Facing the tech challenge

As online shopping continues to expand, the demand for warehouse space is also growing significantly – in Europe alone, every 1 pct increase in e-commerce penetration in total retail creates a demand for 2 mln sqm of warehouse space. And that’s just the demand from e-commerce. Taking other sectors into account, the demand will thus exceed supply, especially in strategic locations, and there’s no indication that this will be any different in the near future.

The global retail sector has undergone a major transformation in recent years and online shopping has become an integral part of everyday life, not only due to convenience and a wide range of offerings, but also due to the impact of digitalisation and the development of technology. The Covid-19 pandemic has also had a major impact in this area, which has greatly accelerated the development of e-commerce – what would normally have taken up to five years occurred in less than six months. After the pandemic, we witnessed stabilisation and even a slight decline in e-commerce turnover. This year, however, there has been a marked increase once again. As e-commerce continues to expand, the pressure on supply chains is accelerating, especially in last-mile logistics, where efficient delivery methods need to meet customers’ growing expectations of quick and flexible delivery. According to the Retail Industry Leaders Association, up to 90 pct of consumers automatically expect delivery within two to three days of purchase. Shoppers in our region also have high expectations. In particular, a survey by Czech research agency Behavio showed that up to 37 pct of people leave an e-shop if they are not offered fast enough delivery, while two-thirds of shoppers say that the speed of delivery is a crucial parameter in their purchasing decisions.

For a layman, the whole process of buying online may seem very simple - a few clicks on your computer or phone, pay, and wait for delivery. Despite the uncomplicated appearance, a dense and sophisticated logistics network exists behind the clicks that runs like clockwork. Prologis, a logistics organisation with a portfolio of high-quality facilities, powers the fulfilment of app. 3 pct of the world’s GDP.

The demand for logistics space keeps growing

Current e-commerce penetration (the share of e-commerce in total retail sales) in Europe is around 16 pct and is expected to reach 18 pct before 2028, according to the available European retail data. Out of the CEE countries, the e-commerce sector is strongest in the Czech Republic, where penetration is slightly above the European level and is expected to exceed 20 pct between 2027 and 2028. This is followed by Poland (currently slightly above 15 pct), Slovakia (around 10 pct) and Hungary, where the growth is slower – penetration is not forecast to exceed 10 pct in the coming years. Among the sectors advancing in the digitalisation of sales, industries like electronics stand out with a significant share. However, many retail sectors, such as DIY and pharmacy, are lagging behind, indicating substantial growth potential in these areas.

What does this mean for the warehouse market? Prologis Research’s in-house research department has calculated that online sales are roughly three times as demanding for a retailer in terms of logistics space as conventional brick-and-mortar sales. According to its research, in Europe alone, every 1 pct increase in e-commerce penetration creates a demand for 2 mln sqm of warehouse space. In the US, it’s as high as 5 mln sqm. The bottom line is that the demand for warehouse space, especially in locations with high concentrations of consumers, is growing (despite the slowdown we saw in late 2023 and early 2024) and is far from reaching its peak. In premium locations, we expect demand to outstrip supply over the long term. The pressure of this situation is forcing companies to work smarter and more efficiently with their existing space and make the most of every square metre available. Prologis strives to provide maximum support to our customers in this respect and we have taken this a level further by offering clients such comprehensive solutions as racking systems, automation, mezzanine systems, IT solutions, security solutions and much more. When new clients move to a Prologis warehouse, they are appreciative of this support and the opportunity it offers in terms of saved time.

It won’t work without automation

A convenient and, in recent years, very popular solution is to embrace automation. According to a study by LogisticsIQ, the warehouse automation market is expected to reach USD 30 bln by 2026, with a compound annual growth rate (CAGR) of around 14 pct from 2020 to 2026.

Compared to the US, for example, we still have a lot of catching up to do in the CEE region. However, automation is gradually being introduced, which significantly contributes to more efficient operations – in terms of time, cost and space, not to mention the demonstrable reduction in the risk of workplace accidents. Automation can increase productivity and reduce labour costs. At the same time, it is able to substantially reduce order picking times.

Popular solutions include automated storage and retrieval systems that deliver faster and smoother operations by linking racking systems with modern software and controllers. This solution is especially suitable for larger warehouses. It also includes systems for efficient picking of goods, collaborative robots designed and constructed to work safely in close proximity to people and assist them in performing tasks, and, last but not least, autonomous mobile robots that move around the warehouse to independently perform a designated activity.

Another issue is the financing of warehouse automation. The cost of automation is of course not small, but with the right choice and the optimal implementation and use of the solution, there is a quick return on investment (ROI). For example, with the use of the aforementioned autonomous mobile robots and collaborative robots, the ROI falls in the lower units of years. Prologis is highly active in the field of automation worldwide. As part of our Prologis Essentials customer platform, we offer the development and implementation of customised automation solutions. The major advantages for customers are the low initial investment outlay, access to top experts and technologies, and comprehensive consulting and supervision of the solution’s implementation. The platform also allows short-term loans of robots to help manage capacity-intensive periods, such as Christmas.

Quality over quantity

High-tech equipment for the buildings and a wide range of services beyond the lease itself is of course reflected in the price of the space, but it is worthwhile for customers. In fact, the rental of a logistics building typically represents around 5-8 pct of the cost of a company’s entire supply chain. Prologis has long been guided by the idea that quality is more important than quantity, and that mere mathematical totals of square metres of space are not the key – what matters is their quality. It is not our goal to offer the largest warehouse space at any price, but to focus on excellence and added value. A high-quality warehouse, even though it may seem more expensive at first glance, is ultimately more cost-efficient, making operations more streamlined and improving the overall spending-to-financial-results ratio when compared to cheaper alternatives. We feel strongly that more customers are looking at warehouse space in the same way, for whom the price per square metre is no longer the main deciding factor. Increasingly, they are looking at the context in terms of having a premium location, service and additional services, sustainability and maximising the effect of each leased square metre. Moreover, this applies to tenants across all sectors, not just e-commerce.

The man at the centre of everything

As SVP and the head of asset management for Central Europe, Martin Baláž is responsible for the entire Czech, Slovak, Hungarian and Polish portfolio of Prologis. He oversees all leasing, construction, property management and project management activities and leads the company’s investment projects and park leasing processes. He joined Prologis in 2014 as senior manager for leasing and development for the Czech Republic and Slovakia. Prior to that, he was an associate partner at Cushman & Wakefield, where he led the industrial and retail space department in Slovakia and the industrial real estate department in the Czech Republic. Martin holds an MBA in construction and real estate from the College of Estate Management in Reading, UK.