The industrial space market is expected to grow this year
Decline in rental capacity of automotive companies. Impact of the downturn in heavy industry. Slight but steady decline in e-commerce. High competition from Poland and unfulfilled expectations for the arrival of workers from Ukraine. And a continuing wave of subletting and vacancies even in traditionally most attractive locations. The main analytical outputs based on the results of the Czech industrial space market in the last quarter of last year do not offer much reason for optimism. According to real estate consultancy 108 REAL ESTATE, the opposite is true: the market is starting to revive at the level of developer construction and tenant demand, responding, among other things, to the growing demand for chips. It is being positively affected by falling interest rates and indications of gradually increasing demand from households and businesses.
The area of premium industrial space available for lease reaches a total of 11.98 million sq m of space after a record increase of 1.08 million sq m in 2023. "Builders and owners of manufacturing and warehouse space are very flexible and react very quickly to market developments, demand and competition. Especially the Polish one is already having a rather noticeable impact on the domestic environment. However, all indications are that this year will be marked by price corrections, realignment at the tenant level and gradual growth in most of the monitored metrics," Jakub Holec, Director of 108 REAL ESTATE, believes that if these risks are overcome, the market recovery should be fully manifested mainly in the second half of 2024. This activity will decline during 2024, as it was a response to a lack of available space that is now fading.
The total gross demand reached 485,147 sq m including extensions. Net demand according to 108 REAL ESTATE statistics was 311 384 sq m. Subleases also accounted for a significant share. However, the last months of last year were marked by a confluence of three negative factors: rising tenant costs, the downturn in the automotive and e-commerce industries in particular, and the release of a relatively robust amount of warehouses that were or should have been occupied on a long-term basis.
"For a really long time there were no modern warehouses available in the vicinity of Brno, Prague or Mladá Boleslav. Now it has happened - and even with significant incentives from owners or tenants looking for subtenants. This is mainly due to a drop in demand in the second half of 2023, a general decline in household consumption in the same period and the fear of traditional automotive manufacturers or distributors of a reduction in demand due to the transition to electromobility ," explains Matěj Indra, Head of Industrial Leasing at 108 REAL ESTATE. The vacancy rate, including shell and core space, reached a total of 3.13% with 375,252 sq m and thus increased again - for the fifth time in a row. Excluding shell and core space, the vacancy rate was only 1.99%. Here, on the other hand, there was a decrease.
A not insignificant part of the warehouse space has been freed up by e-commerce-related entities: either directly by e-shop operators, their suppliers, or 3PLs or fulfilment providers. However, the decline in this segment is not across the board. Food warehousing and distribution continues to grow, new e-shops or expansions have been announced by major retailers such as Košík.cz (which operates in Makro's premises) or a new player in the field of "food delivery" - Kaufland (with its own warehouse space).
The aforementioned acceleration of rents and other costs associated with renting, which have reached up to EUR 8/sq m/month in wider Prague, has become one of the reasons why more and more (global) tenants are heading to Poland. Average rents in the Czech Republic were between EUR 5.50 and EUR 6.50 per sq m at the end of 2023. This is happening on the basis of international tenders, which are becoming standard for large companies. In addition to this, the macroeconomic data of the Czech Republic also plays a negative role, as well as the availability of labour, where the expectations related to the arrival of more workers from Ukraine have not been met.
According to 108 REAL ESTATE, the local industrial space market is showing signs of a cooling economy in Germany. This is both on the production side and on the demand side of end customers. Paradoxically, this may help industrial space in the border region, including the Ústí nad Karlovy Vary region, where a new group of tenants from our western neighbours may move from cost-intensive buildings in Germany. Not only the availability of space, but also the workforce freed up from the automotive sector could be a stimulus.