Real Estate

Ideal Location
HUNGARY LOOKS TO BECOME REGIONAL HOST TO LOGISTICS FIRMS

WRITTEN BY Shaun McKenna

With its ideal geographic location, sandwiched between three European Union countries and four non-EU nations, Hungary is well poised to become a logistical center for the region. Not only are there four trans-European network corridors crossing Hungary, but infrastructure development is abound, the Danube River cuts the country in half and over 40 airports offer numerous air transport opportunities. Concerns, however, over the delay in realizing planned infrastructure goals, could be what everyone is talking about in 2005.

Analysts said a major logistics trend in 2005 will be a change in the scope of activity – following last year’s EU accession – to a focus on the region as whole, rather than a concentration on individual countries. “Companies are making logistics decisions for the region since EU membership, rather than on individual countries,” Balázs Czifra, of real estate firm DTZ, said. Czifra also noted that third-party logistics companies, firms that provide logistical services to their clients, are a driving force in the industrial real estate market. Such companies have a more than 50% share of all deals in this segment. Czifra said current healthy market conditions will encourage supply and maintain a steady demand and many companies in the logistics industry will be poised for success. “Potentially all projects that can provide speculative space, as well as built-to-suit options, will do well,” he said. “More important are added services like on-site customs which are favored by tenants.”

The Budapest Intermodal Logistics Center (BILK) may be the fastest growing development in 2005 in Hungary

By the end of third quarter 2004, developers pleased with an increase in take-up in the industrial sector began adding more developments. A DTZ third quarter market update reported take-up at 123,000 sqm, compared to an overall figure of 85,000 sqm in 2003. Rental levels decreased, partly due to the creation of new supply and pressure to compete with neighboring countries – which brought the average rent to between EUR 4.5 – 5/sqm/month.

WHAT MUST BE DONE

In a position brief on logistics in Hungary, the American Chamber of Commerce (AmCham) and consulting firm KPMG named five ways to cement the country’s logistical role in the future. Infrastructure issues topped the position brief, with stress placed on development of Hungary’s roads.

“Committed implementation of the highway network development plan is vital for economic development of Hungary,” AmCham said. In addition to importance placed on road transportation, AmCham also focused on rail, water and inter-modal forms of transportation. Roads are the most commonly used method to transport goods, although they are subject to traffic congestion and accidents. The brief stated that one liter of fuel is able to transport 50 tons by truck, 97 tons by rail and 127 tons via waterways over one kilometer. Transport by rail is one-third the price of road transportation, while river shipments are one-tenth the cost.

Hungary already has exemplary intermodal facilities, which includes the Budapest Intermodal Logistics Center (BILK) on the outskirts of Budapest, AmCham said. The BILK terminal takes advantage of RO-LA containers, used by trains to transport trucks during long journeys. Analysts added that the terminal may be the fastest growing development in 2005. BILK Logisztikai Rt. opened a 24,000-sqm-warehouse in October 2004 in addition to 70,000 sqm already constructed. The site aims to reach 200,000 sqm of storage by 2006 at a final cost of HUF 25 billion. Approximately 1,000 new jobs will be created.

RIDING THE NEW WAVE

Inland waterways could be a new path to success for the agricultural and steel sectors. AmCham said the Danube, which stretches from the Black Sea to the Rhine River, could serve as a backbone for intermodal transportation and is worthy of further exploration. Rodeport Ingatlankezelő és Kikötő Üzemeltető Korlátolt, a new logistics space catering to agriculture, is hoping to use its position along the Danube in Fadd-Dombori to shorten grain transports from Tolna County. Rodeport is building a new agrar-logistics center with help from a Swiss investment fund, and aims to attract large and small producers in Tolna to buy and export production. The center boasts all its facilities under one roof and plans to soon have in place a horizontal granary with a 7,000-ton capacity, a loading station and drying and cleaning facilities. Additional silos with capacity of 36,000 tons are scheduled to be completed by May of this year.

Tünde Hegedus, a Rodeport spokeswoman, said the most efficient way to transport grain is by using barges to ship it soon after it has been cleaned and dried.

Hungary’s logistics market is poised for growth this year, but concerns remain over infrastructure development

“In our center, there will be a dryer and a cleaner device,” Hegedus explained. “If the grain is harvested then immediately delivered to our center, there is no need to bring it to a separate dryer, then to another granary and then deliver it to the port and put it onto barges. Shortening the route of goods means approximate savings of HUF 2000/ton.”

Hegedus says the future M6 highway will pass near the facility but is not essential. “From our point of view,” she said, “the national routes are important because they are the way trucks approach the port. Completing the investment would mean building a direct route to the port bypassing the surrounding villages.”

The Rodeport center will help the area’s infrastructure and assist employment by providing jobs for local residents, she added.

KEEPING IT LOCAL

British American Tobacco Hungary (BATH) won praise from Hungarian Government Minister Péter Kiss for its commitment to helping the Hungarian economy. BATH opened an 8,000-sqm logistics center in Pécs in December. The HUF 1.5 billion center will be run by Wincanton Trans European Hungary Kft, one of Europe’s largest logistics service providers.

The center bucks the tendency of companies to build around Budapest, which some industry observers say is harmful to Hungary’s logistical identity. Being situated in Pécs, BATH is also next to a manufacturing facility, which company spokeswoman Rita Bede said is part of their competitive strategy. “Reducing the distance between the place of manufacture and the storage facility results in a cost-effective, flexible and well-coordinated supply chain,” she said. “It was also a rational decision. Pécs has an excellent workforce, maintains high quality standards and has a state-of-the-art supply chain built upon a 100-year tradition of cigarette manufacturing.” Bede also said Pécs needs improvements in infrastructure. “We’d most like to see improvements in the local infrastructure, especially the road network. This is one of the most pressing development tasks for the region.”

Also expanding to other areas of the country is Hungarian logistics company Bertrans. Last month, Bertrans opened a new center in Kecskemét on nine hectares of land. The park cost HUF 700 million with Bertrans receiving a subsidy of HUF 100 million from EU funds. MTI-ECONEWS reported that a consortium of companies based in Nyíregyháza have set up Logistic Centrum, which will construct a new center in the local industrial park worth more than HUF 1 billion. Such a project would extend Hungary’s logistic wealth to the east, and would benefit from completion of the M3 motorway.

THE PARK NEXT-DOOR

In terms of competition from neighboring countries, Slovakia is defined by a trend toward logistics, mainly catering to automotive assembly. Czifra of DTZ said Slovakia’s pro-active approach to the industry is worth considering. “Slovakia has an aggressive strategy to offer very competitive terms to investors with particular focus on a standardized tax system.” László Kemenes, property adviser at CB Richard Ellis, noted Romania is up and coming as it is the first country outside the EU and the first to the East. He said Romanian developers could also get higher subsidies than developers in the EU. One problem, however, is current development is too centered on Bucharest.

As for Hungary, Kemenes said infrastructure and added services in the country give it a competitive advantage, along with a skilled workforce cheaper than in Western EU countries.

Analysts said 2005 is important for Hungary as it remains to be seen how its possible role as a regional logistics center will play out. As AmCham stated: “Hungary may become a regional center for logistics or a mere transit country. Once the regional logistical infrastructure becomes established, it will be difficult to change.”