While Hungary still has a way to go to catch up with its neighbors, high yields here attracted interest in the first half of the year.
Hungary has concluded €280 million in real estate investment deals – or 11% of Central and Eastern European property investment volume – for the first half year, according to JLL. With the country continuing to attract interest from local and international investors, the global real estate services firm anticipates a total of €700-750 mln for the year. The renewed investor appetite for Hungarian assets is seen as due to improving economic fundamentals, market conditions and the relative pricing, making prime assets particularly attractive.
However, Hungary has yet to catch up with the thriving Czech investment market, where €3 billion+ in deals is expected to be completed this year. Furthermore, Hungary faces competition from the emerging Romanian investment market. “We expect a much stronger second half that should translate into 2015 full year numbers 20-30% above the 2014 level,” commented Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary. “The good news is that the liquidity is coming back across all asset classes and for different investment ticket sizes.”
Investment deals worth €2.55 bln have been concluded in the CEE real estate market in H1. Czech Republic leads with €1.2 bln or 47% of transactions, followed by Poland with a total volume of €813 mln or 32% of CEE volume, Hungary with 11%, Romania with 7.5%, Slovakia with 0.5% and the SEE markets with 2%. In general, liquidity is seen as increasing as an influx of capital is coming into CEE. The question is when will major international investors consolidate their interest in Hungary with concrete deals.
“As prime European real estate market returns become increasingly tight, other investment locations look more attractive. The positive economic news from CEE, coupled with healthy yields, is attracting capital and re-pricing, with investors especially focusing on Poland and Czech Republic. Other CEE capital cities along with Poland’s regional markets will also be highly sought after. The weight of international capital seeking core CEE opportunities has provided increased liquidity for large lot-size properties and portfolios. In addition, attractive and more easily attainable financing has widened the pool of investors who are able to offer more competitive pricing,” said Troy Javaher, head of CEE capital markets at JLL.
Czech Republic, a similar sized market to Hungary, saw a transactional volume of €1.2 bln, with the momentum from 2014 showing no signs of abating. An 89% increase on the same period of the previous year’s figure was underpinned by the sale of Palladium according to Stuart Jordan, head of capital markets at JLL Czech Republic. The most significant transaction of the year, and one that boosted investment figures for the first half year, it involved the acquisition of the Palladium shopping center in Prague by Hannover Leasing for €570 mln.
In Hungary 34% of transaction volume was in the office sector, followed by retail at 26%, industrial at 22% and 18% comprised of a mixture of vacant assets ready for redevelopment. A notable office transaction was the purchase by Europa Capital and Convergence of a value-add office portfolio including three foreclosed offices of Volksbank Austria – Kálvin Center, Duna Office Center and the B52 office building.
The largest retail transaction was the disposal of two phases of the Premier Outlet Center on the outskirts of Budapest by Aviva to Lone Star. The most significant logistics deal was the acquisition of the M1 Logistics Park close to Budapest by Prologis.
Yields for Hungary are put at 7% for prime office and retail, and 8.75% for prime industrial and logistics. This compares to Czech Republic where prime office yields are heading below 6%, prime logistics are sub-7%, and retail yields 5.25%.