Váci Greens D by Atenor.

Acquisitions by Hungarian investors are approaching 50% of the volume; with the three major domestic funds, in addition to other Hungarian investors, competing with returning international investors, the proportion of investment volume concluded by domestic capital has doubled over the past three years.  

Yields for Budapest provide a 70-100 basis point premium on Warsaw and Prague according to Cushman & Wakefield. Over the year, available investment assets were quickly snapped with multiple bids from investors. Tenant demand has remained strong in all market sectors, with record low vacancy.

The Office Market

In the office segment deliveries for the year will amount to 240,000 sqm, with 80% of this pre-let according to JLL. Around 130,000 sqm delivery is expected for 2019, of which 30% is already pre-let, and roughly 300,000 sqm is expected for 2020-2021, of which 50% is prelet. Budapest office vacancy has fallen to a record low of 7.6%.

With regard to investments, there have been a number of notable office transactions during 2018, with well-known, earlier generation class “A” assets such as Science Park, Alkotás Point and Central Udvar all trading.

“A significant pool of local capital should be reassuring as it shows positive evolution in the accumulation of capital and the development of a locally-based saving systems from private investors – this is the role of local open-ended funds – and also the development of local private groups including developers and asset managers,” said Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary, with regard to the role of domestic capital.

In a rare forward purchase deal involving a class “A” office complex by a Hungarian fund, Erste Asset Management has completed the purchase, agreed last year, of the 25,000 sqm Promenade Gardens from Horizon Development; this reflects the increasing role of Hungarian capital at the high end of the Budapest investment market.

“The funds provide a healthy level of liquidity for the market that was not present in the previous cycle. This has enabled investors to confidently underwrite their exit yields and therefore helped stimulate more transactions,” says Ben Barclay, senior investment consultant at CBRE Hungary, on the role of Hungarian investors in the office and retail markets.

“However, they are also putting off potential core capital from targeting Hungary as they increasingly realize they cannot compete with the local funds. A few years ago these local players were unable to transact lot sizes of EUR 60 million plus, meaning that there was still a gap in the market for international institutional equity, but this gap has now closed as the funds can afford even the largest lot sizes, as shown this year with Erste Fund’s acquisition of Mill Park and OTP Fund’s acquisition of MOM Park,” Barclay adds.

Evosoft headquarters by Wing.

Portfolio Sold

As reported on page six in this issue, Futureal Group has just sold its portfolio of Corvin office buildings to the Hungarian OTP Real Estate Investment Fund. The transaction involves all six of the operating office buildings at the mixed-use Corvin Promenade urban regeneration project in addition to two offices centers currently under construction. Combined, the eight class “A” buildings have a total GLA of circa 80,000 sqm. The OTP Prime Real Estate Investment Fund has also entered a preliminary agreement to purchase the two-phased 27,000 sqm Corvin Technology Park, currently under construction at the complex.

In what HB Reavis describes as one of the largest and most complex leasing transactions in 2018, the European regional developer has agreed a prelease of around 20,000 sqm with Raiffeisen Bank at the Agora Budapest office development, where Raiffeisen will establish its Budapest headquarters for around 1,300 staff at the 34,000 sqm Agora Tower, the first building scheduled to complete in 2020. Agora will consist of around 136,000 sqm of office, retail and service space and the long-term, phased development project is scheduled to complete in 2023.

In the landlord dominated Budapest office market, more developers are opting for speculative development, with both HB Reavis and Atenor undertaking large, phased, long-term projects.

“This is one of the most complex leasing transactions on the Hungarian market in 2018. The deal is a very important milestone for HB Reavis: this is one of the largest leasing transactions in the history of HB Reavis across Europe to date, and the bank being the first tenant in the development will occupy nearly 60% of the first building at Agora Budapest,” HB Reavis comments on the letting.

Wing has commenced development of the second phase of the Hungarian Nobel-Prize Winners’ R&D Park on the Buda bank of the Danube. The new building will consist of 22,000 sqm of space with 20,400 sqm let to Siemens. A flexible software developer office concept will be implemented for more than 1,500 software developers. In the same area, Wing has also purchased the 18,500 sqm Infopark D office building. The Hungarian firm has become a niche developer of built-to-suit high tech office headquarters in recent years, while the south Buda area has become the high-tech hub of Budapest.

Another leading office developer, Atenor, has leased a total of 16,200 sqm in 2018. Nikolett Püschl, leasing and development manager at Atenor Hungary, sees one of the most significant transactions as a 5,500 sqm prelease at Váci Greens F – due to be delivered in 2020 – for NN Insurance.

Staff Wellbeing

“It was crucial for us that our colleagues should work in an easily accessible place where they can make good use of the services in the vicinity and a high standard technical content is guaranteed. All of these contribute to the well-being of our colleagues,” says Krisztián Pásti, director of operations at NN Biztosító.

In another deal, Ford has leased 4,000 sqm at Váci Greens. “Ford was searching for an ideal location for its shared service center of the European Business Service unit of Ford CEE Sales. Váci Greens was their choice because it is a campus style location, the best solution for an SSC where any expansion requirement can be easily handled,” adds Püschl.

The first four buildings of Váci Greens, consisting of nearly 80,000 sqm have a 100% occupancy rate according to Atenor; Buildings E and F will add an additional 50,000 sqm. GE has expanded its presence at Building B by 1,300 sqm and now occupies 48,000 sqm across four buildings.

