The need for warehouse space is growing in direct proportion to the growth of online sales. Based on the latest last-mile market analysis included in the report “Europe’s Last Mile. European Logistics Report 2022”, we estimate that for every billion euros spent in the online retail segment, 24,000 sqm of urban warehouse space will be needed. In the seven largest e-commerce markets of continental Europe – France, Germany, Italy, Spain, the Netherlands, Sweden, and Poland – the value of online retail sales amounted to approximately 293 billion euros in 2021. With its projected growth of 48% by 2026, it can be estimated that by that time, these countries will need an additional 3.5 million sqm of “last mile” space to support it. In Poland, this could be 536,000 sqm. Will the growing e-commerce sector in Poland translate into increased interest in fulfillment services? Commentary provided by Michał Kozdrój, Head of Industrial Agency, Knight Frank
Long-term growth of e-commerce sales
Currently, we are observing a slowdown in sales growth dynamics in the e-commerce sector, which has been influenced by several factors. Due to the fact that the pandemic has ended and restrictions on stationary retail have been lifted, consumers have returned to traditional sales channels. This has simultaneously slowed the exponential growth of online retail sales. Additionally, this has been compounded by the economic situation related to increased inflation and rising interest rates, which has directly translated into a decline in consumption. Investors and developers are therefore now approaching new investment plans cautiously, waiting for the market situation to stabilize. Despite periodic corrections, it is certain, however, that the e-commerce sector will continue to grow. According to Knight Frank analysts, Poland is expected to see the fastest growth in online retail sales in Europe, at a level of 18.7% between 2022 and 2026. In the Knight Frank report “Europe’s Last Mile. European Logistics Report 2022”, analysts predict that the online penetration rate in the 7 largest e-commerce markets in Europe (France, Germany, Italy, Spain, the Netherlands, Sweden, Poland) will rise to 19.3% by 2026, from the current 15.6%. In this aspect, we anticipate, among other things, growing sales via marketplace platforms, which will directly translate into increasing interest from tenants in fulfillment services.
Who is fulfillment for?
Fulfillment is a service consisting of organizing all or part of the order fulfillment process, starting from packing, through shipping, to delivery to the customer via a courier company. This is a particularly beneficial solution for smaller stores that do not have developed logistics infrastructure, i.e., warehouses and order processing. Companies offering this type of service are significantly more efficient in handling the process than small e-commerce companies, and due to their scale, they also have a better position in negotiations regarding rental or delivery costs. Companies providing fulfillment services for online stores want to locate their warehouses within city limits or in their close vicinity. This affects delivery speed and facilitates access to the labor market.
Obstacles
Rents in this type of warehouse range from 3.20 to 4.20 euros per square meter (October 2022). Growing interest in fulfillment services translates into higher demand for space in warehouses that meet the criteria. However, companies providing such services may encounter problems related to the availability of such facilities in the short term. The reason is the decreasing availability of cheap land prepared for such investments. Simultaneous growing interest from tenants in this type of space with limited land supply, as well as rising interest rates reflected in increased financing costs, will have a direct impact on raising rental rates.