Due to declining industrial output and a major downturn in orders for logistics sector, the industrial market experienced a significant decline during the first half of 2009 in almost all figures. However, it might be a faintly optimistic sign that demand in the second quarter was in fact double the Q1 figure claims CB Richard Ellis (CBRE) in its latest report on the Budapest industrial property market.
While take-up figures in both Q1 and Q2 2009 were below the registered volume during the same periods of 2008, new supply remained strong resulting in jump in the vacancy rate to 24.4%. The high amount of available space is forcing several developers and owners to offer industrial space at rentals below the market norm.
Gross demand reached 30,200 sq m in Q2 2009 which is a 63% decrease compared to the same period of 2008 but equal to the Q2 2006 level. That said something positive can be taken from this figure as take up was in fact two times Q1 figure. Out of this volume more than 58% accounted for renewals while new agreements and expansions represented only 42% and no pre-lease agreements were signed. These ratios are close to the ratios recorded in Q1 2009.
As CBRE forecasted in Q1, take-up generated by transactions was mainly between 2,000-4,000 m², with average transaction size being cca. 3,000 m². For the fifth consecutive quarter the strongest demand was registered in the Budapest South submarket followed by the Budapest West.
The development boom peaked at a record high in Q1 2009 and it slowed down in Q2 2009. Some projects have been postponed therefore only five new schemes were completed comprising a total 44,000 m² which is half as much the new space completed at the beginning of the year. All of these new projects were expansions of previous completed parks and only one of them was pre-let before its handover. All the others were handed over vacant. As a result, the modern industrial stock of Budapest currently stands at 1,507,000 m². CB Richard Ellis expects slightly less volume of modern industrial space to come to the market in Q3 2009 and at present there is only one project due to complete by the end of the year. Currently there is no projects under construction which for completion in 2010.
Take-up was stronger than in Q1 while new supply was significantly lower, but demand could not absorb the new supply and the vacancy rate increased further on by 1.8 p.p. to 24.4%. The rate is likely to increase slightly further in H2 2009 but as the development boom has ended the vacancy should start to fall from the beginning of 2010.
Headline rents are under a strong pressure and several landlords started really aggressive pricing strategy automatically effecting their competitors' pricing. Currently rents are in the range of 3.50-5.50/m²/month, in some parks starting from 3.00/m²/month during the first years of the lease period in a step-rent incentive system.
Source: CB Richard Ellis