Deep-frozen storage

While the main focus at the moment might be on the damaging effects of the credit crunch on other forms of real estate, such as the investment and residential markets, the crisis is inevitably going take its toll on the industrial sector

Nathan North

In early December, Cushman & Wakefield announced that after years of record growth, the Czech industrial market had finally peaked and would fall short of the record figures achieved in 2007. This is ominous news for neighbouring markets, because what happens in the Czech Republic today tends to come to the rest of the region tomorrow – as Ferdinand Hlobil, head of the Central European Industrial Department at Cushman & Wakefield, puts it: “The macro-cycle in the Czech Republic is historically quicker than in much of the rest of the CEE region.” On the face of it, the figures actually do not look so bad. In 2007, the total new supply of Czech industrial space came to almost 920,000 sqm, but for the last year the figure slipped to just under 730,000 sqm, while 2007’s take-up total of app. 855,000 sqm fell to a little over 677,000 sqm. Be that as it may, the totals for 2008 are still comfortably higher than those two years earlier (take-up – app. 500,000 sqm, new supply – nearly 520,000 sqm). However, the situation is not as healthy as it seems, as the credit crunch finally takes its toll on the warehousing sector. The vacancy rate has more than doubled since 2007, reaching an average of 13.7 pct for last year, while yields in the Prague area have drifted back up to around 7.5 pct – a level they have not stood at for two years, with the figure for the Brno area now as high as 7.75 pct.

Wait and see

Cushman & Wakefield has been predicting that by the beginning of 2009 the Czech industrial market would be virtually stopped, as finance is withheld, forcing companies to suspend development and to wait and see what is happening in terms of demand before going ahead with new projects. Ferdinand Hlobil expects this ‘period of waiting’ to last for several months; but what he is not envisaging is a collapse of the market: “My estimation is that this year is going to be tough for everyone,” feels Mr Hlobil, “with the recovery coming at the earliest later in 2009 or early 2010. However, I don’t foresee any catastrophe here – there has been really tremendous growth for the last few years. Supply and take-up have been really high, even compared to Western Europe.” As well as the Prague and Brno areas, new projects are being concentrated around Plzeň and the D5 and D1 motorways, and in the latter location the Scottish-based Hunter Property Fund recently acquired the 5,000 sqm Euro Modletice park. Rents had been steady last year (EUR 4.67 per sqm monthly in Prague and EUR 4.5 in Brno), but Cushman & Wakefield is now expecting that the hiatus in development will cause some rise in rents, but not by any huge degree. The total stock of industrial space in the country now stands at around 3 mln sqm.

The biggest, but behind

Poland’s macro-economic cycle traditionally lags behind that of the Czech Republic, but it is also beginning to experience the first signs of diminished growth. It remains the largest industrial market of the first wave of post-communist states to join the EU, representing 48 pct of the share of prime industrial space in the Visegrad countries, which also include the Czech Republic (28 pct), Hungary (13 pct) and Slovakia (10 pct). According to Ferdinand Hlobil: “Poland is still the biggest market and will continue to be so. But where the Czech market has been dropping since the beginning of the year, Poland’s has been falling away since the summer – and this is likely to be for a variety of reasons.” One of the explanations he gives is that the Czech market is more dependent on the production sector, which tends to shrink more rapidly in an economic crisis, whereas Poland is rather more dependent on the consumer market. It was in the third quarter that the growth in the level of take-up finally started to dip for the first time in several years. But despite this, Cushman & Wakefield’s projected take-up figure of 1,544,000 sqm in 2008 will still be a record, as will the new supply of 1,343,000 sqm. However, the trend for both indexes is downwards, with no repeat performance being expected for 2009.

Yields have also reversed their direction in Poland, drifting up to 7.5 pct in the Warsaw region, level with Poznań and Wrocław, and up to 8 pct in the Kraków area. Rents, however, are still rising as the supply remains insufficient to meet the strong demand: in Warsaw the rate is now EUR 4.5 per sqm monthly, while in Kraków the average is EUR 5 and in Wrocław EUR 3.8. Major areas of activity now include locations connected by the A1, A2 and A4 motorway projects, such as Gdańsk.

The end of the year saw an exciting photo-finish between the two biggest warehousing developers on the Polish market in terms of leasing. By a nose, the 2008 winner was ProLogis, which finalized transactions for more than 455,000 sqm over the year, with Panattoni being the runner-up with 450,000 sqm leased. The two US companies each have about 30 pct of the leasing market. However, Panattoni did manage to finalize the biggest leasing transaction of the year – 56,000 sqm to Leroy Merlin in Panattoni Park Stryków. The next biggest developer, with about 10 pct of the market share, is UK-based Segro. Also worth mentioning are relative new comers Pinnacle, which is based in Prague and owned by a consortium led by Arcapita Bank of Bahrain. Since the company was set up in late 2007, its Polish portfolio has now grown to include the 94,000 sqm Point Park Mszczonów (formerly Europa Park) and Point Park Poznań, the first 39,600 sqm phase of which is at the completion stage. Another “newcomer” is Parkridge, which in 2007 sold its warehousing business to ProLogis in order to concentrate more on retail development. However, in 2008 Parkridge began a mixed-use office and warehouse project in Wrocław’s Psie Pole district (44,000 sqm of warehousing, with 9,700 sqm delivered in the first stage). Czech industrial developer CTP Invest has also started its first Polish project – in Jaworzno near Katowice. This EUR 50 mln investment will eventually offer 62,000 sqm of warehousing space, with the first buildings due to be ready early this year. Another company to keep an eye on in 2009 is AMB Property Poland. The US-owned developer has yet to enter the Polish market, but their recent poaching of Rafał Bochenek from Goodman Poland, where he was managing director, may be evidence that they intend to make their entry in the near future.

Up on the year before

In Hungary, take-up actually improved in Q3 2008 compared to the previous quarter by 20,000 sqm, bringing the vacancy rate down by 0.2 pct to 13.4 pct – but it must be borne in mind that the development of the Hungarian industrial sector has been slower over the