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Macro Indicators Underpin Strong CEE

29

01

2018

Industry Insight

CEE Economies—and thus the industrial real estate sector—has shrugged off international and local political risks, like Middle East wars, nuclear grandstanding, superpower social media meddling, and local political infighting.

CEE continues to lead the EU in top-line macroeconomic indicators: rising GDP & FDI, the lowest unemployment rates within the EU, and strong business-confidence indicators, all of which have resulted in real estate KPIs breaking records across the region. As a point in fact, average CEE GDP growth was 4% in 2017 and is forecast by the IMF to continue this trend through 2022, averaging 3% for the coming period. A significant CEE advantage is its combination of low wages and relatively high productivity. While the average CEE worker earns €8.6/hr—compared to the EU average of €29.8/hr—the highly-literate, language proficient and technically savvy population has become much more productive, with the average GDP/worker rising to 68% of the average workers in Germany, one of the most productive countries in the world.

These business fundamentals have led to growth of local companies and to greater interest from multinationals, which has resulted in huge demand for new industrial properties across the region. For example, Romanian gross take-up grew nearly 15% y-o-y to over 525,000 m2, the majority of which are from the ecommerce and logistics-focused sectors. The growth marks a new record, according to JLL.

The takeaway from e-commerce is that it is now serving the burgeoning local markets, not simply servicing the ‘blue-banana’ markets to the west. In Hungary, the vacancy rate dropped below 4% in Q4 2017, with BTS and new warehouse schemes making up 61% of leasing activity in the period. Net absorption in the market marked its highest point since 2009. Similarly, in the Czech Republic, net take-up (Q3 2017) was up 32% y-o-y across all sectors. Despite major e-commerce interest in the country due to its proximity to the German market, 54% of the total was driven by manufacturers–primarily the burgeoning automotive and high-tech manufacturing sectors—who increasingly leverage a country’s wage competitiveness coupled with the technical capability of its workforce.