Across the CEE warehouse universe

This year, real estate portals have been abuzz with all the news of warehouse deals. With the Covid-19 outbreak and the subsequent lockdowns, shoppers have been forced to spend their money in the virtual world rather than the real one, and this, in turn, has given a huge boost to internet sales and the demand from e-commerce for warehouse space. But even all this is now somehow old hat. Many of us have already seen the investment figures for Poland, where around EUR 1 bln was transacted in Q3; but we have to remember that this volume was determined to a large extent by the conclusion of just one deal, which we first reported on in March: the sale of Goodman’s entire CEE portfolio to GLP. This deal, of around EUR 1 bln, also included assets in Hungary, the Czech Republic and Slovakia. So let’s cast our gaze onto those countries and see what’s been going on in the warehousing world beyond Poland’s borders.

Well, rather a lot, as it turns out! Starting with the smaller markets in the region, there have been quite a large number of interesting transactions. UK-based investor M7 has declared that it wants to increase its presence in Croatian warehousing – and to prove it, it has teamed up with pension fund AZ to buy a 33,000 sqm distribution centre in Zagreb. In Latvia, meanwhile, Eften Real Estate Fund 4 has acquired the 50,000 sqm Bergi logistics centre in Riga, in what it claims is the largest logistics deal in the country since 2018. When it comes to investment deals, the European Bank of Reconstruction and Development has loaned EUR 150 mln to WDP, which intends to use the funds to help it double the value of its Romanian portfolio from EUR 500 mln to EUR 1 bln by 2023. In Hungary, Belgian developer Weerts has purchased 30.6 ha just outside Budapest, where it plans to build a warehouse park with 120,000 sqm gla. When it comes to large industrial deals, BMW – after many postponements – has finally got down to constructing a new Hungarian factory near Debrecen. The investment comes to around EUR 1 bln including EUR 35.5 mln in government subsidies. On a somewhat smaller scale, Chinese household appliance producer Haier is to open a 57,000 sqm fridge factory near the Romanian city of Ploiești; while back in Hungary, Chinese computer producer Lenovo has chosen a 3.5 ha site in CTPark Budapest East for its first European plant. And this is far from an exhaustive list of everything that has been happening across the region.

Crunching the numbers

When we look at the details for individual countries, the Czech Republic saw gross leasing activity drop by over 20 pct in Q3 this year – both over the quarter and compared to the same period of the previous year, according to figures released by the Industrial Research Forum. A total area of 289,400 sqm was leased, including renegotiations, while the total stock in the country now stands at 8.99 mln sqm. The largest completion was in Park Nošovice (27,700 sqm), which was at the time of completion 100 pct leased to logistics firm Hyundai Glovis. The second largest completion was in Panattoni Park Stříbro (25,600 sqm), which is fully leased to forklift manufacturer Kion Group. Despite its meagre recent performance, warehouse investor Accolade remains confident about this market. “The market is already growing annually by almost 700,000 sqm of industrial space in the Czech Republic. Given the current situation, this growth could intensify. We expect around 50 pct growth with the addition of a total of 4 to 4.5 mln sqm over the next five years,” predicts Milan Kratina, the chairman of the board of Accolade.

According to data from CBRE, the total leasing activity in Slovakia in Q3 2020 came to 75,000 sqm, of which new leases accounted for 66,000 sqm. Almost 85 pct of the total space leased was transacted in the Greater Bratislava area. The overall vacancy rate in Slovakia at the end of Q3 increased to 9.05 pct, while the vacancy rate in Greater Bratislava increased to 7.57 pct. There is currently 143,560 sqm under construction. As for Hungary, according to JLL’s figures the total modern industrial stock in the greater Budapest area stands at just over 2.35 mln sqm with a vacancy rate of 2.3 pct (-29 bps q-o-q). Over the quarter, no new space was delivered to the market, but 150,000 sqm is currently in the pipeline. Leasing activity in Q3 amounted to 176,800 sqm, which is 15 pct higher than the figure for the same period last year but 36 pct lower than the four-year average Q3 volume. New leases accounted for 70 pct of this, while the average leasing transaction size was 7,370 sqm.

“The core pillar of the Hungarian market is clearly Budapest, with over 2.35 mln sqm of modern industrial stock located in the core submarkets within Budapest’s suburbs. Between Q1 and Q3 2020, more than 104,000 sqm of warehouse space was delivered to the market, which is quite significant compared to the 64,000 sqm from the whole of 2019. This shows significant growth on the market, and we are currently seeing that the vacancy rate – despite the slight rise from 1.85 pct 2019 to 2.3 pct at the end of Q3 2020 – is still very low, mainly due to the relatively high demand,” explains Balázs Juhász, a senior consultant for industrial leasing at JLL Hungary.

