On 6-7 November the 11th edition of the SpeedCHAIN International Logistic Conference was held in Prague, bringing together more than 600 logistic managers and specialists to talk about the current trends in Czech logistics. I was fortunate enough to take part on a panel discussion about developments in production and retail logistics, which raised some important points that I will highlight below.
The conference was held against the backdrop of new research by Savills showing that commercial property investment in the first three quarters of 2019 was over €8 billion in the five CEE markets of Poland, Czech Republic, Slovakia, Hungary and Romania, which was 54 per cent above the five-year average. The industrial share of this investment was 13 per cent – a figure that has been steadily rising due to the growth of e-commerce and the need for supporting distribution and logistics facilities. The geographical position of the CEE countries, low labour and property costs, and improving infrastructure are all combining to attract logistics operators and investors to the region. This interest is reflected in prime logistics yields aggressively tightening over the past four quarters, with prime yields in the Czech Republic in the third quarter now at 4.25 per cent compared with yields of 5.15 per cent for Polish facilities in major hubs.
While the health of the Czech logistics market is apparent, the advent of ‘Industry 4.0’ – the fourth industrial revolution that will be all about intelligent production, including robotics, AI and autonomous vehicles – promises to create several challenges for the industrial real estate market in the Czech Republic.
BRAVE NEW WORLD
Czech logistics companies have proven extremely adept at working out the details of logistics and developing solutions to meet the growing demand for higher productivity, lower costs and environmentally friendly services. However, the structural shifts that are taking place in the logistics sector vis-a-vis e-commerce and automation are truly global and it is unclear whether this transformation in supply chains is fully appreciated by the logistics industry here.
As such, Czech managers need to be braver in accepting and promoting new trends. There are too few who are prepared to implement elements of Logistics 4.0 in large measure, and too many only willing to accept some limited elements of it.
Retailing models are changing as e-commerce supply chains grow and retail footprints restructure. Logistics are now regarded as value adding and should thus be viewed as a revenue generator rather than an expenditure. Industry 4.0 is already having an effect on logistics real estate, trends that need to be adopted and further developed by Czech logistics providers.
With technology developing at a fast pace, to avoid industrial facilities becoming quickly obsolete, investors and landlords need to develop their properties to withstand the pace of technological disruption, future-proofing them with greater flexibility for various functions and configurations. Same day/next day delivery expectations of e-commerce customers as well as difficulties in finding and retaining a talented workforce are also increasingly requiring warehouse and delivery hubs to be located near large population centres and transport networks.
This is resulting in some older buildings being refashioned for Industry 4.0. In 2016 Amazon leased the city-centre former headquarters of publishing house Editorial Gustavo Gili in Barcelona. Part of the appeal was the building’s large basement, which can store 20,000 of Amazon’s most commonly ordered products. More than 100 people work in the facility, preparing orders from the Amazon Prime Now app for delivery across Barcelona within two hours. We will soon be seeing similar projects in Czechia.