Wojciech Kość in Warsaw -
When Amazon opened its giant warehouses in Poland and the Czech Republic, apart from getting online shoppers excited, it also elevated the industrial real estate business in Central Europe to new levels.
Paid scant attention by customers of traditional shopping centres, the warehouses from which Amazon orders are dispatched are central points for clients of the US company and many other online retailers. That is because online customers expect fast and trouble-free delivery to which warehouses must respond round the clock – a consequence of the “we ship in 24 hours” messages to clients on the websites of many online retailers.
“While a typical warehouse facility will have around 100-200 people working on-site, an Amazon warehouse will have 3,000, which can grow up to 5,000 in peak times for online shopping like Christmas,” says Robert Dobrzycki, Panattoni Europe’s Chief Executive Officer Europe. His commercial and industrial real estate company delivered 246,000 square metres (sqm) of warehouse space for Amazon in Poland in 2014 and another 120,000 sqm in the Czech Republic. The US retail giant is also leasing 123,000 sqm of space in Poland from another developer, Goodman Real Estate.
The size of Amazon’s facilities is a reflection of how dynamically online retailing has been growing of late, which is having a considerable impact on industrial real estate. For example, a report by real estate brokers CBRE on the Czech industrial market in the second quarter forecasts that more than 600,000 sqm of industrial space will have been delivered in the country by the end of 2015, fuelled to a considerable extent by e-commerce. “Take-up will be driven by continuing expansion of existing tenants as well as new companies entering the Czech market. Further development of e-commerce will also have a significant impact,” the CBRE report said. According to Richard Curran, managing director of CBRE in Prague, e-commerce means “the industrial market is absolutely booming”.
“Online retailing has an enormous impact on our business, as it drives demand for industrial space, reduces the vacancy rate and pushes down yields on industrial property,” Panattoni’s Dobrzycki says, adding that falls in construction costs only make investment in industrial space more attractive.
Ben Bannatyne, managing director and CEE regional head at distribution facilities giant Prologis, also reports growing demand from e-commerce. “As e-commerce retailers seek to drive profitability, to differentiate their offerings and to improve time to market, logistics facilities are increasingly viewed as revenue drivers,” Bannatyne says.
The numbers are clearly indicating the industrial real estate sector in the Czech Republic is indeed doing well. “During the crisis, vacancy was around 18%; now it's 5%, or in the prime spots 0%. The yield spread between industrial and office has traditionally been around 200 basis points, but that's come down by about half over the past couple of years, with premium warehouses demanding around 6.25%,” CBRE’s Curran says.
The situation is similar in Poland, the region’s largest industrial market. The vacancy rate came in at 7.4% in the first half of 2015, the lowest ratio since 2007, according to real estate services provider Jones Lang LaSalle (JLL). The demand reached 1.17mn sqm in January-June, suggesting last year’s record demand of just over 2mn sqm will be broken. Yields in Poland are under pressure and have come in under 7%, and below 6% in some instances.
On the other hand, traditional retailers are facing a big challenge. Czech online merchants are forecast to generate sales worth €2.8bn in 2015, up 15% from the year before, according to a March report by the Association for Electronic Commerce (APEK) and price comparison website Heureka.cz.
That is coming at a price for physical shops, claims CBRE. “We already see some retailers downsizing their premises alongside operating an e-shop,” a CBRE report on retail in the Czech Republic in the first half of 2015 noted.
According to JLL, omnichannel shopping – or shopping that takes advantage of the many available retail channels – is a “hot topic” on the retail market today, fuelled by the rapid growth of e-commerce. “[It] is perceived by some market participants as a potential danger, while others view it as a chance to increase sales, attract new clients and engage in more quality development,” says JLL.
CBRE’s Curran offers a less nuanced view and one that is more encouraging for the industrial property segment than it is for retail. “Top retail projects are doing well, as retailers want the most visible locations, but everything else is struggling as leases based on turnover are becoming a problem due to e-tailing. Some aren't even looking to raise store turnover – they want a flagship demonstration store, but then expect customers to order online,” says Curran.
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