Industrial Sector 1 of Most Sought After CEE Assets

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The industrial and logistics real estate markets across the CEE-17 (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, North Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia) are all at different stages of maturity, both in terms of size and the pace of development.

The total supply of modern industrial and logistics (I&L) stock across the region is well over 50 million sqm in total. From this supply, the current availability can be categorized as low, with the majority of markets recording vacancy rates of below 5%.

“Demand from the I&L sector in the CEE region over the past few years has overall been strong and has been driven by the 3PL [third party logistics], retail and distribution sectors, followed by the light production, automotive and FMCG sectors,” explains Kevin Turpin, regional director of CEE research at Colliers.

“During the pandemic and looking forward, we do expect to see some changes to the order and volume of this demand with sectors such as e-commerce, data centers and specialist storage increasing their requirements. Despite this, the CEE region has a long industrial tradition and remains very attractive to manufacturers ranging from the full spectrum of automotive parts, through to aerospace, metals and plastics, complex electronics, home appliances, food, beverages, pharmaceutics and medical equipment,” he says.

“While we expect e-commerce to grow at a more rapid pace and drive demand through these challenging times, we also expect that, over the longer term, we will see greater demand from producers/manufacturers to bring back parts of their supply chain closer to Europe to mitigate certain risks that we have seen in the past few months. In future, this may mean that larger inventories are stored or produced closer to the end consumer, which could also translate to greater demand for I&L space,” Turpin adds.

Industrial yields for Hungary are put at 7%, compared to 5.25% for Czech Republic, 6.25% for Poland and 8-8.25% for Romania.

Record Levels

Lukáš Hejduk, partner and head of real estate in CEE for law firm CMS, comments that industrial output is near record levels in most countries in the region and that it is undeniable that CEE has become a magnet for manufacturing and logistical operations.

Countries here have attracted significant levels of foreign investment, thanks in part to the region’s well-educated work force, rapidly developing infrastructure and the lower labor costs compared to Western Europe. In addition, there are bespoke legal incentives available to I&L investors in many countries.

However, the report does comment that some of the key challenges in this sector include the availability of land and property in locations that meet both the developers’ and end-users’ expectations, along with the availability and reliability of utilities, connectivity to transport infrastructure, the availability and skills of the labor pool, and access to investment incentives.

“The CEE region has always been among the first destinations in the minds of foreign investors from the production and logistics sectors when looking for savings on personnel costs and availability of workforce,” concludes the report.