Prologis: customers understand the importance of Class-A buildings

-    Can it be predicted for how long the period of accelerated rent growth will continue?
-    At the moment there is no sign to suggest that rent growth will slow down or stop. The strongest market foundations over the last ten years are to be found across Europe including Hungary. 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.

-    How will Prologis react to this? Does the company plan any new development in Hungary? If yes, where, what and in what size?
-    Rent growth may appear in part in new developments and in part in currently rented properties. When vacancy is at an all-time low and the volume of new developments is limited, the rents of existing buildings are driven upwards. In 2016 we launched the first speculative development in the Budapest market since the crisis, which was let at record speed. Since then, too, we have been continually reviewing development options and we have several projects in the pipeline which are currently under negotiation.

-    The current market conditions are obviously beneficial for Prologis. What is your tenants’ reaction to the rising rental costs?
-    As the number of available spaces is limited, customers decide more quickly and their approach is also changing. They increasingly understand the importance of Class-A buildings and locations, and are prepared to commit themselves faster in the saturated markets. Our experience shows that customers, both those renewing their lease agreements and new customers accept the changed circumstances. Because the properties Prologis develops are owned by us in the long term, continuous cooperation and communication evolves with customers as regards operation and lease renewal. Through this, customers receive firsthand 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.

-    The company is quite active on the Central European market. What should be done in order to improve the competitiveness of the Hungarian locations, compared to Bratislava or to the logistics centres in the Czech Republic?
-    Compared to other European logistics markets, Budapest went through a relatively long and deep correction period. Since 2015, however, the market has clearly recovered, which is very evident in the record decline in the vacancy rate, roughly 20% in four years, and the growth in rents, averaging 10% per annum over the last two years. This shows that Budapest has started to close the gap with the regional markets. In comparison with the two countries mentioned, the proportion of the amounts spent on the internet has been twice as large in Slovakia and three times as much in the Czech Republic, which points to an optimistic outlook in the short term with continuing growth in e-commerce in the domestic market as well. I also believe that in the current market situation the most competitive locations may be those where there are the right number of good quality human resources. Available manpower may be the most critical factor in the choice of location in the coming years.

-    Is there any change in tenant requests and demands (e.g. cooling, inner height)? How has the tenant mix changed (webstores, suppliers of the automotive industry, etc.)?
-    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. 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. The tenant mix has not changed significantly. There continues to be a roughly fifty-fifty split between traditional logistics functions and a variety of light industrial activities in our portfolio.

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