Do you think we’re at some kind of inflection point? Is the transaction market finally getting into gear?
For now, the market has cooled off a little bit. That’s why there are renegotiations again. Two years ago there were almost no renegotiations, just prolongation with higher rents because it was a landlord’s market. Nowadays it’s becoming more of a tenant’s market. There is a lot of uncertainty, so we probably need some time to see what will happen. With the tariffs, I think everybody has been waiting to see what’s going to happen.
What do you have your team working on then?
What we need to do is keep meeting our clients. We have to travel to all the parks and manufacturing plants, meet the plant managers and speak with them about their needs.
When you speak to customers, there is always something that they either need, or something they need to solve. Whether it’s to sublease some space or dispose of the space, or carry out renegotiations.
How seriously is industrial vacancy rising?
There’s more vacancy and there’s also secondary vacancy, meaning that companies are trying to sublease space they can’t use. This is putting pressure on the developers to lower prices a little until those contracts that were signed 3-5 years ago expire.
Are developers building space on spec, but then halting before completion to look for clients? What’s their strategy?
Most of the developers are in ‘waiting mode’. Instead of constructing speculatively, they’re trying to fill the space they’ve already built. There are some developers who are still building aggressively and putting more stock on the market. Now we’ll see if the market is strong enough to fill it.
Where will this be a challenge?
If you want to be more concrete in the area of Trnava and Sered, there’s around 120,000 sqm that’s been delivered, or nearly-delivered, that still has no prelease. If you have 120,000 sqm of vacant space, that definitely creates some pressure.
Do you think that space will be filled by the end of the year?
We’ll see. There could also be some kind of reorganization on the German market and companies could start looking for space here. It could happen. But at the moment I am not that optimistic that that space will all fill up by the end of the year.
It sounds like more of a demand issue than a question of price sensitivity.
Definitely. Demand is the key. It’s fallen, so it doesn’t matter as much if developers offer discounts. Tenants won’t take space they don’t need.
On the other hand, most of the developers are strong enough to carry some vacant space. They’re not likely to panic.
No. They’re going to hold steady and wait until the market picks up. And of course whenever there’s a larger requirement on the market, there will be a battle for it, because the market is slow. The Slovak market is a bit different than the Czech market. We don’t get many of the larger requirements. When one appears, there’s a big battle for it.
How much of an issue is labor for Slovakia these days?
For the last four years, it’s been really difficult for companies to find Slovak blue collar workers. As a co-owner of the HR company Edgar Baker, we try to find them for clients, but the hit rate is really low. Even when you find people they don’t show up to the interview. Or if they’re given a job, they often didn’t show up. We tell our clients who are hiring that they’ll need to look abroad. All of the labor agencies are adjusting to this new reality and sourcing people from “third” countries like India — where we are active. India has a big advantage as a source of labor, in that most of the people speak English. There’s a huge pool of people there.
Is that why you opened in India?
In Europe, Edgar Baker’s expansion in Europe followed 108 Real Estate. In this case, Edgar Baker was in India first and we followed them. We’re also aligned with them in the Czech Republic and in Croatia, thanks to a single client we serve here in Slovakia.
Labor is one of the main questions our clients have these days. They have to know who’s going to work in the warehouse or the manufacturing plant. If they don’t have an answer, it will be really difficult for investors to choose Slovakia.
Is that a problem just for new investors? Or is it a problem for existing businesses? The model for a while was that new investors just offered more money to employees in existing businesses.
You can overpay and get people on the management level and expert level. That still works. But if you want to hire 100 blue collar workers on an assembly line, that’s a problem.
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