The rapid growth of e-commerce companies has now led to more online retailers building their warehouses and processing facilities in central Europe. The move is creating a buzz in the region’s economy, with countries like the Czech Republic and Poland benefiting the most from this new trend.
Central European countries are popular for their proximity to Europe’s leading economic forces. The closer e-commerce retailers can get to Germany, the Netherlands, Switzerland, and nearby economies, the faster they can distribute products to customers.
The short distance from customers in countries like Switzerland and Germany is a big factor. There is also the fact that central European countries are linked by a capable transportation network, making setting up a distribution network easier. On top of that, e-commerce retailers are benefiting from the relaxed regulations in countries like the Czech Republic.
There is also the cheap labour, which has always been one of the driving factors for foreign investments. A few years ago, manufacturing companies shifted their operations to Southeast Asia and South America for the cheap labour and skilled workers offered by these regions. Central Europe is the next region attracting big foreign investment.
The investment in the warehousing market alone is substantial. Last year, a record-breaking €2.8 billion worth of investments were made in the region’s warehousing market. Experts are already predicting a bigger investment flowing into the region for the first two quarters of this year. Of course, the biggest investments are coming from Asia.
“Five years ago, I would not have expected to see Asian capital in the Czech Republic and Poland,” said Otis Spencer, chief investment officer of P3 Logistics Parks. P3 is working with investors from Asia in securing logistics-related assets, with warehouses, lands, and supporting facilities being the main assets that companies like GIC (Singapore) are interested in.
It’s not just existing warehouses either. E-commerce companies from Asia are more willing to secure land and additional assets and then investing more money to develop facilities that can support their operations in central Europe. GIC, for example, is planning to add four million square metres to its portfolio of warehouses and facilities.
Expansion of Local Facilities
In 2016, GIC acquired 4.1 million square metres of P3 Logistic Parks. The additional investment the firm plans to make this year will virtually double the size of GIC’s facilities in central Europe. To accommodate the increasing demand, P3 is now looking to acquire more land and develop additional logistics assets in the region.
Poland is the next hot country that P3 – and other companies in this industry – now look to for land. Additional investment is entering Slovakia and Romania in the near future. These countries offer a low entry barrier, relaxed regulations – particularly in regard to land ownership – and a lot of space to occupy.
More importantly, the same capable transportation networks found in other countries are also there to support the rapid growth of these new target countries. In the case of Slovakia and Romania, the countries also attract manufacturing companies for their cheap labour and close proximity to other European countries.
An Evolving Market
Keep in mind that logistics facilities were not originally designed for e-commerce companies. They are built with traditional logistics companies in mind, so the sudden market leap was not expected at all. After e-commerce companies became leaders of their industries, however, the leap was inevitable.
Newer facilities being built now are designed to meet the specific needs of e-commerce companies. This means a building layout set for maximum efficiency, support for automation and machinery, and extra flexibility with building features. New warehouses also adopt sustainable and efficient use of energy as the main feature.
Modern warehouses don’t consume a lot of energy, but they provide plenty of opportunities for energy generation. The boxy, square warehouses are perfect for solar panels placed on the roof. The region, in particular, provides the perfect opportunities for warehouses and logistics facilities to be self-sustaining.
For companies like Amazon and Alibaba, the goals are even higher. These companies are aiming to produce energy to be recirculated back to the grid. They are trying to boost ROI by making energy another source of income. The technology is certainly there; e-commerce companies have the expertise and experience to leverage technology to meet their objectives.
Keeping Up with Market Changes
The one challenge that countries like Romania now try to overcome is the rapid market growth itself. While the space is available, it seems like warehouses could not be built fast enough. This is how the rapid shift to central Europe is affecting other industries in the area.
The construction industry is coming up with new ways to build the required structures faster, all while maintaining the highest standards and ensuring safety. There is also the challenge of cost; structures need to be built quickly, but the construction projects still need to meet their budget requirements.
Construction technologies like prefabricated steel pile reinforcement and concrete with hardening additives have quickly become the solution for this issue. Heaton Products, a leading manufacturer of steel pilings, are making pile cages more flexible with the company’s manufacturing technology.
Pile cages that are prefabricated are also easier to work with, so the entire construction time can be shortened without sacrificing the quality and structural integrity of the building. Even the designs of steel pile reinforcement have been tweaked to meet new market challenges. If you want to know more about these changes, there is more information on pile cages available here.
On the other hand, governments in the region are simplifying their processes. Easier approval of construction permit and other documents is introduced to shorten the gap further. More importantly, incentives are being introduced to the market for companies who hire local workers. The goal is to capitalise on this new trend and boost the local economy substantially.
More to Come
If you look at the statistics from last year, the signs are promising indeed. Poland, for example, showed the highest growth of warehousing stock; the country added 17% of its capacity last year alone. Companies like P3 and Logicor are pushing their expansion at an incredible rate. Investments from Asia and the United States are pouring in as well.
This pushes the real estate market to new heights, which means more investors are now attracted by the growth of the region. Mapletree Investments, an investment company based in Singapore, recently acquired Prologis for $1.1 billion. Among the logistics assets of Prologis is a complex in Poland.
China Investment Corp, another big investor, closed their deal with Logicor in 2017. That deal was valued at €12.3 billion and is tied to plans for more investments in the near future. Developers from around the world are entering the market with new technologies and construction approaches, amplifying this already rapid growth further.
These big changes add up to a massive transformation of the region. The real estate market in central Europe now shows an average yield of 20%, with investment in certain areas returning as high as 40% p.a. The compounding effects of these changes are said to have the momentum to continue for 20 to 30 more years, so expect to see more e-commerce and manufacturing companies setting up operations in central Europe in the near future.