The office sector reports a relatively high vacancy rate with only one project to be launched in 2015, but many more in the pipeline. The retail market reflects improved economic prospects as several new retail projects opened in 2015 and reconstruction is a way forward for those trying to keep pace. A growing economy, low interest rates and accessible mortgages are driving residential real estate prices up.
Industrial real estate primed
Though the industrial sector remains one of the most conservative parts of the real estate market, the year 2015 has brought a significant increase in new clients and logistics premises. The Bratislava region remains the most popular locality for industrial real estate but places like Košice, Žilina, Trnava and the region along the Váh River are also gaining interest.
“Compared to last year, the demand highly exceeds acreage of offered premises,” Martin Hudák, senior negotiator in Cushman & Wakefield Property Services Slovakia, told The Slovak Spectator. “The revival of sites such as Nové Mesto nad Váhom, which has been left behind thus far, confirms the growing market potential.”
Martin Stratov, head of the Industrial Agency for Jones Lang LaSalle (JLL), says that the carmaker Volkswagen Slovakia has driven demand to places next to the D2 highway leading from Bratislava westwards to Brno in the Czech Republic.
“We have also seen new warehouses in eastern Slovakia and around Žilina,” Stratov said.
Great potential for the future lies also in the Považie region along the Váh River because of cheap labour, according to Peter Šmitala from the Karimpol Real Estate Group.
Still, the most sought logistic hub remains Bratislava and its vicinity, with approximately 80 percent of all Slovak industrial premises built there.
According to Peter Jánoši, director of P3 for the Slovak market, other regions suffer from a lack of infrastructure and the unfinished D1 Bratislava-Košice highway. However, in the future the role of regions with an available qualified labour force and recently announced foreign investments will surely grow, Jánoši said.
Automotive still dominating
Automotive businesses still have the greatest influence on the market, however, e-commerce and construction of e-shop XXL hubs have been also attractive, according to warehouse and logistics space providers.
“Shopping via the internet creates demand not only for the facilities that are closer to city centres but also for new distribution centres for parcel carriers,” Jánoši said. “Currently, parcel carriers tend to centralise their distribution centres for the entire CEE region.”
Among the companies operating on the market with a vacancy rate below 4 percent, Prologis continues to be the biggest with a nearly 40 percent market share and plans for further expansion, based on the JLL statistics.
Martin Baláž, director of Prologis for construction and lease in Slovakia and the Czech Republic, says that based on the recent pick-up in market demand and the low long-term vacancy rate of its entire Slovak portfolio, Prologis Park Bratislava began development of three speculative (without pre-lease contracts) facilities totalling 22,300 square metres earlier this year.
Another market player, P3, is constructing build-to-suit (BTS) industrial real estate. BTS projects allow fulfilling the specific needs of the customer for its new premises, Jánoši said. He added that P3 has also planned to build premises with smaller capacity in the speculative way.
“It is still advantageous for developers to keep the so-called healthy vacancy rate, between 5 and 10 percent of premises,” Jánoši said, adding that these free premises can be used by existing clients who for certain reasons do not want or cannot wait for new projects.
While there has been no significant change in the market share rankings so far, Stratov noticed that in addition to the established companies like Prologis, P3, Goodman, Karimpol and VGP, Czech developer CTP has also entered the market.
“CTP acquired a logistic park in Devínska Nová Ves near Bratislava during summer and initiated the construction of premises in Voderady close to Trnava and in Žilina,” Stratov said. “We expect further expansion of the industrial real estate portfolio of the company.”
The Slovak market has been significantly affected by the CEE region’s growth as a logistics centre for all of Europe.
“Slovakia provides great access to CEE markets as well as Germany and Austria and offers an often required skilled labour force,” said Baláž of Prologis. “In addition, we believe that the industrial property sector will still be regarded as a solid asset with an attractive risk/return profile with relatively low volatility or downside risk.”
Jánoši of P3 points to an increasing completion from neighbouring countries.
“When we look back in history, Slovakia used to be in the focus of investors especially between 2005 and 2007,” said Jánoši. “Thus it entered the crisis with a very low, about 7 percent vacancy rate.”
Compared to this, the Czech Republic or Poland were facing vacancy rates of 15-20 percent and thus developers in these countries were under great pressure that resulted in an increase of their activity.
“This activity drew new investors,” said Jánoši. “Thus Slovakia was not confronted with the crisis in such a scope and it fell asleep a little and the new wave of investors’ interest has missed it.”
But the fact is, according to Jánoši, that Slovakia has an ideal position within Europe and the market is gradually reviving.
“The volume of construction from last year is gradually nearing that of the golden years of industrial development,” said Jánoši.
