A low industrial pipeline and lack of available space is limiting industrial market growth as 73% of demand in the first quarter consisted of renewals, according to Cushman & Wakefield. Companies are having to plan ahead as an estimated 96% of the 2018 pipeline is prelet and only 4,300 sqm of speculative space is expected to be delivered this year.
The Budapest Research Forum (consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary) has traced circa 2.07 million sqm of modern industrial space in the Budapest area. The current vacancy rate stands at 4.2% and there are only four industrial schemes with more than 5,000 sqm of available warehouse space.
Prologis continues to be the largest industrial/logistics developer with four out of the ten largest industrial schemes in the Budapest area. Prime rents are estimated at EUR 4 per sqm per month for existing stock and EUR 4.25 for built-to-suit (BTS) space according to Cushman & Wakefield. Demand trends and increasing construction costs are putting upward pressure on rents.
This compares to Czech Republic where total modern industrial space has increased to more than seven million sqm according to the Czech Industrial Research Forum (consisting of CBRE, Colliers International, Cushman & Wakefield and JLL). There is an estimated 505,000 sqm of warehouse and industrial space under construction in the country, a minority (39%) of which is located in the greater Prague area, indicating that, unlike Hungary there is a commercial logistics market across Czech Republic. Significantly, 45% of space under construction is being developed on a speculative basis. Cushman & Wakefield Poland has traced an estimated 1.9 million sqm of warehouse space under construction in 56 projects across Poland.
Two logistics park developments were handed over in Hungary in the first quarter, representing 18,000 sqm. An 11,000 sqm warehouse was delivered at Wing’s East Gate Business Park and a 7,000 sqm logistics facility was completed at Budapest Dock Szabadkikötő by Westbay. CTP plans to extend its presence in Hungary while P3 Logistic Parks is looking to enter the market.
“The modest speculative development activity has recently been a limiting factor in market activity, and at first created a window of opportunity for existing Class ‘B’ products,” explains Gábor Halász-Csatári, head of industrial at Cushman & Wakefield Hungary.
“Now there is definitely much need for Class ‘A’, modern speculative stock (with existing stock practically being absorbed by the market) and we see that rental levels have started to improve to levels which makes speculative development feasible. This will most probably trigger the speculative development activity that we expect to actually break ground in the short-term,” Halász-Csatári adds.
With regard to further development possibilities, Cushman & Wakefield says it has transacted more than 380,000 sqm of quality industrial development land in the southern M0 area in Gyál and Dunaharaszti. The buyers in each case are international companies with plans to utilize the plots for industrial or logistics purposes. The total developable building potential on the sites sold is more than 150,000 sqm.
Cushman & Wakefield sees a steady flow of demand from new market entrants from the manufacturing/production sector, predominantly looking for countryside locations.
“This is driven by the better availability and pricing of land and workforce and potential state incentives. Large automotive hubs (Győr, Kecskemét) are already very popular. Investors have started looking at the very few institutional products currently available there, and developers also show an increasing interest in developing in well-established countryside cities,” Halász-Csatári concludes.