October 27, 2017

Czech Industrial Property Market posts historically lowest vacancy and increased speculative development

Czech Industrial Property Market posts historically lowest vacancy and increased speculative development

The Czech industrial property market reached 6.71 million sqm by the end of the third quarter of 2017. From July to September this year, 68,000 sqm of new warehouse space were completed in 5 parks. Compared to Q2 2017, when a total of 208,000 sqm was delivered, it means a quarter-on-quarter decline of 67 percent. Compared to Q3 2016, when a total of 52,000 sqm was delivered to the market, it is a year-on-year increase of 31 percent.

"The most significant characteristic of the current situation on the Czech industrial property market is the demand exceeding current supply. The average vacancy rate is at the historically lowest level of 3.7 percent. There are only 245,000 sqm of modern industrial premises currently available in the Czech Republic. As a result of ongoing demand and stable economic growth, further construction is in full swing and developers are getting more involved in a purely speculative construction (ie without a pre-arranged tenant), especially in the Greater Prague. On this basis, for instance, a 14,500 sqm hall is being built in Prologis Park Prague Airport or an area of 25,000 sqm of developer Panattoni in nearby Pavlov," said Martin Šumera, Head of Industrial Agency in 108 AGENCY, a real estate consultancy.

Supply – current construction
Currently there are 708,000 sqm of modern warehouse space under construction in the Czech Republic. The construction of 296,000 sqm in Prague and 412,000 sqm in the regions. Within the regions there is extensive construction in the Karlovy Vary Region (108,000 sqm) and the Ústí nad Labem Region (76,600 sqm). These two regions have been among the fastest growing in recent years – due to better transport infrastructure and strong business links to Western European markets.

"We notice the growing interest in a so-called" big box "solution exclusively built for a single tenant. These are distribution centers focused on the operation of the entire CEE region together with the regions of Western Europe. An example could be the completed project for Tchibo in Panattoni Park (73,100 sqm) in Cheb, the 4PX Express warehouse in Jeneč (68,600 sqm) and the emerging Macro distribution center within Prague CTP Park (53,000 sqm)," said Jakub Holec, Managing Partner of 108 AGENCY.

Rents
The rent of modern warehouse space varies between 3.60 to 5.00 EUR/sqm/month in Prague. In Brno, rents are in the range of 4.00 to 4.70 EUR/sqm/month. Year-on-year rents (Q3 2016 vs Q3 2017) rose by an average of 5 percent.

Predictions
"The industrial and logistics real estate market continues to grow strongly. The excess demand over the supply stimulates further construction and, in demanded locations (e.g. in Prague along D1 or D11 and in Brno), where there is now a minimum of available space, this may be a reason for increasing rents. For the future we also predict the development of industrial construction in other regions tied with the construction of transport infrastructure and the demand of production and logistics companies in these areas. These are, for example, sites on the D3 motorway," added Dan Šobotník, analyst of 108 AGENCY.

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