CEE briefing: industrial/logistics has strongest growth potential

Industrial and logistics assets have the strongest growth potential in Eastern European real estate markets, according to Damien Harrington, Colliers International's head of research for CEE.

Harrington made the comment during his presentation to PropertyEU's latest CEE Investment Briefing, which was hosted by law firm Nabarro in London.

One of the key drivers is an increase in manufacturing capacity in the region. Colliers International and CoreNet Global, Harrington said, have recently carried out a study looking at the repatriation of manufacturing globally and in Europe. The aim of the research was to establish the extent to which manufacturers are likely to relocate their production facilities and which regions are likely to benefit.

In terms of production capacity plans for the next three years, the study found Western Europe was stable at 52% with Eastern Europe, Russia and Turkey increasing their capacity (48%).

Harrington: 'I think the interesting thing is that they don’t see much change in Western Europe in terms of increasing production capacity. Their largest growth markets globally compared to South-East Asia is Eastern Europe, Russia and Turkey. That is in itself going to increase demand for logistics and warehousing space.'

The second potential driver is the growth in e-tailing in Eastern Europe. There has been 'pretty significant' growth in online retailing in CEE according to Eurostat, Harrington noted, and this could impact secondary retail assets, while supporting demand for logistics space.

'The effect of e-tailing has yet to fully kick in, though at some point that is going to start cannibalising more secondary retail centres. I think the dominant retail centres will be absolutely fine as they are shown to be.'

Harrington said that no-one was certain how this would pan out. 'If you look at the UK it has affected the high street, or secondary high street more than anywhere else. We don't really have that many retail high streets in Eastern Europe - apart from the main tourism centres - so maybe the impact is not going to be significant but there is bound to be an impact.'

'I think the most positive impact is going to be in growth in demand for warehousing and logistics,' he added.

An example is Amazon's growing global footprint with another 250,000 m2 set up last year, with a similar amount planned for 2013. 'There are rumours that they are now looking at the Czech Republic quite genuinely so that would be their first foray into the Eastern European markets. So, online retailing is going to be a source of growth in due course.'

Retail in general, panellist Neil Gregory-Eaves agreed, is supporting the industrial/logistics property sector. 'We are starting to see a re-emergence of a liquid, logistics asset class primarily because it is perceived as a retail derivative. If you believe in retail, you have to believe in logistics,' Gregory-Eaves said.

Martin Erbe of Helaba noted that Germany has 70 million m2 of logistics space while Poland currently has only 7.5 million m2.

Craig Maguire of DTZ said an 'evolution of the retail process' was under way in CEE logistics. Retailers are looking for more efficiencies in the supply chain. It is as simple as that and it will continue to develop. If the supply chain didn't work the logistics business in the UK would have stopped 15 years ago.'