The industrial real estate sector in Czechia, which saw unprecedented growth during the COVID-19 pandemic fueled by e-commerce demands, is now experiencing a shift. According to CBRE, a leading commercial real estate services firm, there has been a noticeable rise in subletting activities and the retention of properties in shell & core condition by developers.
Lukáš Šaling, Head of Advisory & Transaction for Industrial and Logistics at CBRE, explains, “The decline in online shopping demand has led to a sudden decrease in related logistics and warehousing needs. Many tenants, facing surplus capacity, have opted to sublease their vacant spaces as a solution.” He notes that this practice, often at reduced rates compared to standard leases, could impact vacancy rates and rental levels in certain locations. Currently, there are approximately 219,000 sq m available for sublease, contrasting with about 241,000 sq m available for traditional lease. However, Šaling reassures that despite these developments, the market remains stable overall.
Another trend observed is developers maintaining unfinished spaces in shell & core state rather than reporting them as vacant. Šaling elaborates, “These spaces, totaling 358,000 sq m by the end of the first quarter, are offered for rent in near-final condition with flexibility for quick modifications based on tenant needs. This practice, while beneficial for customization, can distort market statistics by understating actual vacancy rates.”
As of the first quarter, Czechia’s industrial real estate vacancy rate stands at 2.03%, varying across regions with notable impacts in key logistics hubs such as Prague, Pilsen, and the South Moravian Region. Šaling emphasizes that despite localized effects, these regions remain resilient due to their popularity and size among tenants.
He points out that subleasing often caters to 3PL companies (third-party logistics), providing temporary solutions equipped with specific technologies that limit extensive modifications, thereby narrowing the tenant pool.
However, challenges persist in accurately predicting sublease durations and market impact. Unlike office spaces where owners typically manage subletting on behalf of tenants, industrial properties often see tenants handling subleasing independently, complicating market monitoring and analysis.
Šaling concludes with recommendations for property owners to consider taking control of unused spaces to manage demand and rental dynamics effectively. This proactive approach, he suggests, could mitigate uncertainties arising from subleasing practices and ensure optimal property valuation.
In summary, while subletting and shell & core strategies are altering dynamics within Czechia’s industrial real estate market, strategic management and vigilant monitoring are crucial for stakeholders navigating these evolving trends.
