancy rates Rents T he high demand for warehouse and industrial space set against a stable number of completed projects A t present, rental rates are a stable, low level, with an upward trend observable in Lodz and selected means that vacancy rates are low, standing at 5.9% at the end of the second quarter, 0.2 p.p. lower than in the previous quarter. The largest amount of space available for immediate rent is located in Szczecin (8.7%) and Wroclaw (8.5%). This is the result of the commissioning of speculative investments not fully leased and tenants relocating from older facilities. The lowest availability at the end of June was reported in Lodz (0.7%). In essence, there is no available class A space and there is no prospect of the situation changing up to the end of this year. locations in Upper Silesia. For medium-sized warehouse rental transactions between 2,500 and 5,000 sq m, developers are not willing to make concessions on base rents, though there is room for negotiation on effective rates. The most attractive effective rents were obtainable in the Warsaw area (EUR 1.9-2.4/sq m) and in Poznan (EUR 1.9-2.4/sq m). Quite high rates, above EUR 3.0/sq m, were found in Lodz and the Bielsko-Biala sub-region. In most locations where existing facilities are managed through investment funds, the ability to negotiate rates below market averages is limited. It is different in the case of new facilities where the developer wants to have a pre-let agreement to start a new building or to close a project when the last units remains free. In this case, the scope for rent holidays and financial incentives for tenants is generally larger. 4
Effective rents in regions (EUR/sq m/month) in H1 2017 6 5 4 3 2 1 0 Warsaw Inner City Warsaw Suburbs Upper Silesia Central Poland Poznan Wroclaw Tri-City Cracow Szczecin Torun/Bydgoszcz East Poland Effective rents (EUR/sq m) Forecast A t the end of 2017, we can expect that last year s 3 million sq m of leased modern warehouse space to staff. New locations in the Lubuskie province, Bialystok and Kielce, where staff resources have not yet been will be beaten. The further development of the exhausted, can count on large investments. e-commerce channel and the good macroeconomic performance of the economy in Poland, as well as in Germany and EU countries, will be factors in the good results. Poland is becoming a developed warehouse and industrial market with a volume comparable to the United Kingdom. We are the undisputed leader in the CEE region Intense competition between developers will still be decisive in maintaining the current level of rents. Slight increases will only be possible in selected locations where restrictions will arise from an inability to implement new projects, e.g. due to the low availability of land. and, thanks to relatively low labour costs, the still high availability of land and competitive rental rates, we are a good alternative to markets in Western Europe. The key issue for large projects will be not only the location and Developers will continue to invest in major markets as well as in new locations, but only a few projects will be speculative. well-developed road infrastructure, but above all access 5
Contact Anna Głowacz Head of Industrial - Leasing Agency +48 797 420 950 anna.glowacz@axiimmo.com Monika Rykowska PR & Marketing Director +48 725 900 100 monika.rykowska@axiimmo.com Barbara Szymańska-Wieczorek Industrial & Research Coordinator + 48 32 320 97 22 b.szymanska-wieczorek@axiimmo.com Copyright 2017 AXI IMMO. All rights reserved. The information contained in this document is proprietary to AXI IMMO and shall be used solely for the purposes of evaluating this proposal. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of AXI IMMO. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof. We would like to be told of any errors in order to correct them. Axi Immo Group Sp. z o.o Twarda 18 00-105 Warszawa + 48 22 111 00 01 office@axiimmo.com www.axiimmo.com