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Pandemic has made logistics real estate

attractive for investors
Online shopping leaves lower carbon footprint than in-store trips.

Teh formet Prologis Park Nitra. (Source: Courtesy of Prologis)

While logistics real estate used to be less attractive compared to retail or office sectors, the Covid-19 pandemic and
subsequent lockdowns accompanied by a surge of online shopping has increased demand for logistics real estate. Paired
with the lower carbon footprint from e-commerce compared to in-store trips, this makes logistics real estate a highly
desirable investment instrument.
The Slovak Spectator spoke with Martin Baláž, country manager for Czech Republic and Slovakia at Prologis, a major
logistics real estate developer operating in Slovakia, about the impacts of the pandemic on the logistics real estate market,
the environment impact of the last mile and more.
The Slovak Spectator (TSS): What impact has the Covid-19 pandemic itself had on the logistics and industrial real
estate segment in Slovakia?
Martin Baláž (MB): When the first wave of the pandemic hit Slovakia and the country locked down last March, we,
similarly to other companies in other sectors, did not know how the situation would unfold. We halted all our projects and
switched to waiting mode. In the summer, we realised that the pandemic and the consequential lockdown had increased
interest in logistics real estate. This was caused by the rising demand of e-commerce companies and retail companies
responding to the surge in online shopping, as well as industrial companies. The latter realised that they cannot remain
dependent on supplies from other continents, not only China but also the US and others, and began to increase their stocks.
This subsequently increased demand for logistics real estate. This development is in line with a Prologis’s study in the US. It
indicates that if the stocks of companies using our logistics premises increases by some 10 percent, this results in demand
for about 5 million square metres of logistics premises. The situation in Europe is similar.
In the end, while logistics real estate sector used to be a kind of ugly duckling within the real estate sector compared to the
office or retail sector in the past, the pandemic has made of it a highly desirable investment instrument.
TSS: Has the impact of the pandemic in Slovakia differed from other countries?
MB: The Slovak logistics market has increased, but not so significantly as in other European countries. This is because many
e-commerce companies active in Slovakia, which is a relatively small country, service local customers either from the Czech
Republic or other countries. Moreover, consumption in Slovakia is not so strong that it would require such a significant
increase.
TSS: Has the pandemic affected rental contracts in any way?
MB: In the Czech Republic and western Europe, the strong demand has been prolonging rental contracts and pushing
rentals up. These may increase even in tens of percent annually. The situation in Slovakia is a bit different. This is because
the Slovak market is younger and not so saturated. There are still enough projects in the pipeline that may bring relatively
many square metres of logistics premises within next five years. This is not an environment in which rentals would
increase. I do not expect them to decrease either; they will not increase or just very slightly. This period may last for the
next two or three years.
TSS: Has the pandemic brought about something that has surprised you?
MB: An increase in e-commerce. When we look back, one might have expected that when shops close, e-commerce grows.
But during the first wave we did not know how the lockdowns would look and how long they would be. Now, under the
impact of the pandemic, we have even updated our expectations in terms of the development of e-commerce. Originally we
expected that the share of e-commerce on total retail sales in all Europe would increase from 14 percent in 2020 to 18 percent
in 2025. Now we assume that this would be about 20 percent. Simultaneously, we tried to calculate what this increase would
do with demand for logistics real estate, and we found out that an increase by just 1 percentage point will create demand for
about 2 million square metres of logistics real estate in Europe. Thus, when the share of e-commerce increases by almost 6
percentage points, some additional 11 million square metres of logistics real estate within four years will be needed.
Moreover, this does not include the needs of industrial and logistics companies.
TSS: What an impact may such an increase have on the environment?
MB: Our research department looked at the carbon footprint of e-commerce in cooperation with the MIT Real Estate
Innovation Lab. We surprisingly found out that it is lower than that of in-store shopping.
Even though one might have the feeling that there are a lot of vans in cities delivering packages to shoppers, a full standard
van can replace more than 100 individual car trips. The only negative impact of online shopping is excess packaging. In
spite of this, total carbon emissions from online shopping are 36 percent lower, on average, than those produced by in-store
trips. Moreover, built-out logistics networks that deliver goods from urban fulfilment centres close to consumers, rather
than from facilities outside the urban core, can save some 50 percent of transport-related greenhouse gas emissions and
reduce the overall footprint per package by an average of 10 percent. Moreover, electrification within last mile logistics, i.e.
vans delivering packages to shoppers, will further reduce the carbon footprint of e-commerce.
TSS: What is Bratislava like in terms of last mile logistics?
MB: Bratislava, similarly to Prague and Brno in the Czech Republic, is a relative small city in terms of last mile logistics. This
means that delivering packages from a distribution centre or facility to the end-user does not need to be done from the city,
but it can be done comfortably from centres located up to 15 km from the city. In case of London or Paris, 15 km beyond the
city’s border means that you are one-and-a-half or two hours from the centre and you need to have warehouse directly in the
city centre. Moreover, road infrastructure around Bratislava is improving, albeit slowly, a factor that proves the benefit of
last mile logistics from these logistic centres in the future as well.
TSS: Will logistics buildings constructed before and after the Covid-19 pandemic differ?
MB: There will be more pressure to make these buildings greener. Being green will not be a marketing slogan any more, but
a real need for companies that want to succeed.
Another trend is to build higher warehouses and logistics buildings. In central Europe we have already built some buildings
14.5 m high, a clear height of 12 m. Alas, master plans in Slovakia as well as the Czech Republic are not prepared for this and
maintain lower height limits. This is because the local legislation is slower than development on the market. For example,
in Great Britain logistics halls are commonly 18-20 metres high, which is, of course, much more effective.
TSS: What are the plans of your company for this year?
 MB: In Slovakia, we are focusing our activities on Prologis Park Bratislava in Senec, as we sold the third and final building in
Prologis Park Nitra last year. Apart from renting vacant premises in Senec, we plan to start constructing some new halls in
this park.

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4. Mar 2021 at 18:23

 | JANA LIPTÁKOVÁ

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