Fishing for chips

By 2029 the global market for semiconductors is set to double to reach a value of USD 1.36 bln. Are the European and (in particular) the Polish warehouse sectors likely to be among the main winners from this?

When Intel announced it was building a semiconductor factory in Miękinia in Lower Silesia, it was good news not only for the Polish warehouse sector but also for the local economy. The USD 4.6 bln project could be the biggest foreign direct investment so far in Poland. Just as importantly, around 2,000 highly skilled workers should find employment at the Intel Integration and Testing Semiconductor Plant, with a further 10,000 jobs likely to be created indirectly.

The construction of the factory by the Silicon Valley giant also aligns with the EU’s policy aimed at ending its dependence on chips imported from Asia, but the investment itself is only a drop in the ocean in terms of the EU’s desire to expand its microprocessor industry. Around the middle of this year, the European Chips Act was passed, which is aimed at kickstarting a flurry of both public and private investment in semiconductor development in Europe. The volumes are estimated at EUR 43 bln, of which EUR 3.3 bln will come directly from the EU budget. Its clearly stated goal is to raise the EU’s share of global chip production from 10 pct to 20 pct by 2030.

A shot in the arm for industrial real estate

In July this year, Savills published an analysis of the effects on the industrial real estate market of a possible increase in the production of semiconductors in Europe. This estimated that the EU would need dozens of new factories to meet its goals. The bullish projections of the report suggested that there could be even as many as 58 new factories with a combined area of 1.35 mln sqm. Development on this scale over a period of seven years would certainly not revolutionise the European warehouse market, but the total square meterage is not the real issue. More important is the economic growth stimulus that this would give to those areas where these plants are built. After all, past experience has shown that hi-tech production facilities eventually become business centres that attract subcontractors and service providers. “This also represents a huge opportunity for the industrial real estate market, because such plants need warehousing and distribution centres to serve their supply chains,” points out Michał Samborski, the development director of Panattoni.

According to figures from Savills, the effects of increased semiconductor production should indirectly increase warehouse space demand by 2.4 mln to 4.9 mln sqm. Moreover, 1.6 mln jobs should be created by microprocessor production and its related industries, while the average salaries in the locations where the production takes place are also set to rise significantly. This would, in turn, drive consumer spending, which would then push up the demand for warehousing even further. Savills estimates that the overall increase in warehouse demand will amount to 4.2 mln sqm. Simple arithmetic shows that in an optimistic scenario, the need for warehouse space as a result of the increased semiconductor production could rise by 2030 from a predicted 1.35 mln sqm to even as much as 10.8 mln sqm – so it would certainly be worth the effort to achieve this.

A chance for Poland

Some of this space will certainly be built in Poland, since: “On the one hand, we connect the north and south of Europe, and on the other, we have become an excellent hub for supplying Western Europe,” emphasises Michał Samborski of Panattoni. And, in spite of the current war in Ukraine, the timing isn’t bad either. “Over the last year, there have been many positive signals regarding foreign direct investment in Poland – and these have grown in scale by 24 pct,” claims Katarzyna Pyś-Fabiańczyk, the director of Savills’ industrial services hub in Poland. Over the last year, along with Intel, a number of global companies have invested in Poland, including Japanese firm Dalkin, which is investing EUR 300 mln, and Samsung, which is enlarging its plant in Wronki in Wielkopolska in an investment of EUR 200 mln. “Among Poland’s other advantages are its average salaries, which are only around 40 pct of the EU average, while the hourly wage is 70 pct lower than in Germany,” adds Michał Samborski.

The access to highly skilled employees in some parts of Poland is another factor that could give them a trump card when it comes to attracting the giants of Silicon Valley. These are generally locations where industrial facilities are already being built and where there is a deep technical skill base provided by colleges specialising in educating people to a high level. “What we are talking about are cities that are undergoing rapid growth and driving the development of entire regions. Among these we could give such examples as Wrocław and its surrounding area, Upper Silesia, Kraków, Rzeszów, Łódź, Warsaw and the TriCity,” suggests Michał Samborski. Katarzyna Pyś-Fabiańczyk singles out the TriCity in particular. “When you take into consideration the access to the airport, renewable energy sources, and the potential electricity generation from the planned nuclear power plant, the choice of the Pomeranian conurbation as a location seems more than justified,” she argues. Interestingly, in July this year, Invest in Pomerania was the first organisation in Poland to join SEMI – an association of 2,500 producers from the microprocessor and electronics industries.

A beautiful future

The kind of success that the EU is dreaming of is not going to be easy to achieve. Competition in this market is fierce and other countries outside Europe that are regarded as stronger players are also investing in their capacity. In Asia, China has seen rapid development in this sector, while Taiwan still accounts for up to 60 pct of global chip production. The US is also trying to reverse the trend for falling domestic microprocessor production. In 1990, the country was still responsible for 37 pct of global production, but by 2015, its share had fallen to 24 pct. A year before the EU legislation mentioned above, the US passed its own Chips and Science Act, which is to provide USD 52 bln in subsidies to the US semiconductor industry while a further USD 170 bln is to be invested in research and innovation. According to Savills, similar legislation is to be passed in China, South Korea, Taiwan and Japan.

But however the pie is going to be divided, it’s set to be a huge one. The next few years should see a marked increase in microprocessor production across the world spurred on by an economic transformation. “We predict that the megatrends are going to drastically increase the demand for semiconductors, which include such trends as AI, self-driving vehicles, cloud computation, industrial and logistics automation, the internet of things and also other technologies that are coming onto the market, like AR and VR, quantum computing and 6G telecommunications,” believes Katarzyna Pyś-Fabiańczyk. Analysts also forecast that in the next few years the global market for semiconductors will more than double its revenues from USD 574 bln in 2022 to USD 1.36 tln in 2029.

The question might arise of whether such an increase in the demand for industrial space is indeed that big, since in 2022 the overall demand rose by 37.5 mln sqm and its projected growth according to optimistic estimates is around 1.55 mln sqm annually for the next seven years – which would mean an average increase of 4.4 pct per year for logistics space in the EU. However: “This is indeed a positive signal and further proof that Europe is reindustrialising, which when combined with similar trends from other sectors, will mean that the industrial real estate market will grow and the share taken by manufacturing space is only going to rise steadily,” insists Michał Samborski.