Article published in Logistic News, 05/2020

The most immediate effect from the pandemic has been the rise in online shopping, especially for groceries, as restrictive measures confine people to their homes. Online grocery chain Rohlik.cz said on 6th April that the group is experiencing a sharp improvement in its current situation, with the number of customers, orders and sales rising dramatically.

There remains a question mark over whether this new experience of shopping online for food will translate into a long-term shift in many people’s shopping habits, though the two largest online grocers operating in the Czech Republic, Kosik.cz and Rohlik.cz, are clearly betting it will. In March, Rohlik.cz – which is already doubling its footprint in Brno with the lease of a custom-built, 8,000 square metre facility at CTPark Brno Líšeň – said it intends to build additional distribution centres in regions where it is not yet operating as well as to enable it to launch more services.

At the same time, we have already begun to observe some logistics operators raising inventories given the increased spending online and to protect themselves from any disruption to upstream supply chains. “We anticipate that all customers will tune their supply chains for resilience versus efficiency—five to 10 percent more inventories will translate to real demand for logistics real estate,” said Chris Caton, SVP, Global Strategy and Analytics at Prologis during a business update webcast and conference call with investors hosted by the company on April 6.

Another existing trend set to accelerate in the wake of the coronavirus is the reshoring of industry, especially from China. While large multinationals targeting the domestic Chinese market, like Apple and Tesla, will likely stay put, many medium-sized European companies that moved production to China to cut costs could decide the pandemic, coupled with US-China friction, means it is more sustainable to bring manufacturing home. The coronavirus is also severely disrupting supply chains, causing European manufacturers to look for alternative suppliers nearer home.

All this should lead to a rise in demand for industrial/logistics space in an already tight market. The latest Savills research shows that European logistics take-up reached 26.5m sqm in 2019, 5% above the five-year average, but an 8% fall in leasing activity on the previous year as a result of the shortage of supply. Average vacancy rates remain low across Europe, with the Czech Republic at just 3.7%. This supply could get even tighter over the medium term as developers cut back on building speculative facilities due to the increased uncertainty in the market, instead concentrating on build-to-suit developments. In the fourth quarter of 2019, developers constructed 164,000 sqm of modern space, with 18% of that built on a speculative basis. We expect that if the vacancy rate stays below 10%, it will remain a landlords’ market and speculative building will resume.

Despite the severe economic shock and subsequent rise in unemployment, labour availability in the Czech Republic will likely remain one of logistics operators’ biggest concerns over the longer term. This means the trend of increasing automation of industrial/logistics facilities will continue and even accelerate, particularly as the reshoring of automated production will be especially attractive to manufacturers.

Finally, I believe this pandemic has reinforced the importance in people’s minds of having a good stock of production and logistics properties, a well-developed warehouse network, and strong, stable supply chains. Many European countries, including the Czech Republic, had witnessed pushback from the public about giving over more land to developing industrial/logistics parks, but we are seeing what a crucial role such real estate plays in keeping the economy afloat and the population supplied during challenging times. People are also beginning to better appreciate the many logistics and delivery workers, who are working under difficult conditions. There could well be a lasting shift in public sentiment towards this fundamental part of the economy.