Although e-commerce is expected to boost the demand for industrial and logistics space in Central and Eastern Europe owing to the pandemic, increased demand from producers and manufacturers near-shoring or re-shoring will also add to future demand.
In a joint report, Exceeding Borders: Industrial & Logistics Market in CEE-17, property consultant Colliers International, lawyer CMS and HR services firm Randstad, concluded that although industrial and logistics property has become one of the most sought after asset groups after offices and residential, the sector faces a number of challenges.
These include: the availability of land and property “in locations that meet both the developers’ and end-users’ expectations”; the availability and reliability of utilities; connectivity to transport infrastructure; labour supply and skills; access to investment incentives.
Large stock but low availability across CEE-17
The industrial and logistics real estate markets across the CEE-17 region are at different stages of maturity, both in terms of size and the pace of development. The total supply of modern industrial and logistics stock across the CEE-17 is over 50 million sq m but availability is low and below 5% in most markets.
Colliers International’s director of research for CEE Kevin Turpin said that demand for CEE industrial and logistics property has been driven by the 3PL, retail and distribution sectors, followed by the light production, automotive and FMCG sectors.
“During the pandemic and looking forward, we do expect to see some changes to the order and volume of this demand with sectors such as e-commerce, data centres and specialist storage increasing their requirements,” he said.
Manufacturers move production closer to home
“While we expect e-commerce to grow at a more rapid pace and drive demand through these challenging times, we also expect that over the longer term, we will see greater demand from producers and manufacturers to bring back parts of their supply chain closer to Europe to mitigate certain risks that we have seen in the past few months,” Turpin added.
He said that in future larger inventories may be stored or produced closer to the end consumer which could also increase demand for industrial and logistics space.
Rents across the CEE-17 region have been largely stable, with typical headline rents across the region range between €2.9 and €5.5 per sq m per month. Markets in the earlier stages of development can currently command €7.0 per sq m per month or more.
Typical land prices across the region vary between €10 and €80 per sq m although scarcity of land sought-after locations closer to major cities can rise to between €120 and €150 per sq m Colliers said.
The CEE-17 countries include Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia and Ukraine.
Most CEE-17 countries use incentives to encourage investment in the industrial and logistics sector, the report states. These incentives vary country by country, but examples typically include support programmes, non-repayable grants or state funding, corporate tax reductions or exemptions, simplified regulations and enhanced administrative support.