In recent months, the Czech industrial property market has recovered from a significant drop. Realised demand has shown a marked increase in the Q2 2024 period, according to a market report published by Colliers.
This market fell to its lowest level in 13 years in the first quarter of 2024, now it seems to rebound, however, the pace of delivery of new space to the market was slower compared to Q1. Only 117,500 sqm of new space was added to the market, but the total volume of industrial space for lease on the market exceeded 12 million sqm.
"The small amount of new space delivered during the past quarter is expected to increase significantly by the end of the year. According to available data, 658,200 sqm is expected to come on the market. The highest level of construction activity is currently happening in the Karlovy Vary region (where 36% of all space under construction is located) followed by the Moravian-Silesian region and Prague and the Central Bohemia region," says Josef Stanko, Director of Market Research at Colliers, adding: "It is undoubtedly good news for investors that after three years of extremely low vacancy rates and a very limited amount of available space on the market, the vacancy rate increased by 88 basis points to 2.92% in the last quarter and is expected to rise further."
In addition, the 2.92% figure does not include sublease space (approx. 2%) and projects that are reserved just before completion of construction and waiting for their tenants (approx. 3%). The actual vacancy rate therefore correlates with a general trend observed in Central Europe and is close to the official figures from neighbouring markets: 8-8.5% in Poland and Hungary and 5% in Slovakia.
"While in previous years the vacancy rate increased mainly due to the completion of new projects, the current increase is also influenced by the amount of vacant space in existing projects," adds Josef Stanko. According to Miroslav Kotek, Head of Industrial Real Estate at Colliers, customers have less need for warehouse space due to subdued market demand. "New customers are not coming into the market from outside; not only because of the general European-wide economic downturn, but also because of competition for space from neighbouring countries that are not impacted by high rent and energy costs, unavailability of labour or weak incentives. Last but not least, the extremely long permitting processes, unfinished transport infrastructure and limited supply of land also represent major obstacles," says Miroslav Kotek.
Compared to Q1 of this year, Q2 saw an increase in gross realised demand. This totalled 462,900 sq. m, of which 75% was net realised demand (311,800 sq. m). For the first half of 2024, gross take-up totalled 622,000 sq. m, a 33% year-on-year decline. The market continues to be dominated by pre-leases and most available space is in projects under construction. Renegotiations accounted for 34% of total realised demand.
According to Industrial Research Forum data, nominal rents in the most desirable locations in the Czech Republic fell by around 5% to EUR 7.00-7.50 per sqm/month. This decline reflects the current market situation, where supply is finally outstripping demand and some submarkets are registering a shift in market dynamics that benefits tenants. The changes in the market are slow but can be seen, for example, in the growing number of incentives offered to potential tenants. The latter group is now in a stronger position to negotiate lower rents than in previous turbulent years when available space was very limited.
