Automotive industry and e-commerce drive the industrial sector

Western Slovakia with Bratislava remains the strongest locality.

Prologis Park Bratislava(Source: Courtesy of Prologis)

The robust economic growth driven by the automotive industry has been the main factor affecting the production and logistics real estate sectors in Slovakia over the last few years. Another factor with a significant impact is the fast development of e-commerce when requirements of customers with increasing purchase power are growing and becoming more complex. The lack of labour force stimulating automation and robotisation of production and logistics processes brings new challenges, too.

“The arrival of the Jaguar Land Rover carmaker and its subcontractors in Slovakia has a fundamental influence on the development of the market,” Anton Jasenovec, head of industrial real estate at Cushman & Wakefield in Slovakia, told The Slovak Spectator, pointing to the brand new plant the British-Indian carmaker is building in Slovakia. Its production is expected to start in late 2018.

Some statistics

In 2017, the greatest amount of industrial space was built in central and eastern Europe in history – more than 3.7 million m². This represented a 68-percent increase compared to 2016. The total industrial space in the region has increased by 17 percent as a result, Cushman & Wakefield wrote in its report based on its long-term monitoring of the industrial property market in the Slovakia, Czech Republic, Poland, Hungary and Romania.

Poland was a clear leader in terms of new development. Its share of 2.3 million m² accounted for 63 percent. The Czech Republic built 662,000 m² of new industrial space. Romania followed closely with almost 500,000 m² of newly built industrial space. Hungary and Slovakia added roughly the same amount of space at 120,000 m² of new industrial space each.

“Poland has become the clear winner in terms of taking advantage of the post-crisis economic boom,” said Ferdinand Hlobil, partner and head of the CEE industrial team at Cushman & Wakefield. Hungary and Slovakia did not take full advantage of the opportunities at the beginning of the last decade, but in the past two years they have begun to accelerate their growth, he added.

Slovakia is gradually becoming one of the logistics and production centres of Europe, Ján Rakovský, consultant of the industrial team at Cushman & Wakefield in Slovakia, points out.

“Huge interest of investment funds in acquisition of industrial real estate here proves this,” said Rakovský, citing the record transaction of the year 2017 in CEE when Prologis sold its fully occupied 240,000m² logistics park in Galanta to the Chinese government-owned CNIC Corporation.

Slovakia on the European map

At the time being, the Polish market has reported the biggest development, followed by the Czech market.

“Following the arrival of new investments, Slovakia has started going up rapidly during the last two years with more than 120,000 m² of new developments built here annually,” said Jasenovec of Cushman & Wakefield.

The JLL consultancy company estimates the total logistics and production halls in Slovakia open to the market, i.e. not owned by the final user, at 2.3 million m². For comparison, the Czech market is approximately three times bigger.

Slovakia has become an even more attractive area for developers and investors over the last years, said Martin Varačka, head of the department of industrial real estate at CBRE Slovensko. They made their way to the local market through acquisitions and creation of new localities along the D1 cross-country highway and the R1 dual carriageway connecting Bratislava with Ružomberok via Banská Bystrica.

In general, Slovakia benefits most from its geographical position, according to Martin Stratov, director of leasing and development at Prologis in Slovakia.

“Western Slovakia is one of the most attractive European locations in all of the CEE region for logistics development, thanks mostly to the immediate and fast transport accessibility,” said Stratov, highlighting the improving state of infrastructure across the country, which is of high quality in the western part of Slovakia.

Western Slovakia keeps dominating

Bratislava and its vicinity remain the strongest location not only because Bratislava is the country’s capital with an international airport, but also because it is an important transport and logistics crossroad with other Visegrad Group countries and the rest of CEE. Moreover, western Slovakia is the centre of Slovakia’s automotive industry.

Jakub Volner, senior consultant at JLL’s industrial agency, estimates that 88 percent of the logistics and production real estates, except those owned by the users, are in western Slovakia.

“The strongest demand is in areas close to Bratislava, but prospects are quite limited,” Volner told The Slovak Spectator. More and more investors have been eying central Slovakia over the last two years and several projects have been successfully completed. “Some bigger investments went to eastern Slovakia, but these were mostly building production facilities for the owners.”

In general, developers remain cautious in eastern Slovakia.

“While western Slovakia is a tested market for developers and keeps creating new locations, developers view central and eastern Slovakia as a challenge,” said Varačka of CBRE, adding that some companies are surveying and preparing locations. The common way of doing business for most developers is selling the rented real estate to investment funds. “And these are, in terms of central and eastern Slovakia, cautious for now.”

But the lack of labour force in western Slovakia and developing road infrastructure shows prospects for central and eastern Slovakia, especially in Košice and Prešov.

For example, Prologis Park Bratislava, the largest park in the CEE region, and Prologis Park Nitra, which is in the immediate vicinity of the new Nitra plant of Jaguar Land Rover, has its third locality in Žiar nad Hronom in central Slovakia. Here, it owns a six-hectare parcel of land ready for development.

