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Industrial real estates: a state of stability

Budapest’s industrial real estate market stabilized last year, and this has continued throughout the first half of 2011. The market shows signs of balance both in terms of supply and demand as well as rents, and we expect only a slight improvement in the near future.

“Market developments were in line with Colliers International’s expectations, as speculative developments decreased sharply, while demand was similar to last year’s level, or just slightly exceeding it” – said Tamás Beck, director of industrial agency at Colliers International Hungary concerning the latest industrial market report of the real estate consultant company.

Supply did not grow in the first half of the year, as there we no projects delivered, thus the overall stock of industrial space built for lease in Budapest and its vicinity stood at 1.797 million sqm. The stock consists of around 90% “big box” buildings, while city logistics projects make up the remaining 10%. Developers still hold to the position that they will not launch new projects until there is significant vacant space on the market. However, at the same time, several market players do have available vacant land capacity, so if there is demand, they are in a position to react quickly to market developments and could build a new warehouse within five to six months.

Take-up during the first six months of the year showed active demand, with the volume of new lease transactions above 300 sqm totaling 69,000 sqm (as well as a 20,500 sqm “cross-trade”), which is proportionally in line with last year’s performance. Large-scale transactions were still missing from the market, with only one new deal for space of more than 10,000 sqm (not counting the “cross-trade”), and even above 5,000 sqm, there were just four transactions (of which two were expansions).

“Overall, we can say that the lease market is showing strong activity. Many firms are looking for adequate space and scouting for opportunities, but they are staying cautious and thus the number of concrete transactions remains relatively low.” – said Beck.  

In addition to new leases and tenant expansions there was also a certain amount of industrial space vacant in the first half, net absorption on the market was negative (close to 40,000 sqm) and the vacancy rate rose slightly to stand at 21.76% at the end of June. There was 391,000 sqm of vacant space at the end of the period.

The amount of empty space available is still fragmented in Budapest and its vicinity. While it is relatively easy to find 1,000–4,000 sqm of leasable space, there are only a few locations where more than 10,000 sqm, and specifically where more than 20,000 sqm, of continuous space is available.

Rents did not show any discernible change during the first half, as headline rents for big box buildings remained in the €3.2–3.8/sqm a month range, while the rate for city logistics buildings was around €5/ sqm  a month.

The market for industrial property and land sales transactions again showed only limited activity in the first half of the year. There is some interest toward plots between 5,000–20,000 sqm in size, but there remains little demand for larger development plots. There is also some scattered interest for smaller industrial buildings and warehouses of around 1,000–2,000 sqm in size, but it remains much more difficult to sell units above 5,000 sqm.

“We expect take-up to be around the same volume as it was in the first half, thus taking the annual figure to somewhere between 120,000–160,000 sqm. Vacancy may show a slight gradual decline through to the end of the year, while rents will partly show stagnation, although it is also possible that there will be a slight increase in certain locations,” Beck said, summarizing his expectations.