The Hungarian office of Colliers International has recently issued its updated market analysis for the industrial market.
“While 2008 was a year of records in the Budapest industrial real estate market, 2009 was the year of adapting; the dynamics of the market led to a considerable slow down in activity. 2010 could be the year of stabilization, if the market moves towards balance,” according to Tamás Beck, head of the industrial team at Colliers International.
Developer activity may seem high at first glance, as 181,000 square meters (sqm) of space was handed over, but a substantial portion of these handovers commenced in 2008 with completion stretching into 2009 (110,000 sqm). Following the trend of the past few years, only one or two built-to-suit buildings were commissioned, with the majority of projects being speculative.
While analyzing vacancy rates Tamás Beck has emphasized: “Naturally, vacant space is more prominent when looking at the speculative market (23%) than in the long-lease built-to-suit market with buildings built upon specific requirements (17%). In the latter case, the former Rynart portfolio remains a significant factor determining the vacancy rate. The vacancy rate is highest in the ‘small unit’ segment, notably buildings located mainly in the outer districts, close to the ringroad. Vacancy rate at the end of the year was 21.1 %.”
The rate of take-up (new lease agreements) significantly decreased compared to 2008, as only 139,000 sqm of space was leased, compared to the previous year’s 330-350,000 sqm. Only 26,000 sqm of space was leased in H1 2009, with the majority of activity occurring in H2 2009, at 113,000 sqm. Nearly 60,000 sqm of H2 take-up can be attributed to two larger transactions. ‘Big box’ logistics transactions accounted for 113,000 sqm of leased space, while city logistics and ‘small unit’ transactions accounted for 26,000 sqm. The net take-up absorption was 50,000 sqm.
The postponing and delay of transactions was characteristic of the entire year. Despite the high level of search activity only a fraction of potential requirements were realized.
Transparently renegotiated and extended lease agreements reached quite a substantial level - we have knowledge of nearly 200,000 sqm of such activity. Thus the actual number of these leases is likely higher than this, and could well account for 20% of the market. There was some activity in the countryside logistics market as 23,000 sqm of space was leased in three transactions in two North-Western Hungarian locations. Still, the segment is typically passive: there is a lack of investors, speculative developments and large spaces.
Based on the report of Colliers International, some of these locations could be well suited for the development of projects like city logistics parks in the capital.
Rental levels decreased during the first half of 2009, and numerous owners advertised empty space for discounted rents. During the second half of the year rent stabilization was more dominant.
Therefore the net rent for big box buildings was between €3.2 - €3.8 sqm/pcm, while in case of city logistics buildings it was €5.0 - €5.5 sqm/pcm.
Except for a few rare cases, there has been no instance of substantial pricing decrease, even if sellers’ flexibility understandably increased, although the reason for the low number of transactions is not primarily pricing but the lack of buyers at the moment.
2010 could be the year of stabilization, if the market moves towards balance. A drastic decrease in the number of speculative developments is expected, especially relating large international developers with larger floor areas. As a result, the significance of pre-lease agreements will grow, although in some cases the financing and realization of such projects for the developers is still a challenge. Due to such reserved development activity, Colliers forecasts 120,000 sqm of pre-leased and built-to-suit buildings to be constructed in 2010, which is far behind compared to the delivery of previous years. The prediction of tenant activity is also approx. 120,000 sqm leased space in 2010. This means, the vacancy level would decrease, to roughly 14% based on the calculations.
Planning ahead will be increasingly significant for tenants with large floor area needs, as small tenants will invariably experience a supply market, and larger tenants are forecast to experience a demand market.
“Following the maturity of discounted products, due to the changed market circumstances, tenants will encounter higher rental rates and firmer lease conditions in 2010,” summarized Tamás Beck. (press release)