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Industrial Seen as a Leading Market Sector
The industrial market is seen by some analysts as the sector in the most positive position for the post-coronavirus crisis period. Continued low vacancy rates and stable rental levels are forecast due to high demand; however, the lockdown environment and its impact on the development and construction processes mean most speculative projects have been put on hold, despite the previous demand for space.
Airport City by CPI.
By Gary J. Morrell
Some analysts anticipate a boom in activity once the crisis is over and restrictions are lifted. Some large builtto-suit (BTS) requirements are in the pipeline, although the decision-making process has slowed in the current crisis. Demand from logistics service providers is continuing to increase, thanks in large part to the dynamically rising use of ecommerce. In this respect a very low vacancy rate is expected to continue with upward pressure on rents.
The market also faces challenges with regard sustainability specifications and the need to change procedures to combat the coronavirus.
“Retailer active in grocery, healthcare, consumer and diversified products
will lead to a sharp rise in demand for logistics real estate in the next two to three years as industries implement lessons learned from the COVID-19 crisis pandemic,” says Prologis on the demand for logistics space.
Similarly, Mátyás Gereben, country manager at CPI Hungary, sees high demand as continuing in the logistics sector despite the crisis. The company
IN-CITY WAREHOUSES AND OFFICES
Flexible solutions for diverse needs – Class A warehouse and distribution center – In-city warehousing facility
Our newest project, park22 is a flexible light industrial business park development located in Budapest’s South Buda District 22.
The development will be completed in three phases comprising six buildings offering a total rentable area of 60,800 sq m including 45,600 sq m of warehouse space and 15,200 sq m of office space.
DEVELOPER:
has an ongoing development, the Airport Logistics Park, in Vecsés, in the vicinity of the Budapest Ferenc Liszt International Airport.
The area around Ferenc Liszt has developed into a logistics hub, with developers able to attract tenants who conduct a significant amount of business through the airport. Before the onset of the coronavirus crisis, cargo traffic through the airport had achieved new records in terms of cargo volumes, providing muchneeded employment and income in the surrounding municipalities.
How logistics companies and Budapest Airport adapt their business models to meet new challenges remains to be seen. “The increasing shift towards e-commerce has contributed to positive results in our industrial portfolio,” comments Noah Steinberg, chairman & CEO at Wing. As with CPI, Wing has moved into the industrial sector due the perceived high demand.
BTS AND SPECULATIVE
“We have recently concluded leasing transactions in our LOGIN and East Gate Business Parks. We have acquired a further site adjacent to the East Gate Business Park with the potential for the development of 60,000 sqm of space in the next phase. Our strategy is for the development of both BTS and speculative space. Apart from warehousing, the complex also has the capacity for light industrial development,” he adds.
Adorján Salamon, CEO of Eston International, sees the industrial market in Hungary as the least negatively impacted by the medical emergency. It has recorded low vacancy and no fall in demand has been seen, although this could change if the crisis situation lasts. In spite of governmental public health measures and downsizing by manufacturers, client companies are continuing their long-term plans of acquiring development land.
Péter Würsching, head of leasing at JLL, also expresses a positive view of the industrial market.
“The industrial sector is somewhat in a different situation. Record low level of vacancy has been fueling new construction and, although the current situation has hit some segments (for example automotive suppliers), some others are actually benefiting from the crisis, most importantly online sales and parcel delivery,” he says.
“We assume that online sales will gain momentum and actually also benefit from the current situation. In our view, this will create more demand for city logistics schemes and a growing
requirement for parcel services,” Würsching adds.
Cushman & Wakefield has traced a pipeline of six schemes representing about 125,000 sqm that is scheduled to be delivered this year.
“BTS projects are proceeding, but face delays due to slower permitting processes. The availability of construction material is stable for now. Continued low vacancy and reasonably stable demand levels are expected going forward, coupled with
East Gate Business Park by Wing.
the suspension of most speculative projects,” said Cushman & Wakefield.
LABOR DEPENDENT
By its nature, the logistics and light industrial sector needs the majority of staff to attend the workplace in order for the industry to function.
“Adaption to home office is difficult, especially where administration and manual labor (logistics or manufacturing/production) are strongly connected to the site,” the consultancy adds.
Cushman & Wakefield is forecasting at least 40,000 sqm of industrial deals for the second half of the year, a significant proportion of which are expected to be renewals. Large BTS requirements totaling around 100,000 sqm are still in the pipeline for the year, albeit with slower materialization.
Although there are several ongoing speculative developments by both international logistics park operators and Hungarian developers, the Hungarian industrial sector is generally regarded as underperforming in comparison with other established Central European markets.
Further, a developer-led market is mainly limited to the Budapest area and a functioning commercial industrial market has not been established outside the capital. In Hungary companies establishing light industrial facilities have tended to develop their own facilities.
“Contrary to the multipolar industrial markets of the neighboring
“Contrary to the multipolar industrial markets of the neighboring countries, the Hungarian industrial market is still rather unipolar and highly Budapest focused. While in the countryside production facilities are more common, logistics facilities dominate the market in Budapest. There are no speculative projects in the countryside. Further, there is still a limited number of available, good quality warehouse/manufacturing buildings for sale both in the Budapest region and in countryside locations.”
countries, the Hungarian industrial market is still rather unipolar and highly Budapest focused,” says Tamás Beck head of industrial agency at Colliers International Hungary. “While in the countryside production facilities are more common, logistics facilities dominate the market in Budapest. There are no speculative projects in the countryside. Further, there is still a limited number of available, good quality warehouse/ manufacturing buildings for sale both in the Budapest region and in countryside locations.”
