Almost 1 million m² of new industrial space was added last year, but demand is weakening

The completions fell behind the original plans

Even though a total of 921,300 m² of modern industrial space was added during 2023 and the total volume of new space was 22% above the five-year average and 48% above the ten-year average, the result falls short of some expectations from the end of 2022, when the market was predicted to in this period it will cross the 12 million m² mark. At the end of last year, there were 1,348,300 m² of space under construction, which represents a year-on-year increase of 4%. At the same time, the largest number of buildings were built last year in the Karlovy Vary (30%) and Pilsen (15%) regions, followed by Prague and the Central Bohemia region (15%). It is worth noting that for most of 2023 there was not a single project under construction within the administrative boundaries of the Capital City of Prague. Major sites that help serve the country's largest city are currently being built in the north and northwest of the capital itself around the D8, D5 and D6 highways. “Looking at the current planned projects around the capital, this trend is likely to continue for some time. At least until the development of transport infrastructure in the south and east is resolved, which will stimulate the further development of regional markets with industrial real estate," explains Josefína Kurfürstová, an analyst from Colliers.

Vacancy below 2%

The vacancy rate increased by 94 basis points year-on-year to 1.74%, representing 205,500 m² of immediately available industrial or warehouse space. Compared to some neighboring markets, such as Poland, where the level of new and speculative construction has grown at a similar rate over the past two years, but the vacancy rate has increased much more sharply, this change is still small. “In Q3 2023, the vacancy rate in the Polish market increased by 358 basis points year-on-year to 7.71%. Unlike the Czech Republic, however, these premises are supplied to the Polish market and are immediately available for occupancy. On the Czech market, thanks to several large projects, the volume of unfinished premises is growing, which, although built, are unfinished and require 3-6 months of additional construction in order for them to be operational and for tenants to move in," comments Josefína Kurfürstová, saying that while the rate vacancy rate is at 1.74%, these unfinished spaces could potentially push the market vacancy rate above 4% if they are quickly speculatively completed.

Cooling demand

During 2023, there was a slowdown in demand as most market players grappled with the changing macroeconomic situation. Gross realized demand for the full year was 1,520,600 m², representing a 31% year-on-year decrease and an 18% decrease from the five-year average. Net realized demand was 927,900 m², a year-on-year decrease of 27%. Pre-leases accounted for the largest share of transactions (41%), closely followed by renegotiations (38%).

Broadly speaking, the overall figures for 2023 were on par with 2019, although we did see larger quarterly swings, with the highest quarterly demand in Q2 exceeding 550,000m², while the lowest quarterly demand in Q3 did not even reach 200,000 m². Of the gross demand, logistics and transportation tenants leased the most space in 2023 (35%), followed by manufacturing companies (33%), mainly car and electronics manufacturers.

Rents are stable

The highest attainable rent, the so-called "prime rent", decreased slightly (by 3%) at the beginning of the year and stabilized at €7.50-7.70/m²/month for the rest of 2023. That's still more than a 50% increase since the start of 2021, and even more compared to 5 years ago. Compared to the markets around big cities, for example in Germany, where the increase in prime rent from 2021 was around 20%, this growth in the Czech market is quite massive. Regions outside the capital have seen somewhat slower, but at the same time, much more even growth, instead of declining in 2023. We currently see rents in prime regions at €5.70 - €6.60/m²/month. The rent for mezzanine office space is between €9.50 and €12.50/m²/month. Service charges are usually around €0.75 - €1.00/m²/month.

Nearshoring brings new opportunities

A recurring supply chain crisis, this time in disrupted trade routes across the Red Sea, is forcing some clients to once again think about so-called "nearshoring," or diversifying their manufacturing and warehousing operations to a safer location in a neighboring region. The Czech Republic can thus gain new opportunities. Although it still remains at a higher cost level in the region, it offers a very advantageous geographical location that tenants appreciate when serving the entire Central European region. In addition, it pays for the country with the most educated workforce and the most developed economic complexity of services and products.