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Record year for industrial leasing market in 2010
27 Jan, 2011, Prague
The industrial market fared exceptionally well in terms of leases last year. Occupiers signed deals for some 845,000 square metres of modern industrial space nearly reaching the peak levels of 2007 (855,000 sqm). Conversely, in terms of new construction, the market hit its lowest point since 2004, and there has been almost no new construction since Q3 2009. As a result of the high demand and low supply, the vacancy rate has dropped to 10.6 per cent.
“Many lease agreements were extended last year, or companies expanded and rented additional space for their existing premises. That did not happen in 2006 and 2007, the record-breaking years, as the prevailing practice was executing new leases at the time. The deals signed during the boom period are expiring now and occupiers often extend them,” says Jaroslav Kaizr, Head of the Industrial Team at Cushman & Wakefield’s Prague office.
“Last year was the first time that lease renewals accounted for almost a half of all leases,” Kaizr adds.
The volume of leases includes exclusively lease agreements executed in 2010 for existing premises where tenants moved in. Pre-leases are not included. In keeping with our methodology, we only include them in the year when the actual lease agreement is executed.
How much space remains unoccupied?
In regional terms, companies were most interested in Pragueand the Pilsen Region in 2010. The latter posted the greatest decrease of vacancy rate, with the percentage of available space dropping by about 13.5 per cent to the current 11.2 percent over the last twelve months. The Moravia-Silesia Region also posted a major decrease in the second half of the year, with about 16.8 per cent of high-tech industrial space currently available. The most important deals of the last quarter were new leases, Brose at ProLogis Park Ostrava and Trost at Orange Park in the Pilsen Region. Logistics companies Schenker and Damco expanded in the east of Bohemia.
Conversely, we see a slight increase of vacancy rate in the northern parts of Prague and in Vysocina, primarily due to certain occupiers relocating to different sites.
The South Moravian Region currently exhibits the lowest vacancy rate (2.5 per cent), suffering from a shortage of land suitable for industrial development. This applies primarily to Brno and its surroundings. As a result, developers have almost no possibilities to respond to demand.
The vacancy rate in Prague is above the national average primarily due to the market’s size and maturity.
The national average vacancy rate decreased rapidly last year. Towards the end of 2010 some 10.6 per cent of all space remained vacant, compared with 15 per cent one year earlier.
“We expect the vacancy rate to continue decreasing. Figures below ten percent mean insufficient supply, though, which may induce pressure on increasing rents. This will apply primarily to regions with limited space for rent,” Jaroslav Kaizr says.
How did the construction go?
As far as new construction is concerned, last year lagged behind previous years, with only 191,000 sq m built and commissioned, the lowest amount since 2004. It was about one-half compared with 2009 and about one-fifth of the construction in the record-breaking year 2007. Developers build exclusively for occupiers agreed in advance (pre-leases). The only developer courageous enough to build on a speculative basis was VGP. VGP built speculative halls in Horni Pocernice and is also building in Plzen and Hradec Kralove without pre-lease agreements (about 20,000 sq m in total). For the future, a slow return of speculative construction is expected in regions with low vacancy rates and stable demand.
Who fared well?
One-quarter of the lease agreements executed were for the developer CTP. ProLogis follows closely with 23 per cent of all lease agreements executed last year. VGP was the market’s third strongest player with 10 per cent.
“For this year, we expect a further reduction of the vacancy rate on a national scale and in certain regions such as the Moravia-Silesia Region. If the vacancy rate drops below 9%, we can expect a major increase of speculative construction in high-profile locations. Most new construction will still take place on the basis of pre-lease. Rent could grow above the current level in regions with low vacancy rates. We also expect more activity on the market for land, which has almost fully stopped in the last two years,” says Jaroslav Kaizr.
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