According to data from Colliers, a trend called shell & core is gaining momentum in the Czech Republic. This is a strategy of constructing and building out industrial buildings to the stage of providing basic structures and infrastructure.
However, the interior elements remain unfinished and will be completed only according to the preferences of a particular tenant. As of the end of Q1 2024, there was approximately 360,000 sqm of space at this set-up available on the market. Growth in this trend is mainly linked to recent supply chain disruptions and the need for developers to respond flexibly to current demand. For tenants, this strategy delivers significant time savings.
Although the shell & core model appeared on the market in the past on a limited scale, it is only now that more and more major players are joining the trend. This allows them to respond flexibly to market demand and reduce risks associated with market fluctuations. " Clients don't have to wait a year for the new hall to be constructed: only a few months, and they can adapt it to their ideas and needs," explains Miroslav Kotek, Head of Industrial Real Estate at Colliers.
He adds that shell & core buildings are not counted in market statistics and therefore do not affect the vacancy rate. The vacancy rate in the first quarter of 2024 was only 2.00%, but if all these projects were completed without secured tenants, the vacancy rate in the Czech market would reach almost 5%.
Developers usually wait until a future lease agreement is in place to complete shell & core projects. This is because clients may require superior fit-outs for halls or other buildings. A completed building of a certain standard might not suit all potential tenants, which could in turn slow down the leasing process.
On the other hand, some parameters such as clear heights, building shape or column spacing are already set and cannot be adapted to the tenant's needs. "Thus, the tenant has to adapt to the already prepared space and evaluate whether the hall layout allows them to run their activities optimally or whether it would be better to choose other project in the preparation phase. However, in such a case, the risk of time delays is significant given that permitting processes in the Czech Republic are often lengthy and unpredictable. Commonly, planning and construction procedures can take several years, even in the case of brownfield regeneration," explains Miroslav Kotek.
