The Hungarian industrial and logistics market is recording high demand for a limited supply of well-located, quality contiguous space, so that tenants have to plan far in advance in order to source space. Annual take-up for 2017 reached a record 618,000 sqm.
The speculative development option has been slow to take off as the major developers and logistics park operators (Prologis, BILK, CTP, Logicor, Wing and Goodman) who own the majority of space have opted for the built-to-suit (BTS) projects.
Another obstacle to market growth is that, in contrast to Poland, Czech Republic and Slovakia, a functioning industrial market has not developed outside the capital city. A shortage of labor and the rising price of construction materials has also made construction more expensive and resulted in construction periods of 8-10 months.
“Currently more than 110,000 sqm is being developed, which is a positive aspect; however, it has no real effect on the market as the demand for new properties towers above supply, and a large part of the new development is pre-leased,” says Gábor Halász-Csatári, head of industrial at Cushman & Wakefield Hungary.
“As for the stable demand and tenant activity, there is a huge need for speculative developments. Expectedly, after the beginning of the first speculative development, others are going to start, nonetheless building costs are still causing delays on the market. In the short run, we expect a slow rise in rents, also ‘B’ and ‘C’ category stock is expected to be oversubscribed until there is new development to meet demand,” Halász-Csatári adds.
Colliers International estimates the 2018 pipeline at 130,000 sqm, however 90% of this is preleased or BTS. The company says that there are currently only three logistics parks that have space of more than 5,000 sqm available.
The Budapest Research Forum (consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary) has traced 2.04 million sqm of modern industrial space in the Budapest area as of the turn of the year. Around 90% of stock is located in logistics parks and 10% in city logistics facilities. Vacancy has plummeted from 23% in 2013 to an all-time low of 4%. Prime rents are estimated at EUR 4 per sqm per month for BTS space, and EUR 3.75 for existing space.
“Prime rents are now close to levels that make speculative development feasible, yet the cost of construction and related services remains a limiting factor,” Cushman & Wakefield cautions.
In the largest recent transaction, the international industrial park operator and developer Goodman has started construction of a logistics center for Auchan Retail Hungary at the Üllő Airport Logistics Center. The logistics park is owned and operated by Goodman, who will manage the new facility. The 87,000 sqm center will be the largest of its kind yet built in Hungary, according to Auchan and will handle the retail chain’s food and non-food logistics while also supporting the company’s online commerce in Hungary.
“Goodman’s ‘own, develop and manage’ business model has proven to be successful in delivering a high-quality logistics facility,” said István Kerekes, country manager of Goodman Hungary. Goodman’s current portfolio in Hungary comprises more than 88,000 sqm of warehouse and office space in two locations in Gyál and Üllő. The Üllő Airport Logistics Centre is located next to the M4 highway and M0 ring road.
BTS remains the most favored development option. CTP, for example, has agreed a 10,000 sqm BTS development with GSI at CTPark Biatorbágy. Prologis, the leading logistics/industrial developer in Hungary and Central Europe has agreed a new 19,000 sqm letting with Pepkor at Prologis Park Budapest-Gyál.
Companies need to plan far ahead in the current low availability market, with any available space taken up early in the development process. “The difference between BTS and speculative is a bit misleading nowadays, as most of the delivery is taken by tenants at the planning stage or during the construction phase. So, there is not as much typical speculative construction as there was in the past,” commented Ferdinand Hlobil, head of Central European industrial at Cushman & Wakefield.
The only truly speculative project announced thus far is the construction of two 14,000 sqm and 11,000 sqm phases of a double warehouse at the East Gate Business Park by Wing. The multi-sector developer is expanding its activity in the industrial sector in recognition of high demand.
“In contrast to the company’s practices to date, it has launched development of the property without any preliminary lease agreement in hand, taking the cue from a prospering market in which intense interest towards the park was seen. The market has confirmed the need for this development through the lease agreements that were confirmed before inauguration,” says Wing.
Both Prologis and Goodman are reportedly considering speculative developments, although no plans have been announced. Potential market entrants such as P3 Logistics Parks require a large letting agreement in order to enter the market. New market entrants tend to enter the market based on a large requirement. However, CTP entered Hungary through 130,000 sqm in acquisitions, M7 made a 113,000 sqm acquisition and the Chinese Investment Corporation entered Hungary through the purchase of the Logicor portfolio.
The Hungarian state-owned developer NIPÜF Zrt. (National Industrial Park Management & Development Company) has agreed a 12,000 sqm BTS deal with Euronics at Inpark, close to Páty. This reflects the perception by the state of the need for modern logistics and light industrial space. “Inpark was founded by the Hungarian state but operates as a classic property developer on a market basis,” says Inpark of its operating model.
Unlike other Central European countries, a functioning logistics market has yet to develope outside the capital. Prologis has sold Prologis Park Hegyeshalom, located on the Austrian and Slovak borders, to the logistics service provider, Horváth Rudolf Intertransport Kft.
“Our strategy is to focus on high-barrier markets that show strong demand amid low vacancy. In line with this principle, we will continue to focus on core locations in the greater Budapest area,” said László Kemenes, country manager at Prologis Hungary.
However, due to the saturation of the Budapest market, regional locations are increasingly attracting the focus of investor/developers and hence the market is slowly becoming less Budapest-centric according to Colliers International.