Hudák added that as Slovakia reinforces its position in the automotive industry, it remains attractive for suppliers and logistics companies. Moreover, the possible arrival of another higher-end car company (Jaguar Land Rover in Nitra) will spur demand again.
In the near future, market watchers expect increased construction, including speculative building.
“We hope that increased demand as well as the arrival of new developers will ensure revival of other regions in Slovakia such as Trnava,” Hudák said.
Šmitala expects that the end of 2015 and the beginning of 2016 will be very dynamic.
“The year of 2014 was followed by the dynamic year of 2015 when a number of new inquiries arrived,” said Šmitala, adding that the summer of 2015 was relatively inactive when clients used it for collecting information and thus it may be expected that they will now make final decisions. “During this period of time there may be assumed clinching of some significant deals.”
Office sector revives
Problems surrounding the Apollo Business Center 1 in Bratislava would rank high on any list of significant office market events. After a stress analysis indicated that the building was overburdened by 10-50 percent in some parts, its owner started reconstruction work. But while it firstly intended to do the work during normal operation of the building, the building instead closed in mid-October forcing tenants to move out and look for new premises within days.
In the meantime caution and high vacancy rates have limited the launch of new projects.
“The only completed construction this year will be the first building of the Twin City project of about 16,000 square metres,” Dalibor Surový of JLL told The Slovak Spectator.
Speaking about Bratislava, Ján Bryndza of Cushman & Wakefield Property Services Slovakia added that the new supply of modern office buildings had gradually fallen since 2010, where the average new supply used to be about 60,000 square metres annually. In 2013 and 2014 it dropped below 40,000 square metres while the drop was a result of weakening demand from tenants and therefore increasing vacancy on the market from about 9 percent in 2010 to 15 percent in 2013. This vacancy equated to more than 200,000 square metres in modern space.
“The developers and investors had reacted to the market conditions and reduced or postponed their new development plans resulting in new supply of office buildings in 2015 reaching record low volume in more than five years,” Bryndza told The Slovak Spectator, adding that the building is a part of larger development by HB Reavis, around the main bus station, which should significantly improve and revive the entire area.
The market of occupiers has, however, recovered since 2013, when the take-up was only 90,000 square metres to more than double volume in 2014, about the same level expected in 2015.
“Besides several large renewal transactions, like with HP and Eset, we saw expansion of occupiers filling surplus space in buildings like Polus Towers and BBC V, but also new market entries where, for example, the company Genpact we worked with came and employed 150 people,” said Bryndza. “This year is also unique due to large relocations of public organisations, for example NDS, VšZP, SBA, tax offices and others.”
Surový agrees specifying that the state health insurer VšZP moved into Panon Office and the NDS has moved from the ill-fated Apollo to Westend Gate.
“In 2015 the activity of tenants nears to comparably good results achieved in 2014 – these were more than two times better compared to previous years,” said Surový. “This only confirms the fact that companies are looking for new premises when their existing offices do not meet their requirements any more and harmonise their locations in case they have more addresses in the city.”
This impressive improvement in take-up volume and improved general economic conditions have bred confidence and boosted activity, according to Bryndza.
“We now see projects under construction which should bring new supply back to 60,000 square meters annually in 2016 and even higher in 2017,” said Bryndza. “We expect the vacancy rate to go down to 11 percent at the end of the 2015, possibly driving the rent levels up after many years of stagnation.”
Steady demand from the occupier’s side is a key driver pacing the way to a new project being successful and keeping the office market vacancy on a healthier level.
“New developments planned for completion in 2016 like Twin City B-C by HB Reavis and Rosum by Penta, should be supplemented in 2017 by Zuckermandel and Panorama Business by J&T and several smaller projects currently under construction,” Bryndza said.
Surový added that the market has been experiencing conditions similar to those before the crisis.
“In general older buildings, unless they invest into modernisation, will start to lag behind newly constructed buildings that are more effective and with newer technologies,” said Surový.
Retail market: new supply and reconstructions
The retail market has witnessed the opening of several new projects over 2015 as reconstruction has also picked up for existing retailers hoping to keep pace.
“The year of 2015 was very rich in new arrivals,” Matúš Furman, head of the retail department at Cushman & Wakefield Property Services Slovakia, told The Slovak Spectator.
In August, the City Arena shopping mall - with a football stadium and a retail area of 29,500 square metres - opened in Trnava, and the Fórum Poprad, 23,500 square metres large, opened on the pedestrian zone in the city centre in late October.
“The project [of City Arena] is by its connection with a football stadium unique not only in Slovakia but also in central Europe,” said Furman.
By the end of 2015 another project, Galéria Lučenec in the town’s centre 11,000 square metres large and Avenue Humenné 5,000 square metres large will open.
All these new projects highlight new development in areas with low saturation thus far.
