Real Estate News by CTP Invest, March 2021

Thu | 25.03.2021

Real Estate

CTP Invest informs over the sustainability in the real-estate industry & logistics in CEE: a golden combination.

 

Logistics in CEE: a golden combination

CEE holds a strong macroeconomic outlook and has proven to be an ideal launch pad to support the accelerated growth of ecommerce, 3PLs and near-shoring trends for a collection of reasons, setting the region on stride to outpace Western Europe.

The growth worldwide and in CEE of logistics and ecommerce is by no means a knee-jerk or a short-term solution to the COVID-19 pandemic—it was growing long before. This strong foundation set up prior to the pandemic has functioned like a springboard, facilitating accelerated growth industry-wide.

This growth can be attributed to three key tailwind trends; ecommerce, 3PLs, and near-shoring manufacturing and supply chains. The CEE’s deep integration of manufacturing and supply chains has resulted in an increase in stock levels requiring more space. This puts more demand on specialist 3PL services, such as DHL, DB Schenker and Maersk, to distribute goods faster and more efficiently while requiring more space to do so.

COVID-19 exposed new vulnerabilities in lengthy supply-chains, galvanizing a near-shoring trend where supply chain and manufacturing are closer to their end markets. The congruency between this model and increasing environmental regulations is set to make near-shoring the new normal, ergo requiring more logistics space closer to their consuming markets.

Compared to other real estate sectors, logistics space by nature is relatively cost-efficient and simpler to erect, and in turn logistics facilities are being rolled out with agility to house this demand. The primary issue is sourcing for this demand.   

 

CEE will nest this growth going forward

In the early 2000s, the logistics industry in Western Europe began turning eastward to capitalise on its eastern neighbours’ strategic location and lower labour and land costs. Today, the Czech Republic and Poland are now the most established CEE hubs with their long-shared borders with western markets, while Hungary and Slovakia close behind. Recent years have witnessed explosive growth in logistics inflows in south-eastern Europe, led by Romania.

CEE markets are now out-carrying Western Europe in respect to logistics and logistics growth. The rate of growth of ecommerce sales in recent years in CEE markets is nearly double that of Western Europe (2019-2021: CEE - 23%, Western Europe - 13%, source eMarketer). This growth is in reaction to the fact that logistics stock per capita in CEE is still half of what it is in Western Europe.

Investors are no longer just interested in efficiency, rent and location, but rather in additional qualitative aspects; delivered ESGs, better amenities, more sustainable, energy-efficient and longer-lasting buildings with state-of-the-art BMS and renewable energy sources. These are not just taken into consideration from ethical considerations, they are also more cost-effective in the long run.

As the CEE region offer more growth potential than in western logistics markets, its pulls more innovation than what is often available in western logistics markets. This demand will result in more near-shoring and more stock, both of which require more space.

 

European logistics stock at a glance: According to a recent JLL report, at end Q3 2020 the estimated total European stock of logistics/warehouse space was 300 million m2—based on the 11 major country markets that JLL tracks in its global real estate market data related database (Belgium, Czech Republic, France, Germany, Hungary, Italy, Netherlands, Poland, Russia, Spain and UK). Around 66% is situated within the largest five country markets: Germany, Netherlands, Russia, the UK, and Italy. Germany is the largest European market with a total stock of 73 million m2 of modern logistics space.

The CEE market comprises five main country markets: the Czech Republic, Hungary, Poland, Romania and Slovakia. Its stock currently stands at nearly 40 million m2, approximately 13% of the European total. The largest CEE market is Poland followed by the Czech Republic.

 

European logistics stock, cumulative as at Q3 2020

CEE

million m2

Western Europe

million m2

PL

20.4

DE          

73.0

Z            

9.0

IT           

27.7

SK          

2.8

FR          

25.1

HU         

2.4

ES          

23.6

RO

4.9

UK         

29.7

                             

BE          

22.7

NL

33.9

 

 

 

 

 

 

 

 

 

 

 

CEE market outlook builds confidence

CEE economies showed the most growth before COVID-19 and are shrinking the least during COVID-19. In 2015–2019, the Czech Republic, Romania, Hungary, Slovakia, Serbia and Poland exhibited an average real GDP growth of 3.9%, while in Western Europe (UK, Spain, Netherlands, Belgium, Germany, France and Italy) it stood at an average of 1.9% (source: Oxford Economics). In the last quarter of 2020, Romania GDP growth was 5.3% making it the highest in all of Europe, followed by Bulgaria’s growth of 2.1% and Hungary’s growth of 1.1%.

These same CEE economies also show a lower government debt-to-GDP ratios than western Europe, at an average of 57% compared to same group of Western European economies which is at 123% (source Oxford Economics).

One the key factors supporting this outlook is the makeup of their economies. While tourism and services sectors are hurt by pandemic regulations, industrial sectors continue to pull economies forward and have remained exempt from operational shutdown. CEE is less exposed to tourism, and industry and manufacturing has a stronger presence in their economies, for a more robust outlook for CEE than Western Europe. 

CEE has also seen a recent demographical shift and a reversing of the previous “brain drain” the region had previously experienced, as many of its brightest immigrated west in search of higher wages and living standards. The COVID-19 pandemic has triggered a reversal causing a new “brain gain” as shifting economies bring them back home. In 2020, Romania saw 1.3 million people return, and Lithuania and Bulgaria also saw hundreds of thousands return.

 

CEE macro-economic fundamentals stay strong: Macro-economic fundamentals across CEE continue to point toward growth opportunities, even in the face of a contracting global economy. Solid GDP growth in combination with healthy public debt within the CEE region represents a relatively healthy environment, supported by robust sovereign ratings. According to a recent JLL report, average public debt-GDP ratios in CEE countries is around 57%, significantly lower than the average of 123% for selected Western European countries. A high public debt, particularly in less mature economies, can slow down economic growth significantly, and economists have long generally considered countries with low public debt to be more stable.

 

CEE

GDP 2020

Avg. GDP 2021­–24

Sum GDP 2020–24

CZ                         

-6.9

3.9

8.8

SK                         

-5.6

3.9

10.2

HU         

-5.7                      

3.5                        

8.4

RO         

-5.1                      

3.1                        

7.2

PL          

-3.0                      

3.4                        

10.7

Western Europe

 

DE          

-5.6                      

2.7                        

5.3

NL          

-4.1                      

2.3                        

5.0

BE          

-7.5                      

3.6                        

7.0

IT           

-8.6                      

2.7                        

2.4

FR          

-9.3                      

4.0                        

6.5

UK         

-11.3                    

3.9         

4.4

ES       

-11.5               

4.1                  

4.8

 

 

This article was provided by our Real Estate Partner, CTP Invest.

We also recommend

An interview with Isfahan D...

01.09.2016

Sustainability in the Real-...

25.02.2021

Real Estate News by CTP Inv...

28.05.2021

2021

2020