CEP still mushrooming

According to the ‘Polish CEP Report 2022’ recently published by Last Mile Experts, 7R and Cushman & Wakefield, the CEP sector will maintain double-digit growth in 2021–2023 in terms of both volume (14.1 pct) and value (19.9 pct).

Among the factors having the greatest impact on the development of the last-mile delivery segment in Poland is the rapid growth of the country’s e-commerce sector, which has become one of the key shopping channels for consumers. Currently, almost a fifth of Poles buy all non-food products online, and due to the current economic turmoil and the deteriorating economy, as many as 31 pct of respondents intend to shop exclusively online in the future. This change in consumer attitudes has also been accompanied by an increase in the turnovers of e-shops and online retailers, who have been reporting higher revenues and breaking new sales volume records year after year. Their sales for 2021 exceeded PLN 100 bln with a compound annual growth rate (CAGR) of 28.1 pct, maintaining their previous double-digit growth. What does this mean for warehouse developers?

Logistics will be a key advantage. There are many indications that the strong growth of the e-commerce and CEP sectors will continue despite the economic crisis and international tensions. In turn, the projected growth in value and volume implies the need for operators and e-retailers to secure adequate storage and logistics facilities. In this context, facilities that stand out – both in terms of technology and understanding the needs and expectations of future tenants – will become increasingly important.

Tech expectations

At 7R, we can also clearly see that the growth in the CEP sector is continuing to drive the development of urban logistics. Warehouse space in strategic locations within metropolitan areas, such as the City Flex network built by 7R in Poland’s largest cities, is in constant demand. This is because such projects increase the efficiency and flexibility of logistics operations at the last-mile delivery stage and are a natural complement to peripherally located logistics parks.

Currently, facilities specifically for the e-commerce sector account for almost 7.5 mln sqm of the warehouse space in Poland, which is more than 30 pct of the total stock. Since 2019, the sector has grown by as much as 84 pct.

It should also be noted that an attractive location or easy access to strategic transportation infrastructure are only some of the requirements that such facilities must meet. Tenants today expect technologically advanced space that effectively supports their business. Another extremely important aspect are the environmental issues. Increasingly, warehouses score highly in environmental certification. On top of that, today almost all tenants expect newly-built warehouses to meet stringent ESG standards.

So far, 26 mln sqm of modern warehouse space have been built in Poland. Of this, more than 30 pct specifically serves the e-commerce segment. Add to this the growing number of parcel vending lockers – which now amount to 25,000. This number is expected to double by 2025. There is indeed already an extensive distribution network: pick up and drop off (PUDO) points, the ever-growing network of urban warehouses such as 7R City Flex, the network of brick-and-mortar stores used by such companies (especially in the clothing industry) as PUDO points, and, finally, return centres. But the development of this segment does not stop here, as the end-recipient requires even greater flexibility than this in terms of delivery pick-up options, not only in terms of location but also precise pick-up times.

Keeping the faith

According to a survey by PWC, 42 pct of consumers lose faith in a brand after just one bad experience. This shows just how important the last-mile is in terms of the “customer experience” for the CEP sector. The development of q-commerce – where the emphasis is on quick deliveries, often in under an hour – should further tighten these criteria and force greater flexibility.

Meanwhile, it should be mentioned that the last-mile accounts for 30 to even 53 pct of the cost of delivery to the end-customer. This is why the location of last-mile warehouses is and will continue to be crucial as far as reducing delivery costs is concerned. The expansion of the smaller warehouses network close to city centres is a natural complement to peripherally-located logistics parks and enables a substantial shortening of routes and reduction of delivery costs to the consumer.

According to Cushman & Wakefield, on the peak day of 2019, the leading courier companies handled an average of about 1 mln parcels. The number of online purchases has grown so rapidly that in 2021 alone, InPost alone delivered as many as 424 mln parcels over the whole year, which is only slightly less than the figure for the entire Polish CEP sector in 2018 (493 mln parcels). The company remains the undisputed market leader and has grown by nearly 40 pct over the last year alone. DPD comes next in the ranking, and the two companies together account for about 64 pct of the market in terms of volume and slightly under 50 pct in terms of the revenue of the CEP sector. Cushman & Wakefield points out that in the previous year the volume of all shipments in the Polish courier network surpassed the magic threshold of 1 bln and is forecast to increase by another 31 pct next year (1.3 bln shipments).

This data shows that the demand for space in last-mile warehouses will continue to grow, which at first glance may please developers. On the other hand, the limited availability of attractive sites for warehouses near city centres will push up their prices. And that, among other challenges, is what developers will have to contend with going forward.

7R

is a dynamically growing developer operating on the commercial real estate market, specialising in providing modern warehouse and production space for lease. The portfolio of 7R includes large-scale logistics parks, municipal warehouses, which form the 7R City Flex Last Mile Logistics network, as well as BTS facilities. The company is committed to ESG activities and acting responsibly in its interaction with the environment, local communities, and corporate governance.