13May2022

Warehouses availability will not improve. Developers are slowing down construction due to rising costs

Logistics and production halls currently under construction in the Czech Republic have reach the dizzying volume of 1,034 million sq m. Nevertheless, there is already a risk that there will be a shortage of warehouses in particular. Only 234,000 sq m are now being built which don't have a pre-signed tenant, while the rest are already pre-arranged. Many developers, who speculatively began construction of halls, have slowed down production or postponed planned projects due to the rising prices of building materials, lack of capacity of supply companies and a sharp increase in energy costs. Due to the constant demand, there is the potential for continued rent growth. In the first quarter of this year, it exceeded an average of €5/sq m/month, even outside the attractive locations around Prague and Brno.

These are the main conclusions of the quarterly analysis by the real estate consulting company, 108 AGENCY. According to its director, Jakub Holec, there may be a partial transformation of the industrial market this year, the acceleration of which may not be enough for some entities.

The vast majority of the 86,254 sq m of industrial space completed in the first quarter has been pre-leased or already occupied for some time in parallel with building approval. This means that the total area of premium industrial areas has now exceeded 9.86 million sq m. There is considerable interest in warehouses and production halls with a completion date this year. Despite the record volume of industrial real estate under construction, there is already fear on the market that there will be a lack of available space. The vacancy rate has fallen again to stand at the current 1.51%. Excluding 'shell and core' space, the vacancy rate is only 1.28%, with most of the vacant industrial space in the Plzeň, Ústí and Moravian-Silesian regions.  These vacant areas are concentrated into several industrial parks.

Gross take-up reached 613,344 sq m in the first quarter, which is approximately the same value as in the previous quarter. Net take-up showed 311,953 sq m, which is around 120,000 sq m less than in Q4. However, compared to the first quarter of last year, the result is similar.

The largest transaction in the first quarter was the extension and expansion of BJS Czech s.r.o., with an increase of 46,000 sq m in CTPark Humpolec park. The second largest was the extension of the lease, up to 37,000 sq m, of Jusda Europe s.r.o. in the CTPark Pardubice II complex. The next largest was the pre-lease of 36,000 sq m by an unspecified manufacturing company in Panattoni Park Pilsen West II.

Despite the slowdown in e-commerce growth and, of course, the effects of the war in Ukraine, we continue to register unprecedented corporate interest in leases, says Michal Bílý, an analyst at 108 AGENCY. He added that tenants must expect costs to rise. Average rents in premium industrial sites in the Czech Republic range from 4.50 to 5.70 EUR per sq m per month. In the capital, prices are pushing the level of EUR 8.00 per sq m, which was unthinkable two years ago. In addition to the rent, increases of over 10% increases can be seen in service fees, including fees for maintenance and administration of the industrial area. Overall, operating costs for companies have been growing most dynamically in the last three years, adds Robert Sgariboldi, Head of Industrial and Logistics Leasing at 108 AGENCY.

Other factors, whose concurrence may lead to the transformation of the Czech industrial space market, include the rapid rise in prices of virtually all building inputs at the developer level. On top of this you also need to take high inflation into account. Developers in particular are responding to rising energy prices by increasing the use of renewable energy sources. At the same time, however, the departure of some tenants working with lower margins from premium locations cannot be ruled out. However, according to 108 AGENCY, owners and property managers find recompense very quickly, usually from companies in the field of e-commerce and logistics.

The largest projects currently under construction include, Panattoni Park Kojetín, Panattoni Park Cheb South, Contera Park Ostrava D1, GLP Park Ostrava Hrušov, VGP Park Olomouc and P3 Ostrava Central. The largest speculatively built projects include VGP Park Olomouc, GARBE Park Chomutov and CTPark Brno Líšeň.

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