INDUSTRIAL ASSET CLASS: December 2022 CSEE NEWS
The Cushman & Wakefield Manufacturing Risk Index (MRI) brings together a range of important indicators to assess the relative attractiveness amongst 45 countries in EMEA, the Americas and Asia Pacific as locations of production.
Countries are assessed based on three key areas:
- Conditions: Business environment, including the availability of talent/labour and access to markets
- Costs: Operating costs including labour, electricity and real estate
- Risks: Political, economic and environmental
In EMEA, many countries in Europe have suffered from an increase in economic risk as the challenges around security of energy supply threaten to negatively impact economic prospects in the near term. This, along with higher electricity costs and labour costs (particularly as a lack of staff availability has pushed wages for workers higher) has meant countries such as France, Netherlands and Spain have suffered falls in their rankings this year. How swiftly these elevated cost and heightened risk challenges will be resolved will make a significant difference to the competitiveness of many European countries as production locations in the near term.
However, considerations about locational choice for manufacturing operations are becoming somewhat more nuanced than just a cost-of-production story. Length, security and resiliency of supply chains are now playing an increasingly important role in decision-making for manufacturers; the challenges of supply chain disruption and the risk of business interruption are fuelling companies to consider nearshoring production to locations more proximate to markets of consumption.
In Slovakia, the industrial sector did everything but slowed down. Once again, it exceeded expectations and kept growing at a rapid pace, due to the delivery of 113,500 sqm split into 5 buildings across all regions. Another 21 buildings with a total area of 305,900 sqm are underway. Speculative construction accounted for 45% of the development pipeline indicating that developers are more prone to commence build-to-suit projects. In addition, the built-to-own concept is gaining interest among developers. In this quarter, the growth rate of construction material costs slowed down and their availability improved allowing developers to deliver new assets in no more than 12 months. Despite the uncertain situation and rose of headlines in almost all submarkets, we are witnessing ongoing high demand. Driven by the need to secure the production and supply of car parts and components, demand consists mostly of 3PL and the automotive sector. Therefore, take-up even surpassed the previous quarter and amounted to 204 800 sqm, representing a 154% increase over the five-year average of the same quarter. Net take-up figures of 161,900 (79% of total leased space) illustrate strong interest in new spaces.
In Hungary, the industrial and logistics market is extremely active, the FDI remains to enter Hungary, and we experience expansion in the manufacturing fields and logistics. 32% of the disclosed transactions arise from the new entries investing in the Hungarian market. There were 170,000 sqm of new leases signed in Q3 which is equivalent to the previous year’s average annual volume.
In Czechia, Logistics is pulling ahead – and breaking records in the process
Activity in the logistics and industrial real estate market surpassed the first half of 2022 expectations: 900,000 sqm were newly leased, a 33% increase year-on-year. 130 leases were signed, of which 24 were for an area of more than 10,000 sqm and 6 for more than 20,000 sqm. The main activity on the market was related to pre-leases, which accounted for 59% of all demand. CBRE expects the total volume of newly leased space to reach 1.4 million sqm by the end of the year. This will put this year’s total in second place in the historical charts after last year. At the same time, international occupiers continue to re-evaluate their strategies in terms of global supply chains, which could benefit the Czech Republic in the near future.
The current vacancy rate is just 1.5% and CBRE experts do not expect a significant change in this respect in H2.
In Romania, close to 50% of the warehousing surfaces for which lease contracts were signed in 2022 were transacted during July – September of this year, according to real estate consultancy Dunwell Industrial Brokerage.
Around 627,837 sqm of warehousing spaces were transacted, more than a third of which (36%) being occupied by retailers. Logistics and e-commerce were next, with a shares of 11%, respectively 9% of the signed contracts.
”The companies seem to have overcome the indecision caused by the current political context and have continued their expansion. We are even more pleased to see that most of the signed contracts (53%) are for new premises, both from existing clients, but also from new retailers who come to our country and build a hub in Romania for a centralized distribution. Also, the fact that 17% of the transactions are for pre-leases, spaces to be built, is also an optimistic indicator of the market growth,” said Daniel Căutiș, Managing Partner of Dunwell Industrial Brokerage.
Bucharest continues to be first on top, with a significant percentage of 61%, followed by Ploiești with 25%. The next locations are Arad with 3% and Timișoara with 2% of the leased surfaces.
Storage continues to be the main activity for which spaces are leased, while production activities cover only 8% of the spaces.
In Poland, BTS (build-to-suit) warehouses designed and constructed for long-term occupancy in line with individual client preferences and needs account for almost a third of Poland’s total industrial stock, or over 8 million sqm. In Poland, the largest have been delivered for e-commerce giants such as Amazon in Gliwice (210,000 sqm), Świebodzin (203,000+ sqm) and Szczecin (161,500 sqm), and Zalando in Szczecin and Bydgoszcz (130,000 sqm and over 104,000 sqm, respectively). Leading retailers and logistics companies are also investing in BTS projects – Leroy Merlin in Central Poland (close to 121,000 sqm), DHL in Żerniki (108,000 sqm) and Żabka in Radzymin (67,500 sqm).
BTS warehouses are very popular with logistics companies and retailers, and e-commerce in particular, where time is of the essence. That’s why locations with convenient transport connections and proximity to motorways or expressways are clearly favoured. Another important aspect is the possibility of having a facility tailored to individual needs and technical solutions put in place to optimize picking, packing, shipping and returns management. Upgrading existing buildings to such standards is frequently financially and technically unfeasible – yet another argument in favour of BTS projects.
That said, BTS construction is a time-consuming process. Not only does it require securing land in the right location for the tenant, but also utility connections and mandatory permits, as well as assessing the environmental footprint of a facility, delivering the project itself and obtaining an occupancy permit.
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