Industrial properties – Market Report 2006/2

Thanks to a strong 4Q 2006 industrial and logistics property market of Budapest and its agglomeration had a slightly more intense year than in 2005. According to our calculations, new deliveries reached about 140,000 sqm, not taking into account companies’ private developments (ALDI/60,000 sqm, DHL/13,000 sqm, and HOPI/10,000 sqm).

This volume is on par with the level seen in 2005, but lags significantly behind the all time high of 200,000 sqm completed in 2004. Total leased volume amounted to 150,000 sqm in 2006, exceeding the volume of 2005 (119,000 sqm). The three largest deals accounted for more than 33% of the year’s volume: Wincanton rented a total of 28,100 sqm and Diebold another 19,000 sqm, both in Prologis’ Gyál Logistics Park, while Kühne & Nagel signed for 13,000 sqm at Europolis’s M1 Business Park. Other significant transactions of the year included Lekkerland’s 8,600 sqm lease at Harbor Park and Rossmann’s contract for 7,500 sqm at BILK, Soroksár.

The Euro Business Park was completed with the 29,000 sqm delivery of Camel Park. The most active tenant was Cemelog, renting a total of 7,000 sqm during 2006. The final phase of the M1 Business Park in Páty was also completed. Out of the total developed area of 61,000 sqm, only the last delivery of 6,750 sqm was still available at the end of the year after 17,500 sqm was leased out in 2006. At West Gate Business Park in Törökbálint, new tenants of the year included Tesco (2,200 sqm) and Adesco (1,300 sqm). In the latest large developments south of the capital, Parkridge built 45,000 sqm in its park in Szigetszentmiklós, half of which was pre-leased by September. Prologis was mainly active in its Gyál Park, delivering a total of 15,000 sqm in 2006 and completing a further 25,000 sqm in the early months of 2007.
In East Gate Business Park 6,500 sqm was built-to-suit for Volán, and 6,000 was soon taken from a further speculative 10,000 sqm. The 10,000 sqm second phase is to be delivered in the first half of 2007. Demand for logistics space in the area is seen to be flourishing, now that the completion of the North-East section of the M0 ring can be expected within a reasonable time. Plans call for the delivery of the section by the end of 2008. Another project counting on the continuation of the ring is Terra Invest’s Europa Center, located at the planned M0 bridge in Újpest.

This park targets tenants with relatively moderate space requirements of 300 – 1,500 sqm. Within the boundaries of the capital, Southern Pest is also thriving. There are pre-lease agreements for 80% of the 8,000 sqm expansion in the South-Pest Business Park, to be delivered in two steps in April and November 2007; tenants are typically looking for 400 – 1,000 sqm spaces. Convergence Capital has launched its 19,000 sqm Citypoint 9 Business Park. The latest development in the area is the InNove Business Park (Eston is its joint exclusive agent), and the first phase of its 17,000 sqm warehouse capacity will be available in Q4 of 2007. In line with previous expectations, the heavy concentration of logistics park developments around the capital seems to have loosened, with more attention given to potential regional centres in the country. Prologis is developing on 32 ha in Hegyeshalom, with plans to serve the logistics needs of three capitals: Budapest, Vienna, and Bratislava. The first speculative phase consists of 23,000 sqm and should be completed in May 2007. While on the Southern border of the European Union, the Masped Group is developing the Szeged Industrial and Logistic Park on 45 ha. A total of 5,200 sqms has already been handed over, and a further 20,000 sqm is expected to be completed for 2007.

In 2006 competition remained strong, thus rental fees continued to decrease. Typical levels were between 3.5 – 4 €/sqm/month at logistics parks, while business parks within the city boundaries were able to achieve significantly higher, 5 – 5.5 €/sqm/month levels, thanks to their location and the smaller spaces available. We foresee stable or slightly decreasing rental fees for logistics parks in 2007, and expect a strong demand for the first months, with intense developer activity throughout the year. Meanwhile, in the higher office-content business parks, an increase in rental fees is even possible.

Accelerating demand at the end of 2006 is a reason for optimism in early 2007. On the other hand, retail sales are expected to decelerate in 2007 due to the Government’s stabilization package, and there may even be a significant drop. If this occurs, it will cool down the market of logistic properties that depends largely on retail sales.