The investment case for Central and Eastern Europe (CEE) is stronger than ever, argues Bert Hesselink, CTP's Group Business Development Director.
When we think of fast-growth economies over the past decades, the spotlight tends to fall on China or the Asian Tigers. It is often overlooked that Europe has its own fast-growth region: Central and Eastern Europe (CEE).
Economic growth in CEE, which includes Poland, Romania, the Czech Republic, Slovakia, Serbia, Hungary and Bulgaria, is remarkable.
Since 2010, real GDP growth has outperformed Western European markets and the whole of Europe, growing by almost 50%, more than double the EU average. This trend is set to continue, with real GDP growth forecast to nearly triple that of Western Europe’s in the coming years.
This growth has rapidly transformed the region into the continent’s ‘Made in Europe’ hotspot, driving demand for industrial and logistics (I&L) real estate. As Europe's largest listed developer, owner, and operator of I&L properties by GLA, with deep expertise and a long track record of delivering future-proofed industrial and logistics space from the North Sea to the Black Sea, we have witnessed this transformation first hand.
Operating in the region since 1998, we have grown our portfolio to 12.4 million m2 (GLA), and such is our confidence in the strength of the CEE that we plan to nearly double this to 20 million m2 by the end of the decade, generating an annual rental income of €1.2 bn, while continuing to develop at an industry-leading Yield on Cost ('YoC') of above 10%.
But what is driving CEE’s growth? The rise of the region is the result of a potent mix of factors, such as massive investment in infrastructure that has greatly improved connectivity; robust and diversifying economies; rising consumption and the accelerating growth in e-commerce, which has historically lagged behind Western Europe but is now catching up from a low base; as well as a skilled workforce and strong labour market fundamentals.
Recently, CEE has also benefitted greatly from emerging global mega-trends, such as the continued rise of 'nearshoring' and 'friendshoring' as companies reassess their global supply chains following the pandemic and increased geopolitical risk.
The nearshoring trend is also being supported by the EU, which has introduced policy to encourage manufacturing in Europe to secure supply chains. This includes the European Chips Act, which will see the EU channel €43 bn in private and public funds into the manufacture of semiconductor chips in Europe.
More recently, the EU’s proposal to impose tariffs on Chinese EV imports will further fuel the rapid relocation of automotive production to Europe. This will impact not only Chinese companies, but European and other global businesses that have operations in China.
With its strong manufacturing base, combined with a skilled and cost-effective workforce and access to Western European markets, CEE is perfectly placed to benefit from the nearshoring trend, with the region rapidly emerging as a manufacturing powerhouse.
Take the automotive industry, where CEE has been going from strength to strength. Since 2015, car production in CEE countries has increased by 41%, with the region surpassing Germany in nominal car production in 2022. Automotive firms are expanding car productions to CEE countries and there are currently around 33 car manufacturing plants across the CEE, with production volumes now exceeding their pre-pandemic levels.
Ultimately, we see the nearshoring trend, with more production in Europe for Europe, only growing in importance. This will continue to drive economic growth across CEE markets, supporting demand for high quality I&L real estate, which remains undersupplied. This will be bolstered by other key trends, as increased demand for artificial intelligence and control systems in communication and mobility (supporting demand for microchips), and innovation in energy solutions (driving demand for battery and storage) reshapes industry and supplier networks in Europe.
Together these trends will continue to drive demand for best-in-class I&L space that can provide businesses with ready-made real estate solutions for their fast-evolving business needs. Investors who act sooner to capitalise on these trends will be better placed for the future.
Learn more about CEE: The Made in Europe Hotspot
