New dynamics in office rental market, says C&W
According to some industry commentators, the market for office space will soon turn into a significant oversupply in Budapest. But a closer look at the quality of the offering and the business environment shows a different picture, suggests an analysis sent to the Budapest Business Journal.
Market experts have suggested that next year’s supply could exceed 300,000 square meters. The last time supply reached these sorts of levels Hungary was in the midst of the triple whammy of the global financial crisis, a poorly performing domestic economy and fundamentally unsustainable real estate dynamics. But this has changed since then, according to the analysis by Cushman & Wakefield Hungary.
“Budapest’s dynamics have moved on since 2009. We can generally expect gross take-up to exceed 500,000 sqm each year and absorption will typically be around a quarter to a third of this amount. In other words, there is an annual requirement of approximately 150,000 sqm of new supply per year – and this is expected to rise,” said Orsolya Hegedűs, Associate and Head of Research and Consultancy at Cushman & Wakefield Hungary. “Over a six or seven-year period we saw very little in the way of development (an average of 60,000 sqm per year between 2011 and 2016), resulting in a massive undersupply of good-quality and well-located stock,” she added.
In an increasingly competitive race for the best employees, the likes of GE, Morgan Stanley and BlackRock realize that a high-quality working environment is critical for both attracting and retaining staff, said the analysis. A disproportionate level of Budapest’s existing stock has not aged particularly well and needs replacing with modern, well-specified and located buildings, it added.
“Developers tend to be optimistic in estimating the delivery of their schemes and already over 70,000 sqm of the projected supply has been deferred until 2019 according to the latest reported data,” noted Hegedűs. “Furthermore, this projection includes WING’s once-in-a-generation relocation of Magyar Telekom to a bespoke, consolidated 55,000 sqm base - not a typical delivery in terms of either supply or leasing. Finally, some of this stock is located on the periphery and will not be a direct competitor to typical Budapest stock. The true delivery of 2018 is therefore closer to 175,000 sqm – a fair comparison to expected annual absorption – and a delivery figure we would expect to see replicated in 2019.”
While concern has been expressed about the impact of Budapest’s “mega schemes” such as BudaPart and Agora, Mike Edwards, Partner and Head of Capital Markets at C&W Hungary, commented that the scale of these schemes is misunderstood.
“These schemes are developed by highly experienced developers who will phase development according to demand and the performance of previous phases; we cannot expect to see hundreds of thousands of square meters suddenly deposited on the market to the detriment of all other schemes,” stressed Edwards.
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