Three markets buck the trend and drive long-term logistics growth
Despite rising inflation and fluctuating global demand, P3’s largest markets – Germany, the Czech Republic and Poland – continue to perform. The company’s managing directors for these countries discuss further.
Despite rising inflation and shifting global economic and energy outlooks, P3’s three largest markets – Germany, the Czech Republic and Poland – continue to drive record operational growth at the European logistics investor and developer.
Against the backdrop of war in Ukraine, the inflationary environment forcing organisations to focus on operational efficiency, and customer behaviour driven by fluctuating global demand for goods, P3’s German, Czech and Polish managing directors analyse how their businesses are faring amid uncertain economic conditions, and discuss the risks and opportunities in logistics real estate.
According to the latest economic forecast by the European Commission, real GDP in Germany is expected to increase slightly by 0.2% in 2023, mainly driven by decreasing energy prices and policy support for households and firms. In 2024, growth is expected to rebound to 1.3%. Is this optimistic outlook reflected in P3’s core German business?
Sönke Kewitz – P3 Germany
The disruptive influences are indeed still impacting the market and causing a slowdown in growth, but there are already positive changes. For example, construction costs and interest rates have stabilised, and land costs are dropping slightly.
Relying on our local expertise and financial strength, we will pursue strong growth in the German market in the coming years, via acquisition and development. We currently have three speculative projects under construction, totalling more than 200,000 sq m of lettable space, and continue to search for opportunities.
However, availability of space remains the biggest challenge right now. Where possible, we choose brownfield sites, but most of these revitalisation areas have lain fallow for years. The German Brownfield Association, of which I am a board member, is launching a brownfield register for the whole country, in which all pre-used, vacant sites are identified and listed. This should increase the supply of logistics space and preserve valuable green space.
Ultimately, Germany remains the world’s logistics champion. Its central location in Europe and modern infrastructure mean the country stays popular with companies that operate internationally.
Since the pandemic, we’ve seen increased nearshoring of production and logistics to Germany. In general, all of Germany is an A-grade location that is relevant for supply chain resiliency.
Inflationary pressures in the Czech Republic eased towards the end of 2022, thanks to government measures to mitigate the impact of high energy prices. The harmonised index of consumer prices reached 14.8% in 2022, although cost pressures are set to decline during 2023. Do soaring consumer prices play a significant role in supply/demand dynamics for logistics real estate in the Czech Republic?
Peter Jánoši – P3 Czech Republic
The industrial real estate market in the Czech Republic remains quite robust, with historically low vacancy rates of less than 1% in the Prague region. Combined with inflation, this has resulted in strong rental growth of more than 20% in some cases, which naturally affects customers’ expansion appetite.
The Czech market has many advantages, such as its mature economic and political profile and proximity to western markets, specifically Germany.
The development of the highway network continues and the western Czech Republic may present an interesting location for distribution centres for German firms. P3 Myslinka outside Pilsen, for instance, is approximately 50km from the German border and offers a development opportunity of more than 56,000 sq m.
P3 remains in profitable growth mode, and we’re open to development and investment opportunities in underserved areas in the country, such as the Pilsen region in the west and Moravia to the east.
Investors in the Czech market who rely on bank financing face a challenging environment. With our funding structure, this is an advantage for P3. We’re seeing opportunities surface in the area of sale and leaseback, as well as in some smaller portfolios, which I anticipate may continue through 2023.
Despite significant headwinds, Poland’s economy continued to grow strongly in 2022, supported by factors such as an expansionary fiscal stance and a favourable labour market. Real GDP growth in 2022 is forecast to be 4.9%. What steps have you taken to capitalise on this and do you foresee growth continuing through 2023?
Bartłomiej Hofman – P3 Poland
Poland, like the rest of Europe, is experiencing a high-inflationary environment, meaning occupiers face higher costs for materials and their workforce, as well as historically high energy prices.
In particular, gas prices delivered a large shock to the market, and early in 2022 we registered a 13-fold increase. Now, they’re back down to a more manageable level, of around three times pre-conflict [in neighbouring Ukraine] prices.
Fortunately for P3, our prudent, proactive asset management approach meant we secured gas contracts two years ahead in 2021. I remember customers asking if we had missed a zero at the end of the gas price summary.
Overall occupier demand is somewhat tempered by these factors as well as rental growth, which is driven by overall yield expansion and expectations about investment market returns. However, given that vacancy at the end of 2022 was 5.1%, according to JLL, there’s still a need for new space.
Our fortunate position as one of the few market participants that does not have constraints on debt financing on a project basis allows us to continue with development projects relatively uninterrupted, and to build speculatively in locations we consider highly strategic.
To support this approach, we’re building up our land bank. In Poland, we have a significant land bank of almost 800,000 sq m available for immediate development.
‘The Czech market has many advantages, such as its mature economic and political profile and proximity to western markets.’