Warehouse rent levels in the Czech Republic have doubled over the past five years, but they have now reached their peak. This is also influenced by a drop in earnings for domestic e-shops, which has led many companies to reduce their warehouse space or to look more often for shorter-term leases. High prices are also driving tenants to neighbouring countries, where rents are up to one-third cheaper and there is a wider choice of space. According to experts from Colliers, the vacancy rate outside the Czech Republic is around 5 percent, which is an advantage compared to the Czech Republic’s current 2.9 percent.
Warehouse rent prices are starting to correct themselves
Five years ago, tenants paid half as much for warehouse space as in recent months. The price rises have affected the whole of Europe, but in the case of the Czech Republic, the situation has been reinforced by the exhaustion of available space. The latter development has logically encouraged further price increases.
“The reason why prices have hit the ceiling now is the fact that the previous period of dramatic growth threatened the Czech Republic’s competitiveness compared to neighbouring countries. As it turned out, in some localities prices were inflated by excess demand and now they are returning to normal. The market is saturated and we are seeing price corrections. The rather drastic drop in demand, to which landlords are trying to respond, also plays a role,” explains Miroslav Kotek, Head of Industrial Property at Colliers, adding: “The correction in rental prices is particularly noticeable around Prague, where prime space is priced at around €7 per sq m, while in the regions prices are holding at around €6.”
Short-term rental contracts a new trend
In the context of declining demand for warehouse space, another key trend is emerging – growing interest in short-term lease contracts. According to Colliers, this trend is driven by several factors. First and foremost among these is economic uncertainty, which is leading companies to prefer flexibility to react quickly to changing market conditions and minimise risk. Another driver is the challenges in the e-commerce sector – declining growth and increased costs are forcing companies to reassess their warehouse capacities and adapt to new needs. Changes in global supply chains and disruptions caused by pandemics are also contributing to the need for more flexible warehousing solutions so that companies can quickly adapt to fluctuations in raw material and product availability. These factors combine to create an environment in which short-term rental contracts offer the flexibility and adaptability businesses need.
“If a tenant demands conditions that are significantly different from the market standard, or significantly below it, the situation of finding a lease will be much more difficult. Developers and landlords may not be willing to enter into such agreements even in times of weaker demand. Logically, a shorter lease may mean higher rents or less willingness by the landlord to negotiate a discount or specific incentives. On the other hand, we have noticed a willingness by landlords to accommodate potential tenants in other ways – this may involve equipment in the premises or other attractive lease options,” adds Miroslav Kotek, adding that standard contracts are entered into for 5 years, but currently companies often prefer 3 years.
Future development and competitiveness: The state must intervene
Going forward, the commercial real estate market, especially in the warehouse sector, is expected to continue to undergo a gradual price correction. Minor price fluctuations are expected, both upwards and downwards, without drastic changes amounting to tens of percentages. While warehouse demand will slow compared to previous strong years, the need for warehouse and manufacturing space will remain stable. To ensure the Czech market’s competitiveness, it will be necessary for the State to support further development; for example, by adjusting conditions for employing foreigners and accelerating the construction of road infrastructure.
“In the current dynamic environment, it is crucial that companies plan well in advance and constantly monitor the market. The ability to make quick decisions and react to new opportunities is essential, given the local market often changes quickly and opportunities may only be around for a short period,” Miroslav Kotek advises.
