The View 9

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The average vacancy rate across the Greater Budapest modern industrial stock stood at 1.9% as of Q4 2019, down by 0.5pp in a year and by 0.3pp in six months. In absolute terms, the vacancy amounted to 41,600 sq m, most of which consisted of ancillary office space while true warehouse vacancy was merely 14,100 sq m. Over the second half of the year, the Budapest-South submarket saw its vacancy rate drop to 1.3% (-0.7pp in H2) as a result of leases in eg. Airport City Logistics Park and BILK as well as the fully occupied new completions. The Budapest-West submarket saw a slight uptick in its vacancy rate in Q3, although this was absorbed by year end and on a six-month horizon the rate remained stable at 2.6%. The only submarket to register an increase in its vacancy rate was Budapest-North, where it stood at 2.6% as of Q4 (+1.1pp in H2), though in absolute terms this increase was only 2,200 sq m. Typical headline rents across the Greater Budapest region remained largely stable during H2, yet the underlying appreciation across the market continued due to the increasing number of deals being committed at the recently elevated levels. Existing big-box warehouses are typically priced between EUR 4.50-4.75 / sqm/month, while speculative newdevelopments are planned betweenEUR 4.75-4.95. Build-to-suit schemes, though rare, tend to be priced similarly, in the range of EUR 4.80-5.00 depending on the specification and location. The segment with the highest rents remains the limited city-logistics stock within the city boundaries, where quotes are typically between EUR 5.25- 5.75. COUNTRYWIDE INDUSTRIAL DYNAMICS New industrial supply across the country (excluding the Greater Budapest developer-led stock) amounted to ca. 240,000 sq m in H2 2019 (-28% y/y), practically all of which was made up of proprietary developments for owner- occupation. As such, the annual new supply in the countryside totalled 383,000 sq m (-30%y/y) –part of thedeclinewasdue toa significant number of developments scheduled for completion in 2019 getting delayed into this year. Including the new supply and some stock revisions, the modern industrial stock across the country totalled ca. 9.64 million sq m as of Q4 2019. Out of this, ca. 3.17 million sq m operated on a lease basis, while the remainder of the stock was owner-occupied. The majority of the developer- led leasing stock concentrated in Greater Budapest, forming the Budapest Research Forum’s monitoredmodern stock of 2.25 million sqm. In terms of the demand behind these new completions, the second half of 2019 showed a slight reversal towards the long dominant automotive industry, as ca. 48% of the new supply was delivered for this kind of manufacturing companies. Manufacturing functions for other sectors – eg. packaging and household appliances – stood behind 23% of the new supply during the period, followed by proprietary distribution and third-party logistics facilities with 14% and 13%, respectively, while the remainder was not attributable to a single function. However, on an annualized basis 2019 still saw the weight of the automotive industry decline, as only one-third of all new supply was tied to the sector.