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Industrial Development in Hungary Booming

Industrial

Prologis Park Budapest-Sziget II

The boom in the industrial sector continues, with demand remaining high and vacancies at a record low. In one recent logistics transaction, developer and investor Wing has purchased the Airport City Logistics Park, located in the neighborhood of Budapest Liszt Ferenc International Airport, from CPI.

The business park contains almost 44,000 sqm of warehouse buildings and 8,0000 sqm of offices in six already functioning buildings, with a seventh under construction.

“In line with its premium quality, the transaction was carried out at a 5.6% yield, which is the lowest ever rate in the Hungarian industrial and logistics property market,” Wing say of the deal.

Total modern industrial stock in the Budapest area stands at about 2.7 million sqm, according to the Budapest Research Forum, consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary. This is a relatively small stock by Central European standards. The Czech Republic, for example, has approaching 10 million sqm of industrial space.

In another significant industrial deal, the leading Hungarian and regional industrial park developer and operator Prologis acquired an additional 19 hectare site for Prologis Park Budapest-Sziget II, with the total potential to develop 12,000 sqm of space in four logistics buildings.

The second phase of the first building, currently under construction, will see 14,000 sqm of speculative space delivered 17 km from the center of Budapest. The first 14,000 sqm was let to a Hungarian-owned freight-forwarding and warehousing company.

In general, projects have a delivery time of 10-12 months from permitting to completion, according to Zsuzsanna Hunyadi, director of leasing and customer experience at Prologis Hungary.

With the new development, Prologis has a pipeline of 50,000 sqm of space in Hungary for the year. The country is seen as lacking a robust secondary industrial market in the regions, and therefore Prologis continues to concentrateg its development strategy in the M0 area around Budapest.

The Long Game

As a specialist industrial park operator, Prologis holds onto its developments and acquisitions on a long-term basis. This is also a trend among its peers, meaning there is a shortage of industrial assets available in Hungary and across the Central European region.

Industrial developers and park operators are developing highly specified, sustainability-accredited projects in response to changing tenant demands and stricter sustainability regulations.

Further, the leading national and regional industrial park developers and operators are seeking third-party sustainability accreditation such as BREEAM and LEED. Prologis, for example, is developing in accordance with at least BREEAM “Very Good” certification for its entire portfolio.

“All our developments reflect tenant concerns with renewable energy and energy costs with the provision of 25% renewable energy due to the provision of solar panels and electric heat pumps,” says Hunyadi.

In the CEE region, Prologis is developing around 80% of space on a built-to-suit basis, with the remaining 20% constructed being speculative. Over the past year, such space has let very quickly, given the minimal supply of industrial space on the market. The company has a 630,000 sqm portfolio in Hungary.

“After the financial crisis, there was a flood of space on the market and it took demand 10 years to catch up. After 2019, there was low supply of industrial space; however, there is now more development in reaction to the very strong demand for space,” she adds.

This article was first published in the Budapest Business Journal print issue of March 11, 2022.

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