Are industrial rents going up?

Are industrial rents going up?

Published at: 2019-06-10 09:43 | Author: CIJ Romania
Digitization and the increase of e-commerce are two of the most important drivers of the industrial sector this year. As much as 109,000 sq m of industrial and warehouse space was delivered in Q1 in Romania. However, the spike in building prices - estimated at over 10% - will also affect rents and ultimately the dynamics of the market. Is demand as strong as to make the tenants accept a rent increase?

Ian Worboys, CEO of P3 told the CEDER audience last week that "if they don't, developers won't build. It is that simple. One of the main components of any appraisal is the building cost, and if you get it wrong, you can see your profit disappear." He added the situation changes from one country to another: in Germany there has been a 20% rise in construction costs, while in Poland where demand has suddenly dropped, it's 5-10%. Also, the fact that there are more developers on the market creates a need for land. "This will make land prices go up, so rents will also have to go up and we will see that in some circumstances," Worboys added.

Cristian Negrutiu, Co-Founder Sparking Capital said all the logistic providers are facing an increase in labor costs, "which represents almost the same expense as the rental costs." He thinks these labor costs will be pushed to the customers, but it's hard to do so with rent costs as well. "You have to keep in mind that the one who pays for the whole game is the end customer,who is very price-sensitive," Negrutiu said.

Ana Dumitrache, Country Head of CTP Romania, explained in their portfolio there is one industrial park "we're not capitalizing on it, instead we transfer all the benefits to our residents in order to compensate the labor costs and the salary increases in the area, so the whole community benefits from the investment."

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