Redirecting the Amazon

At the end of September last year, ‘Eurobuild CEE’ received the news that US online retailer Amazon was planning to open five massive order fulfilment centres for the storage of goods and the processing of orders in Poland and the Czech Republic. Shortly afterwards, the news was officially confirmed by PAIiIZ (the Polish Information and Foreign Investment Agency) that three such facilities were to be built in Poland – one each by Goodman and Panattoni in Bielany Wrocławskie near Wrocław and another in Sady outside Poznań, also to be developed by Panattoni. Around the same time, it also emerged that Amazon was planning two similar facilities in the Czech Republic – one near Prague and the other in Brno. Each of the Polish and Czech centres would have floor space of more than 100,000 sqm – an unprecedented size for the CEE region. The largest warehousing project built in Poland prior to this had been Tesco’s 57,000 sqm complex in Gliwice. Amazon’s Polish centres, according to PAIiIZ, will each generate 2,000 permanent workplaces and a further 3,000 seasonal jobs.

From organised to cheap labour
It was not merely the prospect of cheaper costs and labour that has led Amazon to make its move into the region. Its established German facilities have recently been plagued by industrial disputes over pay, leading to the decision to open centres in the much less unionised markets further east. Amazon is clearly in a hurry to get these hubs up and running. In the same month as the Polish investments were announced, Goodman started work on the first project in Bielany Wrocławskie and should have it ready in the second half of this year. Panattoni began work on the facility in nearby Nowa Wieś in January, and was even able to bring the original timeframe for the completion of this project forward from 2015 to October 2014. Panattoni will also be carrying out the development of road infrastructure, including the construction of a roundabout. The joint foundation stone ceremony for the two projects took place on February 6th. Less than a fortnight later, another ceremony was being held in Sady for the distribution centre also being developed there by Panattoni.
The smoothness of the progress of the Polish centres has been in stark contrast to the way things have been going the other side of the mountains. One of the sites selected by Amazon was already permitted and owned by Panattoni at its Panattoni Park Prague Airport complex in the village of Dobrovíz close to Prague’s Václav Havel Airport on the city’s western outskirts. However, local residents soon raised a number of objections to the scheme, concerned mainly about the potential traffic congestion and noise that would be generated. The campaign by the residents to stop the project culminated on December 9th, when the plans were rejected in a local referendum. This threw the entire scheme into doubt, prompting the mayor of Moravskoslezský (the Moravian-Silesian region in north Moravia) to offer a location for the project instead. Talks reportedly took place between CzechInvest (the state investment agency) and Amazon over the proposed relocation. At the same time, problems were mounting for the e-tailer’s other Czech investment in Brno. This time local industrial developer CTP was to carry out the project on land to the south of the city. The deal between Amazon, the developer and the city would involve the sale of land to CTP for almost CZK 218 mln (EUR 8 mln), as well as another contract with the Road and Motorway Directorate (RSD) for the construction of roads to connect the project to the D1 motorway. But for similar reasons to the Dobrovíz project, local opposition grew, as the distribution centre would be situated in an already congested part of the city. However, the main obstacle in the way of the project turned out to be Brno city council itself, as it emerged that it was reluctant to confirm the original deal. It was due to vote on this in March, but the head of CTP Remon Vos, who had been complaining that the body was adding unacceptable conditions to the plan, felt that this delay would risk the deal falling through. He therefore requested an extraordinary session, which was then scheduled for February 14th. Amid all the uncertainty caused by the city’s prevarication, an earlier proposal to locate the centre in Holešov in southern Moravia was renewed. Meanwhile, a revised plan for Dobrovíz, including the construction of bypass around the village, was to be put to the local authorities in a vote to take place the day before Brno’s extraordinary session.

Political pressure
The Czech government, now faced with the nightmare scenario of losing the massive investment and the jobs that would come with the Amazon centres, sprang into action to salvage the two projects. Trade and industry minister Jan Mládek was dispatched to sit in on Dobrovíz council meetings in the run up to the vote, while finance minister Andrej Babiš upped the ante by warning that if the issues in Brno were not resolved quickly, then the potential EUR 109 mln investment could go instead to Poland or Slovakia. Dobrovíz narrowly ratified the revised deal. But Brno city council, to the dismay of the government, refused to back their project. Czech President Miloš Zeman described the vote as “stupid”, bemoaning the loss of so many jobs during a tough economic period. Jan Mládek then declared that other locations would now be offered to Amazon in order to prevent the investment from going abroad. The Brno development could still go ahead, as much preparation has already been done in terms of the land and project documentation, but it is now looking increasingly unlikely. In any case, both schemes will be much delayed beyond Amazon’s original plan to have them operational by September.

More mature than it seems
It might appear that the ease of Amazon’s passage in Poland compared to the difficult birth of pretty much the same projects over the Tatras reflects rather badly on the Czech set-up for facilitating such foreign investment. However, James Chapman, Cushman & Wakefield’s head of capital markets in Central Europe, begs to differ: “There is the feeling that it is harder to secure plots in the Czech Republic, since it is smaller, more physically restricted and therefore harder to compile permitted sites. However, this can be read as a positive – it is already substantially developed with warehousing and is a more stable and mature market. This might create the sort of situation that makes it difficult for an investor like Amazon to move quickly and so the Czech investments of the company are behind schedule. However, that would also be a similar issue in established markets such as the UK. The Czech Republic developed quicker than Poland and has already been through its major development stage. The problems in getting such projects off the ground are not necessarily due the country’s legislation being any more bureaucratic than Poland.”
Whatever Amazon decides to do next, what is for sure is that the company’s investment is a bonanza for the developers involved – and with the inexorable growth in e-retail and the need for such companies to keep costs down and remain competitive, there could be more to come from this sector in the future for the region.