Miroslav Kotek, Director of the Industrial Real Estate Department, Colliers:
"Despite the record number of spaces under construction, the vacancy rate on the Czech industrial real estate market remains very low, and everything indicates that there will be no drastic changes. Despite the increase in the volume of speculative construction, new vacant spaces are not coming to the market. The strategy of landlords is often to preserve the building in an advanced stage of construction, thus preparing the ground for faster satisfaction of demand. This will ensure that the date of final delivery to the tenant will not be so threatened by the risk of rising prices of building materials or their lack, which the market has faced recently. The market has recently been characterized by increased caution and an effort to shield itself from external factors that would have negative impacts. This can also be observed in the slight cooling of the realized demand caused by the prolongation of the decision-making processes of clients, waiting for an improvement in the inflation outlook or uncertainty caused by the economic situation."
TOTAL OFFER OF INDUSTRIAL PREMISES IN THE CZECH REPUBLIC
The total area of modern industrial premises for rent in the Czech Republic reached 11.44 million square meters. A total of 182,800 m2 of new warehouse space was delivered to the market in 10 industrial parks across the country. This is a decrease of 62% compared to last year, and a decrease of 28% compared to the previous quarter. This decrease is also explained by the fact that in the third quarter of 2022, the large volume of completed areas was significantly increased by the completion of one specific project. Even so, the quarterly results of newly completed areas this year are surprisingly low, if we take into account the record volumes of premises under construction from the end of 2021. Approximately 80% of the projects were already pre-leased at the time of completion.
The largest completed project in the third quarter of this year is the new building in GLP Park Brno Holubice (45,500 m2), which was rented to several tenants at the time of completion. The second largest project is located in Panattoni Park Pilsen West II (25,100 m2) and was
fully leased to Panasonic. The third largest is a part of the building with an area of 17,000 m2 in Industrial Park Pardubice - Rosice, leased to 2VV.
PROJECTS UNDER CONSTRUCTION
At the end of the third quarter of 2023, a total of 1,410,500 m2 of warehouse and production space was under construction, representing a 3% increase from the previous quarter and an 18% increase compared to the same period last year. Almost 28% of the total area under construction is located in the Karlovy Vary Region, followed by the Pilsen Region with a 16% share and the South Moravian Region with an 11% share.
The share of speculative construction is gradually increasing from the beginning of 2023. In Q3 2023, this trend continued and the share of speculative construction reached 41%. Developers have started the construction of industrial buildings with a total area of approximately 259,500 m2. We expect that more than 300,000 m2 of warehouse and production space will be completed by the end of 2023, bringing the total supply of modern industrial space in the Czech Republic to 12 million m2.
Gross realized demand (including renegotiations) reached 181,700 m2 in the past quarter. This result is unusually low and represents a quarter-on-quarter decline of 69%, a year-on-year decline of 62%. Compared to the three-year average, this is a 65% drop. The share of renegotiations decreased by 34 percentage points compared to the previous quarter and represented 19% of gross realized demand. Net demand totaled 141,000 m2 in the third quarter of 2023, representing a 48% quarter-on-quarter decline and a 60% year-on-year decline. New leases accounted for 47% of gross realized demand.
Overall realized demand cooled significantly during 2023. Gross realized demand for the 1st - 3rd quarter of 2023 is 1,115,200 m2, 20% less than the five-year average. But this result is distorted by the huge increase in demand in 2021 and 2022 compared to previous years.
SIGNIFICANT LEASES IN DEMAND
The largest transaction of Q3 2023 was a new lease of 32,400 m2 in CTPark Bor signed by an undisclosed logistics company. The second largest transaction was a new lease of 21,300 m2 signed by dm drogerie in the Prologis Park D1 Ostředek project. The third was a pre-lease of 9,700 m2 in CTPark Brno, signed by MOL Logistics.
In the third quarter of 2023, the vacancy rate in the Czech Republic reached 1.5%, which represents a quarter-on-quarter decrease of 22 basis points and a year-on-year increase of 74 basis points. At the end of the quarter, a total of 170,400 m2 of modern industrial space was available on the market for immediate rent. This is still relatively little in the current market conditions. Due to the high number of projects currently under construction, the vacancy rate may fluctuate due to possible changes in the completion dates of speculative projects. In Prague and its surroundings, the vacancy rate is even lower than the national rate, and since the second quarter of 2021 it has remained at an almost zero level.
The highest achieved rent for industrial and logistics properties (so-called prime headline) in the Czech Republic was stable in the third quarter of 2023 and reached the level of 7.50-7.70 euros/m2/month. In selected locations outside of Prague, rents follow a similar trend, currently at around 5.70-6.50 euros/m2/month. The amount of rent for office buildings reaches 9.50-12.50 euros/m2/month. . The usual amount of service fees varies between 0.75-1.00 euros/m2/month.