Suppliers head east in search of cheaper costs and better prospects.

Cheaper land and labour, improving infrastructure, and economies relatively unhurt by the credit crunch are pulling logistics occupiers to central and eastern Europe

For years, industrial and logistics markets in central and eastern European countries have been closing the gap on the product provided by countries in western Europe. Now a slowdown in consumer spending in western Europe plus an economic boom in the CEE countries has shifted the balance of consumer demand eastwards, changing the face of the distribution map.Although the UK, Germany and France still dominate the market in terms of size - they accounted for nearly 44% of total take-up in 2007 - international retailers are responding to increased spending power in the CEE countries and manufacturers are heading there in search of cheaper locations and labour costs, shifting the geographical centre of the market eastwards. Rising oil prices have also boosted demand for warehouses closer to growing markets in CEE countries, boosting the importance of ports such as Romania's Constanta and the new deep water container facility at Gdansk, Poland.Steve Watt, head of pan-European logistics at Cushman & Wakefield, says that as the infrastructure in eastern Europe continues to improve, ports such as Constanta could challenge such primary western ports as Rotterdam, Hamburg and Antwerp. "With consumer demand slowing in western Europe while maintaining pace in central and eastern Europe, there are questions as to whether the traditional European distribution centre (EDC) in the heart of Holland, Belgium and Northern France may come under threat. "Supply chain pressures may force companies to close or downsize their western European EDCs and relocate to the Czech Republic, Poland or even further east," he adds.Mo Barzegar, European managing director of AMB Property Europe, has started to notice a change in trade routes from China to Europe. "With the continued expansion of retail industries, we are seeing a slight reversal in the trend towards manufacturing moving to China that we saw for the past five to ten years. We are seeing a slowdown of trade flows from China to Europe compared to last year. When we talk to some of our customers, they tell us they are beginning to relocate back into central Europe and eastern Europe because of the region's large labour markets," he says.Jones Lang LaSalle's Trends and Prospects for 2008 reports that despite CEE's lower population figures and smaller consumer markets, the region is recording the highest growth in the modern distribution warehousing sector, outperforming the core markets in western Europe (see bar graph, below). CEE's key markets of Poland, the Czech Republic and Hungary are still characterised by strong demand and economic growth but are expected to slow down later in the year as the effects of the credit crunch begin to weaken demand. Prime warehouse yields in Warsaw and Budapest moved slightly higher, from to 6.75% in 2007 to 7% for Q2 2008, while prime yields in both Prague and Brno have risen slightly for the first time since 2001 at 6.75% and 7.25% respectively. Petra Blazkova, a senior associate from King Sturge, says that although CEE counties continue to offer prime products, good tenants and reasonable lease terms, the ...