Market data for the first half of the year has shown that changes in macroeconomic conditions has influenced the industrial market in Poland.  Although the first six months of the year brought a significant increase in new supply, it is worth remembering that these were projects where construction started last year. Now many developers are postponing their activity and are constructing mainly built-to-suit projects. Therefore, by the end of the year we can expect only a small increase of modern warehouse stock.
Volume of transactions, which was 430,000 sqm for the first half of the year, stood at a similar level to that achieved in the first quarter of last year (434,000 sqm).


Significant new supply and limited demand has caused an increase in vacancy rates. However, some of the markets such as Warsaw Zone I and Wrocław, which is currently very popular among tenants, recorded a drop in vacancy levels.
The second quarter was better than the first one in terms of demand level, therefore we can expect that tenants will return to negotiations. Notwithstanding, more time is needed to estimate whether this improvement is temporary or whether it is a beginning of a new market trend.


Supply
Warsaw
Currently the Warsaw market offers around 2,354,000 sqm of warehouse space. In the first half of 2009 the Warsaw market was enlarged by 250,000 sqm, that is 56,000 less than in the same period of 2008. Almost all of the space delivered was located in Zone II (10-25 km from the city centre).
At present in the Warsaw region barely 59,000 sqm of warehouse space is under construction. If all the projects are delivered to the market, at the end of 2009 the total stock of warehouse space in Warsaw will increase to 2,413,000 sqm.

Regions
In the regional markets in the first half of 2009 there was more space delivered than in the same period last year. Almost 570,000 sqm of new warehouse space were completed and the total stock reached 3,460,000 sqm. Over 60% of new supply was delivered in the first quarter. Smaller supply in the second quarter was a repercussion of the financial crisis and change of macroeconomic conditions. Most of the projects which were delivered are developments where construction began last year. They had obtained financing in more prosperous times and were secured with pre-lease agreements. Developers significantly decreased the number of new projects planned. Currently around 130,000 sqm is under construction. Investors are mainly interested in built-to-suit projects or projects secured by pre-lease agreements. Therefore, we should not expect any increase in the number of speculative projects.

 
Demand
In the first half of 2009 signed lease agreements encompassed over 426,000 sqm. This equates to only 54% of activity recorded in the same period of 2008.
In terms of the amount of new agreements and renegotiations the second quarter was better than the first one – transactions for a total of 227,000 sqm were signed, which is a 14% growth in comparison with the first quarter.
The largest amount of lease agreements were completed in Warsaw and among regional cities, Wrocław took first place.

 
Warsaw
As mentioned before the Warsaw market enjoyed the highest level of interest. Agreements for a total of 151,000 sqm were signed. This equates to 35% of total market activity. By comparison – in the parallel period of the previous year, Warsaw’s share of the total demand was 30%. Furthermore, Warsaw was also the site of one of the largest lease agreements signed in the market; a built-to-suit project for pharmaceutical company Torfarm (23,000 sqm).
As in the previous quarters the most popular zone among tenants was Zone II and over half of all transactions were signed here.

Regions
In the regional markets 275,000 sqm were leased, which amounts to 50% of total volume of regional transactions concluded in the first half of 2008. In this context Wrocław is positively outstanding, as it recorded the highest interest ever and took the first place among regional markets, in terms of amount of leased space. Almost 110,000 sqm of warehouse space was leased, with a large proportion of this in Prologis Park Wrocław III, where lease agreements for almost 36,000 sqm were signed. It is worth pointing out that until now Wrocław enjoyed much smaller interest from tenants and the second quarter of this year was a record one.
Second, in terms of regional activity, was the Silesia region where almost 89,000 sqm were leased. This is 72% of the volume concluded here in the first half of 2008. The third most active region was Poznań, but the volume of transactions completed in the first half of 2009 (35,000 sqm) is less than 30% of the volume recorded in the similar period of 2008.


Vacant space
Warsaw
At the end of the first half of 2009 the vacancy rate in Warsaw stood at 19.2%, which indicates a small decrease in comparison with the first quarter (19.55%), but a significant increase since the end of 2008 (12.8%).
The vacancy rate in Zone I dropped, reaching a level of 9.1%. This situation can be explained from one side by little new supply in this location, and from the other by signed lease agreements for a total space of almost 20,000 sqm.
Large amounts of new supply in Zone II only slightly influenced the vacancy level in this area, which increased marginally to 20.7%. The space delivered in the last months was secured to a large extent by pre-lease agreements.
At the end of the second quarter, despite a lack of new supply and the completion of lease agreements for almost 20,000 sqm, the vacancy rate in Zone III did not change. This can be explained by the fact that the amount of newly leased space was the same as that released by outgoing tenants. At the end of the first half of 2009 the vacancy rate in Zone III was 25.8% and it is still the highest
in Poland.

Regions
As a result of significant new supply and limited demand, the vacancy rate in the regions increased at the end of second quarter and reached a level of 20%.
The largest amount of unleased space is in Silesia. As some of the newly delivered projects were completions of speculative projects started last year which have not yet found tenants, a significant increase of the vacancy rate took place and it stands now at almost 22%.
The second region which recorded a significant increase in vacant space is Central Poland, where the vacancy rate amounted to 20.3%. This high level of vacancy is caused from one side by new supply, from the other by reduced interest from tenants in this region, in comparison with previous quarters.
The vacancy rate remained almost the same in Poznań, where at the end of the second quarter it stood at 14.1%. A slight decrease of vacancy level was observed in Gdańsk. As a result of demand and a lack of new projects it dropped to 5.7%. Also the Wrocław market experienced a decrease of vacancy rate – because of the record level of activity and now stands at 20.7%. In the Kraków market a drop of vacancy rate took place as the investment delivered to the market last year found new tenants. Currently the vacancy rate in the area is only 3.6%.
 
Rental rates
In the first quarter of this year the rents decreased in comparison with the end of 2008. The extent of the reduction depends on location but in all cases by several per cent. In the second quarter rental rates did not change and remained generally at the levels seen in the first quarter. However, in some locations, where the vacancy rate is high and interest of tenants is limited, we could observe a slight decrease of rents. In the majority of locations rents are between EUR 2.8 and 3.6 per sqm.
It is worth stressing that Warsaw’s Zone I still remains the location where rental rates are highest and can reach even EUR 6 per sqm.
 
Forecast
On the basis of the above mentioned data we can say that, in terms of activity, the second quarter was better than the first one, but it is much lower from the level of market activity observed in the previous years. Interest from tenants in noticeable – they feel encouraged by comparatively low rental rates and are slowly coming back to negotiations, which were formerly broken off.
The withholding of many investments and the relatively small number of projects under construction leads us to presume that the high vacancy level will decrease in the coming months. Although the construction of suspended projects can be restarted at short notice developers will be  waiting for tenants interested in the lease of the whole or a large part of any planned building and will start construction only after signing the agreement. They will not be realising investments on a speculative basis.  
It is worth mentioning that developers have secured large number of land plots and declare they are able to double the existing warehouse stock in Poland.