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18 I Companies & Markets bne August 2023
Nearshoring drives hike in demand for industrial space in Southeast Europe
Clare Nuttall in Glasgow
Demand for industrial and logistics space is increasing in Southeast Europe, spurred on by the region’s growing importance as a nearshoring destination serving Western and Central Europe.
When the coronavirus (COVID-19) pandemic and lockdowns interrupted international trade and severed global supply chains, companies were forced to rethink their sourcing and many started to look closer to home. Southeast Europe, which is a mix of EU members and aspiring members, became
an obvious choice for companies in Western and Central Europe due to its geographical proximity – including to the car manufacturing hubs of Germany and Central Europe – combined with relatively low costs and skilled workforces.
The next international upheaval caused by Russia’s invasion of Ukraine further made the case for investment into the region. Almost all the states in the region (with the notable exception of Serbia) are firmly in the Western camp. Many are Nato members and all but Serbia and Moldova announced sanctions against Russia. This fits with the recent shift from nearshoring to “friendshoring”, where companies reduce their exposure to political risk by investing into countries with shared values, as outlined by analysts interviewed by
bne IntelliNews for a recent feature.
“The main drivers for demand remain the geostrategic situation that the world is in, where delays in transport from the East have caused major delays and increased prices worldwide. Now European companies are choosing to
have their production closer to their European customers.
If moving the entire production is not possible, then at
least they are choosing to diversity part of it in SEE,” says Stela Dhami, managing partner at international real estate company Colliers in Albania.
Given the time required to make decisions and carry out investments into new production capacity, it’s relatively early days to say how far the nearshoring trend will go. However, according to World Bank data, the Western Balkans region saw a rise in net foreign direct investment (FDI) inflows in 2022 by 1.2 percentage points (pp) of gross domestic product in 2022 to 7% of GDP. The EU is the biggest source of FDI in the region, accounting for around 70% of the total.
The report said the sharp rebound in net FDI inflows since 2019 could be due to nearshoring, along with the relocation of businesses from Ukraine and Russia.
Commercial real estate services and investment firm CBRE
www.bne.eu
reports that the industrial market is growing in the region and interest from tenants is strong. “After pandemic and
war disturbance in supply chains, a lot of manufacturers have decided to redesign their supply chains and more
often consider the CEE region as the location for their new production facilities,” said Joanna Sinkiewicz, senior director, head of industrial & logistics CEE at CBRE.
“Countries like Romania, Croatia, Serbia or Bulgaria should be strong beneficiaries of the nearshoring trend, with the advantages of human resources market-related conditions (availability, costs level, flexibility) in comparison to Western Europe and the vicinity of final sale markets.”
Low cost and stable
The region presents several positives for multinational corporations seeking manufacturing destinations in proximity to their home countries.
“Firstly, Southeast Europe serves as a natural gateway, facilitating easy access to major markets across multiple continents, enabling efficient distribution and reduced transit times,” says Sinkiewicz. “The region has a number of developed infrastructure projects enabling the entry of goods into Europe, for example the ports of Constanta in Romania, Koper in Slovenia and Rijeka in Croatia. The region offers also a cost- effective labour force, ensuring competitive manufacturing capabilities and enhanced productivity. Moreover, Southeast Europe's transportation infrastructure, including road, rail
and maritime networks, complements its advantageous location, enabling seamless connectivity and smooth logistics operations throughout the region and beyond.”
Przemysław Piętak, supply chain advisory director at
CBRE, agrees: “In the rapidly evolving global supply chain landscape, locating warehousing and manufacturing projects in Southeast Europe presents a compelling proposition, offering distinct advantages from a supply chain and logistics perspective. Located at the crossroads of Europe, Asia and the Middle East, this region boasts a strategic geographical position that provides numerous benefits for businesses seeking to optimise their supply chain operations.”
Dhami makes a similar point about the region’s strategic location. Elaborating on the reasons to relocate production
to Southeast Europe, she says: “Southern Europe is at the crossroads of East and West and due to the recent political changes globally with the war in Ukraine and long-term effects of COVID-19, we are observing a growing interest of companies that are considering increasing their production footprint in