Strength in diversity

Since the pandemic, warehousing has been the darling asset class of investors, with the sector showing phenomenal growth despite such adversities as lockdowns. Over this period, Poland has cemented its lead as the warehousing centre of the region, with the total stock in the country now totalling around 30 mln sqm. Marek Dobrzycki, the general director of Panattoni, believes this dominance is down to a number of factors: “Above all, it is its location. On the one hand, Poland connects both the north and the south of Europe, while on the other, it serves as an excellent hub for Western Europe and in particular Germany. This is attracting gigantic investment, such as in European e-commerce, and it is also bringing manufacturing industries into the country in the form of nearshoring,” he points out.

However, despite this dominance, other countries have seen a sharp uptick in investment, and this includes the Balkans. According to Jana Jovanović, the SEE head of research at CBRE: “Bulgaria has the largest logistics stock in SEE region, which now extends to over 1.5 mln sqm in Sofia and its greater area, followed by Serbia with 1.1 mln sqm in the Belgrade area, and a little over 900.000 sqm in Zagreb in Croatia. Looking at the previous two to three years, interest has been accelerating in the industrial and logistics sector, which came with improving stock and market conditions. Most of the transactions took place in the core SEE countries, of which Bulgaria, Croatia and Serbia have been the most active.”

Going big in Croatia

Recently, Czech investor RC Europe began the construction of RC Zone Samobar, which with 170,000 sqm is to be the largest industrial park in Croatia. “The location is great – it’s on the road between the port of Rijeka and Slovenia, very close to Zagreb. There’s no better location in terms of future logistics development in the area,” explains Antonín Dillenz, the CEO of RC Europe. And while he does admit that the country is not known as an industrial powerhouse, he can see other advantages. “We believe that logistics in Croatia will continue to grow. Despite the lack of industry here, we see great prospects due to the country’s location as a link between Europe and the rest of the world – thanks to the potential of shipping,” he insists. Croatia, however, is a country that often seems to lag behind in development when compared to other European countries. As Antonín Dillenz explains: “There are not enough buildings on the market that meet the latest requirements in terms of environmental, operational and social parameters. That’s why we have come up with a project that has these features – BREEAM ‘Excellent’ certification, ESG taxonomy, and so on.” However, RC Europe is not the only one to have sniffed out an opportunity in the country. In July, construction work was started by Log Expert on a logistics centre for consumer goods distribution company Orbico that will comprise 40,000 sqm in the first stage and is to be later extended by another 20,000 sqm. Furthermore, courier service DPD, which is part of French group Geopost, has also started the development of a 37,500 sqm distribution centre.

Untapped potential

Božidar Gaćeša, the SEE head of A&T logistics and industrial at CBRE, is another who sees significant potential in the region. “Southeast Europe boasts a strategic geographical position that provides numerous benefits for businesses seeking to optimise their supply chain operations, while facilitating easy access to major markets across multiple continents, enabling efficient distribution and reduced transit times. This is why after the pandemic and the disruption to supply chains, many manufacturers decided to restructure these chains and became more open to the SEE region as a location for their new production facilities. The region has a number of developed infrastructural projects to allow the entry of goods into Europe, for example, the port of Rijeka in Croatia and also Koper in Slovenia. The SEE region also offers a cost-effective labour force compared to other European countries, ensuring competitive manufacturing capabilities and enhanced productivity. Moreover, Southeast Europe’s transportation infrastructure, including road, rail and maritime networks, complements its advantageous location, enabling seamless connectivity and smooth logistics operations throughout the region and beyond,” he comments.

In diversity strength

Elsewhere across the CEE region, other countries have also proven themselves to be competitive compared to the logistics giant that is Poland. CTP, which has industrial parks across the region, from Bulgaria to Poland, sees each country as contributing something individual to the market. The reasons why are provided by Bert Hesselink, the group client relationship director at CTP: “The advantages different countries offer tenants vary depending on the nature of the tenant’s business. For example, when a business is deciding where to locate its I&L space, two important factors tend to be the cost of transport and the cost of labour. Typically, if a tenant has a less labour-intensive operation, transportation costs will be a more important part of the equation. Therefore, they may be more likely to choose a location closer to their customers in Western Europe, where populations are greater. This could mean locating in a country like the Czech Republic, which has excellent transport links to markets like Germany. However, tenants with more labour-intensive operations in the lower-skilled manufacturing sector might be willing to absorb higher transportation costs, because these will make up a smaller proportion of their total operational costs. Locations such as Hungary or Romania, where labour costs are lower, could therefore be more attractive to businesses that use this kind of space; whereas tenants who require highly skilled workers for high-tech operations could choose Poland or the Czech Republic, where there are greater pools of highly skilled labour,” he explains

