Industrial properties – Market Report 2006/1

In 2006, last year’s trends on the market of modern logistics properties continued. In the first half of the year, expansion was moderate in both demand and supply. It still holds that the more important warehouse areas (in excess of 8,000 – 10,000 square meters) are in demand primarily by professional carriers, the winners of tenders in logistics, for rental; nevertheless, there was a drop in 2006 in such tenders, in terms of both number and volume.

The results of our survey of logistics service providers indicates that while tender specifications for storage within logistics services accounted for about 30,000 – 40,000 pallets per year during 2003 – 2005, the tenders opened in 2006 remain inferior at 15,000 pallets. That is, the earlier peaks in renting are not expected to reoccur, which is also substantiated by the fact that the selection of logistics service providers is typically made for at least two years (on the demand side in 2005 we saw Zwack, Hipp, Kékkúti/ Theodora, Nestlé, Hungarian Telecom, Unilever, Borsod Brewery and Chipita, too).
Often, rental needs (or even land property purchase requirements) keep changing, subject to the volumes and final results of the potentially available bids, in the period of the negotiations and, in some cases a deal’s finalisation can be delayed substantially.

Nevertheless, searches for 1,000 sqm – 3,000 sqm keep coming up on the market. These factors cause developers to ensure an increasing flexibility in the implementation of their projects, in particular, in bringing halls for speculation to the market. Consequently, the possibility of satisfying demand for smaller warehouses should be ensured on the one hand, while on the other hand, prudence should be applied to the setting of the share of office space to be built (sometimes zoned exclusively as rental space).

The present volume decrease in tender openings in logistics also affects willingness to develop, even though investors believe in the ongoing, considerable expansion of the market. In line with these positive expectations on the construction side, several new projects have been launched in 2006. A sign of the market’s increasing segmentation is a rise in the number of smaller-scale logistics projects. TISRI, upon having completed Max City, has begun a 30,000 square meter project at Vendel Park, and in the same neighbourhood, Dutch concern Grontmij is launching its Tulip Park project (10,000 sqm). At the Dobó barracks in Újpest, the owner, Terra Invest, has started an 80,000 square meter project under the name Europe Center; during the first phase, 13 buildings dividable into smaller units will be built to satisfy warehouse demand in the range of 360 – 2,200 square meters. Units that meet special warehousing needs are being built by GAG and Globalstate at the Gyál exit of the M5 motorway: a 20,000 square meter explosion-proof warehouse is being launched for the storage of household chemicals and cosmetics (Akácliget Logistics Centre). W-Go is about to build three buildings in the brown-field area of District XI, with a total rentable area of 8,000 square meters; the next (second) phase of the Parkridge Logistics Centre at Szigetszentmiklós is expected to start on the basis of a pre-lease contract.
According to our survey, about 74,000 sqm is under construction in the major logistics parks, of which 20,000 sqm can be found in the East Gate Business Park, 46,000 sqm at ProLogis in Gyál and Harbor Park, and 8,000 sqm at BILK. Volán is the first lessee of the East Gate Business Park, a facility developed by Wallis Real Estate, where after the completion of an approximately 6,500 square meter hall designed according to individual needs, another 10,000 square meter warehouse was completed for speculation purposes. By the third quarter of 2006, the modern infrastructure for the park will be basically ready, that is, the project is ready to meet various requirements in terms of logistics.

Overall, over 61,000 square meters have been handed over on this market already this year; if we include the completion of ongoing projects that will be finished before the end of the year, growth in properties available is expected to remain below 2005 levels (140,000 sqm).
By mid-2006, a total of 55,000 square meters were rented out in the most important logistics parks, within which, about 25,000 sqm were built-to-suit. Letting of halls already completed (based on speculation) amounted to almost 30,000 square meters, which represents about a quarter of the total vacant area.
The largest leased area in 2006 was contracted by Diebold (19,000 sqm, ProLogis M5). Sanofi Aventis and Primol signed contracts in Harbor Park (6,520 sqm and 1,850 sqm, respectively). At this latter location, Ringier extended its rental contract for about 4,200 square meters. Key deals include the lease agreement from KS Logistic in a Parkridge project (3,600 sqm); another approximately 2,800 sqm were let in the West Gate Business Park.

In line with previous trends and the moderate demand indicators, the rental fees for modern warehouse properties continue to decrease, ranging between 4 – 4.5 €/sqm at present. We do not expect changes in this trend before the end of the year.
Larger deals are expected in connection with the re-negotiation or extension of rental contracts for existing areas; this is due to the decrease in the number of logistics tenders. This is justified partially by a previous restructuring on the service provider market, and partially by increasing customer satisfaction due to improved levels of services (Wincanton bought P&O Trans European at the end of 2002, Exel, merged with Tibbet & Britten, was acquired by DHL at the end of last year).

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