Prologis concentrates on major markets, so you’re only interested in building in prime locations like Brno, Pilsen and Prague. You’re currently building 34 kilometers down the D1 motorway. How far does Prague extend?
I would say that four or five years ago, we probably wouldn’t be looking at the land at Exit 34. We entered into the first contract there three years ago, but were still a bit hesitant about whether it’s a good location or not. Three years later, we see that the location is simply great and it’s developing. I don’t think that the Prague market will go any further though. And we went as far as on Exit 34 only because it’s the D1. If it were on the motorway to Karlovy Vary, for example, I think the situation would be different. This is the perimeter where I think it can still be considered the Greater Prague market.
Is it any easier to find land around Brno or Pilsen than it is in Greater Prague?
Pilsen is a bit easier, but we also have a land bank there. So, we still have some development opportunities. We are not that keen to expand the land bank in Pilsen at the moment, so we can afford being more opportunistic there. If there is the right opportunity for us in future in this region, we will evaluate it.
Is that connected with the supply of labor force? There aren’t enough people?
Labor is one issue, but also, it’s already a well-developed area. At the same time, there have been several specifics concerning demand in the location. Maybe it’s been affected by the Covid situation since the region is more production-based and slightly more automotive. Probably we will expand the location, but not at the same pace, or to the same extent as we would do in Prague and Brno, where we face difficulties finding land. In Slovakia are only our focus is on Bratislava, where we still see really strong demand.
What’s driving the growth?
For one thing, it’s consumption which is increasing not just in the Czech Republic and Slovakia but all over Europe. Obviously, it has a lot to do with e-commerce growth. In the next couple of years, e-commerce will create demand for a couple million square meters of new warehouse space in Europe alone. Companies have to create much more stock, and this is driving demand for warehouse space.
Why does it matter whether the goods are sold in stores or online? Why do companies need to produce more?
Because we are missing the stock in the brick-and-mortar stores. Everything is stored in the warehouse space. If you want to sell something online, you need to have it immediately available. Today, when people order a TV or a fridge, they want to have it the same day or the next day, ideally. No way will they accept delivery in a week’s time. So, it has to be stored close to the customer. It means that around Prague, Brno or around Bratislava, or other metropolitan areas with the largest purchasing power, you need to have storage there.
You’re talking a great deal about e-commerce’s impact on demand, rather than manufacturing or industrial demand. Does that reflect general demand levels, or is it specific to you?
It’s true that more than 90% of our stock in the Czech Republic and Slovakia is for logistics warehouse space. It’s not that we’re not willing to build production space, rather it’s about the locations where we are. Seventy percent of our stock is in Prague or the greater Prague area. Most of the production companies are either in Pilsen or in Ostrava or in secondary locations, because of labor availability and because they need to be close to their customer. I see this as our advantage right now. Because most of our customers are right now trying to solve the question of where to expand, and how to expand. Not how to downsize or to solve a lack of demand.
Inflation has hit the whole world, especially construction. Are rents going up as a result?
We have been witnessing significant rental growth. The rents that were valid last month are not valid now. It’s really increasing on a monthly basis. The reason lies mainly in the market´s shifting conditions. It’s not only about the construction prices but also about the land prices in our locations. If you want to buy land in Prague at current prices, you just can’t have rental levels set where they were last year or two years ago.
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