Commentary of Miroslav Kotek, Head of Industrial Agency, Colliers: “Despite a record number of space under construction, the vacancy rate of the Czech industrial market remains low and there is no suggestion of dramatic changes in the near future. Although the volume of speculative construction has increased there are virtually no new empty premises delivered to the market. The developers’ strategy is often to halt construction in an advanced stage so they can meet the requirements of a potential tenant faster. By doing this, they ensure that the delivery of the premises will not be subjected to risks of price increases or shortages of construction materials the market experienced recently. The market acts cautiously and tries to shield itself from external factors with could have a negative impact. That is evidenced also in a slight cooldown of take-up caused partly by longer decision-making processes of clients who might also bide their time to outwait high inflation and uncertain economic outlook.”

Total stock & new supply

The modern developer-led warehouse stock in the Czech Republic reached 11.44 million sqm in the third quarter of 2023. A total of 182,800 sqm of new warehouse space was delivered to the market within 10 industrial parks across the country. This represents a 62% decrease compared to last year and a decrease of 28% q-o-q. While new supply in the third quarter of 2022 was exceptionally high, owing to a single large completion, the new supply numbers are surprisingly low this year, considering the record-high volumes of space under construction seen since the end of 2021. Approximately 80% of the newly delivered projects were already pre-leased at the time of completion.

The largest completion in Q3 2023 was a new building in GLP Park Brno Holubice (45,500 sqm), which was at the time of completion fully leased to multiple tenants. The second-largest completed building was located in Panattoni Park Pilsen West II (25,100 sqm), fully leased by Panasonic. The third largest completion was part of a building in Industrial Park Pardubice - Rosice (17,000 sqm), leased by 2VV.

Projects under construction

At the end of Q3 2023, approximately 1,410,500 sqm of industrial space was under construction in the Czech Republic, representing an increase of 3% compared to the previous quarter and an 18% increase compared to the same period last year. Almost 28% of the total space under construction is situated in the Karlovy Vary region, followed by the Pilsen region with a 16% share, and the South Moravia region with an 11% share.

Since Q1 2023, we can see that the share of speculative space under construction has been slowly rising throughout the year. In Q3 2023, it rose again to 41%. At the same time, developers commenced new construction of 259,500 sqm of modern industrial space in Q3 2023. We expect over 300,000 sqm of warehouse and production space to be completed by the end of 2023, bringing the total modern industrial stock in the Czech Republic closer to the 12 million sqm threshold.

Industrial take-up

During Q3 2023, gross take-up, including renegotiations, reached 181,700 sqm, an unusually low figure. This represents a decrease of 69% compared to Q2 2023 figures and a 62% decrease compared to Q3 2022, as well as a 65% decrease when compared to the 3-year quarterly average figure. The share of renegotiations decreased by 34 percentage points compared to the last quarter and accounted for 19% of gross take-up. Net take-up in the third quarter of 2023 totalled 141,000 sqm, a decrease of 48% quarter-on-quarter and a decrease of 60% year-on-year. New leases accounted for the largest share of demand, with 47% of total gross take-up.

Overall, both gross and net industrial demand have slowed significantly during 2023. The current total gross take-up for the Q1-Q3 2023 period is 1,115,200 sqm, which is 20% below the 5-year average. This result is nonetheless skewed by the huge demand increases in the years 2021 and 2022.  

Major leases within take-up

The largest transaction in Q3 2023 was a new lease of 32,400 sqm in CTPark Bor, signed by an undisclosed logistics company. The second-largest transaction was a new lease of 21,300 sqm signed by DM Drogerie in Prologis Park D1 Ostředek. The third-largest deal was a pre-lease of 9,700 sqm in CTPark Brno, signed by MOL Logistics.

Vacancy

In the third quarter of 2023, the vacancy rate in the Czech Republic reached 1.5%, representing a decrease of 22 basis points q-o-q and an increase of 74 basis points y-o-y. At the end of Q3 2023, a total of 170,400 sqm of modern industrial space was available on the market for immediate lease. This is relatively low under present market conditions. Given the large volume of space being built, the vacancy rate is particularly susceptible to changes in the delivery of speculative projects currently under development in the market. The vacancy rate in industrial warehouse space in the Prague region and the surrounding area is more constrained than the national rate, resting at close to 0% since Q2 2021.

Rent

Prime headline rents in the Czech Republic are stabilised, reaching around €7.50-7.70 sqm/month in Q3 2023. Prime rents in selected prime locations outside of Prague follow a similar development, reaching a level of around €5.70-6.50 sqm/month. Rents for mezzanine office space stand between €9.50-12.50 sqm/month. Service charges are typically around €0.75–1.00 sqm/month.