As the year draws to a close, Slovakia's economy reflects resilience amidst ongoing adjustments. Consumer spending recorded a year-over-year decrease for the tenth month straight, falling by 4.5% cumulative in the first eleven months of 2023. Inflation, partially tamed by the European Central Bank's monetary policies, has been further moderated on the Slovak front by governmental energy subsidies, ending the year at 5.9% in December and averaging 10.5% for 2023. The outlook for 2024 is rather optimistic, with inflation projections ranging from 3-5%, hinging on the Slovak government's fiscal strategy. However, the overall impact of declining markets and rising costs will become apparent during 2024. Unemployment remains at bay, with the notable scarcity of workers acting as a brake on economic growth. Nevertheless, the National Bank of Slovakia projects healthier GDP growth of around 2.5% for 2024. The government's restrained fiscal consolidation, particularly energy subsidies, unintentionally stimulates GDP growth, moderates inflation and consequently supports consumer spending. However, it concurrently elevates the yield on Slovak bonds. Anticipated interest rate cuts by mid-year could boost the entire commercial real estate market.
Retail
As the quarter concludes, the retail sector's sentiment is increasing, with positive forecasts for the upcoming year. This optimism is further reinforced by the entry of over 16 new brands into the Slovak market, representing the most substantial expansion in recent years. Despite ongoing inflationary challenges, consumer spending partially recovered after a decrease in previous quarters. This quarter welcomed the opening of OC Tehelko shopping center in Bratislava, covering 9,000 sqm with COOP Jednota as its anchor tenant. Retail parks are garnering increasing interest and recognizing their competitive edge over shopping centers, which is reflected in the rising rents. The prime rent for retail parks has climbed to €10.50/sqm. For new developments, asking rents are set even higher, potentially surpassing €11/sqm. Meanwhile, prime rent for shopping centers has held steady at €65/sqm, and prime yields have remained stable for both shopping centers at 6.50% and for the top-performing retail parks at 7.25%.
Office
The office market in Bratislava is showing only little signs of the anticipated cool-down, as Q4 reports a 17% increase in gross take-up from the previous quarter, reaching 46,700 sqm. This contributes to an annual total that matches the five-year average, amounting to 183,500 square meters. A notable trend this quarter is the surge in lease renegotiations, comprising 47% of transactions and contributing to lower net take-up figures, which stood at 24,600 sqm. IT remains the most active sector, claiming over a third of the demand, followed closely by professional services (29%) and pharma/medical (22%), which has shown heightened market activity recently. Tenants’ priorities are shifting towards ESG-compliant and carbon-neutral offices, intensifying demand for innovative workplace strategies and deepening the gap between A and B-class buildings. Therefore, this suggests a new course in the office real estate sector. Prime rent has held steady at 18€/sqm, consistent across submarkets except for a modest increase in the Southbank submarket.
Industrial
In Q4, the industrial sector, regardless of economic pressures and the absence of activity at the year-end, maintained strong performance. Gross take-up in Q4 reached 159,071 sqm culminating in an impressive annual total of 632,306 sqm for 2023, marking a 22% increase over the five-year average. Net take-up followed suit with 101,017 sqm for the last quarter and an annual total of 423,269 sqm. Demand was driven mostly by the automotive and 3PL sectors, with automotive solely responsible for 60% of net take-up. Significant strides in electromobility and renewable energy technologies have undeniably impacted last year's overall numbers. Moreover, the spillover of activities from late 2023 into the new year suggests a dynamic start to 2024. The vacancy rate rose slightly to 3.56% due to a rise in unoccupied space in Western Slovakia following the delivery of new buildings with lower pre-lease rates. Reflecting on the previous quarter's momentum, Slovakia's industrial market has seen prime rental rates surpass the €5 per sqm per month mark. This upward movement is expected to persist with a gentle incline throughout the forthcoming year. This quarter's standout was the Trnava region – with a remarkable 9% hike in rental rates, leading the market's growth. Slovakia's industrial prime yield has maintained stability at 6.25% for logistics and 6.50% for manufacturing after a correction in the previous quarter reflecting a general interest rate increase in 2022-2023.
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