OVER the last few years Slovakia has been catching up with its neighbours in the development of logistics premises and a number of modern logistics centres and warehouses have been built here. The current vacancy rate in Slovakia is low enough to encourage even speculative construction, i.e. building new premises without pre-lease contracts, by developers. On the other hand, clients are becoming more demanding and competition is growing, creating a challenge for developers and distribution space providers.
“The vacancy rate of industrial space for lease was 3.6 percent during the second quarter of 2012,” Martin Baláž, head of the industrial and retail warehouse department at Cushman & Wakefield Services Slovakia, told The Slovak Spectator. “But since then some industrial spaces were completed in the Bratislava and Košice regions, built on a speculative basis, i.e. without pre-lease contracts, and the vacancy rate increased to about 6.5 percent. We perceive speculative construction in Slovakia positively, since new industrial halls will provide room for the expansion of companies in the Bratislava and Košice regions.”
While current vacancy rates reported by real estate consultancy and services agencies differ somewhat, all of them are below 10-12 percent, a level considered to be healthy.
Martin Stratov, associate director and head of the industrial agency at Jones Lang LaSalle in Slovakia, agrees that speculative construction has increased the vacancy rate to about 8 percent.
Logistics space providers confirm that the low vacancy rate is spurring new activity. Martin Polák, vice-president and market officer of Prologis company for the Czech Republic and Slovakia, estimates that Slovakia’s vacancy is about 6 percent and is below the Central and Eastern European (CEE) average of 11 percent. Prologis, the leading distribution space provider in Slovakia, is experiencing a high demand for its premises in Slovakia, which are currently fully leased. This is why it has decided to build speculatively there.
“The current situation in Slovakia is therefore great for new development as demand for good-quality logistics spaces is still very high and there are not enough of these available,” Polák told The Slovak Spectator, adding that Slovakia possesses tremendous potential also thanks to its great location in the centre of Europe.
When assessing the current situation on the market Roman Karabelli, group marketing director at HB Reavis Group, said that build-to-suit, i.e. building premises for tenants based on their specifications, prevails, but that this trend is occurring not only in Slovakia but also in neighbouring markets. The basic assumption is that the tenant is interested in a bigger space, i.e. 5,000 square metres of gross leasable space at least. In terms of the overall region, Poland is reporting the highest construction activity. There is no activity in Hungary and some activity in the western part of the Czech Republic.
Jiří Suremka, leasing manager at Immopark Košice, built by Erste Group Immorent Slovensko, agrees that the low vacancy rate contributes to increased activity by developers and new construction is being launched.
“Of course there is a difference between regions, with the main part of construction being carried out in western Slovakia,” said Suremka, who describes Immopark Košice as the first successful venture in eastern Slovakia.
Upon completion, the Immopark Košice industrial park will offer more than 250,000 square metres of logistics, industrial and office space, to be built within several phases. Investments are projected to be €120 million, the SITA newswire reported in May.
Slovakia is a relatively young country in terms of development of industrial space.
“The first modern premises for lease began to occur in Slovakia in 2005 and more extensive construction started only between 2006 and 2008,” Baláž specified. “The difference between Slovakia and the Czech Republic is significant, especially in the volume of built industrial premises.”
The Czech Republic currently offers about 4 million square metres of industrial space for lease, while Slovakia has about 1.2 million square metres.
“When we compare the construction of logistics premises in Slovakia and the Czech Republic, roughly 53 percent more new warehouse space [in square metres] was built in the Czech Republic than in Slovakia during the first half of 2012,” said Stratov, adding that it is expected that this difference will increase to 68 percent by the end of 2012. “The main reason is, of course, the size of the market.”
With regards to the current position of Slovakia on the map of logistics parks and warehouses both Stratov and Baláž pointed out Slovakia’s advantageous position, right at the European logistics crossroads.
“Logistics centres in the Bratislava Region, in particular, are often used by logistics and distribution companies as central warehouses for central Europe,” said Baláž, adding that countries like Hungary, the Czech Republic and often also Poland are strong competition for Slovakia. “Then factors like distances to clients, road infrastructure, total costs and others decide.”
Stratov stressed that while within Europe, Slovakia enjoys strategic position in the centre, within the European Union it is located at its border.
“In the event that eastern countries were to become more active in questions of the economic development of the EU, there would be more opportunities for the construction of warehouses in Slovakia,” said Stratov. “At the moment a large portion of logistics in Slovakia is bound especially to the automotive and electro-technical industry and the rest mostly to consumer goods.”
The Bratislava region continues to dominate in the industrial space sector in Slovakia. According to Stratov, this region reports the biggest share of A-standard warehouses, exceeding 65 percent. But the construction of road infrastructure in central Slovakia has increased the logistics credibility of this part of the country.
“We have registered several inquiries, from logistics companies among others, with respect to this part of Slovakia,” said Stratov. “There is also assumed construction of new warehouses in eastern Slovakia, especially in Košice and Prešov. Development of the market with warehouses will certainly continue in the Žilina Region. Of course, the Bratislava Region remains of interest.”
Real estate service firms report that clients are becoming more demanding.
“They expect, in particular, lower costs for energy consumption,” said Stratov. “In practice this means usage of better sandwich panels [for outer walls of the buildings], energy-saving lighting for warehouse premises, and motion sensors in individual paths between shelves. A jointless floor that makes the installation of racks and movement of high-lift trucks easier should be part of a new modern building.”
Stratov added that developers abroad already cooperate with alternative energy source suppliers and mount solar panels atop the roofs of buildings.
According to Baláž, logistics space in modern logistics centres in Slovakia meets the requirements of logistics companies and developers are trying to adapt new halls to global environmental standards and trends in energy effectiveness.
Prologis confirms a shift in the demands of tenants.
“Customers want not only high-quality space, but they are also interested in additional services we can provide them, like facility management,” said Polák. “More and more often they also require green features in the newly delivered buildings that will help them reduce operating costs in the future. They want new facilities to have sustainable certificates such as BREEAM. All of our buildings have these.”
According to Edik Plätzer, CEO of Karimpol International Slovakia, the requirements of clients are moving towards higher flexibility and cost optimisation. This is also why leasing warehouse space prevails over constructing one’s own logistics premises.
Karabelli of HB Reavis said that tenants, from a geographical point of view, put greater emphasis on the location of premises and prefer the location to be as close to the client as possible.
Suremka of Immopark Košice stressed that nowadays clients are much more interested in seeing the final product.
“It is difficult to lease when the project is only on paper,” Suremka told The Slovak Spectator, adding that when the client can see the actual conditions of the premises and a high level of quality, it makes their decision easier.
Trends and plans
“Construction of industrial space in 2012 is mimicking the development of the previous year,” said Stratov, adding that the total volume of construction carried out should be approximately equal to last year. “Even so far, predictions for 2013 do not show signals of an increased demand for warehouse premises. With regards to price development, prices might decrease in regions where the vacancy rate is higher due to competition. Parts of Slovakia like Žilina and Košice will keep approximately the same price level.”
Baláž added that while construction of industrial space for leasing stagnated in Slovakia between 2009 and 2011, 2012 brought new speculative industrial premises in Bratislava and Košice Regions.
“In Slovakia the construction of build-to-suit industrial premises will continue,” said Baláž, adding that such halls were completed this year in Žilina and Bratislava Regions, for example.