CEE industrial development shifts to regional cities: CBRE

Increased manufacturing productivity and its link with regional CEE markets is causing development activity to move from capital cities towards regional cities, according to CB Richard Ellis.

'An increase in manufacturing and its links with regional cities is prompting a shift of development activity from capital cities towards regional cities,' said Jos Tromp, Head of CEE Research and Consultancy at CBRE. 'This is especially the case in the Czech Republic and Poland but also to some extent in Hungary and Slovakia. In most markets developers can only develop based on a build-to-suit agreement or when a significant pre-lease is signed. In line with differences in economic performance across the region, most smaller markets are experiencing only limited new developments taking place.'

Tom Listowski, Head of Industrial and Logistics CEE at CBRE, added: 'In CEE, regional markets are traditionally more driven by industrial production than capital city markets, where retail plays an important role. Looking at country-wide vacancy rates, the increased pipeline under construction in Poland may initially seem a bit surprising. Vacancy, however, is generally lower in regional cities than in Warsaw, and the majority of new projects are starting based on build-to-suit agreements.'

CBRE expects to see an increase in industrial project deliveries in CEE this year, mainly in Poland and Russia. In 2010, the volume of completions in the major CEE cities reached around 1 million m² compared to 2.4 million m² in 2009, a decline of 60%. 'Despite uncertainty about medium to longer term economic prospects, economic growth in most CEE markets has turned positive in recent quarters,' said Tromp. 'The two largest economies in the region, Russia and Poland, are expected to expand by over 4% year-on-year in 2011. Germany’s strong performance in 2010 has helped most export-driven CEE markets. Backed by stronger currencies and commodity prices, Ukraine and Russia, in particular, have also turned the corner. Away from manufacturing, consumer spending has not really picked up in most markets yet.'

As a result of stronger manufacturing output, demand for logistics premises has also increased. Total leasing activity in Central Europe (CE) and Romania is getting close to the average seen in 2007-2008.

Vacancy rates have continued to decline in almost every market across Central and Eastern Europe. An average vacancy of 15.9% in CE and Romania shows a decline of over one percentage point compared to the peak measured a year ago. Some markets - like Bratislava, Kyiv and Prague - have vacancy rates at considerably lower levels than a year ago.