Hello from Futureal

However, the big news coming out of Hungary right now is the recent announcement by Futureal Group that, along with its commercial and residential activities, it has begun investing in industrial properties. And to this end, it has established its new industrial park brand, HelloParks. Although the company is intending to initially launch it in its home market, it has also made no bones about the fact that it has its eyes on the wider CEE region. “As part of Futureal Group, HelloParks aims to obtain a key position in the industrial development sector, by taking its first step in Hungary, and then later turning to the entire CEE market. From the very outset, HelloParks will be able to build on Futureal Group’s decade-long property development and investment experience. Futureal is one of the leading real estate developers and investors in Central and Eastern Europe and is among the ten largest real estate developers in Europe,” reads a company statement sent to ‘Eurobuild’ magazine. When pressed to explain this sudden interest in logistics centres, the company states: “In Hungary there’s this notion that it has been a large logistics centre for over 25 years, but in fact, it hasn’t. We lose tenders to Poland, Romania and Slovakia. We hope that with the efficiency-based development of our megaparks we can significantly increase the competitiveness of Hungary as a whole. However, this is going to completely reshape the domestic market. Logistics operators usually prefer moving in within a year, but this kind of project cannot be carried out properly in such a short period of time, unless you have the space already prepared. Because of the healthy competition, neighbouring countries are all basically cheaper than Hungary on average. High construction costs are a major concern for both developers and end-users. Warehouses – excluding land and financing costs – have been built for EUR 550–600 per sqm in Hungary, and this has significantly contributed to the country’s uncompetitiveness on a regional level. In order to become competitive again, the construction industry must also change.”

A difficult market

At the end of the third quarter of 2020, the modern industrial stock in Romania reached 4.84 mln sqm, with 45 pct of the total being in the Bucharest area. New supply comes to 389,000 sqm, 20 pct of which was delivered during Q3. Over the fourth quarter of the year, 258,400 sqm is to be added to the total stock, while another 246,000 sqm is expected to be completed by Q3 2021. The overall vacancy rate for these future developments is around 20 pct, leaving little to no space for last-minute pre-lease transactions. The vacancy rate of Q3 2020 for the country’s modern industrial stock stands at 6.6 pct, while Bucharest’s level is 8 pct – and these figures have changed little since Q3 2019. Looking to the future, the attitude of Viorel Opaiț, the business development director at JLL Romania, can best be summed up as cautiously optimistic: “Since it is a market that has proven its resilience in the face of the pandemic, you would think that warehousing is a sector that you should consider investing in. Still, investors need to keep an eye on the fundamentals, as market volumes are high, and not all projects will bring long term value. In the short term, we are expecting a good year in 2020 and a comparable one for 2021, although developers will be less engaged with speculative projects. In the medium and long term, we see the market growing and potentially doubling its size, if Romania can confirm its position as the logistics hub for the SEE region and further develop its automotive sector,” he says. Radosław T. Krochta of MLP Group is not quite so upbeat about the country’s prospects, despite describing it as a growing market where MLP should be active. “At first glance, it might look like there’s a pool of cheap labour, but there’s a big problem with it,” he admits, explaining that just like with Poland on its accession to the EU many of the country’s youth were enticed by better employment prospects abroad, but unlike in Poland this skill gap has not been replaced by immigrants from countries like Ukraine or Belarus. He illustrates this point by mentioning that in the past Romania has to hand back some of the structural funds it had received from the EU because the country had been unable to spend them.

Indeed, the CEO of MLP is now looking in a more westerly direction for growth opportunities. In an article about warehousing outside Poland, it seems remiss not to mention the recent expansion of Polish warehouse developers into Western European markets. MLP Group believes that its main foreign opportunity is not Romania but its German and Austrian division, which will one day be as big as its Polish operations It. expects to achieve this scale by 2023 at the latest. When it was put to him that Germany is a very mature market, Radosław T. Krochta replies “well, yes and no.” As he points out, the market is highly fragmented: “In Poland, you’ve got around five developers who dominate the market, but in Germany, you’ve got, I don’t know how many… ten, twenty, thirty,” he says. Coupled with the market growing at around 10 pct per year, this is still the place he believes MLP has to be. In many respects, MLP is following in the footsteps of Panattoni, which although an American country has its European base in Poland – and that’s where it is expanding from across the continent. The company is already present in Germany, the UK, Spain and the Netherlands.

Overall, the CEE warehouse market is performing well, but maybe not as spectacularly as in Poland on its own. Perversely, Covid-19 has clearly been a boon to the warehouse sector, but the disease is not the only factor behind its success. “We can certainly say that the current demand for warehousing is mainly being generated by logistics and e-commerce, but it’s also coming from production companies. Given that the situation with the pandemic is not improving much and Christmas is fast approaching, these segments probably have some rather difficult, but also very interesting, months ahead of them. At the same time, however, it’s not just all bout e-commerce. In the wake of such a major crisis, across the continent many companies have realised the need to keep part of their production in European markets. They want to be closer to their target customers for security, so that they can better satisfy the demand in any situation,” explains Milan Kratina of Accolade.