When it comes to Hungary, though, Rudolf Nemes, the managing director and cofounding partner of HelloParks, believes that the country has yet more to give. “Hungary’s geographical location is a crucial factor, contributing to several other advantages, such as its well-established infrastructure with a fully developed motorway and rail network and suitable air terminals. All the surrounding countries are well connected, and Hungary is also close to the target markets of Western Europe. On top of that, the labour force is still much cheaper than our northern neighbours, which is particularly important for labour-intensive activity. One of the benefits of leasing in Hungary is the availability of state subsidies, which is a significant factor for international tenants in their selection of a property.” he adds, and also sees the current potential for growth as even somewhat better than the prospects for Poland: “Due to the high demand, there will be an increase in supply here, despite the supply in some other countries like Poland slowing down. The same cannot be said here in Hungary; the market has not been oversupplied in the last five years, so no sharp decline is expected,” believes Rudolf Nemes.

Božidar Gaćeša of CBRE is also expecting major growth across the SEE region, but this would mainly stem from the previous lack of investment resulting in pent-up demand. “The continuing demand has encouraged international investors to show an interest in Serbia, Bulgaria, Slovenia and, particularly, Croatia. Specifically in Zagreb, where the demand is at an extremely high level, bearing in mind that until last year over the last decade, no large scale project had been delivered to the market. Because of this, rents have increased by 40–50 pct over the last few years. The arrival of foreign investors is creating a more competitive environment, and therefore more favourable conditions for tenants. The current situation is such that the available logistics space is close to zero, so deals are being agreed at least 6–9 months in advance. Tenants will have more options and the ability to find space in a relatively shorter period of time,” he explains.

Rules rules rules

One of the reasons why Poland has maintained its lead in industrial development is its relative lack of red tape. As Marek Dobrzycki, the managing director of Panattoni, stresses: “In comparison to our neighbours, we are able to build quickly and economically, which is due to the legal rules in force and also to our large industrial land bank, with sites available in virtually every part of the country.” However, these are not the only reasons he lists for Poland’s success as a warehouse destination. “We are a larger market than our neighbours, such as the Czech Republic, Slovakia and the Baltic states, with a population from which workers can be easily found.”

Bert Hesselink of CTP admits that other European countries can be more bureaucratic than Poland, but does not see this as a major impediment to growth. “On the real estate development side, there can of course be red tape, which varies between countries. But our role as a leading developer with 25 years of experience in the CEE region is to use our expertise and local knowledge to deliver the amount of space our clients need, where they need it, and in a way this also works for the benefit of local communities. An important part of our approach is that we are both a developer and an operator, meaning we are the long-term owners of our business parks. This means we can manage our parks in such a way that we can grow with our tenants, scaling up our parks with the addition of new buildings as they need them, allowing them to grow with us in existing locations. Our long-term presence in our locations also means that we are better placed to overcome any barriers when it comes to developing new space. On the macro side, despite the wider global economic turbulence, the CEE region has shown strong resilience and its GDP growth is forecast to increase twice as fast as the eurozone average between 2023–2026. Although globally there are economic challenges, the region is better placed than most to navigate these,” insists Bert Hesselink.

No drastic changes are likely across European industrial markets in the near future. For certain, new trends have emerged, such as nearshoring, whereby factories are relocating nearer to European markets due to concerns about distribution disruption. Marek Dobrzycki of Panattoni expects Poland to maintain its leading position in the CEE region and even to catch up more with the West. “Poland is certain to keep up its development tempo when you look at what an immature and unsaturated market it is. The gap between it and older EU countries, such as France and Italy, is only going to shorten, as it will offer industrial buildings of the same or even higher quality with lower business costs and superb access to Germany, the largest market in Europe,” he emphasises. Bert Hesselink also foresees the market evolving, highlighting the automotive industry and recycling: “Nearshoring will continue to drive the market. But the transition to clean energy will also have a huge impact on the automotive industry, where companies continue to produce combustion engine cars but at the same time now have to produce electric vehicles. They will need more components and more suppliers, which means the industry as a whole will need a lot more space. The circular economy will also generate huge demand for warehouse space. Products, quite rightly, aren’t just going to be thrown away anymore. They will be re-entered into the supply chain – and this will require space where they can be processed for this,” he says.