Year-on-year GDP growth for Slovakia slowed considerably to 2.5% compared with 3.4% in the previous quarter.
We expect high demand for office space including some significant lease extensions towards the end of 2019. Combined with the expected completion of some larger schemes in the near future and the ECB’s decision to cut rates, yields should decrease slightly this year and remain at low levels during 2020. Some limited, non-structural increase in vacancy rate is expected in the short term as new supply emerges. Tenants upgrading from B- and C-class offices could be replaced by public institutions which demonstrate fresh demand. Pipeline in secondary locations should rely on innovative and green technologies and attractive lease terms to increase competitiveness.
Retail sales are growing, but so is the e-commerce market share. However, there are no signs of immediate threat to the traditional physical stores. Record low unemployment rate causes slowdown of job growth. This economic climate puts an upward pressure on real wages and domestic consumption. With no major completions planned this year, we expect yields to remain stable in 2019. Prime shopping centre rents are stagnant as saturated market generates highly competitive environment. Landlords will have to find new and innovative ways to attract footfall which further supports the tenant’s market notion. Demand for A class premises is strong, and secondary redeveloped schemes should keep up as well.
Slowdown in the automotive industry affected the declining export activity. However, this is largely offset by domestic demand which remains strong and supports stable inflation growth. Expected growth of real wages will indirectly support the logistics industry which should maintain a strong demand for new premises. We believe that the odds of an increase in industrial yields in the short- to medium-term are slim. Rental levels have recorded a stable growth and the 4 EUR/sq m/month prime rent threshold has been reached. Further upward movement in rents is attainable. Slovak industrial centre of gravity should continue to slowly shift to the east as some key players seek workforce entry plan.
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