AFTER a standstill lasting almost two years, construction of new distribution and warehousing premises has started again in Slovakia. Now that vacancy rates have reached critically low levels the owners and developers of distribution facilities have begun building new premises and are even talking about construction on a speculative basis, that is without pre-lease contracts.
“There are huge prospects before Slovakia as [the country has] the lowest vacancy rate within the central and eastern European (CEE) region,” Peter Jánoši, the head of the industrial department at CB Richard Ellis (CBRE), a global provider of corporate and institutional services in the real estate industry, told The Slovak Spectator, adding that demand and supply might potentially increase along with construction of infrastructure, especially in regions outside Bratislava.
The industrial stock vacancy rate in central Europe (the Czech Republic, Hungary, Poland and Slovakia) stood at an average of 11.8 percent for the first half of 2011, Cushman & Wakefield Property Services reported in late August. Vacancy rates between 10 and 12 percent are considered healthy.
“Slovakia and its 2.5 percent vacancy rate represents an absolutely unique situation within Europe,” said Ferdinand Hlobil of Cushman & Wakefield, as quoted in a press release.
CBRE put the vacancy rate at the end of June at 4.4 percent, out of a total of 1,040,000 square metres of modern warehouse and distribution premises in Slovakia. Of this space, 85 percent is in Bratislava and its vicinity.
Jánoši expects that future development will be affected in particular by the willingness of banks to finance such projects, as well as by the courage of developers to respond to actual market demand by building speculatively or partly speculatively. He view the current low vacancy rate in Slovakia as stemming from a drop in prices during the crisis.
“The prices of existing premises decreased to a historical low during the crisis years,” Jánoši said, adding that prices have not decreased any further for some time. For new developments, prices are slightly higher compared to space offered in projects that were built on a speculative basis. The location of the premises, the duration of the lease and the size of the leased space are the three factors that continue to have the most effect on price. Currently, build-to-suit construction prevails, which is supplemented by sporadic, smaller speculative developments.
Prologis, which dominates the Slovak market for leased warehouse premises, is reporting a zero vacancy rate.
“We are fully leased [in Slovakia],” Martin Polák, Prologis’ director for the Czech Republic and Slovakia, told The Slovak Spectator. “Due to the low vacancy rate across the country, we have been focusing on build-to-suit projects this year.”
Polák, who sees the low vacancy rate in Slovakia as exceptional given that the neighbouring countries have vacancy rates of around 10 percent, puts this down to fewer speculative developments.
“There have been fewer speculative developments compared to other countries in the region and also not all the big players entered the market at the right time, or let’s say soon enough,” said Polák. “Slovakia is a market with little new demand, which is kept in balance by a few dominant and disciplined developers.”
Comparison with abroad
Jánoši of CBRE sees Slovakia as occupying a middle position in the central and eastern European market.
“Slovakia, when compared to the Czech Republic in modern warehousing premises close to the capital, is about 10 percent cheaper,” said Jánoši. “On the other hand Poland continues to offer existing premises for better prices compared to Slovakia.”
Polák reported that, in general, Prologis parks in the CEE region have had a good year so far.
“In Poland, for example, Prologis parks signed lease agreements totalling 110,000 square metres in July and August,” he said. “Prologis in the CEE region extended lease agreements totalling more than 300,000 square metres in the second quarter of 2011.”
Prologis currently has three distribution parks with a total area of 387,000 square metres in Slovakia, all of them located around Bratislava (in Senec, Galanta and Nové Mesto nad Váhom), which together represent 36 percent of the Slovak market, according to Polák.
New developments
Market watchers expect a rise in construction soon.
“So far this year about 30,000 square metres were built and another space will be finished by the end of the year,” Martin Baláž from Cushman & Wakefield Property Services Slovakia told the Hospodárske Noviny daily in mid October, noting that in contrast to the pre-crisis period, when new construction was focused in western Slovakia, attention is now being paid to central and eastern Slovakia.
For example, CTP Invest, which operates in Prešov, Trenčín and Žilina Regions, is preparing for the construction next year of a 7,000-square metre warehouse in Prešov, according to Hospodárske Noviny. Immorent Delta has also announced the launch of construction of new warehouse premises in Košice.
Experts see new investments in industrial production as being behind the construction of warehouse facilities.
“We see especially high potential in Košice and Žilina,” said Peter Bečár, managing director of PointPark Properties (P3) for the Czech Republic and Slovakia, as he introduced his company’s plans in mid October. “These are natural logistics hubs.”
PointPark Properties is currently building around 40,000 square metres of industrial property, of which 25,000 square metres will be in PointPark Bratislava, a build-to-suit project for Schnellecke Slovakia located in Lozorno, 25 kilometres from Bratislava. P3 is also building a new 15,000-square metre production hall for the American companies Washington Penn and Uniform Color Company in Trnava.
Prologis is currently building 18,126 square metres of additional space for an existing client at Prologis Park Galanta-Gáň (DC4), which it expects to complete in the fourth quarter of 2011. The expansion will leave the DC4 facility with a total of 93,590 square metres of modern warehouse space, making it one of the largest distribution buildings in Slovakia, according to Polák.
