Industrial properties – ESTON analysis 2009/2

The first six months of the year passed eventless on the industrial market of the capital, compared to the previous years. The segment, which was making progress at the end of last year, has now completely lost momentum. Based on previous years’ record take-up, many developers have piled up plots at strategy points (M0 line, airports) but they did not have the chance to begin the planned developments. Currently there is no opportunity to sell these plots; even the biggest industrial developers, which own broad portfolios worldwide, would not start new projects.

126,900 sqm of warehouse space was delivered in the first half of the year, therefore the total modern industrial stock in Budapest exceeded 1.5 million sqm by the end of the second quarter. At a guess, still around 53,000 sqm is expected to be delivered by the end of the year. The potential of the developers is obviously significantly higher than this; around 800 thousand sqm of space is ready to be developed.

Due to the narrowing financial situation, it has now become evident: developers do not have substantive possibilities to choose from; therefore, they do have to dismiss speculative developments for a while. From the projects announced for 2009, accord according to Eston experts, the construction of 118,000 sqm has positively been postponed this year. As it usually takes 4-6 months from the approach of the client to the signing of the contract, and furthermore, it does not take more than 4-6 months to build up these properties, it is difficult to estimate the take-up and delivery levels at the end of the year, since some build-to-suit projects may be constructed by the end of the year, as a result of the current negotiations. This volume, however, cannot be expected to be substantial.

The territory of the business parks inside Budapest has increased by a total of 50,000 sqm in the past half year. In the 9th district 9,100 sqm was handed over in CityPoint9, besides 3 developments have been finished in the outer districts during the past half year: In the 17th district (Rákosmente), the Mesterek Háza (6,600 sqm of warehouse and offices), in Soroksár BILK (10,000 sqm) and in Újpest, at the foot of the M0 bridge, Európa Center expanded by 14, 600 sqm (3 buildings). In the agglomeration, in the eastern region bordered by the M5-M0 motorways, 4 projects were handed over as well, totalling at 86,600 sqm, twice as much as in the city.

The development that was finished first this year was the second phase of Ablon Airport City Logistic Park (9,300 sqm) in Vecsés. Viktória Park (37,800 sqm) was handed over in Üllő, and furthermore a BTS project of Goodman, Airport City Logistics was finished, whose warehouse and office space was completely developed to the needs of the client (Rossmann – 27,000 sqm). 12,500 sqm were completed in the first phase of M5 Gyál Business Park, which is partly used by the developer, Autóker Logistics Ltd for its own warehousing and logistics services. Another 22,500 sqm are structure-ready, which can be easily and quickly developed in case a serious tenant appears.

ProLogis, the American industrial giant, who seemed to be an active market player until nows, has not developed in the first half year, besides the English Segro has also postponed the building of its previously announced projects, the Aerozone and the Ozone.

The Australian Goodman does not build new units either in Üllő, or in Gyál, moreover neither the next phase of Wing’s last year’s success product, East Gate Business Park is under construction on a speculative base.

According to the experts of Eston, the sector may accelerate on in the mid-term, for as part of the New Hungary Development Plan logistics and industrial parks can now gain financial support from the EU as well. The main goal of the tender process is to improve and help the logistics of international freight traffic, and furthermore to help the development of intermodal centres. The European Regional Development Fund would spend 12.5 billion forints on the winning tenders in two types of construction.

It is questionable though, whether there would be a developer who could exploit this opportunity in the current market situation, moreover knowing how unstable the future is. The demand side was far behind last year’s performance. The total space included in the lease contracts was about 40,000 sqm, 70% less than in the first 6 months in 2008. As a new phenomenon, more and more middle sized end-users are appearing on the market, who intends to buy, and previously operated their business in a conservative way. Therefore they have enough of their own equity or supported credit, which could lead to a favourable contract in the current circumstances. This segment has done its warehousing and production activity in leased properties previously and its market position is still stable. In their opinion, to invest in real estate is a good opportunity on the changed market environment, but they intend to buy solely under the previous price level.

The vacancy rate leaped to never seen heights (25%), as a result of competition and oversupply. Any further rising of the rate could stop by the end of the year, however. The main cause of this is that delivery is hardly expected for the second half of the year (53,000 sqm). The rent fees here are also under great pressure, just like in other segments: typical levels were between 3.4 – 3.8 EUR/sqm/month at logistics parks outside the city – but due to the tight competition even lower rents were seen – while business parks within the city boundaries were 4.5 – 5 EUR/sqm/month.