Decreasing developer activity, discounted rental rates and less transactions characterize the industrial real estate market this year, according to Colliers International Hungary’s most recent industrial real estate market report.
"Vacancy rates are showing substantial growth, due mainly to recently handed over buildings. By tracking recently concluded lease contracts, we can see that smaller lease spaces and city logistics centers lease better" – points out Tamás Beck, director of industrial sales and leasing at Colliers International Hungary.
In spite of a high level of market activity in the industrial property market, the amount of realized, concluded transactions is quite low according to data from Colliers International’s Budapest office. Based on experience, most potential tenants are either waiting or renegotiating and extending their current lease agreements.
In early 2008 Colliers International forecasted the construction of 390.000 sqm of speculative industrial warehouse space, of which 64% (250,000 sqm) was realized during 2008 and a further 33% (130.000 sqm) was under construction during H1 of 2009. Compared to the original forecast, 92% of the space was realized, raising the speculative stock up to 1,051,000 sqm in Budapest. One quarter of this (263,000 sqm) was vacant on the last day of H1. During this period, no substantial ’built-to-suit’ transactions were recorded. Some ’built-to-suit’ type warehouses pre-leased during last year were handed over, raising that stock to 469.000 sqm, of which two buildings (prior Rynart buildings) comprising of 73,200 sqm are completely vacant (15,6% of stock).
Large volume speculative developer activity has practically ceased. For the remainder of the year, in city locations, 50,000 sqm of mostly small units will be handed over; some of this area is not constituted within a project, but rather in individual buildings. For the time being, the international real estate agency forecasts building handovers for H1 of 2010 to include only one or two smaller buildings.
In addition to development activity decreasing, the vacancy rate has risen: compared to end of 2008 data (234,000 sqm, or 17% vacancy) the numbers on June 30th of 2009 (336,000 sqm, or 22,1% vacancy) have shown significant increase. This can be attributed in large part to buildings handed over at the beginning of the year. Following the trend of previous years, vacant spaces are scattered throughout Budapest and its vicinity, and comprise of mostly small to medium size units. There are only seven locations where vacant units exceeding ten thousand square meters can be found, though these locations account for over half of the vacant stock (52,4%).
In H1 of 2009, 25,000–30,000 sqm of leased space became vacant as a result of tenant departure, which roughly equals the new take-up amount (26.400 sqm). This tenant activity is a mere fraction of last year’s record breaking H1 take-up (190.000 sqm) and of the entire last year’s take-up (350,000 sqm). The majority of lease transactions (nine transactions) were concluded in city logistics warehouses and ’small unit’ buildings (8,800 sqm), and only six smaller transactions were recorded in ’big box’ buildings (17,500 sqm), of which two were expansions.
Multiple developers are offering recently completed or recently emptied vacant ’big box’ buildings at discount rates of roughly €3,5/sqm/month net or even lower. Meanwhile, other properties’ typical lease rates are between €3,8–4,5/sqm/month net.
Pricing varies greatly between discounted and standard building rents, and to add to the variableness a new pricing category will soon be introduced, which targets not yet built pre-lease dependant projects. These pre-leased projects will have pricing levels significantly different to the rates seen in previous years. Due to the impact of the above, sales transaction activity is also quite low, and transactions concluded are mostly end users purchasing small plots or buildings.