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Limited Number of Investment Assets Restricts Liquidity

Around EUR 1.7 billion in commercial real estate transactions was concluded in 2018 and an estimated EUR 1.3 bln-1.5 bln in investment volume is predicted for this year, according to CBRE.

The 2019 CBRE Investment Breakfast.

“Based on the strong investor appetite and market fundamentals expected for 2019, coupled with a shortage of tradeable products after the unprecedented transactional activity of the three last years, CBRE expects 2019 to bring a somewhat more conservative investment volume,” commented Gábor Borbély, head of research and business development at the 2019 CBRE Investment Breakfast.  

Hungary is forecast to record close to 4% growth, the largest growth rate in the EU, for this year and close to 3% for 2020.

With regard to expected investment volumes, at least 90% of the invited commercial property professionals at the annual CBRE event at the Sofitel Budapest Chain Bridge expect 2019 to be at least as successful as 2018.

According to the survey carried out by CBRE, 60% of respondents expect the same volume and 32% slightly better; 33% of respondents expect total investment to be EUR 1.7 bln-1.8 bln, 32% EUR 1.4 bln-1.7 bln and 27% EUR 1.8 bln-2 bln.

The breakfast presents data on the Hungarian and CEE investment markets and discusses prospects for the coming year. The consultancy conducted an on-line survey sent to invited guests, consisting of assets managers, developers, private investors, fund managers and financers active in the Hungary and wider CEE markets.

“The expected volume is more due to a lack of stock rather than not enough equity. Rental growth is attracting developers, although development and issues with regard to construction are holding up the delivery of new supply,” Tim O’Sullivan, head of capital markets for CBRE Hungary, commented at the event.

Indeed, some 39% of the questioned property professionals see the lack of available investment product as the major challenge to the investment market, compared to 19% who see European global politics as the biggest problem.

Labor and Demographics

In the wider CEE, Tomas Hegedus, managing director of CBRE in Slovakia, cited the lack of available skilled labor and poor demographics as another challenge to the markets. On a positive note, however, he hoped to see the Slovakia investment market break the EUR 1 billion barrier this year.

CBRE recorded EUR 818 million in investment volume in Hungary for office in 2018, followed by retail with EUR 732 mln and industrial at EUR 106 mln. Asked which asset class offers the most potential with regard to risk profile, 58% opted for the office sector, followed by industrial, chosen by 14% of respondents.

Mátyás Gereben, country manager at CPI Property Group Hungary, commented that he receives a number of phones calls every week with enquires about availability at the Airport City Logistic Park.

In terms of development financing, Zoltán Balázs, head of corporate real estate financing at Erste Bank Hungary, says the lender’s priorities are the office and retail sectors, followed by logistics and then healthcare and education as niche financing sectors.

Domestic funds accounted for 65% of Hungarian investment volume in 2018 and Hungarian capital is thought likely to continue to dominate the local market; CBRE expects as many as 50% of acquisitions to be concluded by local funds. At the same time, O’Sullivan also sees more new funds from both the EU and outside Europe entering the market, with office leading the way and more logistics deals. Further, hotels could become a big market sector.

Concerning yields, these could be subject to a maximum compression of 4.95% for office, 4.96% for retail and 6.75% for industrial according to respondents. CBRE puts current prime yields at 5.47% for office, 5.56% for retail and 7.16% for industrial.

Erste’s Balázs believes that, if yields do not compress, increasing rentals will still cause capital values to rise.