INDUSTRIAL PROPERTY MARKET Q1/2020

In the first quarter of 2020, vacancy rates in industrial real estate in the Czech Republic reached a value of 5.0 %. The reason for this is not the virus pandemic, however, but rather a number of completed speculative projects which have not as yet found tenants. While many manufacturing sites have halted operations or closed, Czech e-commerce is growing rapidly. The real estate market in the industrial and warehouse sector has always come out of crises well, and any impacts from the coronavirus crisis are minimal. 

“The Czech industrial real estate market has benefitted from economic growth and high demand in recent years. Thanks to speculative construction, the vacancy rates of premium industrial premises in the first quarter of 2020 reached a four-year maximum of 5.0 % (438,000 sq m),” says Michal Bílý, analyst at real estate consultancy 108 AGENCY. The highest regional vacancy rates are in the Karlovy Vary and Ústí Regions at 16 %, followed by the Pardubice Region with 15 %. In general, the high vacancy rate is due to a number of completed speculative projects which did not find tenants during their construction. On the opposite end of the spectrum in terms of vacancy rates is the Liberec Region, where there is high demand for modern industrial premises but there is a lack of developed land, and also the Zlín and South Bohemian Regions. These regions had full occupancy rates in the first quarter.  

Newly completed premises and current construction are also important. These have played some part too, and in 2020’s second quarter agreed transactions from last year will also make a contribution. “Due to current construction (436,620 sq m) and the economic situation, we anticipate slight growth in vacancy rates in the near future too,” predicts Michal Bílý. The strongest region in terms of new construction is currently the Central Bohemian Region, where 140,000 sq m is currently under construction. The Central Bohemian Region’s strong position is a result of its links to the country’s centre of production and consumption – Prague. It is followed by the Moravian-Silesian Region and the Karlovy Vary Region, two regions with links to supply chains across the border. Recently, the Moravian-Silesian Region has also been a subject of increased interest from developers. 

“Although the impacts of the pandemic are not yet clear within the hard data, we can now observe a clear growth in e-commerce, just-in-time delivery and a general stimulation and pressure on the supply chain. This has resulted in a market increasingly influenced by trends within modern technology such as the internet of things, automation, artificial intelligence and analytics, which increase efficiency in warehouses and help companies to remain competitive. One of the leaders in this growth is Amazon, which last year focused its efforts on faster delivery of products to its clients,” explains Jakub Holec, founder and CEO at 108 AGENCY. 

From an investment perspective, investors focused on real estate have been increasingly interested in the Czech market since 2015. At the current time, there is significant activity being undertaken by foreign institutional investors (e.g. CBRE Global Investors, TPG), Czech real estate funds (Arete, Accolade, DRFG and Conseq), as well as Czech private investors. 

The way the market situation is developing confirms the importance of ensuring logistics is working, and this should be one of the main priorities for society and the economy to run smoothly, allowing society to continue to operate even at times of restriction of almost any type.