Industrial market - Real Estate review
by Colliers International
2009 was a silent year for the industrial market. Due to modest deliveries, the stock of industrial space increased very slightly, while the demand for logistic space was also very weak during the year. The first important transactions could be seen to the end of the second semester.
At the end of 2009, the industrial stock for Inner- and Greater Bucharest had changed very little compared to 2008. Only 33,000 sqm of new stock was delivered on the market, a y-o-y decrease of 90% in new supply, taking total stock to 900,000 sqm.
Influenced by the recent economic downturn developers stopped or postponed the construction of their projects. New deliveries, which occurred only in the first quarter, represented extensions of existing industrial parks which were started in early 2008.
In these conditions, availability started to become a visible problem on the market. Large scale space was difficult to find, only one unit larger than 10,000 sqm being available to potential tenants. Most logistic parks only had units of between 1,000 a�" 3,000 sqm on offer.
Outside of the capital, Helios Phoenix delivered 15,000 sqm within Olympian Logistic Park in Brasov. Other projects have been postponed, driven by a lack of financing and increasing levels of risk.
Demand and vacancy
Demand for industrial and logistic space also registered a decrease. A total of almost 100,000 sqm was leased in 2009, roughly 50% of the volume recorded in the previous year.
Market uncertainty, driven by worsening economic conditions in late 2008 and early 2009, meant many occupiers froze their expansion plans. This is the main reason why Q1 2009 recorded very low activity - only 6,000 sqm of space being leased. As companies adapted to the new reality and moved on, leasing picked up in the latter part of the year.
In an attempt to reduce costs, tenants renegotiated rents, reduced occupied space or relocated. These movements have increased the vacancy rate threefold since 2008, settling it at 12% at the end of 2009.
In the most important transaction closed on the Bucharest market in 2009, Antalis leased 10,000 sqm in Portland Trusta��s Bucharest West logistic project. The transaction was intermediated by Colliers International.
The landmark transaction last year took place outside Bucharest. Unilever, the consumer products conglomerate, was advised by Colliers International in securing a 30,000 sqm industrial space including over 1,000 sqm of annexed office space in West Park Ploiesti. The space will serve as a regional distribution centre for Unilever.
The winners of changing market conditions were smaller scale tenants who were able to find more options on the market. Tenants looking for warehousing units smaller than 3,000 sqm could find readily available space at rents representing a 10 to 15% discount compared to the previous year. However, larger units were more challenging to secure, and rents have not moved significantly in this area. As a result, the rent range between maximum and minimum rents on the market has decreased substantially.
Millennium Logistic Park was the only speculative development under construction at the end of the year and will add 20,000 sqm of new space to the industrial stock in southern Bucharest. Considering this, we will have only very limited new stock delivered on the market before the second half of 2010.
As a result, tenants with large requirements will have to secure space by pre-lease agreements or in built-to-suit facilities in order to obtain a good level of rent or to simply secure space. On the other hand, smaller tenants will enjoy the current vacancy levels in terms of finding optimum locations, competitive rent levels and favourable contract terms. As absorption of the available spaces continues, however, landlords will not stay as flexible as they are today, which makes the current period most attractive for potential tenants to renegotiate or relocate.
The vacancy rate is expected to increase further in the short term, up to 14% in 2010, due to tenants who are expected to release occupied space in the first quarter of the year.
Markets outside Bucharest are also developing in terms of industrial space supply, most notably cities like Ploiesti or Timisoara. In 2010 West Park in Ploiesti will bring 30,000 sqm of modern warehousing space to the market, fully leased by Unilever. In Timisoara, Invest4See will deliver the first phase of 12,000 sqm in Timisoara Airport Park, the construction of which started in 2009.