However, demand is present and there are development opportunities, with Hungary having the lowest vacancy rate in the Central European region at 2.8%, an historic low in the greater Budapest area with a total stock of 2.3 million sqm.
LIMITED SPACE
Few existing logistics schemes have 5,000 sqm plus spaces available according to the Budapest Research Forum (BRF), consisting of CBRE, Colliers International, Cushman &
Wakefield, Eston International, JLL and Robertson Hungary. Demand for 2020 is put at 415,000 sqm.
Colliers had traced a very limited availability of space at around 40,000 sqm with contiguous units of only 3,500 sqm as of the turn-of-the-year.
“New developments for speculative and BTS purposes are often fully leased by the time of their handover,” comments Beck. The consultancy estimated that, as of the beginning of the year, there was 166,000 sqm of industrial space currently under construction with a further 66,000 sqm at the planning or preparation phase. From a demand perspective, developers are demanding at least five-year leases at existing warehouses, while seven- to 10-year deals are required for BTS projects.
“The Hungarian market produced high vacancy levels during the years 2007-2014, but since then the market has performed nicely, and Hungary now has very low vacancy, which means more construction is needed,” comments Ferdinand Hlobil, head of
CE industrial at Cushman & Wakefield. “In Hungary expansion outside Budapest will continue. Compared to the surrounding countries, Hungary still has further potential for development in the regions.”
As said above, a developer-led market is mainly limited to the Budapest area in contrast to Poland, the Czech Republic, Slovakia and Romania, where a functioning commercial market has been established in logistics and industrial hubs outside the capital. Registered stock is spread across the counties elsewhere in Central Europe while in Hungary stock is collated in the Budapest area.
Indeed, Hungary is lacking the largescale projects that can be found in Poland and the Czech Republic, in the view of Rudolf Nemes, country manager at CTP Hungary.
The 23,000 sqm DNHI building at CTPark Budapest South is due to hand over and a further 36,000 sqm building is planned. “We have almost zero vacancy in the industrial sector, which means that there is huge demand. In order to satisfy this , we need to offer competitive rents but in order do this we need to somehow deal with the high construction prices, while at the same time meeting tenants’ requirements. This is the challenge in Hungary,” Nemes explains
COUNTRYSIDE INTEREST
CTP currently plans to develop around 100,000-130,000 sqm in Hungary this year in both the greater Budapest area and the regions. “The countryside is still an interesting location for CTP. We plan to commence development in prime countryside locations by busy motorways and large city junctions. We have development plots in Győr, Komárom, Kecskemét and Tatabánya with a total of more than 125,000 sqm. Despite the above, our planning focus remains on the Budapest proximity market. I see that demand for countryside locations will be
dominated by the manufacturing and distribution sectors,” Nemes adds.
The other major regional industrial developer and park operator active in Hungary, Prologis, has a major construction underway at Prologis Park Budapest-Harbor. The company has an occupancy rate of more than 99% in Hungary, compared to 95% in its Central Europe portfolio.
“Prologis expects to see outperformance in Europe from its stay-at-home economy customers, led by the F&B industry, which was a key driver of an increase in short-term leases during the lockdown.”
The company’s assets in Europe are located in the largest consumption markets and key logistics hubs, which it believes will prove to be most resilient in an economic downturn as e-commerce levels are increasing, says Prologis.
With regard to further developments, the state-owned NIPÜF (Nemzeti
Ipari Park Üzemeltető és Fejlesztő or National Industrial Park Management and Development Company) has a landbank that covers most regional cities across Hungary. The company aims to deliver logistics parks in areas not currently provided for by the market.
Regional industrial developers and park operators are developing highly specified projects in reaction to changing tenant demands. Third party sustainability accreditation, such as BREEAM and LEED, is increasingly necessary as tenants are looking to save on utility costs. For example, Prologis has five BREEAM accredited buildings in Hungary; four buildings at Prologis Park Budapest-Sziget have been awarded BREEAM “Good” accreditation.
CTP is also committed to developing BREEAM buildings. The company has achieved BREEAM In-Use “Excellent” sustainability certification for the B1A2 building at CTPark Budapest West. Currently two buildings at CTPark Tatabánya and CTPark Budapest West (Biatorbágy) have been accredited and new additions are in the pipeline. CTP plans to have all 300 facilities in its portfolio across six countries BREEAM In-Use certified by 2020.
“The certification process requires long-term effort and investment on our side as these certifications need to be renewed every year. Nevertheless, we believe that BREEAM In-Use is worth the effort. CTP Hungary is committed to energy efficient and sustainable operation, also to the benefit of its tenants, and we believe that all the players of the commercial market share the same view,” says Nemes.
Although the logistics sector is perceived as being in a positive position in the face of the coronavirus pandemic, the sector still faces challenges related to the need for automation, sustainability and energy efficiency, new safely and hygiene procedures and the need for open borders in Europe.
Prologis Park Budapest-Harbor.
