CEE Similar trends across Europe

In twelve months, over 7,6 mln sqm was completed, expanding the market by 16 pct, and currently, additional 5 mln sqm is under construction. The demand is decreasing, but the nearshoring trend presents new opportunities.

The fundamentals of the CEE industrial real estate market remain strong. Nearshoring offers further opportunities for the region, particularly in the automotive, engineering, apparel, and consumer goods sectors.
Jiří Kristek, head of the Industrial and Retail Warehousing Team, Cushman & Wakefield

As of June 2023, the total market size for modern industrial and warehouse space in CEE-6 exceeded 59 mln sqm, with new supply in H1 being app. 3.8 mln sqm. The Czech Republic’s share is circa one fifth (19 pct) of the region’s total capacity and more than a quarter (27 pct) of the new supply. Poland is the largest market, accounting for 52 pct of the market size and 42 pct of the new supply.

Vacancy still low, rents keep growing

On an aggregate level, the share of pre-let space under construction is gradually declining: while at the end of H1 2021 the share of pre-let space in the Central European region was 61 pct of total space under construction, this year it was only 44 pct. In the Czech Republic and Romania it was even lower, around 39 pct.

Tenant demand in CEE continued to decline in H1 2023: the total volume of let space in the region fell by 29 pct year-on-year, mainly due to large declines in Poland (-39 pct), the Czech Republic (-32 pct) and Slovakia (-23 pct). In contrast, demand increased in the other countries of the region, by as much as 136 pct in Bulgaria. Despite slight upward corrections in Hungary, Poland and the Czech Republic, vacancy rates remained in single digits in all markets, especially in the Czech Republic and Bulgaria, even below 2 pct.

At the end of H1, prime rents increased compared to last year in all CEE markets except Romania. The strongest growth has been in Poland, where prime rents stand at EUR 6.50/sqm/month, up 35 pct year-on-year. In the Czech Republic, rents remain at EUR 7.75/sqm/month, still the highest level in the region.

Low investment activity, construction driven by two developers

The investment activity remains low in the logistics and industrial property sector. Total investment in industrial property in CEE fell by 45 pct year-on-year in H1 2023. It reached app. EUR 630 mln, representing nearly one third (29 pct) of total investment in the region's traditional commercial real estate sectors.

With the exception of Bulgaria, the region has seen an increase in returns from the premium industrial property sector, ranging from a 25 pp increase in Romania to a significant 150 pp increase in the Czech Republic.

Nevertheless, healthy vacancy rates in this sector, strong demand driven by nearshoring trends and a slowdown in development activity should attract investors to the region's industrial and logistics sector in the upcoming period.
Jiří Kristek

The logistics and industrial real estate market in the CEE region is still very consolidated: two international companies in particular, Panattoni and CTP, have a large share of the current construction (over 55 pct in H1) and are active in almost all countries in terms of leasing. Prologis should be also mentioned, whose parks accounted for 18 pct of total gross take-up in the region in H1 2023.

CEE trends mirror European developments

As a result of high economic uncertainty and lower business and consumer confidence, markets are returning to pre-pandemic coronavirus activity levels, although in a number of particularly smaller markets (including many in the Central European region), take-up volumes are still much higher than pre-pandemic levels. Across Europe, there is still a limited supply of vacant space, which is driving up rents. While no longer growing at the record pace of recent years, the trend is still positive. Investment volumes also continue to fall across Europe as investors wait for new price levels to stabilise. However, yield decompression is beginning to slow, and activity is slowly returning thanks to investor confidence in the strength of this market.

As economic uncertainty continues to impact business and consumer confidence, we expect occupier activity to remain subdued for the rest of 2023 and into early 2024 before picking up as businesses experience greater optimism. The availability of vacant space will remain limited as developers slow their speculative construction, which is already evident in Central Europe. Rental growth is expected to slow in 2024 and beyond, although it will remain in positive numbers across European markets.
Jiří Kristek