Industrial and Logistics Demand – What’s Driving Change?

E-commerce enabled shipping, new technologies and sophisticated supply-chain networks are accelerating demand for industrial and logistics space in the Central and Eastern European region according to new research released today by global real estate services firm Colliers International.

Damian Harrington, Regional Director of Research for Colliers International, Eastern Europe, said: “The European industrial and logistics market is diversifying and the traditional distribution channels of Western Europe are no longer the only hubs in the spotlight with growth in the sector driving expansion across the top of Northern Europe into Poland, the Czech Republic and even Slovakia.

The demand for goods is growing in such a way that existing freight networks and modes have faced capacity pressures which have naturally stimulated the diversification and expansion of the intermodality of transport within Central and Eastern Europe to these countries.”

While the extent of this growth is underpinned by several factors including e-commerce demand, improved infrastructure, quality of trade, time-sensitivity and cost, the emergence of transport hubs specialising in intermodal/multimodal transport in the CEE region suggests that economies of scale are a significant driving factor.

Harrington said, “The volume of space occupied by transport and logistics operators specialising in intermodal/multimodal freight systems has increased by almost 70% since 2011 (337,492sq m in 2011 to 570,204sq m in 2013), which we believe is a very telling trend.”
The main logistic hubs are developing within the Czech Republic and Poland; though Slovakia will be one market to watch moving forward.
Russia, whilst still chiefly an internalised market, is quickly developing its own large-scale intermodal/multimodal network driven by domestic e-commerce fulfilment demand – which is growing at unprecedented levels in its own right.”

Harrington said, “The flow-on effect of all this expansion in e-commerce is that there is immense pressure to improve the quality of transport related infrastructure to allow for greater efficiencies in shipments and trades through use of specialised transport and logistics operations.

Overall, Prague dominates activity in the transport & logistics sector in the CEE region and a number of cities in Poland have undergone significant expansion in intermodal/multimodal occupier take-up, mainly in Poznan, Central Poland and Gdansk. Moscow has rapidly developed into the main hub for local markets within Russia.
The potential for e-commerce to transform the volume of space consumed in the CEE region as well as the structure of the market is increasing daily.”

According to the report, Retail is now the top consuming sector of industrial and logistics space in the CEE region. In 2013, 35.2% of logistic transactions were in the wholesale retail & trade sector. By sub-sector, take-up by wholesale retail & trade occupiers specialising in e-commerce increased fourfold, from 1.9% in 2011 to 8.4% in 2013. This equates to an increase in the volume of space consumed from 102,493sq m in 2011, to 554,434sq m in 2013.

As well as expanding geographically, the hubs are getting bigger with e-commerce occupiers dominating take-up of larger (40,000sq m) facilities, particularly in the Czech and Polish markets.

Smaller spoke markets in and around cities are still developing but we anticipate that given the expansion of multi-channel retailing such as click and collect and same/next day delivery, that there will be further structural changes and growth in this sector within the CEE region.

“Unsurprisingly manufacturing is still a major occupier of logistics/industrial space in the CEE region and although not undergoing immediate expansion, there are regional shifts occurring outside the traditional core industrial bases within Poland, the Czech Republic and Russia,” Harrington said.

“The Czech Republic provides a good example – in 2011 more than 80% of the Czech Republic’s manufacturing occupier transactions were in Prague and Brno, however in the last three years this has shrunk to 50% while occupier take-up in the Pilsen and Ostrava regions have grown substantially.”