- The M0 ring road seems to remain the most popular location for the warehouse market; the new Prologis development is also there. Can the increased demand be reflected in the rents?
- On the European markets, improving economic growth and customer sentiment, coupled with low market vacancies and disciplined supply, has led to nearly fully occupied industrial portfolios. This caused a decrease in concessions and some bidding up of headline rates by customers. Strong demand has been supporting this tendency on the Hungarian market as well, where the yearly average net effective rent in 2017 was 38 percent higher than the previous low. According to statistics published midyear, annual rent growth in Budapest is 11.1, making it the fifth quickest growing logistics markets in the world, ahead of markets such as London, Paris or Venlo. We also experience that customers, both new and those renewing their lease agreements, accept the changed circumstances. Our customers can get first-hand information about trends in the Prologis global portfolio, so often a higher rent comes as no surprise to them when the lease needs to be extended.
- Many people mention BIM as the design method of the future. Is the industry prepared for that? I mean the construction side rather than the designers. Can the people who actually build these facilities understand these designs?
- Most of the building designers in Hungary are acquainted with the benefits of BIM and are active users of the platform when they design complex buildings. The BIM platform contains plenty of useful information for construction professionals, too, which facilitates their work. For example, during the construction phase, instead of having to coordinate all the plans of the different fields, they are presented in one model. As the information about the building presented in the BIM is more spectacular and transparent than in the traditional plans, it is also easier for professionals to understand it. Naturally, data and plans can also be extracted from the model in traditional format.
- In what terms does the new building provide more, or other, services than the buildings currently operating? How have tenants’ requirements changed over the past couple of years?
- In addition to the design and construction phase, implementing BIM also provides the insight and tools to manage buildings and infrastructure more efficiently, which in turn enhances customer experience and drives energy sufficiency as part of our commitment toward carbon neutral developments. At Prologis, sustainability is one of our top priorities. In line with this principle we implement a number of sustainable solutions in the facility, such as energy-efficient LED lighting and large skylights that reduce electricity costs by 45 percent compared to the latest lighting standard. Further sustainable features include high-grade insulated wall panels and roof systems which, together with high-performance gas fired heaters, can cut heating costs by 30 percent. A smart metering system will help optimize water, gas and electricity consumption in the building.
About change in customer needs: demand for standard Class-A facilities remains high. These spaces are suitable for both logistics functions and light industrial activities, such as production and assembly. The above-mentioned sustainable development and energy-efficient property management are now more than just “nice to have”; they are expected by many of our customers. As e-commerce forges ahead, there is an ever growing interest in cross-dock buildings, which are well-suited for handling high-turnover products. Many such activities are currently performed in standard buildings due to the lack of typical cross-dock buildings.
- Are you negotiating with potential tenants or do you already have some preliminary lease contracts? Is e-commerce really the most powerful driver of the developments?
- We started the development of the building without any pre-lease agreements and have since been negotiating with several potential customers. Currently, the demand is three times the size of the building; therefore we are positive about the lease.
E-commerce is growing continuously in the domestic market. Hungary may have fewer e-commerce companies than its neighbouring countries, but the pace of the growth is similar. The amount of money spent online in Slovakia was twice as much, while in the Czech Republic three times as much as it was in Hungary. These data are promising in the short term: they indicate plenty of room for expansion.
- How much is Prologis affected by the growing construction costs in the implementation phase?
- Today, construction costs are approaching the level of the mid-2000s. However, pricing is changing continuously. Construction costs are rising by 4-6% per annum across the continent. Faster growth is occurring in the best performing economies and in the most active development markets, even in typically low and steady inflation markets like Germany. In Hungary, we have experienced a 30 percent growth in construction costs over the past two years.
- How long do you think the current industrial real estate boom will last?
- The strongest market foundations over the last ten years are to be found across Europe including Hungary. At the moment there is no sign to suggest that rent growth will slow down or stop. Demand is strong; supply is balanced while vacancy is lower than ever before. The drivers of demand are, on the one hand sectors that have been balanced and performed well for years, such as the automotive industry or electronics, and on the other hand sectors that are set to grow, for instance e-commerce, which requires three times as much space as traditional retail warehousing. On the back of sustainable and continuous economic growth, these sectors will continue to grow, resulting in a steady increase in logistics real estate rents in the coming 12 to 18 months.
- Do you have any further development plans in Hungary that you can share with us?
- In 2016 we launched the first speculative development in the Budapest market since the crisis, which was let at record speed. This September we have begun construction of a new speculative facility at Prologis Park Budapest-Harbor; its completion is scheduled for the first quarter of 2019. We are committed to the logistics real estate market in Budapest and we have been continually reviewing development options. We have several projects in the pipeline, which are currently under negotiation.