“Once the rental contract is signed, we can build a facility of 22,500 m² within eight months,” said Stratov.

E-commerce challenges the sector

As more people do their shopping online, online retailers and parcel companies are looking for solutions enabling them to deliver ordered goods as soon as possible. These are either large hubs, which Slovakia can benefit from with its central location in Europe, or urban logistics parks close to cities, solving the problem of last mile delivery.

“E-commerce services require short logistics connection with the city and fast, trouble-free transport lasting 30 minutes at most,” Peter Jánoši, director of P3 Logistic Parks for Slovakia, told The Slovak Spectator.

Jasenovec of Cushman and Wakefield agrees, adding that requirements of end customers are becoming more demanding.

“While in the past the time of delivery was more than 48 hours from ordering the goods, the requirement today is 24 hours and will be even shorter,” said Jasenovec.

Centralisation into large hubs requires preparation of large plots. But such plots are getting scarce in Europe, especially close to large cities.

P3 Logistic Parks sees as a solution a land bank with plots prepared for construction so the developer can respond to the increasing demand as soon as possible.

Varačka of CBRE points out that e-commerce developers encounter obsolete legislation related to the issuing of permissions, which is not reflecting the current needs of tenants.

“They increasingly require a higher number of parking places for passengers cars, higher halls or more dense traffic of trucks, all of which are aspects offices did not foresee,” said Varačka.

Slovak legislation also needs to catch up with the latest trends, like automated warehouses, added Volner of JJL.

“Modern technologies have enabled goods of bigger heights to be kept and logistics halls have adapted to this,” he said and noted that the halls’ height is increasing from the standard 10 metres to 12, 14 and more metres.

A project that responds to the increasing e-commerce is P3 Bratislava Airport, a logistics park now in construction by P3. It is located close to the largest retail park in Slovakia, Avion, and to the airport, and is still easily accessible from the city centre and suburban areas.

The park’s first building will feature floor space of more than 17,100 m² with potential office space of up to 5,100 m². In total, the park will offer up to 89,000 m² of new warehouse and office space in two warehouses and one stand-alone office building.

Other trends

Apart from e-commerce, the shortage of labour force and technological progress are propelling the industrial and logistics segment forward. Both lead to more automation and robotisation as well as reduction of costs for operation of such premises.

“Technological progress is shifting the whole segment of industrial real estate in many ways,” said Stratov of Prologis.

This applies on the construction side where the developer has to reflect customer need for space suited for equipment related to a certain degree of automation or robotization and implement smart sustainable solutions, focusing on the use of alternative sources of green energy.

“Emerging technologies, such as freight e-mobility and autonomous truck operations, will also influence how logistics parks and facilities will look in the near future,” said Stratov.

Biggest players

Five big players dominate the Slovak industrial and logistics market, and have been controlling an aggregate market share of more than 60 percent, according to Cushman & Wakefield. These are Prologis, CTP, P3, Goodman and Chinese CNIC Corporation. During the last three years, the Slovak market witnessed the arrival of new market players, of which CBRE mentions Sisban Holding in Trenčín, Russian PNK and Mountpark ofSereď, Invest4SEE of Dubnica and Arete Invest in Nové Mesto nad Váhom.

“Other entries have been announced too, but we cannot specify their names for now,” said Volner.

Expectations

During the first half of 2018, the industrial sector, usually the most active market in terms of real estate, was relatively inactive. Market watchers, despite the expected high demand from tenants and continuing intensive activity in renting logistics premises, do not expect to reach the record levels of 2016 and 2017 in 2018.

The vacation rate, or the share of real estate free for purchase or rent, has been increasing and experts do not expect its decrease due to continued construction.

“New developments are being constructed either as built-to-suit or speculative, i.e. without any contracts signed in advance,” said Jasenovec of Cushman & Wakefield. “As we still register demand for industrial real estate, we do not expect any damping.”

Based of Cushman & Wakefield’s statistics, the vacancy rate increased from 3.8 percent at the beginning of 2018 to 5.5 percent in October 2018 under the influence of speculative construction and new developments.

“But this year is very productive compared with previous years,” said Jasenovec, adding that the activities focus on building urban logistics around Bratislava.

During the autumn of 2018, there were about 200,000 m² of logistics and production halls within development projects under construction, of which more than 90 percent is being built in western Slovakia, according to JLL. New projects are being announced, too.

“Even though the general demand and development activity keep a moderately growing character, there are some indications of possible stagnation of another growth of demand,” said Volner of JLL.

Regarding the expectations of future development, Prologis expects the demand for high-quality facilities situated in superior locations to continue in Slovakia.

“The demand as such will continue to stem primarily from 3PL (third-party logistics), the automotive and light industries, and the increasing presence of e-commerce companies among customers,” said Stratov. “The occupancy rate will remain high and we do not expect it to decline over the next few years. The factors that will have the greatest impact on the next developments will be the complementary, added-value real estate services.”

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Theme: Real Estate


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