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Industrial Sector Early Winner in Coronavirus Crisis

Industrial

The industrial market in Hungary and the wider region is seen by analysts as the real estate sector in the most positive position for the post-coronavirus crisis. Continued record low vacancy rates and stable rental levels are forecast due to high demand; however, due to the lockdown, many speculative projects have been put on hold and the majority of the current pipeline is being developed on a built-to-suit (BTS) basis.

Prologis Park Budapest Harbor

Although the pipeline of speculative projects in the Budapest area is building up, more preleases are being concluded, allowing construction of projects to go ahead. Industrial and logistics projects have a short delivery time in comparison with other sectors at around six months, assuming all permits are in place, according to Colliers International. The consultancy has traced 162,000 sqm of industrial space under construction with a current vacancy rate of 2.6%.

CBRE, meanwhile, has traced 127,000 sqm of space under construction in five projects in the greater Budapest area. The consultancy has a wider definition of industrial and put total stock in Hungary at 736,000 sqm, 25% of which in the Budapest area.

Budapest stands fourth among CEE capitals with regard to total industrial stock after Warsaw, Prague and Bucharest, with significantly lower vacancy rates than the top two. The total supply of industrial space in CEE stands at more than 50 million sqm according to Colliers.

Cushman & Wakefield expect low industrial vacancy and reasonably stable demand levels for Hungary going forward, with a focus on a BTS and semi-speculative opportunities. Those projects that are already underway are expected to be handed over with a delay of one quarter: 47,000 sqm of new space is expected to be delivered in the second half of the year.

Key completions for the first half of the year include 23,000 sqm at CTPark South, 18,000 sqm at Wing’s East Gate Business Park, 13,000 sqm at Prologis Park Budapest-Harbor and 10,000 sqm at Budapest Dock Szabadkikötő. Cushman see industrial with a vacancy rate at 3% or below for Hungary in a landlord favored market.

“We see a record low vacancy rate due to continuously high demand, coupled with a very limited and slowing handover of new facilities. This has opened a window of opportunity again for full BTS development in the Budapest area,” says the consultancy.

The industrial development market has been hampered by high construction costs and, as a result, the acquisition of properties has been a preferred option. However the options for the purchase of existing buildings are limited and construction costs have arguably fallen. Prime industrial yields for Hungary stand at 7%, making it the second most favored investment option after office. Developers are essentially working on BTS developments, often with a speculative element.

Customer Need

“Depending on customer needs, we are able to deliver both speculative and BTS. The new park, Prologis Park Budapest-Sziget II, has all the necessary building permits and development potential for two modern facilities totaling 60,000 sqm,” says Paweł Sapek, head of Central Europe at Prologis, on its new project.

In a recent BTS deal, CTP is developing Chinese computer maker Lenovo’s first European factory in Üllő at CTPark Budapest East industrial park. The EUR 18 million center will house a 35,000 sqm high-tech European plant, scheduled for completion in spring 2021. Lenovo selected Hungary for the investment after examining the probabilities of several European locations.

The industrial sector in Hungary is generally regarded as underperforming in terms of the volume of deliveries in comparison with other established Central European markets. For example, a Panattoni BTS development has just been undertaken in a regional Polish city, whereas Hungary is lacking in such large scale developments. Panattoni, a leading logistics developer and park operator in CEE is not present in Hungary.

Further, a developer-led market is mainly limited to the Budapest area and has not been established outside the capital. Poland for example has five major industrial or distribution hubs.

“Contrary to the multi-regional markets of the neighboring countries, the Hungarian industrial market is still highly focused around Budapest. The ratio of modern warehouses built for lease outside of the Budapest I&L [industrial and logistics] market is only around 20%,” comments Kevin Turpin, head of CEE research at Colliers.

“In the major countryside submarkets, large-scale industrial parks comprising several buildings that are operated by international developers are still not typical. The more rural areas tend to be attractive for end-user companies related to manufacturing/assembling activities,” Turpin adds.

