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Investment anticipated at year-end meet

Participants at the Portfolio Property Investment Forum (pictured) were bullish on Budapest, Bucharest and Belgrade and down on traditional competition, such as Warsaw.

Recognizing achievement

Barbora Dermeková, left, a valuer at JLL Bratislava, center, became the inaugural recipient of the “Chris H. Bennett CEE Memorial Award” – an annual prize to reward a significant display of professionalism by a successful RICS candidate in the region. The nomination process was controlled by RICS CEE country manager Anna Orcsik and overseen by John Verpeleti, right, of Colliers International, a former colleague and friend of Chris Bennett. The award was created by RICS to honor Bennett’s substantial contribution to the CEE real estate industry over many years. The first president of RICS in Hungary and one of the region’s most experienced and highly acclaimed property professionals, he died in 2014. (Photos: Portfolio)

Investment interest is turning away from the overbuilt neighbors and more toward Budapest, judging by the sentiment gauged at a November 24 conference on regional real estate.

The annual Portfolio Property Investment Forum provides a barometer of the state of the investment market in Budapest, and the mood at the gathering was more positive with regard to the coming year, with increased investment volume forecast and improving fundamentals in the office and industrial markets. However, obstacles to further development continue to be a limited supply of investment grade product, the difficulty and expense of sourcing both development and investment finance, and the inherent unpredictability of the legislative and local planning processes.

“Budapest, Bucharest and Belgrade could be seen as the engine of CEE investment,” said Cristian Ustinescu, CEE transaction manager at Immofinanz.

In the CEE context, Warsaw is seen as increasingly expensive and the office sector is showing signs of overdevelopment as developers and investors look to secondary cities. Although Warsaw and Prague remain the favored destinations for institutional investors, they are considering investments further south and east.

With regard to the investment mood, a poll of the more than 300 real estate professionals saw a downturn in the German economy as the biggest risk in the CEE investment market in the next 12 months.

As to the choice of investment sectors, 38% of the audience chose office, followed by 23% who chose hotel, with 12% and 11% for logistics and retail respectively.

Some 41% of the delegates said a lack of finance was the main barrier to growth in the Budapest office sector, with developers commenting that it is not easy to source debt finance as banks are still very selective in Hungary. “Property in Warsaw has become very expensive to buy and very cheap to finance, so it does not make sense for us to finance. Czech Republic is very similar, although the market is smaller and a little more favorable for us,” said Péter Számely, head of CEE real estate finance at HYPO Niederösterreich. “Hungary is an interesting market and I hope we will become more active as we have already started discussions with clients. I would mainly focus on office, as with the lack of delivery the risk-return relationship is good from the perspective of lenders. If a project is good, then financing can be found and in this way it becomes competitive. With regard to the LTV ratio, I would probably go up to 65% for a well-built, well-leased property in a good location,” Számely added.

When it comes to the residential market, the 27% VAT on new purchases is regarded as a brake on market development. An estimated 38% of new residential purchases are done for investment purposes, with an average of 70% of this in cash and around 30% leveraged.     

In general, participants agreed that Hungary needs to promote itself more effectively with a presence at international expos such as Expo Real in Munich and MIPIM in Cannes.