The fourth quarter of 2020 closed a year full of changes and upcoming trends on the Czech industrial market. Despite the pandemic, the industrial segment proved stable, and there was a significant acceleration in the development of e-commerce, and specifically the digitalisation of the entire retail sector. There remains a high demand for premises on the market from investors and clients, and this interest puts pressure on prices, which will increase significantly at premium locations in 2021, according to 108 Agency.
Interest in industrial premises growing
In the Czech Republic, interest in industrial premises, production plants and logistics centres is growing. Gross demand during the fourth quarter of 2020 grew by 23 % compared to the third quarter of 2020 to 409,082 sqm. The situation is most apparent in areas around Prague and Brno, and it influences the growth in rental prices. “The increase in demand for industrial real estate particularly relates to the expansion of current clients. Companies are aware of the quality of their locations and are endeavouring to secure space to develop in the years ahead,” says Jakub Holec, CEO at real estate consulting agency, 108 Agency. With companies’ great interest in new or larger premises, vacancy rates fell during the fourth quarter of 2020 to 4.94 %. 3 % of this is in the Moravian Silesian Region and West Bohemia. In Prague and Brno, vacancy rates are less than 2 %.
Increase in rental and land prices
High demand and a lack of supply of available industrial real estate are leading to higher rental prices. “We are still dealing with a lack of land suitable for industrial development. Locations which were not previously considered lucrative are becoming desirable to investors. In Ostředek, for example, a location on the D1 motorway 35 km from Prague, ten new halls are planned with a total area of over 119,000 sqm. We are sure that they will find tenants over the coming two years,” says Jakub Holec, who expects that prices per sqm may increase by up to 10 % in Prague and Brno: “In key locations, rental prices already range around €5 per sqm per month, and we anticipate that this will continue to increase,” says Holec. Alongside rent, the price of land for industrial construction will also increase, with some locations in Prague reaching the threshold of €EUR per sqm. The price of land is increasing across Europe. In Barcelona, for example, the sales price per sqm is around €350, with a price of around €300 in large German towns and cities, and over €650 per sqm of land in Munich and Stuttgart.
Jump in the investment segment due to the coronavirus
A fall in yields is anticipated in the investment segment. A premium yield of 5.25 % no longer applies just to the Prague region. “Real estate is not losing value over time and is exceeding inflation; warehouses have withstood the financial and coronavirus crises and have become the cornerstone of infrastructure. Yields are falling, the payback period for investments is increasing, and real estate is becoming more expensive. Investors trust in industrial real estate and are willing to accept lower yields for greater investment stability. The pandemic is not just leading to an acceleration in digitalisation, but also yields will shift forwards by two to three years,” adds Jakub Holec. Investors are redirecting funds originally allocated for offices or retail to the industrial sector. All indications are that the lack of investment opportunities in the industry will lead to prices increasing and yields falling.
New developers on the Czech market
Increasing numbers of foreign developers are choosing to set up in the Czech Republic. Last year, German developer Garbe Industrial Real Estate entered the domestic market with the objective of providing premises to manufacturers, logistics and e-commerce companies. As part of their expansion, the company purchased 65,000 sqm of land in Chomutov and are currently planning further acquisitions. In 2021, Polish developer, 7R, is one company planning to enter the Czech market, already actively seeking land for new acquisitions. Other major European industrial developers have also been considering entering the Czech Republic market in relation to the sale of 120 hectares of industrial land in West Bohemia. There have been large expansions here, with GLP planning major growth in the CEE region through both acquisitions and its own development.
Czech industrial real estate market in Q4 2020 in figures
The total area of modern industrial premises for rent in the Czech Republic reached 9.19 million square metres at the end of the fourth quarter. Of this, more than 3.28 million sqm are in the greater Prague area. 83,451 sqm of premium industrial premises were completed. Completed construction in 2020 came to 609,302 sqm, representing the second-highest value in a decade. 2017 holds the record, at 707,000 sqm.
