Kevin Turpin, Regional Director Capital Markets, CEE at Colliers comments: “Demand from I&L occupiers in the CEE-15 region over the past few years has been strong and driven primarily by the 3PL, retail and distribution, followed by light manufacturing, automotive and FMCG industries.During the pandemic, we have seen increased interest from e-commerce tenants and logistics operators offering their services to retailers and e-commerce companies. Increase in SBU/LML space requests is also a consequence of this trend.”

The SBU/LML market in CEE-15 countries is at a different stage of development
There are no typical SBU/LML schemas in Albania Where Bosnia and Herzegovina. In this case, specific tenants in this sector rent smaller modules in large area or smaller I&L systems of lower standards. Some projects are also built with a concept similar to modern SBU/LML schemas, but for private use. The largest amount of space is located in Poland (about 2 million m²). The country with the largest share in the SBU/LML space of its total I&L stock is Bulgariawhere this type of plan represents 59% of the total offer.

Level of rents for SBU and LML spaces
In the ECO-15 there are approx. 500,000 m² of SBU/LML space under construction. Most of this volume is currently built in Poland (310,000 m²). Typically, rents and charges are significantly higher than in standard buildings, but the SBU and LML spaces compensate for this with excellent locations and excellent adaptation to needs. All of these factors lead to higher construction costs. In most of the 15 Central and Eastern European countries, indicative rental rates for this type of space range between €4.0 until €10.00 per m²/month but, in Czech Republic and Estoniathey can even reach levels of 12 euros per m²/month.

Investments in the I&L sector exceeded the CEE-6^[ii] market volumes in 2021
Significant changes or disruptions in consumer behavior, production of goods and global supply chains, caused by the pandemic and the war in Ukraine, have all led I&L to become one of the most sought-after property classes, not only globally, but also throughout the CEE region. I&L investment transactions accounted for approx. 25% of all volumes on average in ECO-6 countries over the last 5 years. Investments in the sector also secured first place in 2021 with 37% of volumes. European capital (including CEEC) narrowly dominates investment activity with 33%, ahead of Asia Pacific capital with 31%, since 2017.

The impact of the war in Ukraine
The war in Ukraine affected different ECO-15 countries differently. In some of them, the impact of the war on the I&L market is already noticeable, while others have not yet noticed a significant impact on this market segment. However, all countries are experiencing rising fuel prices, rising construction material prices, lower availability and partial breakdown of supply chains, all of which affect the state of the I&L market in this region. Extended construction timelines for new I&L projects or halting of newly launched and planned projects could slow the growth of the I&L space in the coming quarters, compared to the current period.

Land availability
There is a lack of available land in the CEE region, especially in the most desirable locations. Some of the more active I&L developers have been busy in recent years securing land (lank bench) for future development. Other lots, especially those within or near major cities, can often face stiff competition from residential developers who can often charge more per square meter.

“Currently, the I&L sector is doing well, which is why we do not expect any significant changes in this trend in the near future. It is possible that we will experience some slowdown in the growth of the I&L market until the construction markets and supply chains are stabilizing and supply chains are returning to some level of normality, however this downturn is likely to be short-term rather than long-term,” concludes Kevin.

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^[i] In this report, we focus on ECO-15 countries: Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Slovakia and Slovenia.
^[ii] The CEE-6 markets are: Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia.

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SOURCE Necklaces