The future for logistics in Slovenia – Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Tuesday 28th august 2018

By Jacqueline Stuart

Slovenia is ideally situated to become a major logistics hub in CEE

Slovenia benefits from an advantageous geopolitical location, and both sea and air access for freight. Two of Europe’s most important transport corridors, (5 and 10), intersect in Ljubljana, connecting markets by road from Venice to Kiev and Salzburg to Thessaloniki. The many landlocked countries to the east of Slovenia rely on the ports of Koper and Trieste for freight from the far east and north Africa. As part of the Schengen zone, Slovenia has a big advantage over Croatia, having no borders with Italy, Austria and Hungary, and also being part of the eurozone.

Railway line has been a bottleneck but the second track will alleviate this

The railway line forms an important connection from Ljubljana to the Port of Koper. Due to its limitations, freight access to the port is limited. A second track will improve capacity, safety and reliability, as well as increase the travel speed. The new track will necessitate the construction of 7 tunnels, and work will start soon. After completion, capacity will increase from 90 to 220 trains per day. Travel speed will increase and the journey will take 15 to 21 minutes instead of 43 to 48 minutes.

Growth in freight through the port and airport

The financial crisis is behind us and freight through the airport and port has increased thanks to growth in consumer and business confidence.

23m tons of cargo went through the port in 2017, an increase of 6% on 2016. The port handled 741,000 cars; 912,000 of TEU containers; and 1,995 ships in 2017.

Freight through the airport grew from 10,400 tons in 2016 to 12,000 tons in 2017.

Further growth is anticipated in both the port and airport. Luka Koper has received permission from the government to increase the size of the property it occupies from the existing 280 hectares by an additional 43.6 hectares.

Growth in logistics developments across CEE

2017 saw the greatest amount of industrial space built in Europe in its history – more than 3,700,000m2. This represents a 68% increase over 2016 and a 55% increase over the existing record from 2007 (an additional 1,200,000m2). The total industrial space in the region has increased by 17% as a result. Such are the results of a survey conducted by realtor Cushman & Wakefield, a company that has been monitoring the industrial property market in the Czech Republic, Slovakia, Poland, Hungary and Romania on a long-term basis.

The average occupancy rate reached a record-breaking 95.1% last year. Take-up is greater than ever and developers of new projects have no problem leasing them before completion. The greatest amount of industrial space in history was leased in Europe in 2017 – 6,700,000m2, one million more than the previous year.

Ferdinand Hlobil, head of Cushman and Wakefield’s CEE industrial team commented, “Although the development in the region is unprecedented and the Central European region’s steep growth rate is approaching its peak, we are not afraid of a major reversal. The record values are nearing or have even exceeded the pre-crisis figures in many respects, while one principal indicator has been decreasing – the vacancy rate. Supply meets demand and in this respect, the current market is sound,  even though it may appear overheated”

Severe shortage of industrial property in Slovenia

Slovenia is now at crisis point due to lack of production and logistics facilities. Demand outstrips supply tenfold. Large logistics companies are operating inefficiently out of multiple warehouse locations, being unable to find or develop suitable sites for a streamlined, efficient platform in one place. As commercial real estate brokers, we have received 84 enquiries for industrial space so far this year, but we are unable to help the foreign and local companies that require factories and warehouses, as there is so little available. Market leading industrial companies are working in inadequate, cramped premises, and unable to expand.

The importance of logistics to industry

Any successful business leader acknowledges the importance of effectively organised logistics. Seamless logistics is a key element in keeping pace with customer demands and outperforming competitors.

Most businesses want to grow and expand. In Slovenia that means expanding on a regional, international or global level. Streamlined logistics help cut on the costs and time required to move goods from one point to another. Logistics is one of the most crucial factors in the quality of any supply chain.

No new development in Slovenia

Sadly, Slovenia has seen no new industrial development in recent years. We are finally seeing some progress with the development of Cargo Partners and Kuehne and Nagel’s new facilities at the airport,  Lidl’s new logistics centre in Arja Vas, and some smaller developments in Komenda. But this is merely a drop in the ocean compared to what is required.

Resistance to real estate development is hard wired into the DNA of Slovenes. A recent logistics conference organised by this newspaper had not a single panel devoted to the subject of real estate. The thought of covering beautiful green fields with factories and warehouses seems too terrible to contemplate, regardless of how much new development would benefit the companies that provide jobs.

Slovenia’s GDP per capita is around half that of Austria’s. There is no excuse for this given that Slovenia is in a better geopolitical position, has more favourable transport infrastructure, and a better educated workforce. Slovenes deserve to have the same level of prosperity as Austrians and  if the situation is to improve, ways will have to be found to encourage sustainable industrial development, and streamline the planning process. It takes up to 10 years to obtain planning permission in Slovenia for an industrial property, compared to 6 months in Germany.  Slovenia sees a huge amount of Europe’s freight passing east west through the country, and a large amount of that moving north south, with absolutely no benefits to the country. The only impact on Slovenia from this avalanche of freight is toxic emissions and congested highways. Time to think smart and use Slovenia’s location to its advantage to become a logistics hub that will create jobs, and increase the tax take. It is possible nowadays to create carbon neutral industrial developments and Slovenia could become an example to the world of how to achieve sustainable development.

The UK is suffering from a severe housing shortage and central government has threatened to take planning decisions away from local authorities unless more building permits are issued. Maybe something similar might be necessary in Slovenia.

Apart from planning issues, availability of land also makes it difficult to develop new industrial properties. Slovenia is a nation of small businesses. The average size of industrial facility sold in Ljubljana in 2017 was 1,271m2.  This is far away from the requirements of global companies nowadays that need to build factories of 60,000m2 and logistics facilities of over 100,000m2. Where to find the land? It is hard to find even 5,000m2 of building land anywhere in Slovenia.

Komenda serves as a good example of an initiative  by a local authority to convert farmland into building land for industrial facilities. Unemployment in Komenda is 4.7% compared to Slovenia’s national 8.1%, and average gross salary in is 1,809€ compared to the Slovene average of 1,627€. The municipality is now amongst the most prosperous in the country.

Jacqueline Stuart is a Director of S-Invest d.o.o.