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Logistics and Distribution - will we seize the opportunity?

After residential and office, the third most sought-after sector by investors

Nuccia Basanić, Senior Consultant, Commercial Real Estate Advisory and Brokerage Services and Ivan Bengez, Analyst, Investment, Valuation Advisory Services, presented how the warehouse and logistics sector expanded thanks to the global health pandemic.

Ivan Bengez started to review the logistics sector in the CEE region, which is comprised of 17 countries in Central Europe. The total offer of the modern warehouse in CEE region exceeds 50 million sq m, of which 22 million sq m are located in the capitals themselves, which shows a lot about the centralization of the warehouse offer near a large population with a great transport connection. Average rent for prime locations is €2.9 – 5.5/sq m. There has been a trend of shorter and more flexible lease terms and from 3 to 5 years.

Typical land prices suitable for the construction of logistics properties in Croatia are between €10 - 60/sq m. Although in some highly sought-after locations they exceed €100/sq m, while over the past few years the cost of construction has increased by about 25% and is now between €300 and 600/sq m.

"Rents in Croatia are on the upper range of the average rents in the countries of the CEE region. What is necessary to point out is that the communal contribution is the most significant expenditure for investors and in Croatia, it is calculated by volume, while in other countries in the region is calculated per square meter. For occupiers of warehouses and logistics spaces, the height of the space is one of the most crucial factors when selecting appropriate property for lease," explained Nuccia Basanić, Senior Consultant, Commercial Real Estate Advisory and Brokerage Services

Supply

Majority of the warehouse and logistics stock is located in Zagreb and its surroundings – Jankomir, Žitnjak, Sveta Nedelja, Jastrebarsko, Velika Gorica in Meridijan 16 zone, also the fastest growing zone in Croatia, Sveta Helena towards Varaždin, Zaprešić, Stupnik, business zone Križ near Ivanić Grad, all of the zones have a common characteristic which is close connection with the highway network . Out of approximately 1,300 zones in Croatia designated for business activities, only around 450 are active.

There is a lack of supply of modern properties of larger surfaces and suitable height, but the projects in the pipeline include world-leading trends with green standards (LEED, BREEAM certificates) which, in addition to reducing external costs, have lower operating costs due to lower energy use.

Build-to-suit and build-to-own models continue to prevail in Croatia, in which companies build logistics and distribution centers according to their needs or collaborate with developers on construction, while companies become long-term tenants. For these reasons, the offer of available space for lease is extremely limited. Given the high development costs, thereby increasing the risk of investment, the number of speculative is insignificant.

"Over eight years there is a noticeable growth in supply. From about 770,000 sq m in 2012, today we count over 1,000,000 sq m. Also, there was a strong drop in the non-occupancy rate, which was over 10% in the same year, while today it is below 2.5% and the average prime rent has remained stable at € 5.5/sq m.” explained Ivan Bengez, Analyst, Investment, Valuation and Advisory Services.

Demand

Demand is highest for modern premises near Zagreb with excellent connectivity, while the demand drivers are mainly coming from retail, distributors and 3PL operators, while further growth is possible due to the development of E-commerce. There is also increased activity of tenants from the technology sector, such as Rimac Automobili, which has opened a new production facility in the existing Heruca building in Veliko Trgovisce. A large proportion of demand is also seen by companies that cannot meet their own needs so they go with the build-to-own option or collaborate with developers on construction and long-term lease, build-to-suit. The COVID-19 outbreak did not affect the development of already startedbuild-to-suit projects.

E-Commerce

The COVID-19 outbreak highlighted the potential for the growth of e-commerce within the European Union. In Croatia, compared to the European average of 20%, there is a 22% share of companies participating in online sales. According to the RetailX report, Croatia recorded the largest growth of online shoppers of 26,88%. Furthermore, in the region, Croatia has the most companies selling goods online to the rest of the world and after Romania, is the second by the percentage of companies selling goods online to other European countries.

Investments

Croatian Post, continued with their development strategy and invested in a distribution network starting with a new sorting centre in Velika Gorica,  logistics center in Kukuljanovo of 5,000 sq m and lastly, renovating logistics spaces in Zadar and Osijek. Also, it is important to mention the construction of the 20,000 sq m LDC Eurospin in Meridian 16 zone, Lidl on a plot of 118,600 sq m in Križ, Manšped 9,900 sq m in Kukuljanovo, GLS logistics in Stupnik on a development land plot of 104,600 sq m, Tommy of 30,000 sq m and FACC production and logistics in Jakovlje near Zapresic of 128,000 sq m. However, this investment is currently delayed, due to the negative state of the aviation industry.

"We expect robotization and automation to increase, which, admittedly, requires a large space. Data centers, properties similar to logistics centers by volume, but do not require a level of transport connection as a logistics property and can therefore be built in more affordable locations, making the total cost of investment lower.," Bengez concluded.

The next webinar Office sector – to return or not to the offices? will be held on Monday, October 26th, at 10 AM on Zoom with live broadcast on Colliers International Croatia's YouTube channel and Facebook page.

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Nuccia Basanic

Senior Consultant

Zagreb

Senior Consultant, Commercial Real Estate Advisory and Brokerage Services

As a Senior Consultant in the Commercial Real Estate Advisory and Agency Services department, Nuccia is focused on tenant and landlord representation and agency services in the office, retail and industrial/logistics market segment. Since joining Colliers International in 2016, she has developed relationships with numerous respectable Clients.

Nuccia’s everyday activities include key client communication with the purpose of developing long term business relationships, presentation of investment projects as well as acquiring tenant and landlord representation projects. She has developed and manages strong working relationships with local and international Clients across various industry sectors such as Microsoft, Atos, Cisco Systems, NOKIA, Centrice, Electrolux, Australian Embassy, Dogus Group and many more.

Since joining Colliers, Nuccia was engaged on various projects whereas she gained great experience through mentorship program, by learning from one of the greatest British experts for shopping centres concept development and property management. She gathered valuable knowledge and working experience which enables her to consult every client on optimal space in order to accelerate their success by choosing the right strategy, starting with the best location.

Her dedication to each task supported with great knowledge of real estate market ensures best-in-class service for every client.

Prior to joining Colliers, Nuccia gained valuable experience in the real estate industry by having spent more than four years working on projects related to high end second homes, residential properties and land development projects in Istria.

Nuccia graduated from the Rochester Institute of Technology and holds a dual degree (American and Croatian). Nuccia is also a licensed real estate agent certified from the Croatian Chamber of Economy.

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Ivan Bengez

Analyst

Zagreb

Ivan joined Colliers in April 2019 as a Junior Analyst in the Investment and Valuation Advisory Services department. His main tasks include research of specific property markets and different industries, analysis of companies’ financial performance, preparation of various reports and studies, such as valuation reports, feasibility studies, highest and best use studies and market research reports coupled with financial modelling.

Ivan holds a Master's degree in Logistics from the Faculty of Transport, University of Zagreb

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