The Central and Eastern European (CEE) industrial real estate market experienced a slowdown this quarter after years of growth, marking a return to normalcy following the record activity of 2021 and 2022. Across the region, industrial and logistics vacancy rates are increasing, and total demand is decreasing.
The slowdown in e-commerce is largely driving this because the markets across the region are experiencing a consistent pipeline of manufacturing lease deals, with specific reference to Hungary, Czechia, and Serbia. Generally, construction of new halls has also slowed again this quarter, with rents increasing slightly year-on-year across the region.
Despite this slowdown, the CEE region is an increasingly attractive destination for industrial and logistics investment having the most industrial space per capita, rapidly improving infrastructure and manufacturing companies seeking skilled and high quantity of labor.
“The region’s favourable business environment and low business costs have also attracted many new occupiers, specifically from East Asia to our region. For example, the corporate tax rates in some of our countries are sub-20 percent, making them the lowest in the EU. Combine this with the ease of doing business – setting up business entities, locating sites, securing foreign direct incentives – and there is no doubt that the CEE region is a burgeoning place for new industrial lease deals”, says James Fitzgerald Regional Director of Industrial Agency at iO Partners.
Romania: 30 percent drop in market demand and lower deliveries
In Romania, the industrial demand for real estate during the first quarter of 2024 was slower than last year. Gross demand reached approximately 192,400 sqm in Q1 2024, 30 percent below the previous quarter, and 22 percent below Q1 2023. This downward trend follows two record years, with over 1 million sqm of gross demand.
Also, the deliveries were fewer at the beginning of the year. A total of 69,400 sqm were completed in Romania in Q1 2024, 57 percent below the previous quarter, and 69 percent below Q1 2023.
Although around 700,000 sqm are in the pipeline for 2024, actual deliveries could be considerably lower, as demand slows down and securing pre-leases becomes more challenging. While the industrial rents were stable during Q1 2024, there is still pressure for rent increases, as construction costs are high. As expected, the vacancy rate increased slightly at the national level during Q1 2024, from 4.3 percent in the previous quarter to 4.4 percent, as demand slowed down.
Hungary is on the same trend but with a robust market demand
The total industrial demand in Greater Budapest, including lease renewals, was recorded at 90,880 sqm in the first quarter of 2024, representing a 15 percent decrease from the previous year’s first quarter. The net take-up was 78,280 sqm, comprising over 86 percent of the total quarter’s transactions.
The total modern industrial stock in Greater Budapest reached 3,522,160 sqm by Q1 2024, reflecting an 8.7 percent rise year on year. No new buildings were delivered to the Greater Budapest market during the first quarter. Currently, the Greater Budapest area has 437,500 sqm of industrial spaces under construction, with expected completion dates spanning 2024 and 2025. It’s worth noting that a significant portion, approximately 63 percent, of the forthcoming industrial spaces, has been pre-leased, indicating robust market demand.
The vacancy rate in the Greater Budapest industrial market has risen modestly to 8.9 percent in the first quarter of 2024, which is a slight increase of 30 basis points quarter-over-quarter and 3 percentage points year-over-year.
Prime rents stood at €5.50 sqm/month in Q1 of 2024, which indicates a marginal reduction from the last quarter.
Manufacturing companies ensured half of the new deals in the Czech Republic
The volume of newly completed space in the Czech Republic in Q1 2024 amounted to 148,100 sqm, which represents only half of the volume in the previous quarter. This leads to almost 11.9 million sqm of modern industrial stock in the country.
While the industrial vacancy rate slightly increased to 2.0 percent in Q1 2024, an additional 0.92 million sqm of industrial space is under construction. Manufacturing companies were the main driver of net take-up in Q1 2024, standing behind 50 percent of all new deals (excluding undisclosed tenants). The prime rents in Prague remained stable at €7.50 per sqm per month.
40 percent decrease in demand in Slovakia
During the first quarter of 2024, over 132 thousand sqm of new space was added to the Slovakian market, most of which was located in Western Slovakia. This represents a 40 percent decrease when compared with the same period of the last year. By the end of Q1 2024, the total modern industrial and logistics stock in Slovakia stood at almost 4.36 million sqm.
The vacancy rate has slightly increased from 2.17 percent in Q4 2023 to 2.35 percent. In Q1 2024, leasing transactions totalled 101,100 sqm, representing a 40 percent decrease in rental activity. Prime rent in Bratislava’s top locations has increased to €7.35 /sqm/month.
The fast expansion of the industrial market in Serbia
While little data is available for Serbia, there are more than 844,000 sqm planned for industrial assets, which shows that the country’s industrial market is growing quickly. The total stock under construction in Serbia is 383,609 sqm. CTP is the largest developer with 47 percent of the market, followed by VGP with more than 20 percent.
Serbia is desirable for industrial activity due to its strategic location in Southeast Europe. It serves as a bridge between Eastern and Western Europe, especially for Chinese, Japanese, and Korean production companies.
