The most activity was recorded by companies from the 3PL sector followed by the Retail and E-commerce sectors.
The pandemic has had a notable impact on overall CEE investment activity in 2020, with total volumes ending 24% below those of 2019. International investors were disrupted from being able to travel and physically inspect properties, however this did not stop dominant interest from APAC investors targeting industrial & logistics assets. At the close, 2020 was a record year for industrial & logistics volumes, with ca. EUR 3.3 Billion transacted and a 32% share of total annual volumes.
Kevin Turpin, Regional Director of Research | CEE adds: “The majority of investors looking at industrial & logistics investment product also prefer to acquire portfolios, platforms or opportunities with scalability. The ca. EUR 3.3 billion volume in 2020 consisted of approximately 45 transactions, giving an average deal size of over EUR 70 million. Among these transactions, were some very notable portfolio deals, the largest of which was GLP acquiring the Goodman assets in CEE for ca. EUR 1 billion”.
Capital from the APAC region, specifically from Singapore, China and South Korea, secured a dominating 52% share of I&L volumes. This was followed, some way behind, by EMEA and US capital with 16% and 14% respectively.
Availability of space in the CEE region as a whole averages at ca. 5.9%. Some developers are willing to build speculatively while others are under less pressure to do so and prefer the ‘build-to-suit’ route. Availability in some locations within countries are very tight, particularly in the most sought after locations so, potential occupiers looking to enter the region or expand should ideally start the search process early to avoid disruption or delays to their plans.
Looking at gross demand for industrial and logistics space over 2020, we have recorded very strong activity, with the region recording ca. 9 million sq m, a YoY growth of almost 25% on average. Inline with 2019 trends, the Bucharest and Bratislava markets attracted the majority of demand in their markets with 70% and 73% respectively. On the other hand, the Czech and Polish markets both saw greater levels of activity in their regional markets.
In Hungary, the size of new deal transactions (new, pre-lease, expansion, built-to-suit activities) has increased by 81% YoY, reaching more than 330.000 sq m. in 2020.
In 2020, the most activity was recorded by companies from the 3PL sector (ca. 28%), followed by the Retail sector (17%) and E-commerce (12%). According to the available detail, 3PL and Retail have quite similar shares when compared to 2019 and E-commerce is up by 200% YoY on gross activity. Through the pandemic we have recorded more demand for short-term leases to cope with additional demand however, typical lease lengths across the region range between 3 and 5 years for logistics and over 5 years for production.
Rents have remained largely stable across the region, with some markets recording increases in the most sought-after locations. Prime headline rents across the region range from as low as EUR 2.9 per sq m / month in Poland and above €5.0 per sq m / month in Bulgaria. The level of achievable rent also depends on who the tenant is and under what terms are agreed in the lease. Construction costs also play their role as they have been on the rise over the past few years.
For prime industrial & logistics yields, we have recorded a stable trend in some markets, again partly due to lack of evidence, while others have recorded compression. Further inward movement can be expected, particular as the product type is highly sought after and the bulk of product remains firmly in the hands of long-term holders.
2021 will see the closure of a few additional portfolio transactions, so we may well get to see more industrial & logistics yields push past prime shopping centre yields. When benchmarked against other investment vehicles, such as 10-year Euro bonds and Eurozone long term interest rates, CEE real estate still maintains a significant spread and a compelling investment case.