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23. 2. 2024

Nearshoring - why are companies moving their production to the Czech Republic?

Russia's invasion of Ukraine and the change in relations between China and Western countries are causing concern and uncertainty. At a time of changing international relations, Western economies are increasingly relying on reshoring and nearshoring. This is making the CEE region, including the Czech Republic, increasingly important: both due to very good geographical location and a reasonable productivity/labour cost ratio.

The Czech Republic is best placed in the region to offer a truly central location for easy access to main markets in Central and Western Europe. Thus, locating a logistics centre or production plant in the Czech Republic allows for faster delivery of raw materials and goods as well as reduced logistics costs. In addition, the local economy is characterised by a stable, mature business environment and the labour market, despite very low unemployment, has a skilled and technically educated workforce in areas such as automotive, engineering and IT. Moreover, wage costs are still significantly lower than in Western Europe. The Czech Republic also has the advantage of being a member of the European Union, even though entry into the Eurozone is not yet in sight.

Investors who opt for nearshoring can expect increased flexibility, faster processes, shorter lead times, simplified supply chains, better risk management and reduced logistics costs while maintaining or improving production quality when compared to offshoring.

Moving logistics operations from abroad to the Czech Republic requires careful strategic planning. First and foremost, companies must select a suitable location and conduct a thorough cost-benefit analysis. "The location is important not only in terms of connection to important logistics routes, but also because of the availability of suitable warehouse space and necessary human resources," explains Miroslav Kotek of Colliers, which assists companies in securing suitable production or warehouse facilities, adding: "Choice of location is then important when analysing costs, as differences in wages and property prices can vary by tens of percents between regions: with the highest levels traditionally in Prague, Brno and Ostrava and the lowest in the border regions."

For investors considering the Czech market as their nearshoring location, the good news is that the local industrial real estate market experienced a major boom in construction activity in 2023. Although the vacancy rate is below 2%, there is more than 1.5 million m2 of new buildings under construction at the moment. The total supply of modern industrial space in the Czech Republic at the end of 2023 was 11.7 million m2. Rents have stabilised after skyrocketing over the last three years. At the end of the year, they ranged between EUR 7.50 - 7.70 per m2 per month for warehouses and EUR 9.50 - 12.50 per m2 per month for office space.