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Industrial RE market’s positive sentiment set to linger

Hungaryʼs industrial real estate market saw healthy activity in Q1, and accelerating GDP growth - together with continued monetary easing - may further strengthen positive business sentiment, says a report by real estate services firm Cushman & Wakefield sent to the Budapest Business Journal. At the same time, continuing labor shortages put pressure on the local market in general.

As in previous quarters, the automotive sector, along with occupiers in the logistics and dynamically expanding e-commerce segments, have been the main drivers of demand, Cushman & Wakefield observes.

Two schemes totaling in excess of 40,300 square meters of new industrial space were delivered during Q1. However, due to the high share of pre-leased space in these units and build-to-suit remaining more or less the only viable way of entering the market, C&W says supply still cannot match the requirements of new entrants and expansions. Low vacancy rates and increasing construction costs have begun to increase upward pressure on rents; even so, rental levels remained stable in the first quarter, according to the C&W report. 

As far as investment is concerned, the industrial market recorded healthy levels of activity in the first three months of the year, supported by the acquisition of South Pest Business Park by Diófa and M7’s acquisition of Aerozone. While yields remained stable over the quarter, yield hardening is expected as 2017 progresses due to increased competition for the best assets, which are scarce. This may force investors to divert their attention to stable countryside projects, notes the real estate services firm.

C&W calculates that approximately 80,000 sqm of new space is scheduled to enter the market by the end of this year, which should bring some temporary relief to the occupier market.

Developers are beginning to assess speculative building options, observes C&W, and this is from a low base, so that any schemes are expected to be absorbed with relative ease. Development sites are highly sought after, with all ongoing logistics developments remaining Budapest-focused. Manufacturing industries, however, are focusing on smaller countryside regions.