During the first three months of 2023, the Czech industrial real estate market passed the 11 million sqm mark. The market grew by 10 percent year-on-year, which is 1.5 percentage points higher than the five-year average. The total volume of newly completed industrial space amounted to 217,900 sqm in the first quarter of this year. This is a 21 percent increase compared to the five-year average for the same period. Increased construction activity, which has been evident on the market since the end of 2021, is now bearing fruit. During the first quarter, the biggest volume of new space was added in the Ústí nad Labem region (37 percent), the Karlovy Vary region (29 percent) and the Moravian-Silesian region (19 percent), according to Colliers’ regular quarterly survey.
Low vacancy and cooling demand
Despite increased construction activity, the vacancy rate increased by only 43 basis points to 1.36 percent, representing around 150,000 sqm of space available for immediate occupation. Roughly three-quarters of all vacant space was in 4 new buildings that were not fully let at the time of completion. Demand in the first quarter of this year thus remains weaker.
“For the second consecutive quarter, we are seeing weaker realised demand. During the first quarter of this year, gross realised take-up totalled 344,500 sqm, down 52 percent year-on-year and 27 percent below the five-year average. Net take-up accounted for approximately 79 percent of all transactions,” calculates Josef Stanko, Senior Analyst at Colliers. According to him, the last quarter also saw a large share of pre-leases, which accounted for 63 percent of total realised demand. This trend is due to the low vacancy rate, which has persisted for the last 18 months.
Rents are approaching the upper limit
Rents, on the other hand, continued to rise across the Czech market. At the end of the first quarter, they were around EUR 7.70 – 7.90 per sqm/month in the most desirable locations and even €8.50 per sqm/month in Prague for some projects. “Further increases above this level are unlikely in the near future. Prices have already approached their ceiling,” comments Josef Stanko, adding that in other locations, such as Brno or the Pilsen region, rents have risen to more than €6.00 per sqm/month. Rents for built-in office space are between EUR 9.50 and EUR 12.50 per sqm/month. Service charges are between €0.75 – 1.00 per sqm/month.
2023: further expansion of new construction
Strong construction activity will continue to boost rapidly overall market volume. At the end of March 2023, 1.3 million sqm of new space was under construction, of which around 800,000 sqm is expected to be completed by the end of this year. This would take the market to close to 12 million sqm. Some projects have been announced as speculative developments, but developers typically suspend construction in the core and shell phases and wait for tenants.
“Unlike in the previous two years when we saw record levels of realised demand, we expect a partial cooling of the market, which has to cope with economic changes. It is unlikely that we will see further rapid price increases. On the contrary, we could even see price reductions for some projects to attract tenants,” concludes Josef Stanko.