After a period when it was advantageous for companies to have production capacities outside Europe for many reasons, the time of nearshoring, i.e. moving production closer to customers, is coming. According to Nearshoring, the latest report by Cushman & Wakefield, the CEE region is one of its ideal destinations: it has relatively cheap labour within Europe, an opportune geographical location and good transport infrastructure. This will allow manufacturers to save costs, including those for transport, reduce delivery times and increase flexibility in ordering. In doing so, they will avoid the risks associated with supply chain disruptions that we have seen recently, rising shipping costs and negative perceptions related to ESG.
The main target within CEE will be countries with the advantages of EU membership and are close to Western markets – especially Germany and Austria. The Czech Republic is the only country bordering both and fulfilling the other conditions – making it a hot candidate for locating production capacities.
Jiří Kristek, Partner, Head of the Industrial and Retail Warehousing Team, Cushman & Wakefield, commented: “Several such relocations have already taken place – Jungheinrich, for example, has located its production plant in the Czech Republic in recent months. We are already aware of more manufacturers considering the Czech Republic or the Central European region as one of their preferred destinations, so we will definitely see more of these activities that will boost the local economy and employment. In general, these are value-added demands, i.e. both production capacities and development centres, which can offer interesting opportunities for their suppliers, which may be local companies.”
Automotive parts and clothing manufacturers are interested
The Czech Republic’s additional advantage is its continued construction of new industrial capacity. At the end of this year’s first quarter, over one and a quarter million square metres of such space was under construction, which is 5 percent more than in the previous quarter and 9 per cent more than in the same period last year. Almost a quarter of the volume is in the Karlovy Vary region, followed by the Pilsen region and the South Moravian region. This corresponds with the aforementioned emphasis on proximity to the German and Austrian markets.
The Czech Republic has traditionally produced parts and components for car manufacturers in those countries – and this trend could grow further with nearshoring. The production of machinery, electrical equipment and electronics could also be directed here. However, manufacturers of clothing and other consumer goods are also showing interest in CEE, including the Czech Republic. The reasons include proximity to the end customer and the lower social and environmental impact of production, which is an increasingly important part of the decision-making process for buyers.
Jiří Kristek, said: “The Czech Republic is also attractive for companies considering relocating production due to its geopolitical stability, skilled workforce and investment incentives, which are however still not at a level with those in neighbouring countries. This is where I see room for improvement of our position in Central European competition.”
Manufacturers’ demand will grow – namely for new built-to-suit halls
Modern manufacturing projects tend to have very specific requirements in terms of size, layout or equipment, unlike, for instance, those for warehousing. That is why brand new halls built directly to the specific needs of the manufacturing company are the most suitable for their placement.
For the real estate sector, this trend means an expected increase in demand for industrial space from manufacturers. In the Czech Republic, their share in the total volume of tenants has been roughly between 30 and 40 percent in recent years and is now likely to grow. Within CEE, Poland, the region’s largest industrial market, is the Czech Republic’s main competitor. Outside of CEE, considerations of shifting production are turning to southern European countries with cheaper labour, especially Spain and Portugal, and geographically close Turkey and Morocco.
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