Total industrial stock in Hungary as of summer stood at 2.3 million sqm, compared to 19.7 million in Poland, 8.8 million sqm in the Czech Republic and 4 million sqm in Romania. Total stock in Central Europe (Poland, Czech, Slovakia, Hungary, Romania) could soon reach 40 million sqm according to Cushman & Wakefield.

CTPark Budapest West

Sustainable Accreditation

Regional industrial developers and park operators are now developing sustainability accredited and more highly specified projects in reaction to changing tenant demands. Prologis, for example, has five BREEAM accredited buildings in Hungary, four at Prologis Park Budapest-Sziget.

Another of its development, Prologis Park Budapest-Harbor, boasts amenities which it says provide a 30% reduction in heating costs, while LED lighting and large skylights cut electricity consumption by 45%. It also has electric car charging facilities and direct public transport links.

“We expect that in the field of design and construction, sustainable development focusing on both the environmental and social impact will gain more ground in the industry. This transformation has already started. Last year Prologis worked closely with the International Well Building Institute to define a new standard of certification for logistics real estate, the WELL Building Standard, which focuses on social-sustainability through building design,” says Prologis.

“These services are the foundation of our PARKlife concept, which is a pilot project that began in five Prologis Parks located in Central Europe, including Prologis Park Budapest-Harbor,” Prologis’ Sapek says.

“Over the coming years, we intend to implement the concept throughout all our Prologis Parks in the region. We design all our new developments with BIM [Building information modeling], which gives architecture, engineering and construction (AEC) professionals the insight and tools to more efficiently plan, design, construct and manage buildings and infrastructure,” he explains.

“For Prologis it is an essential platform for smart buildings and data governance, which in turn enhances customer experience and drives energy sufficiency as part of our commitment toward carbon neutral developments. In fact, we delivered our first BIM-designed logistics facility in CE in Hungary, at Prologis Park Budapest-Harbor. The goal of implementing green solutions is not only to achieve a certain amount of cost reduction; it is part of our customers’ environmentally responsible thinking as well,” Sapek adds.

Elsewhere, CTP is adapting its portfolio consisting of almost 300 buildings in six countries in line with applying for BREEAM In-Use certification, and four buildings have been awarded an “Excellent” rating.

Industry First

“Last year, CTP was the first in the industry to enter into a collaboration agreement for the implementation of the BREEAM In-Use International certification for its entire industrial portfolio,” says the company. “The BREEAM In-Use certification is a science-based sustainability certificate that allows quick comparison of the performance of assets across territories.” All new CTP buildings will feature roofs ready for the installation of solar panels.

In a further sign of the increasing attractiveness of the logistics sector, Futureal and Cordia have founded a new industrial and logistics property development and investment company, HelloParks. The firm will operate as a member of Futureal Group. HelloParks aims to obtain a leading position, initially in Hungary and later on in the CEE market.

“The growth of e-commerce and shortening of production and supply chains, relocating them closer to target markets, has significantly increased warehousing needs,” said Gábor Futó, the founder and owner of the Futureal Group.

“The process has been pushed even quicker due to the coronavirus pandemic, with customer and investor interest growing further throughout Europe. We are confident that HelloParks can achieve great success even in the short-term, and can improve Hungary’s position in the international logistics market,” Futó says.

Rudolf Nemes, CEO of HelloParks, adds: “As a first step, the company is planning to develop megaparks around Budapest, later expanding into the countryside, where customers can operate warehouses as well as light industrial plants.”

Colliers expects the vacancy rate to increase to slightly above 3% with about 53,000 sqm due to be delivered in the greater Budapest area. It says the build-up of speculative developments will provide opportunities for companies looking to quickly source logistics and production facilities.

“The industrial sector is clearly the winner of COVID year. There has been a limited negative affect on the sector, and great positive potential for growth. The e-commerce sector will constantly grow, as well as the consumer market. Central Europe will attract more development and investment. There is a lot of potential new capital waiting at the doorstep of Central Europe. Developers are in a good position to benefit from these new capital opportunities,” concludes Ferdinand Hlobil, head of CE industrial at Cushman & Wakefield.

CTPark Budapest West

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