Other significant office deals have been a 15,000 sqm letting at the Vigadó Palota in the Central Business District, and a 10,600 sqm prelease at Skanska’s Nordic Light Trio, the third 14,000 sqm phase of the Nordic Light office complex in Váci út. Having acquired the 20,000 sqm Alkotás Point from Heitman the Hungarian investor, Diófa Asset Management plans to upgrade this earlier generation office center to meet current requirements.

The Budapest-based serviced offices provider, New Work Services has extended its Budapest network to eight centers with the opening of the 3,600 sqm BSQ, it first center on the Buda side of the Danube, and the 2,500 sqm RM2 in the Váci Corridor. Property systems, the owner, now has 25 centers totaling 60,000 sqm in six CEE countries. The New Work shared services office center network (NWSO) has an 85% plus occupation rate in Budapest.

With regard to portfolio asset management, Immofinanz has achieved 58,000 sqm in lettings and lease extensions for the year. This has brought occupancy in its Hungarian portfolio to around 95%.

Mammut shopping center

Retail Market

The major Budapest retail project under construction is the 54,000 sqm Etele Plaza, due in September 2020. Futureal says it has already achieved some significant pre-lets for the project. Consultants argue that market conditions are now appropriate for the delivery of new Budapest shopping centers that would freshen the market considerably after no major delivery for a decade.

That said, several investors and developers are undertaking redevelopment of earlier generation centers in response to the changing demands of retailers and consumers. There are waiting lists at all the leading retail centers where vacancy is close to zero. Also on the demand side, consumer numbers have continued to rise despite the perceived threat to retail real estate from e-commerce.

“Despite the negative story around retail at a European and global level, the market in Budapest has continued to thrive as investors understand the attractive pricing and strong market fundamentals. This has been highlighted by NEPI Rockcastle increasing their exposure to the market with the acquisition of the 44,000 sqm Mammut shopping center, which represented a landmark retail deal for the market,” comments Barclay. The South African investor, NEPI Rockcastle had already bought the 66,000 sqm Arena Plaza in the fall of last year, along with an adjacent development plot.

“The vendor (CBRE Client) managed to secure this shopping center [Mammut] – and perform a number of complicated asset and management actions to improve the center, bring new tenants and ideas to increase the value of the center before performing an off-market sale to NEPI Rockcastle who made their second strategy acquisition in Budapest,” CBRE explains. “This is also the largest investment retail sale in Budapest in 2018. The vendor managed to release an increase in value and profit and maximize their returns within a short period of time with the support of CBRE Hungary,” the real estate consultancy adds.

German Fund Returns

The retail market has also saw the return of the first German open-ended fund to the market within this cycle, with CBRE assisting in the acquisition of the Premier Outlet Center in Biatorbágy.

OTP Real Estate has made its largest single acquisition with the purchase of the 50,000 sqm MOM Park shopping and office center from a consortium of Wing, Morgan Stanley Real Estate Investing and CC Real. The group carried out significant investments in the center that enhanced the value of the project.

“At a time when there is a lot of talk about retail, [these deals] show the commitment of some investors to established and strategically located shopping centers,” comments Perez-Ellischewitz.

Elsewhere, Diófa Asset Management has completed its Shopmark redevelopment project. “A substantial achievement for Diófa is the complete refurbishment of the Shopmark shopping center, the first full refurbishment of a shopping center in Hungary. The center will be fully let with further stores opening next year,” commented Balázs Czifra, real estate investment director at Diófa Asset Management.

Goodman Üllő Airport Logistics Center

Industrial Market

Only 25,000 sqm of logistics space were delivered in 2018 in the Budapest area according to JLL; this is regarded as sub-optimal as the pipeline is significantly higher for 2019 with 200,000 sqm under construction, of which 50% is prelet. Logistics vacancy in the Budapest area stands at a record low of 3.5%.

In this landlord favorable market industrial developers are looking at the speculative development option in addition to developing on a built-to-suit (BTS) basis. Due to rising construction costs and high demand Prologis has commenced construction of a 10,600 sqm speculative facility at Prologis Park Budapest-Harbor.

“In addition to new lease agreements for nearly 30,000 sqm, we have concluded renewals for 90,000 sqm and the disposal of three of our parks,” comments László Kemenes, country manager for Prologis Hungary.

Prologis Park Budapest-Harbor.

Extending Activity

The CPI Property Group has extended its Budapest activities with the 55,000 sqm Airport Logistics Park in Vecsés, where the company celebrated the 10th anniversary of the park with Csaba Szlahó, mayor of Vecsés and Gábor Soóki Tóth, organizer of the Airport Cluster. At the same time CPI topped-out the latest speculative 13,000 sqm phase of the project. Buildings E and F are around 50% let to Agility and CEVA and with deals pending, András Bodahelyi, leasing manager at the logistics park, expects the complex to be as much as 80% let by hand over next year.

Auchan Retail Hungary is increasing its commercial capacity in Hungary, with the international industrial park operator and developer Goodman undertaking construction of a new logistics center for the French-based retailer at Üllő Airport Logistics Center, close to Budapest. The logistics park is owned and operated by Goodman. The 87,000 sqm center will be the largest of its kind yet built in Hungary according to Auchan.

The CEE regional industrial park operator and developer, CTP has increased its market share in Hungary to 18% according to the company. It expects to increase its portfolio through development and investment to 515,000 sqm in ten parks by yearend. Outside of the capital the logistics operator, DB Schenker has leased 15,500 sqm at CTPark Székesfehérvár and in the Budapest area DHL has let circa 8,000 sqm at CTPark Budapest East. Also in Budapest, at CTPark Budapest West, Gebrüder Weiss has agreed a 17,000 sqm renewal.