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Central Europe Logistics Market Booming

Demand for Central European industrial space is continuing to rise with the industrial and logistics market recording positive indicators across the region: Hungary, Czech Republic, Poland, Romania and Slovakia.

Prologis Park Chorzów,  Upper Silesia, Poland.

Total Central European industrial stock increased to 26 million sqm with record development levels as of the turn of the year, and the region now has the lowest vacancy for the last ten years at 5%. CE take-up was 6.6 million sqm for 2017, of which 3.6 million sqm was new development; supply is not able to keep up with demand, according to Cushman & Wakefield. Total CE stock could potentially reach that Germany, which stands at 30.8 million sqm.

Poland and Czech Republic are the dominant industrial markets regarding take-up and delivery, while the Hungary market is going through a resurgence and the emerging Romania industrial market is now booming.

“The average occupancy rate reached a record-breaking 95.1%; in effect, take-up is greater than ever and new additions have no problem finding their occupiers before or during development,” commented Ferdinand Hlobil, head of CEE industrial at Cushman & Wakefield.

“The greatest amount of industrial space in history was leased in Central Europe in 2017: 6.7 million sqm, one million more than the previous year. Although development in the region is unprecedented and the Central European region’s steep growth rate is approaching its maximum, we are not afraid of a major reversal. One principal indicator has been decreasing - and that is the vacancy rate. Offer meets demand and in this respect the current market is much sounder, even though it may appear overheated,” Hlobil added.

Prologis recorded a CEE occupancy of 97.4% for 2017 as it leased 1.6 million sqm with a regional portfolio of 4.4 million sqm. Another leading CEE logistics park developer and operator, CTP, increased its portfolio by approximately 680,000 sqm and reached a total stock of 4.5 million sqm as occupancy stood at 97.7%.

Speculative Demand

Reflecting market demand, Prologis has undertaken speculative developments at Prologis Park Nitra in Slovakia and at Prologis Park-Uzice and Prologis Park Prague-Airport in Czech Republic.

In Poland, logistics market stock is approaching 12 million sqm, more than 3.2 million sqm of which is located in the Warsaw area. These figures reflect the large number of industrial parks that have been established in strategically located cities throughout the country. Total supply in the Warsaw zone amounted to more than 3.5 million sqm. Upper Silesia, the second largest market, has a total supply of more than 2.5 million sqm, stock in central Poland (the Lodz region) reached almost 1.6 million in 2017, said Colliers International.

The second largest CE logistics market is Czech Republic with more than 6.6 million sqm of logistics and industrial space, 2.5 million sqm of which is located in the Prague area.

The greatest demand, however, is along the German border. This includes, for example, the Amazon fulfillment centers in Czech Republic and Poland that are serving Germany and Western Europe.

“Yet again it was another strong year for the industrial sector, seeing the comeback of speculative construction; 2018 has started well and there is no sign of a slow down at this point,” said Harry Bannatyne, head of JLL industrial agency.

“Tenants will need to think further ahead due to restricted land availability, especially with the much higher demands of electricity, gas and clear height. Within the first quarter of 2018, stock should pass the 7 million sqm mark, securing Czech as the second largest market within CEE,” Bannatyne, predicted.

Different Fundamentals

The Hungarian market has different fundamentals from those in Czech Republic and Poland. “The Polish market…. is four times larger than the Hungarian in terms of size and population, while Czech Republic has a great advantage over Hungary, due to its historically strong industrial background and its proximity to Germany,” said Tamás Beck, head of industrial at Colliers International Hungary.

“Therefore, these markets are rather multipolar, while the Hungarian market, from a developer perspective is still quite unipolar, meaning it is mainly concentrated in Budapest and its surroundings, however, due to the saturation of the Budapest market, countryside locations are increasingly the focus of investors and developers, hence the market is becoming more bipolar,” Beck explained.

Romania with its network of large regional cities was just behind the Czech market with regard to new construction in 2017. CTP is extending CTPark Bucharest West. The company acquired 100,000 sqm of warehouse space at the complex in 2015 and has subsequently constructed a further 100,000 sqm. CTP says it plans to extend the park and make it one of the largest business parks in the region.

Investment into industrial properties reached EUR 2.2 bln for 2017, 19% of the total CEE investment volume for 2017. In what is described by JLL as “the largest single asset industrial transaction ever closed in CEE in terms of both investment volume and leasable area” the 240,000 sqm Logistics Park Galanta-Gan was acquired by the Chinese CNIC from Prologis.

“Western Slovakia as a production hub is an extremely attractive and liquid investment destination,” commented JLL, who advised the vendor, Prologis on the transaction. Most of the stock and pipeline is located in the Bratislava and Western Slovakia region. Slovakia has established a thriving light industrial and logistics network based on the automotive and retail sectors. Industrial stock in Slovakia stands at circa two million sqm with a vacancy rate of 2.25%.

One perceived problem with industrial development in CEE is the labor shortage. “But in another way, this is not a problem, as the pressure for expansion or to move to CEE is so big that new investors are prepared to move and fight,” said Hlobil of Cushman & Wakefield.

“The labor shortage is pushing development costs upwards and the usual construction time is now four-to-six months. A strong 2018, both in terms of new construction and continuously strong demand is expected. CEE still benefits from low wage costs and an excellent location in Europe. Changes in the retail structure - the further expansion of e-commerce - will also support the further growth in demand for industrial real estate. Developers are therefore expected to further build in large volumes,” Hlobil concluded.