Central Europe boosts industrial real estate market

Central Europe continues to play a significant role on the industrial real estate map, and despite the rebalancing of the global economy, the market saw a number of major transactions; last year, around 1.5 million square metres of modern industrial space was let in the Central European region. The figure is comparable with that of France, which saw 1.6 million square metres of take up last year, and is considered to be the largest industrial real estate market in Europe.

“In comparison with previous years, supply in Western Europe is very low, and the same applies to take-up. Although both the building and leasing activity in Central Europe has decreased, the 2009 year performance was the third best over the past decade. The region still possesses advantages: a cheaper educated labour force, a favourable position in close proximity to Western Europe, as well as the population’s relatively high purchasing power,” says Ferdinand Hlobil, Head of the Central European Industrial Team at Cushman & Wakefield.

“In addition, compared to Western Europe, Central Europe has immense potential for consumption growth, which further enhances the industrial real estate sector. Logistics, warehouse and industrial parks are an absolute necessity for companies in order to satisfy the everyday consumption of the population,” Hlobil adds.

TAKE UP
The volume of leased industrial space has constantly grown over the last ten years , peaking in 2008 when almost 2.8 million square metres was leased (see Graph). Last year, take-up decreased to approximately 1.5 million square metres. The most significant tenant interest was recorded in Poland and the Czech Republic.

“In Poland – in comparison with other Central European countries – domestic small and medium-size businesses have a much greater economic power. And this applies both to the manufacturers and the retailers. The Czech Republic, on the other hand, is largely linked to the foreign investment. In response to the economic crisis, foreign manufacturing companies have ceased their expansions abroad, and the Czech Republic was the first country in the Central European region, back in 2008, to feel the lower interest in industrial space. Other Central European countries only recorded a decline in demand last year,” Ferdinand Hlobil points out.

SUPPLY
The volume of new construction in 2009 was down by 35 per cent compared to 2008 levels. In total, 1.6 million sq m of modern industrial space was built last year in the four Central European countries, down from almost 2.5 million sq m in 2008(see Graph). Elsewhere in Central Europe, in Slovakia, new construction almost ground to a halt last year, while in Hungary it dropped by half. In Poland and the Czech Republic, new construction decreased year on year by approximately a third.

VACANCY
Currently built accommodation across the Central European region has an average vacancy rate of 16 per cent . The lowest vacancy rate is in Slovakia (7 per cent), the highest in Hungary (19 per cent).

“The balanced state is about 10 per cent of vacant space available for lease. When the rate of non-leased space is lower than ten per cent, in some areas there is no vacant space available for lease and potential tenants thus have nothing to choose from. Such a situation motivates developers to launch again building activity,” Ferdinand Hlobil says.

“The good news for the market is that in the last quarter of the past year the vacancy rate began to decrease. This means that vacant space found tenants. This trend indicates that this year we could reach the acceptable rate of approximately 12 per cent,” Hlobil adds.

RENTS
Standard rents in prime locations throughout the Central European region are approximately EUR 3.5/sq m/ month. At the beginning of 2009, rents in locations with high vacancy saw a downward correction of approximately 10-20 per cent. At the end of last year, upward pressure on prices began in locations with a low vacancy rate, and during the course of 2010, this may be reflected with slight increases in rental prices in strong locations with the highest demand.

Today, there is a total of approximately 12 million sq m of modern industrial space in the Central European region.