Warehouses in the adaptation period

Author  Bartłomiej Krzyżak, Senior Director, Investment at Avison Young

In 2021, the warehouse sector strongly dominated the commercial real estate market in Poland in terms of volume. The value of transactions - approximately EUR 3.2 billion - accounted for over a half of the total value of investment transactions. In 2022, the sector's result - EUR 2 billion – accounted for "only" a 34% share in the total transaction volume in Poland.

Sector in the adaptation period

Nowadays, the warehouse sector is facing an investment slowdown. Price expectations for warehouse products are currently the hottest subject of many discussions. Owners want to sell for more than buyers plan to pay, counting on discounts. Thus, the adaptation process has been going on for several months.

We can already see a clear reduction in the sale prices of logistics properties, which is reflected in higher yields. The difference is "compensated" to some extent to owners or developers with unprecedented increases in base rental rates. We experience such situation in every sector, not only in the warehouse segment.

Starting new investments is currently hindered by difficulties in obtaining financing for projects and its higher cost, as well as lower availability of materials and workforce. Same in other market segments. We expect, however, that the newly constructed warehouse facilities should achieve a certain balance this year.

Transactions concerning slightly older warehouse properties will still be analyzed individually in terms of rent and final value per square meter. And the seemingly lower capitalization rate will result from the greater potential of a given project at the time of renegotiation of lease agreements.

More deals outside major markets

The warehouse sector, similarly to the office and retail sector, is currently characterized by a significant increase in transactions outside the main markets. In the warehouse sector, this means a share increase from 24% in the total volume of the sector in 2021 to 40% in 2022.

Investors notice the potential of regional markets, in particular the western part of Poland, in the vicinity of Szczecin, Gorzow, Zielona Gora and Legnica. In these locations, the implemented road investments ensure efficient transport, both within Poland and transit to the West, beyond the country's borders. Interesting assets are located near large urban areas, which ensures easy access to employees. All this translates into the attractiveness and liquidity of investments in these locations. In the regions, investors can acquire interesting assets at slightly higher yields than in the main cities.

Meticulous project analysis

Portfolio transactions accounted for 42% of the EUR 2 billion invested in the warehouse sector in 2022. This is quite a lot, but less than a year earlier, when their share was at 63%. The decrease in the share of portfolio transactions is a signal that investors are analyzing each project more carefully, often choosing only single assets.

Looking at the numbers, it is worth noting that one significant transaction accounted for as much as 26% of the total volume completed last year in the warehouse sector. The acquisition of Danica warehouse portfolio from Hillwood by CBRE IM was the second largest transaction in terms of volume recorded in 2022 and the third largest in the warehouse sector in Poland in the history of the market.