The basic requirements for any office project are a suitably-sized development plot with unimpeded access to utilities, a clean title, direct public transport and road access for the labor force, and more increasingly, access to a bike lane. In Budapest, a very compact city, suitable sites tend to be brownfield rather than greenfield. With a limited supply of plots in the historic center of Budapest, most office development is now being undertaken in out-of-center or suburban locations.
Depending on the standard of the plot, the purchase price is said to constitute around 10-20% of the total development cost according to Adrian Limp, head of valuation and advisory at Cushman & Wakefield Hungary. This can rise to more than 20% in the central business district (CBD), where the availability of land is very low. Redevelopment of existing buildings can run to 30-60% of the total investment, depending on the specifications of the asset. Land prices in the Váci Corridor are estimated at EUR 150-300 per sqm of buildable area.
The Budapest office market has matured with the need for successful building owners to meet sustainability specifications that require less carbon emissions and shorter journey times for staff with a public transport and a bike lane option, which is now a basic requirement from tenants.
But this wasn’t always the case. In contrast to the current fashion to locate office centers at transport intersections, there was previously a trend for projects to be undertaken in out-of-city locations with limited or absolutely no direct public transport links. The Tópark development has been a monument to the lack of attractiveness of such out-of-city locations that have a very limited provision of off-site amenities. The periphery now has the highest vacancy rates, while the inner city and suburban sub-markets have the lowest. South Buda currently enjoys the lowest vacancy at below 4% while on the outskirts the average vacancy rate is above 30%. “Where the office market is performing well is in the location of office centers on major transport routes,” commented Pál Baross, an experienced sustainability professional.
The Váci Corridor has arguably established itself as the business center of Budapest. Indeed, the area could be regarded as a template for former industrial areas to be redeveloped and attract inward investment. Analysts agree that the drivers of the development of Váci út are good public transport, large development plots, cheap land prices and the “open door” policy of the District XIII authority, including the engagement of successive chief architects with developers. Importantly, the local authority says it is striving to create a living environment in addition to a business area.
“Development in District XIII is dynamic and in the next three-to-four years, hundreds of thousands of square meters of offices, service units and thousands of flats are expected to be built. As far as city development is concerned, we offer developers partnership and cooperation,” said Mayor District XIII József Tóth.
In a recent development, HB Reavis has commenced construction of the Agora project, which will consist of office buildings distributed around three public squares. The development will also deliver retail and leisure space. The site was purchased from the District XIII municipality as well as a bank, and is a long-term development project scheduled for completion in 2023. “Such large developments require a lot of trust in the market. Most projects are around 20,000 sqm of space,” said Limp.
Also in Váci út, another similar sized office development project is Váci Greens by Atenor. The company secured the development plot when there was very little office development in the city. “This is a phased project that will deliver 135,000 sqm of office space located in a green environment. We commenced the project due to a need for office space in Budapest, the supply of large development plots in Váci út with excellent public transportation links and the support of the local authority,” said Zoltán Borbély, managing director of Atenor Hungary.
The other area currently very popular with developers is southern Buda. Property Market Real Estate Development, a subsidiary of the constructor Market Group, has commenced development of the mixed-use BudaPart project, located in a park environment at the Kopaszi Gát (dam) on the bank of the Danube.
Property Market, which purchased the disused site, describe the project as a “new city quarter” office with residential, retail and leisure components, and also with the possibility of a hotel. The phased development has the potential to deliver more than 200,000 sqm of phased office and residential space over a ten-year period.
Also in Buda, Futureal plans the development of the 45,000 sqm Budapest One business park adjacent to the terminus of the Metro 4 line, on the western edge of Budapest.
In District IX, Wing is developing the 57,000 sqm Magyar Telekom headquarters. Again the complex is located at a metro and road network hub in the direction of the Ferenc Liszt International Airport. Üllői út, the main road to the airport, is regarded as having potential as a future development area, although, the area lacks amenities.
Sándor Finta, one of the authors of The Budapest 2030 Long Term Urban Development Concept, advocates projects where the original value of a building can be appreciated while providing added value. Horizon Development has a track record of developing high-end office space in historic buildings in central Budapest. This is also a trend in the center of other major cities, such as Prague and Berlin.
“Our business development and land acquisition team finds it more and more difficult to source quality plots in Budapest that fit our premium commercial and residential portfolio,” commented Attila Kovács, managing partner at Horizon Development. “We constantly seek new opportunities in the CBD, as well as in various submarkets of our capital. With our proven track record of premium CBD developments – Eiffel Square, Eiffel Palace, Váci 1 –, we are almost obliged to continue our development activity in downtown Budapest.”