The Hungarian industrial market currently has a vacancy rate of around 2.4%, a historical low in a market with a stock of 2.2 million sqm. As of the summer, only around 50,000 sqm of space is vacant and no existing logistics scheme has more than 5,000 sqm of space available according to the Budapest Research Forum.
Perhaps curiously, development remains low despite the low vacancy and relatively short development periods. From the demand perspective, tenants tend to be reluctant to relocate due to rising rental costs.
The largest recent transaction was a 13,000 sqm lease at Prologis Park Budapest followed by an 8,600 sqm prelease at CTPark Budapest West. In total, 21 transactions were recorded in the second quarter with three agreements signed for more than 10,000 sqm.
Prologis has also signed a 10,000 sqm letting with the Germany-based provider Fiege Logistik at Building 12 of Prologis Park Budapest-Harbor. This brings the footprint of Fiege at the park to 40,000 sqm.
Around 29% of the current pipeline is already prelet, according to Cushman & Wakefield, and more than 200,000 sqm of space is expected to be delivered in the 2019-2020 period. Prime rents are put at EUR 4.75 per sqm per month for built-to-suit space and EUR 4.7 for existing stock, with 17.5% year-on-year rental growth.
With regard to developer reaction to low vacancy, Gábor Borbély, head of research and business development at CBRE Hungary, sees the industrial market as in a bottleneck due to rising construction and labor costs, which is leading to scheduled projects being put back.
“There is a significant bottleneck in all markets with the possible exception of office, where there is a healthy pipeline,” he commented.
As mentioned above, on the demand side tenants are increasingly reluctant to relocate to new premises due in part to rising rentals. Borbély estimates the development pipeline at 188,000 sqm with a potential development period of around six months.
“Hungary is lacking the large-scale projects as are the case with Poland and Czech [Republic],” he said. In Poland, for example, the regional logistics developer Panattoni, has undertaken construction of the 102,000 sqm A2 Warsaw Park, 30% of which is prelet to Raben Logistics Polska.
As a CE comparison, total developer-led industrial stock in the Czech Republic stands at more than eight million sqm with an estimated 460,000 sqm under construction according to the Czech Industrial Research Forum (consisting of CBRE, Colliers, Cushman & Wakefield and JLL).
Low vacancy rates are common across the region: the Czech Republic has a vacancy rate of 4.4%. Poland has a stock of around 17 million sqm in addition to 2.2 million sqm under construction with five major logistics hubs across the country according to JLL. The 1.1 million sqm of new development recorded for the first half year is described as the “highest half year in the history of the market”.
The latest Hungarian figures reflect the dominance of the greater Budapest area in the local industrial market; in contrast to Poland and the Czech Republic, a functioning developer-led industrial market has not appeared outside the capital, as companies establishing light industrial facilities have tended to build their own facilities in Hungary.
Borbély sees developer-led industrial stock in the Hungarian regions as 600,000-700,000 sqm in around ten sub-markets, much of which is owner-occupied. He says a speculative market in Hungary is lacking and investors have neglected regional developments.
The state-owned NIPÜF (Nemzeti Ipari Park Üzemeltető és Fejlesztő) does have a landbank that covers most regional cities across Hungary. The company aims to deliver logistics parks in areas not currently provided for by the market.