It is high time that we redefined the term the Big Five – that is the core logistics markets in Poland. In practice, there are six: Warsaw, Upper and Lower Silesia, Central Poland, Poznań and… Tricity, says Jakub Kurek, Head of Industrial and Warehouse at Newmark Polska.
The warehouse market slowdown is more than a year old. Where are we now on the sinusoidal wave? Is the demand curve continuing to slope down or is the market turning around?
JAKUB KUREK: Economic indicators are changing too fast to make any firm conclusions. The interest rate cuts in September and October - from 6.75% to 5.75% in total - are, however, likely to pave the way for a rebound in the logistics market. If this trend continues, money will flow back to the property market as investors will realise that keeping it in the bank is no longer profitable.
Modern warehouses have always been linked to capital markets and respond to market fluctuations relatively quickly. Investment funds which used to buy warehouses on a massive scale were the main catalyst for the industrial market’s growth in earlier years. When rates of return were attractive, developers were able to build and lease buildings at competitive rents for the whole of Europe.
And companies leased warehouses because they could afford them?
That’s right, exactly.
During the first half of the year, they leased a total of more than 2.2 million sqm, down by over 40% year-on-year. This decline was, of course, also caused by weaker consumption which slowed the pace of growth of many businesses. When selling less, companies can wait for a warehouse to be delivered, but they cannot wait indefinitely. Large organisations continue to look far into the future, thinking of logistics too. They are, however, faced with high rents - excessively high for their operational budgets. That’s why tenants are sitting on the sidelines and waiting to see how the situation will unfold. What could break this deadlock? In my opinion, the interest rate cuts are the first major step towards it. If investing in properties is more profitable, investors will not have to raise rental rates to compensate losses.
Can they be lower?
Rents are definitely past their peak, with readjustment underway as tenants are unable to pay high rental rates, but putting the brakes on the market will benefit nobody. Rents are already easing in regions with high vacancy rates.
Have industrial and warehouse real estate advisers been less busy recently due to the slowdown and the wait-and-see approach on the market?
Just the opposite. I can see a disparity between industrial market statistics and my team’s performance. This year is shaping up to be as good as last year - or even slightly better. During the first three quarters of 2023 we brokered deals for nearly 330,000 sqm, up by almost 6% on the same time last year. During more challenging and less predictable times when every penny counts, tenants need even more professional assistance in signing leases. I am truly happy and proud that so many companies placed their trust in Newmark Polska advisers. Some have done so more than once. I can honestly say today that we have passed the test.
The largest contracts on which we advised in the last three quarters included a lease signed by an automotive client for nearly 39,000 sqm in Upper Silesia and Regesta’s leases for a total of more than 91,000 sqm in Tricity and Upper Silesia.
Logistics and automotive. Has the entire industrial market been dominated by tenants from these two sectors?
The most active tenants have for years been the same sectors, with their share of take-up varying according to market conditions. Our analysis has revealed that 3PL providers took the top spot in the first half of 2023, transacting almost 606,000 sqm which accounted for nearly 25% of the total leasing volume for the first six months. The automotive sector was also active, taking more than 170,000 sqm, but it focused mainly on Upper Silesia. New leases were also signed by FMCG companies which are more resilient to economic slumps and slowdowns. New stores and logistics centres are being opened by Lidl, Biedronka, and Dino.
We also keep a close eye on e-commerce trends. Although online retail sales are plateauing, e-retailers continue to lease warehouses – smaller but more automated. Companies from this sector leased a total of nearly 160,000 sqm in the first half of the year.
Which regions have attracted the strongest occupier and investor interest?
Occupier activity continues to focus on the core markets, which are performing relatively well and have recently even strengthened their position over emerging markets. I mean the Big Five, i.e. Warsaw, Upper and Lower Silesia, Central Poland and Poznań, or I should rather say the Big Six… The time has come to redefine the group of the largest industrial markets to include Tricity. The region is growing and rising to prominence on the warehouse market. While the overall vacancy rate for Poland stands at 6.7%, Tricity’s is only 1.5%. Meanwhile, more than 211,000 sqm of modern logistics space is under construction there – more than in Upper Silesia and only slightly less than in Lower Silesia and the Poznań region.
We are in the last quarter of 2023. What will it be like or what could it be like?
The last quarter of the year is usually the best for the industrial market, with tenants finalising the highest number of deals then. Autumn in our industry is like a small new year. Most companies are now agreeing budgets for the next 12 months and making key investment decisions.
What will the closing months of this year be like? In volatile times like these I’d rather say what I would wish for. I would certainly like money to be cheaper, capital to flow back to real estate and rents to be at a level that is acceptable to both parties. If that happens, the warehouse market will return to positive growth and set new records.