Tenants paid roughly half less for warehouses five years ago than in recent months. According to Miroslav Kotek, head of the industrial real estate department at Colliers, the subsequent increase in prices affected the whole of Europe, however, in the case of the Czech Republic, the situation was further strengthened by the exhaustion of available spaces, which logically supported further increases in their prices. "The reason why prices hit the ceiling right now is the fact that the current state of dramatic growth threatened the competitiveness of the Czech Republic compared to neighboring countries. As it turns out, in some locations, prices were really overheated by excess demand and are now normalizing. The market has become saturated and we are witnessing price corrections. A relatively drastic drop in demand also plays a role, to which landlords are trying to respond," explains Miroslav Kotek, adding: "The correction of rental prices is especially noticeable around Prague, where the best premises reach prices of around seven euros per square meter, while in the regions prices remain at a level of around six euros."
According to Petr Narwa from the consulting company Prochazka & Partners, the demand for industrial real estate has cooled significantly, which is also reflected in the amount of nominal rents, which are gradually falling. This is even more evident in the case of the so-called effective rent, the decline of which has been significant recently, Petr Narwa points out. The largest part of the demand now comes from manufacturing companies, but they require specific types of objects.
In the context of the decreasing demand for warehouse space, another trend is emerging - increasing interest in short-term rental contracts. According to Colliers, this trend is due to several factors. First of all, it is economic uncertainty that leads companies to prefer flexibility in order to be able to respond quickly to changing market conditions and minimize risks. Another driver is the problems in the e-commerce sector - the decline in growth and increased costs are forcing companies to reassess their warehouse capacities and adapt to new needs. Changes in global supply chains and disruptions caused by the pandemic are also contributing to the need for more flexible warehouse solutions so that companies can quickly adapt to fluctuations in the availability of raw materials and products. These factors combine to create an environment in which short-term leases offer the necessary flexibility and adaptability.
What the data says according to 108 Real Estate
Representatives of the real estate consulting company 108 Real Estate recently pointed out that in the first quarter of 2024, the total area of "A" class industrial space for rent reached 11,930,664 m2 (some older projects were reclassified to B standard). Including shell & core areas, the total area reached 12,413,909 m2. 106,635 m2 of new premises were delivered to the market. Under construction was 1,070,471 m2 in all regions of the Czech Republic. Construction activity remains high. The vacancy rate increased again to 5.36%, which represents 664,892 m2 including shell and core spaces. Excluding them, the vacancy rate also rose to 2.65%, with 316,604 sq m of completed space available.
“In the first quarter of 2024, we saw record low net demand, which may indicate a significant cooling of the market. Given the still high interest rates, the increasing competitiveness of the Polish market and the boom in cheaper subletting, it seems that the Czech industrial market may potentially face oversaturation. The automotive sector reported strong results in the first quarter, indicating a good start to the year at least for the sector. Household consumption is still below pre-pandemic levels, but is growing slowly. The future growth of the e-commerce sector thus remains a question. The economic situation is improving overall, but the market will continue to feel the effects of high inflation for some time. Given that the German economy is in recession, according to German representatives, the position of the Czech industry can be challenging," said Michal Bílý, head of the 108 Real Estate market research department.
The state can also influence future development
In the future, according to Colliers experts, smaller fluctuations in rental prices are expected, both upwards and downwards, without drastic changes in the tens of percent. Although demand for warehouses will slow down compared to previous strong years, the need for warehouse and production space will remain stable. To ensure the competitiveness of the Czech market, it will be desirable for the state to support further development, for example by adjusting the conditions of employment of foreigners and speeding up the construction of road infrastructure, according to the Colliers press release.
