Halls by the highways in trouble. The problems of e-shops fall on logistics centers

Sales of domestic e-shops are falling for the second year in a row. In addition to their owners, it is also bad news for the owners of logistics halls, which are the mainstay of e-commerce business. The overall demand for real estate, which often grows near highway exits, fell by 31 percent last year, according to data from real estate consulting companies Cushman & Wakefield and Colliers International.

Industrial properties have long been among the most stable parts of the real estate market. But it is now slowing down in other Central and Eastern European countries as well.

“The significant decrease in demand is mainly due to its unusually high volume in 2021 and 2022, when the market responded to the increase in e-commerce related to the pandemic. Compared to the five-year average in the pre-Covid period, however, demand in 2023 is still higher. Rather than a decline, it is therefore a return to normal from previous extreme values,” commented Jiří Kristek, head of industrial space leasing at Cushman & Wakefield.

For example, the pharmacy company Pilulka.cz made cuts in the volume of rented warehouses. At the end of last year, she left the logistics center near Olomouc and is now looking for a subtenant of four thousand square meters to replace her there.

“It is a space approved for pharmacy distribution, so it is essentially the largest pharmacy in the Czech Republic,” Hospodářské noviny quoted Pilulka co-owner Petr Kasa.

In general, companies cannot leave the rented premises before the end of the contract without risking heavy fines. Therefore, it is more advantageous for a tenant in trouble to stay in the rental relationship and find a substitute in the form of a “sublet”.

“Modern warehouses in the vicinity of Brno, Prague or Mladá Boleslav were not available for a really long time. Now it has happened, and even with significant incentives from owners or tenants looking for subtenants. The reason is mainly the drop in demand in the second half of 2023, the general drop in household consumption in the same period and the concern of traditional automotive manufacturers or distributors about a reduction in demand due to the transition to electromobility,” explained Matěj Indra, head of the industrial real estate leasing department at the consulting firm 108 Agency.

Development companies are feeling the cooling of interest in new spaces, especially on the part of e-shops.

“We feel a change in the structure of demand, we now perceive increased interest from companies from the manufacturing and technology sectors. Indeed, more and more companies are trying to expand their production capacities or, on the contrary, start production in Central Europe for the European market. Logistics and e-commerce are not growing as we were used to in previous years, but we believe that they still have great growth potential in the Czech Republic,” said Jakub Kodr, head of new business development at the largest warehouse developer CTP.

Competing company Panattoni also made a similar statement.

“We are rather observing a change in the structure of demands. There was a certain loss of momentum in the e-commerce sector, on the contrary, we are experiencing an increase in demand from manufacturing companies, mainly in the automotive segment. We also have to realize that there is a limited number of places for industrial construction in the Czech Republic and the vacancy rate is still very low,” said Pavel Sovička, head of Panattoni for the Czech Republic and Slovakia.

According to figures from the market, the volume of new construction also began to decrease from previous record values. According to the consulting association Industrial Research Forum, at the end of last year, 981,000 square meters of halls were being built. Compared to the same period in 2022, this was a decrease of 20 percent.

Even last year, most of the construction was speculative, i.e. without pre-secured tenants. According to the consulting association Industrial Research Forum, the share of warehouses built in this way peaked in the third quarter of last year. At that time, 41 percent of all built-up areas were built speculatively with a view to future favorable rent. Risk appetite is likely to change now.

“It is possible that the willingness to build speculatively will decrease. I also think that the market has built too many new spaces. It is necessary to take into account the slow permitting process and the fact that more square meters of halls are built than permitted. One day it will catch up with us and the volume of new construction will decrease due to a lack of permits, and not due to low demand or a willingness to build speculatively,” said Martin Polák, head of German warehouse builder Garbe Industrial for Central and Eastern Europe.