The largest completed project in the fourth quarter of 2024 is the new building in CTPark Brno (30,500 m2), which at the time of completion was leased to several tenants from the fields of production and logistics. The second largest project is located in Arete Park Rokycany II (29,500 m2) and was fully leased to Duvenbeck Logistik. The third largest newly completed project is a 29,100 m2 building in Garbe Park Chomutov, leased to the German optical company Fielmann. Building "C" with an area of 45,500 m2 in GLP Park Brno Holubice became the largest newly completed building for the entire year, which was rented to several tenants at the time of completion.
Changes in demand
"We are currently monitoring a structural change in tenant demand. Manufacturing companies grew in importance, reaching more than 40% share of net demand between 2022-2023. The slowdown in demand from e-commerce and 3PLs is evident in the overall numbers, but not surprising as the two sectors are quite interconnected. The highest achieved rent (prime rent) is at a stable level, and in the case of new leases we expect only a moderate growth associated with changes in inflation in the following years. The renegotiations are taking place in a different rental framework, so it will not affect its amount in principle," comments Jan Hřivnacký, head of industrial real estate leasing at CBRE, on the current situation. At the same time, according to him, there are signs of a drop in demand due to longer decision-making by tenants as a result of the uncertain economic situation.
Projects under construction
The share of speculative construction gradually increased from the beginning of 2023. In the third quarter of 2023, this trend continued and the share of speculative construction reached 41%, but in the fourth there was a drop to 30%. At the same time, developers have started construction in Q4 2023 of just 130,500 m2 of modern industrial space, more than 70% of which is speculative.
Gross realized demand (including renegotiations) reached 396,900 m2 in the past quarter. This result represents a quarter-on-quarter increase of 109%, a year-on-year increase of 16%. The share of renegotiations increased by 17 percentage points compared to the previous quarter and represented almost 40% of gross realized demand. Net demand reached a total of 242,600 m2 in the fourth quarter of 2023, which represents a 72% quarter-on-quarter increase as well as a 10% year-on-year increase. Pre-leasing made up the largest part of the demand with a 47% share of the total demand. Overall, both gross and net demand slowed during 2023, but this was expected after the previous strong period, which was supported by several XXL transactions. For the whole year, gross demand reached 1,520,600 m2, which represents a decrease of 31% compared to 2022 and a decrease of 38% compared to 2021.
Significant leases within demand
The two largest transactions of this quarter were signed in the Karlovy Vary Region. The first took place in Panattoni Park Karlovy Vary, where the production company Wacker pre-leased a 30,000 m2 hall. The second transaction was also a pre-lease, within Panattoni Park Ostrov South, where an undisclosed company leased a 27,000 m2 hall. The third largest transaction of this quarter took place in CTPark Cerhovice, where an undisclosed company from the manufacturing sector pre-leased premises with a size of 21,000 m2. The largest renegotiation of this quarter was carried out by Yusen Logistics within P3 Prague D1, where the company renegotiated its premises of 24,700 m2.
In the fourth quarter of 2023, the vacancy rate in the Czech Republic reached 1.75%, representing a quarter-on-quarter increase of 34 basis points and a year-on-year increase of 94 basis points. At the end of the quarter, a total of 205,400 m2 of modern industrial space was available on the market for immediate rent. This is the largest volume of space available for immediate rent since the 1st quarter of 2021, when almost 270,000 m2 were available. Due to the large volume of buildings under construction, the vacancy rate is particularly susceptible to changes in the supply of speculative projects currently coming to market. The vacancy rate of industrial halls in Prague and the surrounding area is more limited than the national average and from the 2nd quarter of 2021 it is at a level close to 0%.
Additionally, we are tracking a large number of spaces in shell-and-core condition with no estimated delivery time. The current amount of free space in the shell-and-core state exceeds the amount of free existing space by more than 100,000 m2. As of the end of Q4 2023, there were approximately 300,000 m2 of vacant space in shell-and-core condition awaiting a suitable tenant.
The highest achieved rent for industrial and logistics properties (so-called prime headline) in the Czech Republic was stable in the fourth 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 5.70-6.60 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.
At the end of the fourth quarter of 2023, a total of 981,200 m2 of warehouse and production space was under construction, representing a 30% decrease compared to the previous quarter and a 20% decrease compared to the same period last year. As already mentioned, 271,600 m2 were delivered to the market in this quarter. Roughly half of the area that was supposed to be finished is the result of speculative construction that started last year and this year. Almost 200,000 m2 with a planned completion date of Q4 2023 was instead "conserved" just before completion. In this state (also called shell-and-core), developers can offer the building for rent in an almost final form with the possibility of modifications according to the needs of the tenants. In addition to these new spaces, more than 100,000 m2 were already shell-and-core at the end of last quarter (shell-and-core buildings do not affect current construction, newly completed spaces, or vacancies).