Demand for warehouses and production halls remains stable - automotive and rent reduction contributes

The domestic industrial real estate market had an interesting quarter in several respects. Data from the real estate consultancy 108 REAL ESTATE show that while 357,000 sqm of warehouses and production space was leased in the second quarter, 335,000 sqm of industrial space was leased from July to the end of September. Of these, 207,046 sqm were new contracts. The result was also achieved thanks to several successful international tenders from manufacturing companies that opted for the Czech Republic on the basis of improving lease conditions.

"Demand has been gradually increasing since the first quarter. However, the performance of the market, which is generally more active, has been determined for some time by several large transactions. These account for the majority of new space being let in the Czech Republic. The fewest new contracts were signed in the 5,000 to 15,000 sqm range, where only two new contracts were signed in the third quarter. This zone is expected to form the backbone of the Czech industrial real estate market," comments Jakub Holec, Director of 108 REAL ESTATE.

The slightly optimistic development of the domestic industrial property market has not yet been affected by the crisis in the automotive industry in Western Europe. However, this does not mean that this cannot happen in the near future - for example, due to the massive take-up of electric cars by Chinese manufacturers. The development in the field of e-commerce is also being watched with similar vigilance, with several large retailers from Poland and China expanding into Europe.

As expected by 108 REAL ESTATE, the cumulative volume of new lease contracts at the end of September was typical for the third quarter. The largest new lease was in the project of the developer DEMACO in Brno, where Thermo Fischer Scientific leased 54,000 sqm. The second largest transaction was a lease of 39 thousand sqm by an undisclosed company from the automotive sector in CTPark Žatec. The third was a lease of 29 thousand sqm, also signed by an unknown company in CTPark Blatnice.

However, the quarterly performance of around 200 thousand sqm was also reported by the market 5 years ago, when a quarter less space was available. The reason for this is the cautious approach of tenants from a number of sectors. An exception is the automotive sector, which is still growing in the Czech Republic. This is quite surprising given the negative developments in this industry in several European countries, including Poland.

The specific situation of the Czech Republic is illustrated by data from the beginning of this year. In the first quarter, NOBO Automotive signed a contract for 30,000 sqm near České Budějovice, while in the second quarter BMW signed a contract for 90,000 sqm in Mošnov with the potential to expand by another 30,000 sqm. In Q3, as mentioned above, an undisclosed client from the sector leased 39,000 sqm in CTPark Žatec.

Despite the increasing activity, there is clearly cautious demand in the market. This is one of the reasons for the decline in rents, which are currently around EUR 5.91 per sqm per month. The highest offers were recorded by the 108 REAL ESTATE team in the Greater Prague region, where they reached the EUR 7.40 per sqm per month mark. The national average rent has been falling since the beginning of 2023, when the average peaked at EUR 6.15.

"This trend indicates a possible oversupply of the market combined with a growing supply of space. Vacancies in completed buildings stood at around 430,000 sqm at the end of September. If also including

shell and core space, it would be 808,000 sqm without tenants. The vacancy rate would thus be close to 6.35%," says Matěj Indra, Head of Industrial Leasing at 108 REAL ESTATE.

Developers have reacted flexibly to this development. Some projects have been preserved in shell and core status and are waiting for tenants to complete, while other projects have been postponed. These decisions have had an impact on the balance of completed warehouses and production space: at the beginning of this year, developers' plans called for the delivery of 1.15 million sqm, but at the end of the third quarter, the cumulative volume of completed buildings this year was only less than 350,000 sqm. During the third quarter, a total of 161,572 sqm of new industrial space was completed.

There are still 1,203,952 sqm of warehouse or production space under construction. The main projects include Hall F at Panattoni Park Cheb for a company in the fashion retail sector with an area of 233,698 sqm. In Ostrava Airport Multimodal Park, construction of a total of 109,654 sqm started in the third quarter. In CTPark Blučina, two buildings are under construction - 54,571 sqm (already in Shell & Core condition at the end of Q3) for Inventec Czech and another of 25,000 sqm.

In Kosmonosy, D+D Real is building a 60,000 sqm hall for an automotive client, which again demonstrates the vitality of this sector in the Czech Republic. In the Hruškovy Dvory industrial zone, LCJ Development is preparing a 41,000 sqm hall for Robert BOSCH.

In total, there was over 12.2 million sqm of premium industrial space for lease on the Czech market at the end of the third quarter. The largest amount of space is available in the Central Bohemia region, where the market reaches 3.84 million sqm. Then there is the Pilsen region with 1.81 million sqm, the South Moravian region with 1.37 million sqm and the Moravian-Silesian region with 1.20 million sqm. In these regions, the amount of "A" standard space exceeds over 1 million sqm and accounts for two thirds of the total volume of industrial real estate in the Czech Republic.