A solid rebound of the local economy after the elimination of pandemic restrictions in 2022 was slowed down by an increase in energy prices connected with the conflict in Ukraine. Despite many negative factors, the last quarter showed that the economy is more resilient than predicted and the economy should grow by 1.8% in 2022. Energy prices have stabilized, and the sales of firms continue to rise although increasing costs are impacting many tenants, especially from retail sector who have already struggled before. Furthermore, rising input costs and weakening global demand are behind pessimism in the corporate sector. Although inflation reached a record high level of 12.8% in 2022, its growth has already peaked in both the Eurozone and Slovakia, indicating a progressive decline in 2023. To further tame inflation, European Central Bank hiked interest rates to 2.5% in December. Additionally, the Slovak government's measures to cap energy prices for businesses and households should also contribute to reducing inflation and positively impacting purchasing power that would be otherwise impacted heavily by rising costs. Nonetheless, labour market remains resilient and unemployment keeps falling to 5.9% as of December.
Overall retail park projects dominate both this year’s new supply and future retail development with limited space for larger retail schemes due to high saturation. In the fourth quarter we saw several completions - one shopping centre Siko in Košice, brand new retail parks in Nitra, Kysucké Nové Mesto and Zvolen as well as 2 extensions of existing retail parks in Trnava and Zvolen. Thus more than 34,000 sq m of retail space was added to stock in Q4 and 2022’s new supply accumulated to 66,700 sq m. Higher saturation, mostly in regional cities, is shifting developers‘ focus from shopping centres to retail parks, in particular to less saturated (mostly smaller) cities.
Restored demand from the previous quarter continued in Q4 as gross take-up reached 54,500 sq m and net take-up 25,500 sq m. In 2022 total gross and net take-up reached levels of 163,800 sq m and 118,900 sq m respectively. However, both figures still ended slightly below the average of the last 5 years, underlining the growing tension in the market. Completion of NIDO2 was postponed to the next quarter, therefore only 2 buildings were delivered to office market this year – Omnia BC in Q1 with an area of 11,160 sqm and Lake Side 02 in Q3 with 14,000 sqm. Despite the lower take-up in 2022, lack of new supply resulted in a mild decline in the vacancy rate in almost all submarkets, to 11.2%.
The Slovak industrial sector remained the most resilient real estate segment and experienced very solid performance in 2022. Its rapid growth continued in Q4 as 9 new buildings together with 108,500 sq m hit the completed status whilst 85 % of that area was already pre-leased. 2022’s new supply figures stand at a record-breaking 435,800 sq m with pre-leased space at the time of completion at 80 %. Healthy supply levels go side by side with unceasing demand which also persisted in Q4. Gross take-up represented 156,000 sq m and net take-up 102,600 sq m. Nevertheless, vacancy rate remains low at 3.6% and while the market remains landlord orientated for now, we expect some sort of alignment between landlords and tenants to come in 2023.
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