Property market performs better with remnants of the crisis still present

While lawyers keep on handling non-performing portfolios, the climate is getting better for new investments, too. Simultaneously, the Sunday shopping ban prevents the retail sector from keeping up with the promising trends of the recovering Budapest property market.

Hungarian real estate market’s recovery continues
Real estate investments finally show upturn following the era of the financial market crisis. The Hungarian real estate market shows clear signs of recovery, appears to follow a decent growing path and the macroeconomic indicators seem to be more favourable than before. CEE investors are now seeking new opportunities here as well, the country is offering more attractive prices than Poland or even Czech Republic.

In the past few years, we have mainly seen transactions for consolidation and restructuring of real estate portfolios, as collaterals for non-performing or sub-performing loan arrangements, and this trend seems to be continuing is also fuelled by large stock of assets this year. Thus, legal assistance for investors and financial institutions in connection with failed projects, bad debts and litigations relating to these non-preforming assets are still quite typical.

Also as a consequence of the crisis, the realignment of the DIY market – being most affected by the drop of consumer power, constructions and residential developments – and relevant chain store transactions were indicative of the past few years. Several players underwent a process of massive consolidation in this segment, requiring effective crisis management, significant costcuts and the increase of efficiency at the same time, while others could not maintain their position under the currently adverse market environment. The consolidation of these businesses was a complex exercise and involved not only financial stabilization, but required an effective handling of potential insolvency or liquidation threats and related liability concerns of the management and the owners of these companies.

Landlords getting stronger, Sunday shopping ban makes life difficult for the retail sector

Daily legal practice particularly shows awakening and settling of the office market. Not only developing market indicators, such as declining Budapest vacancy rates, high rate of net absorption and intense take-ups, but also changing legal conditions characterize recent property market developments. An increasing demand for good rental objects works for the landlords who are becoming more confident again, both in terms of accelerating lease term negotiations and setting the pace with the applicable legal conditions. Generally speaking, the office building owners tend to be less generous with financial incentives and more consistent with key legal terms, among others, rent indexation and lease termination options. 

Lessors in the retail sector are in a less favorable position. The recent new law on restriction of Sunday work practically bans shopping malls from opening on Sundays and the unhappy retailers may potentially make their landlords unhappy, too; raising the amendment of rent definitions and rent payment terms of existing lease arrangements with regard to restricted opening hours has been an issue in recent transactions (e.g. financing and/or sale of property companies with tenant portfolio). The relevant civil law provisions do suggest the tenant may be proportionately released from rent payment obligation for the term he is unable to utilize the leased premises for the contracted purpose, which primarily is the retail business with predetermined opening hours in shopping malls. Some lease arrangements are “smart” enough in favor of the landlord either by suggesting the tenant should fully comply with regulations on opening hours at al times, or by excluding the landlord’s risk and liability for any restrictions of use on the basis of mandatory legal provisions or public law. Some other lease arrangements “automatically” resolve the issue by way of defining the rent as the combination of a base rent and a variable rent, the latter being subject to the actual volume of trade or revenue realized by the tenant.

Many lease contracts have surely been recently reassessed and renegotiated for the above reasons, with the relevant terms having either been left unchanged or amended, hopefully without escalating the matter into a legal dispute.