Companies leased over half a million m² of warehouse and production halls, while developers are holding back on new projects
If the activity of industrial property developers depended solely on tenant demand, the Czech market would be in a very strong position. In the third quarter, even more warehouse and production space was leased than in the previous quarter: from July to the end of September, leases were signed for more than 506,000 square metres of industrial halls, of which 302,000 m² comprised new leases. According to real estate consultancy 108 REAL ESTATE, this is an above-standard result in the long-term context. Nevertheless, speculative construction of new industrial halls has slowed markedly. Developers are focusing on filling existing space, including space in the shell and core phase – approximately 1 million square metres of modern space is currently available. Average rents currently stand at around EUR 5.9 per m² per month, while the highest rents in prime locations reach EUR 7.3.
Statistics from 108 REAL ESTATE show that developers’ caution when starting construction and preparing new projects is not related to rising vacancy. On the contrary, vacancy fell from 5.04% in the second quarter to the current 4.83%, which is a very healthy level. Including space in the shell and core phase, vacancy reached 7.43%. “In the broader context, we see many variables that could affect the domestic economy and, consequently, the industrial property market. These include, above all, the still highly uncertain near-term future of the German automotive industry, while the Czech automotive industry is doing very well. There is also the risk of a steep rise in energy and fuel prices, which manufacturers, transport companies and retailers are monitoring closely,” explains Jakub Holec, CEO of 108 REAL ESTATE, which operates in key CEE countries and therefore has the opportunity for international comparison. The highly responsible approach of developers operating in the Czech Republic is evidenced by the fact that the volume of leased space exceeds completed space – 268,240 m² was added in the third quarter.
Developments from July to the end of September point to a slowdown, rather than a complete halt, in new construction. Halls already under construction are being completed and occupied. Construction is also under way for pre-identified tenants. However, the launch of speculative construction has fallen almost to zero – according to 108 REAL ESTATE, this is mainly due to strong competition from completed buildings as well as those in the shell and core phase. This can be demonstrated by the list of completed projects. The new 30,000 m² J&T hall in Nymburk is still available. Most completed space, however, already has a client. During the period under review, developer GRIDARCH handed over a hall in the GRIDARCH Park Ostrava Mošnov complex to its key tenant, BMW, in Mošnov near Ostrava. Other larger projects completed included a 32,000 m² unit for Rossmann at CTPark Prague North and a 16,974 m² unit at CTPark Brno South, also leased to a client.
The third quarter surprised with logistics outweighing manufacturing in completed transactions after a longer period. New lease transactions accounted for 167,000 m² of new space for distribution companies and 95,000 m² for manufacturing companies. The remaining 38,000 m² went to other sectors. According to Matěj Indra, Head of Industrial Agency at 108 REAL ESTATE, this need not indicate a deeper shift in demand. In manufacturing, this is a cyclical fluctuation, while the logistics segment is being driven by preparations for the approaching Christmas season, as well as the synergistic effect of the expansion of Chinese companies, not only from the e-commerce sector: “Two major players, namely Temu and Shein, are very active on the Polish market. Given the interconnectedness of supply chains, their influence will soon become apparent in the Czech market as well.”
The expansion of many retail companies is being counterbalanced by the risk of rising costs. This concerns, above all, fuel and energy prices. Price developments are no longer determined solely by the war in Ukraine, but also by the continuing instability in the Strait of Hormuz. Price or, more precisely, margin regulation is unsustainable across Europe in the long term. As in 2022, it could contribute to rising inflation and, consequently, consumer prices.
However, analysts at 108 REAL ESTATE continue to see above-average tenant activity in the market. Unlike, for example, the office segment, new companies are still entering the Czech Republic. Their interest is spread across most regions. Among the most significant leases in the storage and distribution sector is Ecologistics’ 44,500 m² at EQT Park Prague North. An undisclosed tenant leased 29,000 m² at Panattoni Business Park Kladno I, while another unnamed manufacturing-sector tenant occupied 29,000 m² at D+D Parku Kosmonosy II.
There are considerable differences in the available supply of industrial space between the individual regions. While the Liberec, South Bohemian and Zlín regions report zero vacancy, vacancy reaches 14.5% in the Moravian-Silesian Region, is close to 14% in the Olomouc Region and remains below 11% in the Plzeň Region. However, the supply of vacant space also includes buildings in the shell and core phase.