22 (117) 2015
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Real Estate & Construction

Destination: Poland. Blazing a trail for e-commerce logistics.

by Paweł Sapek, senior vice president, country manager at Prologis Poland and Jan Zombirt, associate director, research and consulting at JLL
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Is the Polish warehouse market ready for a sector boom?

Gathering Pace

Poland’s e-commerce market is clearly gathering pace, with omni-channel solutions being high on retailers’ agendas, and many internet start-ups recording steady growth. However, the country lags far behind some of the more developed European economies in terms of the share of online retailing in total retail sales. This situation is likely to change going forward, and the gap is expected to shrink. That, combined with Poland being a markedly cost-effective location in Europe, looks set to affect future warehouse space demand nationwide.

Prologis, a global leader in industrial real estate, and JLL, the international advisory company, have recently released a joint research initiative Destination: Poland. Blazing a trail for e-commerce logistics. The report analyses how the development of e-commerce in Poland affects the strategies of retailers and logistics operators in adjusting their supply chain to market requirements and, as a result, generate changes to the warehouse market. The report includes results from a survey conducted among companies from the e-commerce sector1.

Some Stats

Online spending in Poland has experienced double-digit growth over the last couple of years and --according to PMR - in 2014 it accounted for 3.9% of total retail sales. Most of these goods must transit through a modern warehouse/distribution centre. It is anticipated that online spending will increase to 10% of retail sales by 2020, resulting in an even more pronounced impact on both the supply chain and the logistics real estate as well as an increase in demand for warehouse projects. 

The dynamic development of the e-commerce segment creates new challenges for logistics operators working on behalf of retailers. According to the logistics operators surveyed, the main challenges for e-commerce in the next five years include: same-day delivery (100%), handling returns (60%), cross-border (40%), security (20%), increasing labour cost (20%), short- term contracts vs long- term leases (20%) and sourcing appropriate warehouse space (10%).

Are we ready?

Around 50 large warehouse modules will be available for lease in Poland over the next six months. Furthermore, around 280,000m² of warehouse space is currently being developed on a speculative basis - that is without binding lease agreements. 

E-commerce warehouse formats available on developed markets feature certain specializations including: a dedicated e-fulfilment centre, parcel hub/sorting centre, parcel delivery centre and urban logistics depot, returns processing centre, and a dot.com warehouse for online food fulfilment. A survey conducted by JLL among third-party logistic providers (3PLs) and retailers show that some warehouse functions will be increasingly sought after in Poland. For example, according to the research, in the next five years, 71% of 3PLs will express demand for return processing centres. 

According to the surveyed logistic operators, the most important features of an e-commerce warehouse in terms of specification include: flexibility to expand or contract leased space, mezzanine levels, high security, ancillary space, more power, intensive HVAC, and sufficient parking for employees. In terms of location, the key factor is availability and access to staff, access to an extensive road network, and proximity to the end-customer.

The existing modern warehouse space stock in Poland is currently 9.6 million m². Most of the projects meet the requirements of e-commerce tenants. In addition, developers can adjust their investments to tenant needs, for example by adding mezzanine space or increasing power. There is also a possibility to launch build-to-suit-projects. 

What’s the difference?

The major differences between traditional distribution of goods and e-commerce include:
BTC instead of BTB – Delivery locations from fulfilment centres are no longer limited to physical stores, but instead include locations chosen by customers, such as private homes, parcel lockers or collection
points at physical stores. This often extends the delivery time and increases the cost of such deliveries.
Fast deliveries – E-commerce logistics are the same as traditional logistics, but faster. Customers require rapid deliveries, typically same-day or next-day, as opposed to weekly or bi-weekly store deliveries.
Different approach – A different approach: delivery is now a part of brand marketing – in e-commerce the appropriate delivery provides much of the shopping experience. Efficient logistics, which include efficient returns processing, become critical to performance and profitability.
Merchandise ordered online includes fast-moving goods as well as slow-moving ones. This poses a challenge for retailers who keep both types of goods in stock.
High levels of seasonality require flexible warehouse capacity, with the retailer having the ability to ramp up operations (and labour) at peak periods

Take-up continues apace 

70% of the surveyed 3PLs forecast a further increase in demand for logistics services. This will result in increasing demand for warehouse space - generated by the sales of products such as clothes and accessories, household equipment, cosmetics, electronics, multimedia, and food. 

It is expected that more foreign e-commerce firms will relocate to western Poland, the location that enables cost-effective handling of e-fulfilment operations in, for example, Germany. On the other hand, more central regions are well-suited for handling nationwide distribution. This growing demand will also involve specialised projects (for example cross-dock) located closer to urban areas and enable efficient deliveries within cities. Suburban parks will still be the locations most suitable for distribution hubs. Furthermore, Small Business Units and logistics centres within cities will also gradually gain higher recognition among tenants.

E-commerce boom

The boom in e-commerce combined with Poland’s investment attractiveness is creating new opportunities for the warehouse market along with the expansion of companies already present here, an inflow of foreign firms to the market as well as the launching of new brands. All of these entities state the necessity for modern logistics infrastructure. It is predicted that new lease agreements signed by e-commerce firms may be on track to hit 700,000m² by 2020. The good news is that the Polish warehouse market is well-placed to cope with this increase in demand and that the majority of existing space currently meets tenant requirements. 

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