Increased inquiries for SBU and LML space in CEE-15 countries

Logistics

An analysis of CEE-15 countries has recorded increased inquiries for small business units (SBU) and last-mile logistics (LML) space, connected with the significant development of the e-commerce sector, according to a report by Colliers.

In the coming quarters, experts expect further development of this market segment and increased demand for I&L (standing for industry and logistics) in the region, says the report “ExCEEding Borders Small Business Units & Last Mile Logistics Sector in CEE-15.”

The total stock of SBU/LML space in the CEE-15 countries accounts for more than 3 million sqm, with the greatest amount, approximately 2 million sqm, located in Poland.

“Occupier demand from the I&L sector in the CEE-15 region over the past few years has been strong and driven mainly by the 3PL, retail, and distribution sectors, followed by the light production, automotive, and FMCG industries,” says Colliers regional director of capital markets Kevin Turpin.

“During the pandemic, we experienced higher tenants’ interest from the e-commerce sector and logistics operators offering their services to retailers and internet trading companies. The increase in inquiries for SBU/LML space is also a consequence of this trend,” Turpin added.

SBU/LML market across the CEE-15 countries is at a different stage of development, with Bulgaria having the biggest share in these spaces of its I&L stock, with 59% of its total supply. The largest amount of space is located in Poland, with 2 million sqm, while there are no typical SBU/LML schemes in Albania and Bosnia and Herzegovina.

Some 500,000 sqm of SBU/LML space is under construction in the region, the majority being in Poland (310,000 sqm). Typically, rents and service charges are significantly higher than in standard buildings, as their locations and ability to adapt to needs result in higher construction costs. In most countries, headline rental rates for this type of space range between EUR 4 to EUR 10 per sqm/month, but in the Czech Republic and Estonia, they can reach EUR 12.

The I&L has become one of the most sought-after property classes in CEE-6 (Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia), resulting from changes in consumer behavior, production of goods, and global supply chains caused by the pandemic and the war in Ukraine.

I&L investment transactions accounted for ca. 25% of all volumes on average in the CEE-6 countries over the past five years. Investment into the sector also secured the top spot in 2021 with 37%. European capital, including CEE, leads investment activity with 33%, ahead of Asia Pacific capital with 31%, since 2017.

Although the war had different impacts on countries, all are experiencing rising fuel prices, higher construction material prices, lower availability, and a partial breakdown of supply chains, all affecting the condition of the I&L market across this region.

“Currently, the I&L sector is performing well, which is why we do not expect any significant changes in this trend in the near future. There is a chance that we will experience some slowdown in I&L market growth until the construction markets and supply chains stabilize and supply chains resume some level of normality. This slowdown, however, is likely to be short-term rather than long-term,” Turpin concludes.

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