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Poland’s well-placed warehouse market booms as investors flock from far and wide

It is often said that Poland's geopolitical location has been its Achilles' heel throughout its history. Squeezed between Germany and Russia, the country's past is largely defined by the ebb and flow of power between its two largest neighbors.

Now its place in the world appears to be working to its advantage. Data recently released by real estate services firm Savills showed another record year for investment in Polish real estate, with total investment in 2018 topping €7.2 billion, a 45% increase from the €5.0 billion invested in 2017.

The performance of one segment in particular stood out. "The star of the year is again industrial and logistics. Year on year, it's almost doubled its investment volume. The interest in the segment is just enormous," Tomasz Buras, managing director and head of Poland at Savills, said in an interview. Investor appetite helped push prime yields in the segment to a low of 5.15%, the Savills report said.

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"Poland is one of the key locations from which goods are delivered from Asia into Western Europe, and Poland, along with the Czech Republic and Slovakia, is the manufacturing hub for Germany," Buras added.

Taking an almost 25% share of total investment volume in Polish real estate in 2018, capital inflows to the country's industrial and logistics segment rose to €1.84 billion in 2018 from slightly more than €1 billion in 2017 — a surge of more than 84%. This increase contrasted with a 17% fall in investment in industrial and logistics property across Europe in the 12 months to September 2018, data from CBRE showed.

Soren Rodian Olsen, partner and head of capital ma
rkets for Poland at real estate services firm Cushman & Wakefield, said several factors had aligned to fuel the industrial and logistics market in Poland. "The driver is improved infrastructure, strong macroeconomic fundamentals, low risk, business access to educated human capital," he said. "The [country] has a population of [almost] 40 million people and has gone through a tremendous development of infrastructure improvements that have opened up logistics and distribution opportunities, both to support the domestic market but also as a place to service the Western European markets."

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Olsen added that all the distribution centers in Poland that online retail giant Amazon.com Inc. occupies or will occupy after construction are assigned to serve the Western European markets, rather than Poland itself.

It is assets such as these that investors from Europe and beyond are flocking to Poland to snap up. Among those competing for industrial and logistics assets in Poland, "Asian investors are very visible," Buras said. Investors from South Korea particularly like Amazon distribution centers and own a number in the country already, he said. Malaysian pension fund EPF - Employees Provident Fund - KWSP, which Buras said has invested between €800 million and €900 million in Polish real estate, acquired a 220,000-square-meter project that will become the largest Amazon facility in Europe, he added.

While the boom in the Polish warehouse market is benefiting from a wider global trend fueled by the growth of e-commerce, the value it currently offers investors in relation to its European neighbors is a key factor in driving its growth, said Olsen. "If you can buy a Microsoft Corp. or Amazon industrial lease paying 150 bps or 200 bps more than in Western Europe, and you have a 10- or 15-year lease in a country that's in the EU [and] has been upgraded [by credit rating agencies] to a mature economy with very strong growth, this is [attractive to] investors," he said.

The robust growth of Poland's industrial and logistics market is likely to sound a warning to the country's retail property segment as consumers increasingly choose to shop online. Retail property investment in Poland has proven fairly resilient in recent years, with retail assets attracting more than €2.50 billion from investors in 2018, about a 25% increase from the €2.05 billion figure the previous year.

However, Buras said that a large portion of the 2018 investment in retail property was weighted toward the beginning of the year and that sentiment around retail property in Poland had deteriorated over the last 12 months. "The dominance of retail in investment volume over recent years is finished. It will be the last time we see such a high volume for retail," he said.

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The Wars Sawa Junior shopping center in the Polish capital Warsaw was acquired by Atrium European Real Estate in October 2018 for €301.5 million.

Source: Atrium European Real Estate

Liad Barzilai, group CEO of Atrium European Real Estate Ltd., which owns about €1.85 billion of retail property in Poland and bought the Wars Sawa Junior shopping center in Warsaw for more than €300 million in October 2018, said Poland still offers retail property investors opportunities if they adapt to the shift in shopping habits. Atrium is undertaking an approximately €300 million redevelopment program of some of its retail assets in Poland aimed at improving shoppers' experiences through better leisure and food and beverage offerings.

"People from around the country are moving into [Poland's capital and largest city] Warsaw and moving into other major cities," he said. "Therefore, population growth is happening, purchasing power is growing and, of course, consumer spending is growing. And that's what we are looking for — that's the bottom line."