“It is exactly saturation and over-saturation of the retail market, which has the biggest influence over the new development,” Daniel Kúth, senior consultant from the retail real estate department at Jones Lang LaSalle in Slovakia, told The Slovak Spectator.
Andrej Mardiak, senior associate of the retail agency at Colliers International, added that today the primary interest in locality from the side of key tenants is the most important for investors.
Market watchers agree that it was the sound economic development in Slovakia accompanied by the reduction of unemployment and the rise in real wages pushing retail sales up that stimulated the retail real estate market as well.
“The appetite of retailers to expand grew significantly in 2015 compared with previous years which is a reflection of retail sales,” said Furman, adding that retail sales are expected to increase by 2.4 percent in 2015 and even 4 percent in 2016. “The growth of the economy and continual reduction of unemployment are good signs for the future.”
For JLL, the year 2015 was the first since the crisis when they registered an increased interest from tenants in expansion.
Market watchers also positively perceive the interest of international concepts entering the Slovak market either directly or via partners. Here Furman pointed out the Danish creative concept Tiger that has already opened two shops in Bratislava, one in Eurovea and the second at the shopping street Obchodná, Croatian bakeries Starý Mlyn with three shops (two in Bratislava, Obchodná and Hodžovo square, and one in Trnava, in City Arena), and fashion retail chain Piazza Italia that will open its shops in Bory Mall and Zlaté Piesky Shopping Palace in Bratislava. Other arrivals include Silvian Heach in Aupark, Decathlon sports gear and equipment with two outlets in Bratislava, and a complex portfolio of brands of Poland’s LPP including fashion labels like Reserved, Cropp, House, Mojito and Sinsay.
“Apart from those we are currently negotiating the arrival on the Slovak market with about 10 international well-known brands from fashion, services and gastronomy that have not been present on the Slovak market yet,” Furman said.
While there is no significant retail project under construction, several are in the pipeline. Furman cited Forum Prešov by Multi Development, Nivy Mall by HB Reavis, Eperia Prešov of J&T, and Terminal Gallery with a retail park in Banská Bystrica by InterCora.
Mardiak expects investors to focus on smaller regional towns that lack existing retail schemes. In these regions smaller and less demanding, from the viewpoint of investment, retail parks 2,000-4,000 square metres in size are expected.
“But we perceive that for future years the trend will be especially modernisation and extensions of existing centres that want to keep their dominant position or to overrun or halt competition,” said Furman.
New development is expected especially in regions where there is still space for such activities, according to Kúth. He also confirms the remodelling trend under way pointing to revamps of Aupark or Avion in Bratislava.
Aupark completed its €15.5 million reconstruction in October 2015 using Urban Chic design. The new energy saving regime lists Aupark among the most energy effective shopping centres in the world. It is the only one in Slovakia to obtain the BREEAM in-use certificate with an ‘Excellent’ evaluation.
Avion Shopping Park in Bratislava projected for 2015 a reconstruction too, a €5 million face-lift for a 13-year-old section.
Stress will be put also on possible extension of existing centres as the space for new development is gradually shrinking.
“Simultaneously we register increased interest in the centre of Bratislava – Obchodná street,” said Kúth.
Residential may overheat
The sound economic development as well as increased ability to get a mortgage are increasing the prices for residential real estate in Slovakia. Several residential projects are being sold even before they are built. Real estate brokers estimate that prices have increased by 5-10 percent during the first 10 months of 2015.
“The last year is a record from the viewpoint of demand,” Ján Bošácky, analyst of the market research department at JLL, told The Slovak Spectator.
In Bratislava alone more than 2,000 apartments were sold during the May-October 2015 period when during the October 2014-October 2015 period almost 3,800 apartments were sold, he said.
“Regional cities, especially Košice, are also experiencing a not insignificant increase in the number of sold apartments as well as the number of launched projects,” Bošácky added.
Supply is also significant, according to Bošácky, when there are plenty of new and relaunched projects, though most are not huge. As the current demand is unsustainable from a longer point of view, most developers launch their projects in phases.
Daniela Danihel Rážová, director of real estate agency Bond Reality and head of Slovakia’s Association of Real Estate Brokers, who follows the Bratislava market, confirms the appetite of people to buy their own housing while demand has been significantly prevailing over supply over the last year.
“Because of this, prices of residential real estate have increased significantly in the most wanted localities,” Danihel Rážová told The Slovak Spectator.
Danihel Rážová does not expect any significant change in demand in 2016, but she sees the prices to be increasing too much and not very healthy.
“The situation on the market and prices are nearing the conditions before the burst of the real estate bubble in 2009,” said Danihel Rážová. “It may be a large sign of caution for the sellers that prices they require, in spite of the large demand, have their limits. Paradoxically, new projects set their prices more realistically and because of this prices of apartments in new constructions are very similar to those in old ones.”