ECONOMY: ECB CUT INTEREST RATE, GOVERNMENT CONSOLIDATION
In recent months, the European Central Bank cut the main interest rate by 85 basis points to 3.40%, with further cuts expected towards the end of the year as inflation has fallen below 2%. Inflation in Slovakia reaches 2.7%, and the NBS projects a value of 3.0% for 2024. Lower inflation positively influenced consumer spending, which increased by 3.6% in the first eight months of the year. Slovakia maintains a stable credit rating with moderate risk. The fiscal consolidation announced by the government should help ease economic pressures, although its real impact will be felt next year. The declining demand for traditional internal combustion cars in China, together with the rapid growth of domestic producers of electric cars, threatens the rapid recovery of the German economy from the recent stagnation, which in turn threatens the performance of the Slovak economy. Unemployment remains low at 3.8% as of September, with a significant labor shortage, especially in western Slovakia. Some parts of eastern and central Slovakia still face double-digit unemployment.
SUPPLY AND DEMAND: CONTINUING DEMAND FOR STATE-OF-THE-ART OFFICES, LIMITED FUTURE CONSTRUCTION
Demand for A+ and A class offices remains strong, but supply remains limited. The market is becoming 'two-speed': A+ buildings in premium locations remain fully leased, while older A and B buildings in less attractive areas face high vacancy rates - a trend that is likely to worsen in the future. Many large corporations and companies focus on buildings in accordance with ESG standards and may try to secure pre-leases in upcoming projects. The vacancy rate fell for the third quarter in a row to 13.17%, with further reductions expected. However, leasing activity in Q3 was at 28,000 m², down from the 5-year average. Renegotiations dominated, while net leasing activity was at the level of 12,100 m². For the year 2024, we expect total leasing activity in the range of 180,000 to 220,000 m², which corresponds to the 5-year average. Campus Podhradie, a Class A building with an area of 2,600 m², was the only completed building in Q3, reaching more than 90% occupancy during completion, confirming the demand for premium space.
PRICING: PRIME RENT STABLE, EXPECTED TO INCREASE IN Q4
In Q3, the prime yield in the office market remained at 6.25% for prime assets characterized by high quality, long WAULTs and located in the CBD. Future earnings movements will depend on overall economic conditions, future interest rate cuts and investor demand. Prime rent in the CBD location remained unchanged at €19.00/m². Rents in other locations also remained stable. Due to the limited availability of A+ nevertheless
