Logistics chain gains new links

The days-long blockage of the Ever Given container ship in the Suez Canal in March 2021 will remain for many a stark reminder of the risks of globalisation, when one vessel seized up the main Asia-to-Europe sea route for around 10 percent of annual world trade. The exodus from China as the “factory of the world” was, however, already under way by then and before Covid-19 broke out, more than a year earlier. The pandemic has accelerated the decentralisation and regionalisation of supply chains but rising labour costs in China and its deteriorating geopolitical relations with Western trading nations, particularly the US, have also played a part in the ascent of ABC (“Anywhere But China”) decoupling supply chain strategies. No fewer than 60 percent of US and European companies are now planning to bring some of their production from Asia back to their own regions, according to a recent survey by consultants BCI Global. 

There are several structural tailwinds for the logistic and warehouse sector and the CEE markets benefit from the widest range of such drivers.

Supply chain redesign strategies that include “reshoring”, “ nearshoring” and more recently “friend-shoring” are consequently reshaping the logistics and industrial sector. Reshoring refers to the relocation of production facilities from emerging markets back to industrialised countries. Nearshoring, from a European perspective, usually means relocation to CEE countries, while friend-shoring involves Western companies sourcing a large share of the supply chain from “politically aligned” economies. Patrick Haex, Managing Partner at BCI Global, prefers another term: “In my view it’s better to talk about ‘rightshoring’ to describe the decentralisation of production and logistics.”

Just-in-case principle creating demand for additional space

Supply chain reconfiguration, or the shift from just-in-time (JIT) inventory management to a just-in-case (JIC) approach, is now gathering momentum. While slowing economies may mean some occupiers will have to downsize or hand back space due to rising costs and lower demand, the prospects for the logistics and industrial real estate sector still look relatively bright. Advisor Savills says the average European logistics vacancy rate in Q3 2022 was just 3 percent and occupiers are still seeking more space to secure their supply chains and accommodate higher stock levels. 

“The shift from just-in-time production to a just-in-case strategy brings with it additional space requirements. Warehousing is also less cost-intensive than production downtime,” explains Stephan Riechers, Head of Investment Management Logistics at Union Investment. 

Central and Eastern Europe is particularly well positioned to benefit from the rightshoring trend, according to CTP, continental Europe’s largest listed developer and operator of logistics and industrial real estate by gross lettable area (GLA). The CEE 7 – Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Serbia – tick the boxes on several key criteria including labour costs, quality of the business environment, market potential and risks, according to Maarten Otte, Head of Investor Relations at CTP: “There are several structural tailwinds for the logistic and warehouse sector and the CEE markets benefit from the widest range of such drivers. The real GDP growth forecast for CEE markets is also higher than the European average.”

Rightshoring trend boosting the CEE logistics markets

CEE is already witnessing a growing concentration of new players in the automotive sector, including electric vehicle and battery producers, in particular in the Czech Republic, Hungary, Poland, Slovakia and Serbia. Brexit is also prompting some UK manufacturers to move their production facilities to the region. Stannah Stairlifts, a UK-based manufacturer of elevators and escalators, is now doubling its rental space at CTP’s Brno Líšeň park in the Czech Republic and concentrating all its production activities there. 

The ongoing growth in online shopping is another driver of new warehouse developments. E-commerce penetration is still significantly lower in many CEE countries (on average below 10 percent) compared with Western European markets such as the Netherlands (at around 20 percent) and the UK (above 30 percent). Less expensive land with zoning is also more readily available in CEE than in other parts of Europe, while grade A warehouse space is still in short supply.

War in Ukraine is putting international investors off CEE

CEE’s star is still rising, but the more established logistics markets in Europe are also experiencing resilient and sustained demand. Priority markets for occupiers seeking to expand their logistics footprint in the next three years include the Netherlands, Germany, Belgium, Italy and France, according to CBRE. The war in Ukraine is also prompting some North American investors to focus more on Western European countries, says René Buck, CEO of BCI Global: “Concerns about CEE’s proximity to Russia are filtering through into some investment decisions.”

Panattoni, Europe’s largest developer and deployer of institutional capital, has expanded rapidly from its Polish home base in recent years, first into other CEE markets and then into Western Europe, notably Germany, but also France, Italy, the Netherlands and Spain. Most recently, Panattoni entered the Swedish market with the acquisition of 121 hectares of prime development land – the biggest industrial and logistics zoned land deal ever done in that market – in a region framed by Stockholm, Gothenburg and Malmö. With vacancy rates at very low levels in Sweden and demand for logistics space still outpacing supply, the company is confident its forthcoming speculative developments will tap into the strong appetite of occupiers for modern sustainable warehousing.

The growing number of market players means more competition for customers

The growing number of pan-European players active in the market means maintaining good contacts with customers is more important than ever, says BCI’s Buck. “Big boxes are more or less the same, but logistics real estate players can add value through their specialist understanding of the underlying trends in growth industries such as automotive and pharmaceuticals and their customers’ specific requirements,” he concludes.

By Judi Seebus