2020 was a record-breaking year for investor activity in the industrial sector, with investment transactions totalling around €2.7 billion, according to the JLL and SEGRO report, "Logistics Avenue. City logistics in Poland". The diversification of this market segment is illustrated by funds becoming increasingly interested in city logistics properties.

Since 2015, urban logistics properties have accounted for approximately 11% of total logistics investment volume. Forty-four buildings of this type have changed hands in a total of 27 transactions in the last five years.

"City logistics are sought after assets in developers' offers and investors' portfolios. Thanks to their locations within or close to the city limits of large metropolitan areas, urban logistics properties achieve higher sale prices per square metre. This and the higher rents paid by tenants, compared to typical big-box warehouses located further away from city centres, offset higher land costs. Urban warehouses themselves also represent an interesting spatial and business challenge, as they allow for the development of mixed-use projects that, in addition to warehouses, can include office, exhibition and retail functions, especially for e-commerce", explains Bożena Krawczyk, Investment Director, Central Europe, SEGRO.

In 2020, the industrial sector was the only segment that saw the first signs of a return to yield compression. The enormous level of demand, relatively low financing costs and a limited number of prime products on the market suggest that downward pressure on cap rates should become evident throughout this year. At the end of 2020, prime warehouse yields in Poland stood at 5.75% with exceptionally long leased assets trading at sub 4.50%, with Warsaw inner city projects at around 5.50%.

Demand exceeds supply

"Growing investor demand for last-mile / inner-city warehouse assets, is the result of global trends and rapid urbanisation. We believe that the market will grow, with new developments being launched to meet increasing tenant demand. Investors are willing to pay higher prices for portfolio deals. Furthermore, due to shortages of the product, forward-funding deals are being done across the country to build such portfolios. The reason is the limited availability of the product, especially for larger scale investments", comments Tomasz Puch, Head of Capital Markets, JLL.

Currently, in Warsaw, Wrocław Poznań or Łódź, the amount of greenfield land that could potentially accommodate city logistics in each of the four cities does not exceed 50 hectares. The Upper Silesian market has a significantly greater availability of urban industrial plots, although these are mainly concentrated near Sosnowiec and Gliwice. The supply of developable industrial sites, which are larger than 100 hectares, is available in both the Tri-city and Szczecin.

"Total land available for urban industrial development in the eight analysed metropolitan areas is approximately 600 ha, which could theoretically enable the development of an additional three million sqm of space. One should also note that some existing parks which offer city logistics units have the ability to expand. The size of urban logistics space that could theoretically be developed in these locations amounts to approximately one million sqm, increasing the total amount of urban stock that can be potentially developed to some four million sqm", comments Tomasz Mika, Head of Industrial Agency, JLL.

Although the amount of potential greenfield area to be developed seems vast, in some cases, especially in the largest cities, developers must also consider revitalising or changing the function of older buildings. These largely post-industrial sites, in an attractive, easily accessible and well-established location, will certainly provide excellent access to existing infrastructure and transport links.

"New urban developments have to meet increasingly stricter planning requirements, as most plots within the largest metropolitan areas are subject to local zoning plans. Moreover, industrial lands may still require some additional investments taking into account the existing surroundings and infrastructure, such as the construction of access roads or securing sufficient electricity supply, which is crucial especially in the case of data centre operators. However, growing demand from both tenants and investment funds is a justifiable reason for developers to choose projects located in cities", summarizes Bożena Krawczyk.