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CEE Summit: Far East land link set to boost logistics sector

(Top L to R) Natalia Kushniruk, Richard Betts, Frank Schuhholz,
(Middle) Richard Stephens, Harry Bannatyne, Renata Osiecka,
(Bottom) Robert Dobrzycki.

There is unexploited potential in the CEE’s industrial and logistics market, for occupiers, developers and investors, delegates heard during the Investment Sector in Focus: Warehouse & Logistic market CEE, part of the 7th CEE Summit, organised by Real Asset Media and Poland Today.

The region’s strategic importance has increased dramatically during the year as supply chains have adapted to the pandemic. Furthermore, the stock of warehouse space is low when compared to western Europe.

“In general, 2020 has taught many companies a lot of lessons,” said Harry Bannatyne, partner and regional director of industrial and logistics, Colliers International. “And it has accelerated things that were already happening in the market.”

Renata Osiecka, managing partner, AXI IMMO agreed: “The pandemic has revealed the strength of the sector and demonstrated how solid its fundamentals are. All the trends were accelerated, driving demand for warehouse space, mainly from online shopping.”

‘Offshored’ companies will start to return

Bannatyne believes that, owing to risks to global supply chains, companies that “offshored” processes outside Europe will start to return, he said.

“I think CEE will be the biggest winner in this because it is centrally located, very cost effective and it has come on leaps and bounds in the last few years in terms of connectivity, power and infrastructure in general.”

Bannatyne added that he is already receiving requests for “nearshoring”.
“It will take time, but in the interim e-commerce will continue to grow because we are way behind western Europe. If you look at Poland it has just been an unbelievable story. The stock in Poland is more than the stock in Czech Republic, Slovakia and Hungary put together and consumer demand in Poland is growing and growing.”

Frank Schuhholz, Founder, FMS Advisers, agreed and said that that for the last nine months, Poland and the CEE region have benefitted from the fact that there is a land connection from the Far East into Europe and this will aid the process of “nearshoring”.

“We have seen that in the railway sector volumes have almost doubled compared to 2019. Last year we had 200,000 to 250,000 TEUs (Twenty foot Equivalent Units) up to October 2019. This year we are already up to about 400,000 TEUs imported from China. Lots of that was PPE (personal protective equipment) but Poland and the rest of the CEE has benefited because they could ensure that the supply chains would work overland while there were major interruptions in sea freight.”

He explained that this was partly because the pandemic started in China where ports closed when the pandemic began. But at that point some freight was already at sea and heading to the west and to Baltic ports.

“But after that it was chaos. Nobody could access factories [in China], containers were not delivered to the ports and everything more or less came to a standstill. Airfreight rates rocketed and there was limited capacity because passenger flights were not available any more. But rail could demonstrate that there was a reliable link between the Far East and Europe and that it would continue.”

Panattoni Europe’s CEO Robert Dobrzycki said that trends that were expected to take some time have been compressed into just a few months and it has been useful to observe this. “Obviously, the pandemic is still around, which affects our daily lives, but logistics has been a clear beneficiary of the shift.”

This year will have been good to the logistics sector

“Overall 2020 is going to be a very good year for the logistics sector. Central Europe is very behind in terms of stock per capita and ecommerce penetration. In Western Europe there is huge potential so you can only imagine how much growth there is ahead for Central Europe,” Dobrzycki said.

“Also you have the phenomenon that Poland and the Czech Republic are bordering the largest economy in Europe. So far these countries have been serving this big portion of Europe production wise. But it is becoming pretty obvious that, especially western parts, are ecommerce hubs for Germany and Western Europe.”

Osiecka added that demand from occupiers is such that property owners are beginning to think that it is better to allow a certain amount of vacancy so that they can hang on for better quality tenants.

“This strategy makes sense because the supply dynamics are changing as well.” She said that there has been little development activity in 2020. One reason for this is that banks have taken a more conservative approach to lending.

But throughout CEE, supply is struggling to catch up with demand. In Ukraine, CMS Cameron McKenna Nabarro Olswang partner Natalia Kushniruk, said there is very strong demand but very little supply even thought the scale of the market is as yet much smaller. She pointed out that the total stock in Ukraine is 3 million sq m – in Poland the total amount of stock is 19 million sq m and in Czech Republic it is 9 million sq m even though Ukraine is much larger [nearly twice the size of Poland].