Upper Silesia: manufacturing heart of Poland

The region around Katowice is today one of the most significant industrial warehousing hubs of Poland and CEE, according to Jones Lang LaSalle. Today, modern warehouse stock in Upper Silesia totals almost 1,4 million sq. meters, accounting for over 19% of the national volume, which ranks this region the second largest market in the country (lower only to Warsaw).

© Jones Lang LaSalle; net take-up in Upper Silesia by sectors 2005-Q1 2013 (m2)
© Jones Lang LaSalle; net take-up in Upper Silesia by sectors 2005-Q1 2013 (sq.m)

Demand driven by logistics operators and automotive sector
The evolution of demand for warehouse facilities in Upper Silesia reflects the nationwide tendency and is to a high degree driven by the general economic performance. Dynamic growth of the market after Poland’s accession to the EU was restrained by the aftermaths of the economic turmoil of 2008. Since then, the market has been gradually regaining confidence. However, lower direct demand from retailers contributed to another drop in take-up registered in 2012. Net take-up in Q1 totalled 25 000 sq. meters, slightly below the quarterly average of 2012, and accounted for 43% of gross demand. The remainder is attributable to lease renewals, which indicates that corporates, who are already present, have confidence in the region. The highest share of new take up in 2012 was generated by logistic operators (52%), who often use facilities in Upper Silesia also to handle the large consumer market of the nearby Kraków agglomeration, which is featured by low availability of floorspace and markedly higher rents. Additional well represented sectors include automotive (23%) and light production (11%). The former also accounted for the largest share of new demand in the first quarter of 2013 (60%). We have also been observing an increased interest in the region by automotive companies originating from the Far East, namely Korea, who consider Upper Silesia an attractive location in proximity to their existing manufacturing facilities in the Czech Republic and Slovakia.

Shortage of available space ahead
Before the economic downturn of 2008, high annual completions, which are a feature of a young market, were growing dynamically reaching the level of over 280 000 sq. meters in 2009. Since 2009, although developers limited their speculative construction activity, the annual completions level stands at approximately 100 000 sq. meters and this trend is likely to continue over the next years. Simultaneously, new demand for warehouses in Upper Silesia absorbed much of the available stock and resulted in a drop in vacancy rate from 19% in 2009 to 5% at the end of 2012. In Q1 2013, the availability of space was slightly increased (6,7%), which represents the stock of 93 000 sq. meters. However, this floorspace is scattered across a number of facilities, out of which, only one, namely Prologis Park Chorzów offers floorspace larger than 15 000 sq. meters in a sole unit.

© Jones Lang LaSalle; Panattoni Park Mysłowice
© Jones Lang LaSalle; Panattoni Park Mysłowice

High developers’ interest despite low speculative activity
Today, the vast majority of Upper Silesia’s warehouse stock is concentrated in the area of Katowice agglomeration. However, we also register inquiries concerning the southern part of the region, in the area of Bielsko-Biała and Cieszyn, and the one along the new A1 motorway near Zabrze, Bytom and Pierkary Śląskie. This could indicate that these areas may be seeing warehouse developments in the upcoming years.

Prologis, Panattoni and SEGRO remain the three largest market players in Upper Silesia. However, with the last year’s acquisition of Prologis portfolio, with the assets of joint floorspace of over 100 000 sq. meters, Hines made their strong entry to the region.

In the entire 2012, 96 000 sq. meters of new warehouse space was completed in Upper Silesia. In Q1, the market grew by modest 10 000 sq. meters, which was delivered within the Panattoni Park Mysłowice.

Currently, new volume under construction totals 38 000 sq. meters and comprises following facilities: extension of the SEGRO Industrial Park Tychy for Dayco (18 000 sq. meters), extension of the MLP Tychy (Eurosoft is one of the tenants) (8 000 sq. meters) and the first building of the MLP Bieruń park (8 000 sq. meters) built for Flexider. The region enjoys a stable interest of the main market players, although speculative construction currently accounts for only 10% of the stock under way. Developers are not eager to take risk and currently focus on pre-let based covenants. These usually involve floorspace in excess of 7 000 sq. meters, and today’s market practice indicates that standard lease period is between 7 and 10 years. Given that the scenario which assumes shortage of available space will most likely become reality in the foreseeable future, a question arises, whether any of the active market players will re-commence speculative construction.

© Jones Lang LaSalle; major new warehouse deals in Upper Silesia region in Q1 2013
© Jones Lang LaSalle; statistics of the Upper Silesia warehouse market

Depleting supply can drive rents up
Bearing in mind the limited availability and considerable demand for warehouse facilities in the region, analysts expect that vacant units will be further disappearing from the market, which may result in an upward pressure on rents. Today, headline rents in Upper Silesia stand between EUR 3,1 and 3,9 sq.m/month, depending on location and could be characterized as average throughout the country. Effective rates are lower and represent values spanning between EUR 2,45 and 3,40 sq.m/month.

Industrial traditions of the area date back to the 19th century’s industrial revolution, when the rich local deposits of fossil fuels drove the development of heavy industry and manufacturing. Today, the agglomeration of Katowice is populated with over 2,2 million inhabitants (4,6 million in the entire region) and provides a considerable consumer market and skilled labour pool. Along with the fact that the area features most dense and modern road network in the country (recent completion of one of the sections of the A1 motorway closed the motorway ring around the core of the region) with good connections with central Poland and neighbouring countries, it is well positioned to become the logistics hub of cross-regional significance. The robust Katowice Special Economic Zone contributes to the local economy, having attracted numerous investors, particularly from the automotive sector.

source: Jones Lang LaSalle