Industrial properties – ESTON analysis

The year 2008 brought the biggest success of the past 4 years on the industrial-logistics market. While the other market segments were struggling with difficulties caused by the crisis, here records were broken regarding both completion and lets. During the year a total industrial area of 260,000 square meters were completed in Hungary, which is 60,000 square meters above the so far largest peak of the year 2004. The bulk of the deliveries can be assigned to three developers: 39% of this volume was developed by ProLogis, 10% by WING, and BILK’s 9% share is not negligible either.

Together with the new deliveries, the modern logistics building stock exceeded 1.3 million square meters. In 2008, great innovations started in the countryside in the economic region of Záhony: an amount of 4.4 billion HUF will be spent to the Fényeslitke-Komoró Intermodal Logistics Center. As for the logistics buildings in Budapest and its surroundings, they are still in the centre of the developers’ focus. The role of the sub-regions (further away from the capital) remained marginal.

In the city-logistics segment, the second phase of inNove Business Park (11,000 square meters); 31,000 square meters in Európa Center in Újpest, and 6,000 square meters in CityPoint9 were completed. Developer of the latter, Convergence Capital did not realize its planned project in the 15th District, henceforward they still show up as “one-project developerâ€? on the market. WING purchased an area of significant size next to the Dél-Pesti Üzleti Park (South-Pest Business Park) where the second phase will be built with a 2009 delivery date.

The realization of the biggest portion of logistics properties around the capital can be assigned to ProLogis. The developer delivered more than 160,000 square meters of logistics buildings in the southern agglomeration. Two new buildings were handed over in the ProLogis Park Budapest-Gyál, three in Pro-Logis Park Budapest-Sziget, and one building in ProLogis Harbor Park. The only newly-developed park, ProLogis Park Batta was also delivered in Százhalombatta, with 30,000 square meter leasable area.

The first phase of Airport City (accessible within 5 minutes from the new section of M0 motorway and from Ferihegy Airport) was also completed, with 10,300 square meters of new warehouse and office spaces, thanks to the developer Ablon. With the completion of the motorway’s Eastern section, the developers’ activity slightly increased in the neighbourhood as the closeness of the airport will always be an attractive feature for tenants. The completion of the Megyeri Bridge put the cream on top boosting up the Eastern sector. Aerozone Logistics Park-Üllő (Segro) and Budapest Airport Business Park (Europolis) are both planning new completions in the following years, and further developers might join the existing row as well.

Staying on the line of the M0, North-East from the city, the success of East Gate Business Park (EGBP) represented by Eston, remains unquestionable. As a result of tobacco-trader Philip Morris’ tender for logistic center, 7,000 square meters of warehouse and almost 3,000 square meters of built-to-suit (BTS) office spaces were built up. Segro also discovered the possibilities offered by the M3 motorway’s city section therefore the 1st phase of Ozone Business Park (handover: 2009) could mean a solution for tenants demanding smaller leasable areas with location on the city side, around the 15th district, yet taking advantage of the well known services of city logistics.

2009 seems to be a year abounding in further capacities. ProLogis solely is planning to complete around 100,000 square meters of new developments, yet it is a question how much of this will be executed. Europolis, Goodman, Segro and WING are trying to keep up with this American giant, a total volume of 133,000 square meters is in their building plans. Not confuting the vivid supply side, demand was also fizzing. During the year, the contracts covered a total of up to 280,000 square meters of logistics space. ProLogis succeeded here as well; Unilever rented more than 27,000 square meters with the contribution of Eston consultants. This proved to be one of the largest transactions of the year.

Another remarkable deal was concluded by Goodman: Rossmann pre-leased a 27,000 square meter large BTS building which is due for completion in 2009.

Other significant new transactions were: drugstore market player Müller rented 9,000 square meters in Tulipán Park in Biatorbágy, GE Hungary rented 6,300 square meters, Nefab Packaging rented 5,300 square meters with the contribution of Eston, and Igepa Paper Hungary rented 1,600 square meters in East Gate Business Park, which proved to be the most demanded property of the year regarding the number of the transactions. InNove Business Park, also represented by Eston, in District 9 also closed a successful year, mainly attracting newspaper vendor companies.

Hírker Budapest Hírlapkereskedelmi Zrt. rented 5,000 square meters, while DM Hungary and Hungaropress occupied 1,065 and 1,042 square meters respectively.

Strengthening the city logistics sector with a total of 5,488 square meters, tenants such as Studio Moderna (2,000 sq m), JTI Hungary (1,500 sq m), Imperial Tobacco and An-Tec Kft. moved into CityPoint9.

Significant deals were registered in the older city logistics properties as well: Pictor rented 3,185 square meters in the warehouse in Ipacsfa Street, while Imperial Tobacco occupied 850 square meters of warehouse and office spaces in Stock Logistics in Újpalota. Both deals were realized with the help of Eston consultants. There were no major changes in respect of rent fees and the vacancy rate. After the Rynart bankruptcy, the vacancy jumped up to 17%, which could not be balanced even by the unusual high level of demand. The effective rental fee level within the city moves around 5-5.5 EUR/sqm/month while in the agglomeration rents are around 3.5-4 EUR/sqm/month.

2008 proved to be a great year on the industrial-logistics segment, but 2009 is expected to be a lot weaker. The fall-back in the economy, the redundancies caused by the crisis, the decrease in the consumer demand will all have an effect on the performance of the logistics and production companies and on their warehousing needs.

Another factor affecting the logistics market in the capital is a new regulation. This becomes operative in 2009: trucks will face a stricter regulation regarding inner-city transportation and will be banned from entering certain zones of the city. This action will expectedly appreciate the agglomeration and the areas out of restriction.

Considering the above, an active era may come to the logistics market in Budapest. The availability of properties is changing constantly; and the demand is also extremely ambiguous. Besides, this is the property segment which can flexibly react to the evolved situation because the development of modern logistics properties takes about 4-6 months on average. The developers, testing their adaptation ability, will be able to satisfy tenants’ needs relative quickly and with assurance.

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