The first quarter of this year was marked by a slowdown in the industrial property market. Gross realised demand dropped to its lowest level in 13 years and amounted to only 160,400 m2. The number of completed lease transactions, their average size, and also the size of the largest completed transactions fell well below the averages to which the market has become accustomed in recent years. Even net realised demand, which has been strong in recent years, has fallen. The total for Q1 2024 was 100,000 m2. Demand was dominated by renegotiations (36%) followed by pre-lets (31%). Manufacturing companies were behind almost 50% of net realised demand.

Industrial real estate market to reach 12 million m2 this year

Market growth was also slower than in previous years. A total of 148,100 m2 of new space was added and the total size at the end of March was 11,871,300 m2. A further approximately 300,000 m2 of space is currently in shell & core status and awaiting completion once tenants for the spaces are found. "Pre-prepared space like this can be ready for tenants in a significantly shorter timeframe than for buildings where construction would start from scratch. A significant portion of this space could also influence the number of new buildings delivered to the market this year, which will certainly exceed 12 million m2," explains Josefina Kurfürstová, analyst at Colliers, adding that 1,282,100 m2 of space is currently under construction. The share of speculative construction currently accounts for 46% of all projects under construction. In the Pilsen region, for example, the share of speculative construction was as high as 92%, while in Prague, the Moravian-Silesian and Ústí nad Labem regions it was around 50% (60% in Ústí nad Labem).

Vacancy rates are significantly lower than in neighbouring countries

The vacancy rate rose slightly again during Q1 2024 and remains just above 2%. More and more subletting opportunities are emerging above the current vacancy rates. The latter are not counted in the official vacancy rate. In addition, there are a number of shell & core projects on the market that developers have started to build speculatively but which have not yet been brought to market. "If all of these spaces were counted in the vacancy rate, it would rise to 5% and would be close to the values in other countries in the region," says Josefina Kurfürstová, adding that the shell & core strategy is especially widespread in the Czech market. In neighbouring Poland or Slovakia, all speculative projects are usually put on the market as soon as they are completed, which is why the vacancy rate rises much more steeply there than in the Czech Republic.

Rents and forecast - will current market conditions depress rents?

Rents for the most desirable space on the market stabilised at EUR 7.50 - 7.70 per m2 in Q1 2024, but due to strong competition from neighbouring countries and low demand, they can be expected to fall by 3 - 7% to just above EUR 7 in the near future. "Rents for the most desirable spaces in Prague are still higher than in Vienna, for example, and in the regions they run higher than in Poland or Slovakia. So as long as rents do not fall, manufacturing and logistics companies are unlikely to be aggressively pursuing leasing activity," comments Josefina Kurfürstová, adding that rents for office space are between EUR 9.50 and 12.50 per m2 per month and service charges are typically EUR 0.75 - 1.00 per m2 per month.

Perhaps the biggest threat to our market at the moment is competition from Poland, which offers approximately 30% lower rents compared to the Czech Republic and comparable transport infrastructure: especially in the regions bordering Germany. For example, rents in the Liberec region are EUR 2.20/month/m2 higher than in the Polish border districts; in Ústí nad Labem EUR 1.30/month/m2 higher; and in Ostrava EUR 1.20/month/m2 higher.