J.P.Morgan’s “2019 Global Payments Trends Report”, published in July, forecasts the Czech Republic will have Europe’s fastest growing e-commerce market between 2017 and 2021. Czechs are already keen e-commerce users and with one of the highest levels of online stores per capita in Europe, this is sure to continue. However, the delivery system is still immature in the regions, where the greatest impact on the real estate market will be felt.

According to the J.P.Morgan report, e-commerce growth across the European region remains strong but uneven. It is slowing slightly in the more mature markets such as the United Kingdom and Germany while growing at double-digit rates in less-developed markets like the Czech Republic and Spain.  

The US-based bank estimates the Czech Republic’s e-commerce market is worth today €4.4 billion – a figure that accounts for just 0.8 per cent of the overall European e-commerce market, but one that is projected to expand at a compound annual growth rate (CAGR) of 16 per cent between 2017 and 2021.  

Underpinning this growth is the rise in the number of Czech online shops. J.P.Morgan says in 2017 the number of Czech e-shops increased by 3,900 to reach 40,100, meaning the country enjoys one of the highest levels of online stores per capita in Europe. The report also highlights the extraordinary growth of mobile as a shopping method, with the Czech Republic having Europe’s highest percentage of so-called ‘m-commerce’ spending at 54% of the total value of e-commerce transactions, followed by the UK at 51%. 

NEW SPACE REQUIRED 

What will this mean in practical terms?

Savills research has shown that when the UK’s online retail penetration rate – i.e. the level of online retail expressed as a percentage of total retail sales – hit 11 per cent there was a surge in demand for warehouse space, as additional deliveries associated with this form of retail require extra warehouse space. Some analysts put the Czech Republic’s online retail penetration rate below the 11 per cent mark, while others such as APEK (the Association of E-commerce) say it has already breached that level, reaching 11.4 per cent in 2018.

Research from Prologis also estimates that for every €1 billion of additional online sales, around 71,535 square metres of new logistics demand is generated. Based on J.P.Morgan’s forecast of 16 per cent CAGR in Czech e-commerce, this translates to over 350,000 sq m of new logistics space required by just the e-commerce sector by 2021. The latest Savills research shows that the Czech Republic’s take up of logistics space reached 722,000 sq m in the first half of 2019, 13% above the H1 five-year average.

LAST TOUCH 

The next question centres on where this new logistics space will be built.  

While the e-commerce delivery system in Prague and middle Bohemia is well serviced, it remains immature in the regions. The rise of e-commerce is pulling supply chains closer to consumers, which is producing regional distribution centres – as opposed to centralized distribution models – that allow online retailers to keep inventory closer to consumers to meet the shorter delivery times they demand (the J.P.Morgan report found that three out of four Czech customers expect same-day delivery). Therefore, there is still logistics growth to come in the regions across the Czech Republic, with Ostrava, Pardubice/Hradec Králové and Teplice/Ústí the three regions that Savills expects to grow the most.

There should also be further logistics growth in Prague’s brownfield areas as e-commerce seeks to use all available space located closest to consumers. These “last touch” facilities are an extension of established supply chains, not only taking goods to retail centres and storefronts, but also enabling delivery all the way to where consumers live and work.