The Czech industrial market grew at a rapid speed in 2022. Almost 1.1 million sqm of new space was added to the market, which is over 155 percent of the 5-year average annually completed space and the highest recorded figure on record for the Czech market. The market overtook 10 million sqm in mid-year and just failed to overtake the 11 million sqm milestone at year-end, achieving 10.8 million sqm at the end of Q4 2022. There was 150,300 sqm of newly added modern industrial space in the last quarter.
Most new space was delivered in the Olomouc region (25 percent). Over half of the completed space, there was however delivered in one project, the newly built Amazon hall in Panattoni Park Kojetín. Second and third place was held by Moravia-Silesia and Pilsen regions (20 percent and 10 percent respectively).
The structure of contenders for fastest growing regions changed slightly in 2022, as land availability constraints helped favour previously less-developed regions to catch up with such as the largest market of Greater Prague and Pilsen regions. Even some notable milestones were crossed in regional development. Moravia-Silesia region crossed 1 million sqm of industrial space, making it the fourth Czech region with over 1 million sqm of modern industrial space. The Olomouc region crossed 0.5 million sqm of industrial space. Central Bohemia region, with 9 percent of total new space in 2022 has quickly become much more important in terms of developing industrial stock in the past two years. While previously lagging behind in new development, the region now seems to be catching up, spurred on by a lack of available land for new development in Prague and its surroundings (as the demand for industrial space close to the capital persists).
Will new development help rise vacancy from below 1 percent?
While much is said about new deliveries to the market and the high amount of space under construction, vacancy levels still remained extremely low throughout the year, at around 1 percent. At the end of 2022, there was 102,100 sqm of immediately available space, amounting to 0.95 percent of the total space on the market. The Czech Republic firmly remains a landlord’s market and will remain one throughout 2023. Only 2 industrial parks offered immediately available spaces above 10,000 sqm.
Even with vacancy, 2022 was record-breaking. “During Q3 2022, the national vacancy decreased, for the first time since our historical records, below 1 percent, to 0.86 percent of total space on the market. Just two years ago, at the end of 2020, vacancy was 3.65 percent,” says Josefína Kurfürstová, Research Analyst at Colliers. The question on everybody’s lips is “When could it get back again?”. While it seems that development is finally catching up with the demand surge of the previous two years, there are not yet clear signs whether this will be enough to help alleviate the constraint availability on the local market. “In theory, the scheduled deliveries of new space we expect for 2023 could combine with the adverse macroeconomic situation to foster higher vacancy in 2023, as the market is quick to change. Realistically though, we expect no drastic changes to the availability situation, at least not in the first half of the year.”
Demand overtakes 2 million sqm, as pre-leases dominate
What would affect the deadlocked availability is a cooldown in demand. But the Czech industrial market was almost equally as demanded in 2022 as in 2021, beating all expectations of a more sluggish year. Gross take-up equalled almost 2,209,000 sqm, only a 10 percent decrease against 2021 and a 37 percent increase when compared to the pre-pandemic year result of 2019. This seems remarkable, considering the adverse economic conditions that businesses operated in this year. More remarkable is the share of net take-up, which increased significantly in 2021 (to 63 percent) and stayed equally as high in 2022, even going up a couple of points higher (to 66 percent in 2022). Throughout the year, newly constructed space was disappearing in droves, as pre-leases took 40 percent of all lease agreements.
Even in take-up, we saw a new record broken in 2022, when a confidential tenant pre-leased over 230,000 sqm in Panattoni Park Cheb, the largest-ever transaction recorded in the Czech market. The largest share of take-up was driven by logistics & transportation tenants, with 37 percent, followed by automotive producers (13 percent), and retail omnichannel distributors (12 percent).
Even without this exceptional transaction though, the market would have performed well in a year of turbulence. Only in the last quarter did we perceive a notable slowdown in activity, with 354,000 sqm gross take-up, a 27 percent q-o-q decrease and a 4 percent y-o-y decrease. Net take-up took over 231,300 sqm of that figure, a slow quarter when compared to the 3-year average. With the adverse effects of the slowdown in the economy showing and the market being almost completely drained of all available space though, it is little wonder.
Rents rise across the market in 2022
Rents continued to rise throughout 2022, both in Prague and all the Czech regions. Prime rents in the country increased to the level of around €7.50 – €7.90 sqm/month. The highest achievable rent was in Prague, on specific projects up to €8.50/sqm/month. In selected prime locations outside of Prague, rents rose rapidly this year, reaching around €6.00/sqm/month. Rents for built-in mezzanine office space stood between €9.50 – €12.5/sqm/month. Service charges are typically around €0.65–1.00/sqm/month. Price-wise, the Czech market was quickly catching up with its western European counterparts in 2022.
“A year ago, we were forecasting an expansion of the market. This year, maybe a little more than the record expansion in the cards will be needed to upkeep the results of the massive growth the market saw in the past two years. Even so, we have things to look forward to. Over 1 million sqm are currently under construction and almost all of it is due to be delivered during 2023. This would mean that the market will overtake 11 million sqm of modern industrial space easily in H1 2023, and if all goes well, could near to break another milestone of 12 million sqm by the year-end,” says Josefína Kurfürstová.
It almost seems that the market passed the 10 million sqm milestone at such lightning speed this year, it barely noticed it and now it is already looking to pass 11 in the same manner and go towards 12 million. At the end of 2022 we noted that the share of speculative construction increased among developers and considering the state of the current market, it is no surprise. If this development continues it could alleviate the lacking availability. But the developments in the market in the next year will be dependent on any major changes in demand, going hand in hand with the developing economic situation.