Arguably the biggest office project in Budapest right now, this latest development comes at a time when office vacancies are shrinking and analysts expect top-quality offices to remain scarce.
The Belgium-based developer Atenor Group has officially opened its 17,000 sqm Building C, the second phase of the 85,000 sqm Váci Greens in the ever-popular Váci út business corridor.
Arguably the biggest office project in Budapest, Váci Greens was started when the market was down but this opening comes at a time when interest in top-quality office space is growing and vacancies are becoming scarcer. While there are a limited number of projects in the pipeline, a shortage of highly sought after class “A” office space is likely to continue in Budapest for some time. Analysts say the Budapest vacancy rate could fall below 15% soon, dropping below that of its Central and Eastern European neighbors.
TIBA Architects Studio designed the Váci Greens development and Building C has an Excellent BREEAM sustainability rating. This second phase of the project is 100% let to GE; its choice of Budapest for a shared services center (SSC) and engineer training facility is regarded as a success for Hungary. Atenor made what was regarded as an ambitious decision to go ahead with a large-scale speculative office development in what was then a difficult market with debt finance either unavailable or very difficult to source in the post-2008 economic downturn environment, although Atenor “hedged its bets” by only commencing construction once a previous phase was fully let. With demand picking up and pipeline limited, the shortage of well located class “A” office floorplates could negatively impact market development, although developers are increasingly attracted to Hungary with vacancy falling.
Construction of the latest speculative stage of the project commenced at the end of 2013, with the first 16,000 sqm Building A fully leased six months after completion. At the same time the Atenor Group is also constructing the 24,500 sqm Building B, the third phase of the project that is due for completion in the first half of next year and for which Atenor is involved in advanced negotiations. If pre-leases are achieved, the company intends to proceed with Building D. “We are at advanced negotiations and hope to have Building B fully leased by the end of the year and then we can start construction of Building D, the fourth phase of the project. The 2.5 hectare development site provides flexibility with regard to potential leases of, for example, up to 20,000 sqm,” said Zoltán Borbély Atenor, Project Director at Atenor Hungary.
Building D would extend the development to around 58,000 sqm of space. According to the plans, the multi-phased project will consist of six buildings with a possible 135,000 sqm of office space surrounding an inner courtyard. Atenor has already purchased a former industrial site adjacent to the complex that will form the site for phase six of Váci Greens, once the existing building has been demolished.
GE Healthcare will establish a European SSC and a research center for training engineers, only the third in the world after the United States and India. By 2017, more than 2,000 people could be employed on six floors at the center according to GE. This will consist of around 80% Hungarians and 20% other nationalities. “SSCs and corporates are driving the market. With regard to availability there are only two or three new buildings that can offer 10,000 sqm of space in Budapest. It should be a landlord-favoring market by the end of the year as effective rents are €12-14.5 per sqm per month,” said David Johnston, head of office agency at Cushman & Wakefield.
In recent years only established European developers such as Atenor, Skanska, HB Reavis and Futureal have been able to source finance and develop in the Budapest office market where debt finance is expensive and hard to source, and loan-to-equity ratios have been low. In this market environment, most speculative projects are being developed on a phased basis, with developers constructing highly specified product that attracts pre-leases.
As a result of the market environment the volume of new Budapest office supply is seen as “very limited”. The Budapest Research Forum put total Budapest office stock at 3.23 million sqm with vacancy falling for the fifth successive quarter to 15.7%. “Office vacancy could fall to 13-14% by the end of 2016; this would be below vacancy levels in Czech Republic and Poland. With the very low pipeline and the number of pre-lets, office projects are close to 100% pre-leased before delivery,” said Rita Tuza, head of research at JLL Hungary.
These sentiments are echoed by CBRE, which commented that the vacancy rate has fallen to a six-year low, and all signs suggest that this trend will continue in the coming quarters. “Rental figures for the first half of the year are extremely strong, and we are experiencing a noticeable increase in the proportion of pre-leases,” concluded Gábor Borbély, senior investment consultant at CBRE
Pipeline for 2016/2017 is put at circa 90,000 sqm, representing an improvement on post-crisis delivery levels but still significantly lower than historic highs.
Having concluded a 8,500 sqm prelease with E-On representing 65% of the project at the V17 office project in Váci út, Hungary’s Wing is due to deliver the 12,000 sqm office project in mid-2016.
Skanska Property has commenced construction on the first 6,600 sqm phase of Nordic Light, due to be completed in the first quarter of 2016. The two-phased 26,200 sqm development in the Váci út business district has been pre-certified with LEED green certification.
The Váci út business district provides a number of development sites adjacent to metro stations in a slightly out-of-center area. Váci Greens is located directly opposite the Gyönyösi út metro station with underground parking spaces and bike racks, plus showers and changing facilities. According to József Tóth, Mayor of District 13, the district has attracted 700,000 sqm-1 million sqm of office and industrial space in recent years, representing around one-third of the total investment into Budapest. The district has around 30,000 enterprises employing 72,000 people.
The Atenor Group has some 40 projects in Hungary, Romania, Belgium and Luxembourg. It is developing the phased Hermes Business Campus in Bucharest consisting of three buildings that will offer up to 75,000 sqm of office space. In the difficult economic environment in both Hungary and Romania, Atenor has been financing its CEE projects through its own equity.