In the coming years, e-commerce may have a greater impact on the development of the warehouse real estate market than the automotive industry, which has dominated this market over the last 20 years.
According to the latest data from the international consulting firm Cushman & Wakefield, which monitors the warehouse real estate market in the Czech Republic, Poland, Hungary, Romania, and Slovakia, the total stock of modern warehouse space in Central Europe currently amounts to nearly 20 million sqm. Tenant interest is so high that the vacancy rate has fallen to its lowest level in history – 5.7%. For comparison, the share of unleased office space in its total stock is twice as high (12%). Following last year’s problems in the automotive sector, e-commerce is playing an increasingly important role in the market.
– In Central Europe, we are observing the expansion of both local and foreign online stores. Some decide to build branches in the local market, while others focus on development outside their home country, with their first target often being the markets of neighboring countries. E-commerce platforms from all over the world are interested in entering the Central European region, and to implement these plans, they need warehouse and logistics space – said Ferdinand Hlobil, Partner and Head of Industrial and Logistics Agency for Central Europe at Cushman & Wakefield.
– Retail chains and stores are expanding their offerings by opening online distribution channels, which is accompanied by the further development of the warehouse space market. Large foreign e-shops are leasing space to serve customers from Western Europe and for expansion to the East. It is worth noting here that the advantages of Central Europe are significantly lower costs of acquiring qualified employees. Due to large seasonal changes in the labor market, the availability of workers plays an important role, and above all, the possibility of employing them on flexible terms. It is precisely this factor that encourages foreign companies to move distribution functions to Poland, where labor laws are more lenient than in Western Europe. Furthermore, in Poland, they can also often negotiate lower rent than in locations west of our borders – stated Tom Listowski, Partner, Head of Industrial and Logistics Agency in Poland and CEE Corporate Relations at Cushman & Wakefield.
In the e-commerce sector, the largest lease transactions in the past two years were concluded by, among others, the following companies: TIM (30,000 sqm), Mall.pl (over 9,500 sqm), Home24 (26,400 sqm), and Oponeo (12,000 sqm) in Poland; Amazon (133,000 sqm), Mall.cz (29,000 sqm), and Exiteria (11,000 sqm) in the Czech Republic; Alza.sk (12,000 sqm) in Slovakia; and EMAG (7,700 sqm) and Mall.hu (6,300 sqm) in Hungary.
– Another noticeable trend in the market is growing demand. Currently, inquiries about the possibility of leasing 100,000 sqm, or sometimes even 150,000 sqm of space, are no longer surprising, which was rather unthinkable just a few years ago – added Ferdinand Hlobil.
Transaction volume
Last year, the volume of warehouse space lease transactions in Central Europe amounted to 4.5 million sqm. In turn, 4.4 million sqm were leased in 2013. In terms of tenant activity, these were exceptional years in which the transaction volume exceeded the 4 million sqm threshold. Due to very high demand, new warehouse space delivered to the market is leased almost entirely within a few months. In the past five years, practically no purely speculative investments have been carried out in the warehouse market, as developers have sought to meet current demand for new facilities. Of the 4.5 million sqm of space leased in 2015, 3.7 million sqm of lease transactions were accounted for by Poland and the Czech Republic.
New investments
In 2015, developers delivered over 1.5 million sqm of new warehouse and logistics space to the market, compared to 1.4 million sqm a year earlier. However, the highest development activity was recorded in 2007 and 2008, when 2.5 million sqm of space were commissioned each year.
– Last year, the most new warehouse facilities were built in Poland and the Czech Republic, where a total of 1.4 million sqm were completed. In turn, Slovakia recorded an increase in developer activity, with 80,000 sqm of modern space built, compared to an annual supply of 20,000-30,000 sqm in the previous two years. Meanwhile, little has been built in Hungary and Romania in recent years, because in both countries, warehouse facility owners are focusing primarily on leasing existing space, which they are doing very efficiently – said Ferdinand Hlobil.
Unleased space
The vacancy rate in Central Europe has fallen to its lowest level in history, reaching 5.7%.
– The vacancy rate in Hungary has decreased by 5 percentage points to the current 11%, even though it had remained at around 20% for the last eight years. If the Hungarians do not start large-scale investments, this rate may fall below the so-called healthy threshold of 10% – added Ferdinand Hlobil.
Unleased space rates are also falling in Romania, which is a result of stability on the political scene, economic growth, cheap labor, and high availability of investment land. This country has very high potential, interest in it among entrepreneurs is growing, and Cushman & Wakefield employees are receiving many inquiries regarding this market.
Forecast
– Currently, developers have a very strong position in Central Europe. In turn, tenants have limited options for choosing the space they are interested in, but in several locations, development companies that have ready land and projects can proceed with turnkey investments. For this reason, tenants can commission the implementation of BTS-type facilities, i.e., strictly according to individual requirements, and do not necessarily have to adapt existing space to their needs – stated Ferdinand Hlobil.
More and more German companies are opening production plants in Central Europe. They are primarily attracted by the lower costs of qualified labor, as well as property purchases. The authors of the report predict that this trend will continue in the near future.