Last year, CBRE noted structural changes in industrial demand. This has shifted away from logistics service providers towards manufacturing companies, which, with a 53% share of total demand, achieved a 22 percentage point year-on-year increase. A similar trend can be expected this year. Demand will be driven primarily by companies linked to the automotive and electronics industries.
“There are several reasons for the structural changes in demand, including uncertainty about future economic developments and geopolitical changes. However, the most important factor is the end of the large-scale expansion of online retailers, which demanded record amounts of logistics space during the covid-19 pandemic in the context of the huge growth in e-commerce. Even if online shopping continues to grow, it will not return to that pace. This year, thanks to this, manufacturing companies will come to the fore,” comments Jan Hřivnacký, Head of Industrial Leasing at CBRE.
In terms of leases “under one roof”, 2021 and 2022 are considered to be record years. During that time, two of the largest leases in domestic history were signed, namely 233,700 sqm at Panattoni Park Cheb (2022, tenant is a fashion retailer) and 186,700 sqm at Panattoni Park Kojetín (2021, tenant is the world’s largest e-shop originating in the USA). CBRE was the broker in both cases. In addition, the lease of the German company Tchibo in Panattoni Park Cheb (year 2021) also surpassed the imaginary 100,000 sqm threshold.
“The results confirm Panattoni’s strong position in the Czech industrial development market. I am glad that we can build even the largest and most demanding projects on the market and meet the needs and requirements of any clients who need specific space for their business. If we look at individual Panattoni Parks and their tenants, it also shows that we can attract really big global brands to the Czech Republic. The fact that the whole industrial development sector in the Czech Republic is very sustainable compared to the Central European region plays a big role in this. This makes us an attractive location for investment by companies with clearly defined objectives in this area. Due to low vacancy rates and limited construction opportunities, we expect high demand for projects that are at least in the advanced permitting process in the coming years,” comments Pavel Sovička, Panattoni’s Managing Director for the Czech Republic and Slovakia. The company has built four of the largest industrial and logistics buildings in the Czech Republic to date.
In any case, after a fat year, the domestic market experienced a slowdown in demand last year, which corresponded with similar developments in other European countries. In 2023, demand fell by 36% year-on-year to 938,400 sqm of newly let space, of which almost 70% was pre-leased. The average size of newly let space was 6,300 sqm. Eleven leases exceeded 20,000 sqm, but no new leases were concluded for space larger than 60,000 sqm.
Total leasing activity, including renegotiations, reached 1.53 million sqm last year, a 30% year-on-year decline. The share of existing leases renewed increased to 42% compared to 35% in 2022. CBRE experts expect demand for new space to reach 800,000 sqm from this year, which is in line with the average for the last ten pre-pandemic years.
“We are currently preparing offers predominantly for clients focusing on locations with good access to the German and Austrian markets, where there are both large end-use markets and other supply chain networks. For large enquiries, the height of the building is a very important factor, which allows for a more efficient use of space and at the same time relates to greater robotization of processes. As a result, we are increasingly encountering demands requiring a higher net hall height than the standard 10 metres,” says Jan Hřivnacký.
Nearly 922,000 sqm of new space was completed in 2023, the second best result in the history of the tracking. 87% of this space is already occupied, confirming the continued strength of demand. On the other hand, developers have responded to its slowdown with more limited construction in the coming years. Currently 980,000 sqm are under construction and only 600,000 sqm are expected to be completed this year.
For this reason, the overall vacancy rate increased slightly at the end of the year. It still remains very low at 1.75%, but is up 55 basis points year-on-year. At the same time, a new phenomenon is creeping into the market in the form of grey vacancy. These are shell-and-core properties, i.e. premises in the final stage of construction, which are formally considered unfinished by developers until they find their tenants. In addition, the market is facing a growing number of subleases. All of this combined may contribute to a rise in vacancy above the still low 3% level this year.
Rents in premium space are currently around EUR 7.55 per sqm per month, but there are large differences between regions and between older and newer developments. The highest rents can be achieved especially for renegotiations in premium locations. For new leases, CBRE experts expect increased pressure on rent levels.
“In terms of industrial and logistics properties as an investment asset, last year, despite high inflation, they stood the best of all commercial real estate segments, together with retail parks. On the other hand, more expensive debt servicing and rising interest rates had a direct impact on yields or expected returns. The value of real estate was rather stagnant and a similar development can be expected this year,” says Jakub Stanislav, Head of Investment at CBRE.
There has not been a major transaction on the market for more than a year. Property owners and potential investors had significantly different ideas about the price, and at the same time the owners had enough liquidity, so they were not forced to sell and waited for a better offer. “However, the mood of the market is gradually changing. Buyers and sellers are getting closer to agreement, so especially in the second half of the year we can expect a change in several properties,” concludes Jakub Stanislav.
Source: CBRE Czech Republic
