Asian firms’ nearshoring a boost to demand for European industrial and logistics space
By Jaromír Cerník,
head of CTP Asia
/ EdgeProp Singapore |
CTPark Brno is a technology, research and development park in the second largest city in the Czech Republic, and home to several Asian companies such as Inventec, Accer and Wistron (Photo: CTP Asia)
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The trend of multinationals “near-shoring” their manufacturing facilities closer to their customers has accelerated amid supply chain disruptions due to the Covid pandemic, heightened geopolitical tensions and increasingly protectionist government regulations. It is a trend that both industrial occupiers and real estate investors are taking note of, particularly in Europe.
The nearshoring trend has led to a 29% increase in demand for factory space in Europe in 2022. The rush for space from manufacturers is benefitting Central and Eastern European (CEE) countries, according to real estate consultant Cushman & Wakefield.
This surge in demand has been accompanied by heightened interest from real estate investors in the industrial and logistics sectors. For example, Singapore’s sovereign wealth fund, GIC, said earlier this year that it is looking for further opportunities to invest in Europe’s industrial and logistics sector, given the nearshoring trend. GIC already has a presence in this sector and continent, having acquired the pan-European Maximus portfolio of 28 logistics assets from US private equity firm Apollo Global Management and the Matrix portfolio of 33 German assets from real estate firm Aroundtown.
Important real estate asset class
The strong supply-demand dynamics and the rise of nearshoring and e-commerce have contributed to industrial and logistics being the most sought-after assets globally. They accounted for 37% of all global cross-regional investments in 1H2023, the highest half-year performance of any real estate asset class, according to CBRE.
In Europe, the CEE countries, such as Poland, Hungary, Serbia, the Czech Republic, Bulgaria and parts of Germany, are seeing the most significant growth in demand for logistics space. Demand is driven primarily by Asian firms, from manufacturers of silicon chips to electric vehicles (EVs), seeking to nearshore to serve their European customers.
Recent examples of Southeast Asian firms nearshoring include Malaysian electronics firm Escatec, which is building its fifth European site in Bulgaria. Taiwanese electronics firm Inventec has built new facilities in the Czech Republic. Samsung’s EV battery division is also building a facility in the Czech Republic. Meanwhile, Racer Technology Medical, a Singapore medical device manufacturer, said it is considering nearshoring its operations earlier this year.
Global contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC) is building a GBP10 billion ($16.7 billion) advanced chip plant in Dresden, Germany. The plant is targeted to open in 2027.
Nearshoring is not a temporary trend. While initially driven by the need to secure supply chains following the global upheaval caused by the Covid pandemic, the shift to nearshoring production capacity has been enshrined in EU policy.
Incentives and regulations
Recognising the importance of more resilient, local and sustainable supply chains, the European Commission has introduced attractive incentives and regulations encouraging firms selling goods in Europe to make them in Europe. For example, under The European Chips Act, the EU plans to channel EUR43 billion ($63 billion) of public and private investments into the manufacture of electronic chips in Europe.
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As Europe’s largest listed developer, owner and operator of industrial logistics properties by gross lettable area, with most of our properties being in CEE countries, CTP is witnessing the nearshoring boom first-hand.
Across its portfolio, CTP sees manufacturers looking to nearshore or take additional space to boost their European capabilities. For example, Taiwanese electronics manufacturer Inventec, which supplies to some of the world’s largest computer and automotive companies, is increasing its capabilities in Europe, creating a new build-to-suit space at CTPark Blucina in the Czech Republic.
In Europe, CEE is the destination of choice for high-tech manufacturing and nearshoring due to a combination of factors. These include its proximity to Western European markets, a strong tradition of manufacturing, excellent infrastructure and skilled human capital. Six of the seven CEE countries are among Europe’s top 10 countries with the highest share of manufacturing jobs.
In 2021, the region exported EUR370 billion in machinery and transport goods, almost a fifth (19%) of the EU-27 total, growing from 14% in 2011. With Science, Technology, Engineering and Mathematics (Stem) subjects underpinning high-tech manufacturing, CEE, with almost a quarter of graduates in Stem subjects, helps ensure a large talent pool.
Closely linked to CEE, which has also seen a surge in manufacturing, are regions in eastern Germany. These regions have become known as a central hub for electronic chip manufacturing with overseas international firms such as Intel and TSMC, which has been encouraged by the EU nearshoring policy. In step with these trends, CTP is increasing its presence in Germany.
The trends for nearshoring and production in Europe are expected to accelerate. It will likely lead to rising rents due to an undersupply of quality logistics space in the region. Yet securing the best industrial and logistics space will be crucial to the success of many Southeast Asian multinationals with European customers.
Occupiers who act sooner rather than later are set to be better-placed for the future. A similar case can be presented to industrial and logistics real estate investors.
Jaromír Cerník is the head of CTP Asia. CTP is Europe’s largest listed developer, owner and manager of industrial and logistics properties by gross lettable area (Photo: CTP Asia)
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