Low Availability Limits Market Growth
The low availability of contiguous industrial space in the Budapest area and rising demand has resulted in record low vacancy rates of 2.4% in a market with a total stock of 2.18 million sqm according to Cushman & Wakefield.
Despite rising demand, further development of the Budapest industrial market is continuing to be impeded by a limited supply of space; take-up for 2018 was 378,00 sqm according to the real estate services company. This was dominated by renewals, primarily due to the low availability of contiguous modern logistics space. Six new schemes representing 120,000 sqm were handed over in 2018.
CBRE estimates that modern industrial stock across Hungary totaled a little more than nine million sqm as of the end of 2018, of which 3.16 million was developer-led and generally operates on a lease basis, while the rest was owner-occupied stock. The majority of the developer-led stock (or 2.18 million sqm) is located in the Budapest area.
“Last year brought the highest completion volume in a decade with 127,000 sqm of new space handed over, up 8% year-on-year. However, in terms of absolute volume, as well as the nature of the delivered supply, this must still be considered rather conservative in the current market environment,” comments Gergely Baka, head of industrial & logistics at CBRE.
In the largest recent transaction, the international industrial park operator and developer, Goodman delivered a logistics center for Auchan Retail Hungary at the Üllő Airport Logistics Center. The logistics park is owned and operated by Goodman itself, which will manage the new facility.
Goodman Üllő Airport Logistics Centre.
The 87,000 sqm center is the largest of its kind yet built in Hungary according to Auchan and will handle Auchan Retail Hungary’s food and non-food logistics while also supporting the company’s on-line commerce in Hungary.
“Goodman’s own develop and manage business model has proven to be successful in delivering a high-quality logistics facility,” said István Kerekes, country manager of Goodman Hungary. The Goodman Group business model provides what it describes as integrated “own & develop & manage” customer service. Goodman’s current portfolio in Hungary comprises warehouse and office space in two locations: Gyál and Üllő.
Cushman & Wakefield says it has traced an industrial pipeline of 130,000 sqm, most of which is located in the greater Budapest area. “Looking ahead, the pipeline for 2019 looks similarly conservative [to 2018] in terms of volume, albeit with signs of increased willingness to undertake speculative projects, which would mark a turning point in the development cycle,” adds Baka.
With these low vacancy rates, very limited availability and the high proportion of preleased pipeline, some leading developers are moving towards the speculative development option in established logistics parks, often as an addition to a the built-to-suit (BTS) project. At the same time BTS activity is expected to accelerate from tenants looking to secure space for both market entry and expansion.
Prologis has commenced construction of a 10,600 sqm speculative facility at Prologis Harbor Park. The company has a Hungarian portfolio of 580,000 sqm with close to 100% occupancy. László Kemenes sees possible development in the Budapest market in the growth of urban or city logistics, following market trends in some of the larger European cities.
CTPark Budapest East.
The leading CEE logistics park operator, CTP, plans to go ahead with a 32,000 sqm speculative development at CTPark Budapest West, a significant proportion of which is already let, according to the company. With regard to supply and development, CTP has hit the five million sqm mark in Central Europe.
“We have been working on buying strategically located land in the five capitals of the countries in which we operate. I am excited about the latest acquisitions in Budapest and we are now able to offer warehouse properties all around the city,” says Remon Vos, CEO of CTP.
The lack of available warehouse space and the rising cost of construction has put upward pressure on rents, which has resulted in about 13% year-on-year growth according to Cushman & Wakefield. The company estimates prime logistics rents of EUR 4.25 per sqm per month as of the turn of the year. CBRE put headline rents for speculative new developments in greater Budapest at EUR 4.4-4.8 per sqm per month and for BTS schemes at EUR 4.5-5. Rents at the low supply of city logistics center are EUR 4.75-5.5.
In contrast to its Central European neighbors, a developer-led industrial market has not emerged beyond the capital, with only a handful of such projects built outside the greater Budapest area. However, demand for industrial space from automotive and related companies is increasing in some areas. Kecskemét, for example, 92 km southeast of Budapest, is looking to become a new hotspot as developers are planning to exploit their landbanks on the back of the expected supplier influx around the second Mercedes plant there.
“Moving forward, the market is expected to remain BTS dominated. In response to the increased cost of new development, developers are showing an increased interest in land banking, even in subprime Budapest locations, and are in a ‘wait and see’ position, assessing their speculative build options,” concludes Cushman & Wakefield.
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