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CEE Logistical Development Reaching Pre-crisis Levels

Industrial development in Central Europe is booming, with figures approaching levels last reached in 2007, prior to the economic downturn. Although Hungary is going through a resurgence with positive market indicators, it still lags behind the market leaders as an industrial/logistics location of choice, hindered by the lack of industrial hubs outside of the capital. Major e-commerce companies such as Amazon have established distribution facilities in Poland and Czech Republic.

Cushman & Wakefield (C&W) recorded 5.7 million sqm of industrial space leased in Central Europe (Hungary, Czech Republic, Poland, Romania, and Slovakia) in 2016, representing a 25% increase over the preceding year. Poland and Czech Republic accounted for more three-quarters of this total.     

There is currently a total of 22 million sqm of prime leasable industrial space in Central Europe, with the region catching up on the traditionally strong German market, which has a stock of 25.5 million and a comparable number of inhabitants to the combined CEE total. On average, more than one million sqm of new industrial space has been built annually over the last ten years, said Ferdinand Hlobil, head of CE industrial at C&W. The company estimates Central Europe’s industrial pipeline at 2.2 million sqm. With 6.1% vacancy, a large proportion of new development is absorbed prior to completion in what is considered to be a developers’ and landlords’ market. Speculative development is not expected to increase significantly in the short-term. 

“Average Central Europe vacancy is expected to remain at around 6%. There will be rental pressure, especially in the main capital city markets. Last year we already saw rental growth in Prague and Romania,” Hlobil added.

Border Demand 

The largest amount of demand is alongside the German border. According to JLL, greater Warsaw has 3.16 million sqm of modern industrial stock; in the wider Poland area the total is around 11 million sqm. 

Total modern industrial stock in  Czech Republic has exceeded six million sqm, which makes it – along with Poland – the most advanced industrial market in CEE. Average vacancy has fallen to 4.7%, one of the lowest rates in the history of the market, and some developers are opting for the speculative development option. The current speculative development volume of approximately 30% of total volume is, however, still far below the 2007/2008 pre-crisis levels, when it represented approximately 70% of the total. C&W have traced around 500,000 sqm of new industrial space under construction. 

The Czech market is about three times as big as Hungary’s, but improved economic figures for the latter should help to narrow the gap in the view of analysts. “Hungary is typically lagging two years behind Czech Republic in terms of development trends and the level of development. Examples of this are e-commerce logistics and the movement to the countryside,” said Tamás Beck, head of industrial, Hungary for Colliers.

“Czech Republic has a clear advantage over Hungary; however, we are catching up. The most important difference will always be the fact that Czech Republic has a number of central logistics locations, while in Hungary most logistics activity is concentrated in Budapest,” commented Gábor Halász-Csatári, head of industrial at C&W.

JLR a Driver 

CTP has recently entered Hungary and is both developing and buying up available industrial parks. In Romania the company is extending CTPark Bucharest West and is developing CTPark Cluj. The Japan-based ROKI will occupy 5,500 sqm of space at CTPark Arad in the west of the country.

The development of the new Jaguar Land Rover (JLR) plant in Nitra in Slovakia is seen as significant for the market as Nitra and the surrounding area is expected to see a rise in demand for both land and industrial premises. The main driver of the industrial market is the flourishing automotive industry. Total class “A” industrial stock in Slovakia currently stands at 1.73 million sqm according to JLL.

The pan-European logistics property investor/developer, P3, has not yet entered Hungary despite a 500,000 sqm pipeline, split 50-50 between CEE and Western Europe. For example, the company is developing an 80,000 sqm logistics center for Carrefour at P3 Bucharest. However, P3 is also tracking the Hungarian market and will develop in the country at some point when the time is right, according to Peter Becar, managing director of CEE management at P3 Logistic Parks.