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Speculative logistics development is first since 2008

Prologis’ new 21,000 sqm facility at its existing logistics park marks a change in a market where developers only launched projects based on customers’ orders.

The existing facility at Prologis Park Budapest-Sziget.

Prologis has undertaken the development of a 21,000 sqm speculative facility at Prologis Park Sziget-Budapest. This will be the first speculative logistics building in the Hungarian market since 2008, and the facility is scheduled for completion in the third-quarter of this year. 

“In addition to the increasing rents at Prologis Park Budapest-Sziget, the 98% occupancy of our Hungarian portfolio and high customer retention rate give us the confidence to carry out this development,” said László Kemenes, country manager at Prologis Hungary.

The Prologis Park Budapest-Sziget currently comprises a total of six buildings with a combined 128,000 sqm of industrial and logistics space with the capacity for 15,000 sqm of additional development. The park is located in an industrial zone at Szigetszentmiklós, close to Budapest, which provides direct access to the M0 Budapest ring road.

“The new facility, Building 7, will include a pioneering docking system with 46 docks and three drive–in gates. It will reflect the commitment of Prologis to environmental stewardship by guaranteeing energy efficiency and cost-effective operations,” said Prologis.

With regard to vacancy there has been a remarkable market recovery in the Hungarian industrial market over the past two years, with a fall in vacancy to 10.6%, driven by a combination of the active occupational market and limited development activity. Vacancy for Central Europe (Poland, Czech Republic, Slovakia, Hungary and Romania) stood at 5.7% at the turn of the year according to Cushman & Wakefield.

In general, developers in the region have taken a cautious approach by developing on a built-to-suit rather than a speculative basis. However, a limited number of speculative developments are now underway as developers diverse their development strategies. That said, take-up is still outperforming development, with the resulting fall in vacancy rates, as developers are land banking as they strive to keep up with demand.

Prologis undertook the development of 200,000 sqm of space in ten developments in 2015: 46% of this was built-to-suit and 54% speculative. Most of the delivery was in existing logistics parks. “We expect that demand in 2016 will be stable and result in further steady development of the industrial real estate sector in the whole region. The investment level should also remain constant with speculative development; at least 30% of a speculative project should be preleased before construction starts,” said Martin Polak, head of CEE at Prologis.

Tamás Beck, head of industrial at Colliers International Hungary, sees more speculative development in Hungary in well located parks with high or full occupancy as a further drop in vacancy can be expected. Rising demand is mainly driven by the industrial/automotive sector. However, fast moving consumer goods and so-called 3PLs (companies that work with shippers to manage their logistics operations) are also playing a more important role as retail consumption continues to grow.