Boom Time in the Office Market
Established developers on the Hungarian market are going ahead with built-to-suit (BTS), speculative and long-term phased projects as vacancy is low with a limited supply of 5-10,000 sqm class “A” space. In reaction to more sophisticated tenant demands, both Hungarian and regional players are delivering ever more imaginative developments, both from the specification and interior and exterior design perspectives.
In the largest recent completion, Wing has delivered the 58,000 sqm Magyar Telekom Group headquarters, located in District IX. Wing has also commenced construction of a further 20,000 sqm BTS headquarters for evosoft Hungary.
“With BTS projects we are able to agree a long-term lease with a major tenant and this puts us in a position to tailor the building to the specific needs of the tenant. At the same time the tenant needs to commit to a long-term lease of more than ten years. This is in contrast to those buildings which are designed to a more flexible specification to meet the needs of multi-tenants,” commented Noah Steinberg, chairman & CEO of Wing, on the development strategy of the company.
According to CBRE, a number of developments that were undertaken in 2016 are now set for completion. A total of around 460,000 sqm is under construction, of which 175,000 sqm is expected to be completed this year. However, more than 70% of this space is already committed through preleases. In H1, five new office schemes were delivered on a speculative basis with an average 42% occupancy, according to Judit Varga, head of office advisory at CBRE.
In another completion, Skanska has delivered its eighth Budapest office project, the speculative 35,000 sqm Mill Park in District IX. The LEED “Gold” accredited complex is more than 90% let and has already been sold to Erste Real Estate.
In the current market environment, class “A” office developers are able to conclude the necessary preleases and sell a property to investors and exit if necessary, and go on to further projects, as is the development policy of Skanska. Marcin Łapiński, managing director of Skanska Property Hungary, sees office accommodation as a central vehicle for companies in hiring and retaining staff in the current labor market where there is a shortage of skilled labor.
Skanska has acquired a further development plot in District IX and will undertake development of the first 20,000 sqm stage of the three-phase Skandanavian Gardens once a prelease has been agreed.
Another long-term Budapest developer, GTC Hungary, has officially opened its new Budapest office development, the 21,500 sqm GTC White House on Váci út. The company is continuing to develop the Twist and Pillar office projects.
Also on Váci út, Horizon Development has completed the speculative 25,000 sqm Promenade Gardens; the center has been forward purchased by the Hungarian Erste Open-ended Real Estate Fund. Elsewhere, in the historical center of Budapest, Horizon is currently developing the mixed-use Szervita Square, consisting of 15,000 sqm of office, residential and retail space; the LEED “Platinum” accredited project is due to complete in 2019.
Total modern office stock in Budapest currently stands at a little over 3.5 million sqm, around 2.8 million sqm of which is “A” and “B” speculative office space. The current vacancy rate stands at 7.5%. Development activity is accelerating: Cushman & Wakefield has traced around 250,000 sqm of space under construction. As much as 60% of space due to be delivered this year is already preleased, although more developers are developing speculatively.
The Váci Corridor is the most favored area for office development with around 30% of total construction, followed by South Buda with about 22%, according to CBRE. In a sign of the continuing positive mood in the Budapest office market, CPI is developing the 16,000 sqm Balance Hall. This third phase of Balance Office Park on Váci út is scheduled to deliver at the end of 2019, bringing the total space at the complex to 35,000 sqm and there remains the possibility for a fourth phase of the development.
The Hungarian Futureal Group has been awarded WELL building pre-certification for its three current Budapest office projects. The complexes will provide more than 100,000 sqm of WELL, LEED and BREEAM accredited office space. The company has undertaken development of the first 25,000 sqm phase of the 65,000 sqm Budapest One Business Park and completed phase one of the Corvin Technology & Science Park, and the first phase of Advance Tower.
Developers are increasingly paying more attention to their office interiors and the wellbeing of staff in office centers as they are seeking WELL certification in addition to BREEAM and LEED sustainability accreditation. Skanska is developing the third 14,000 sqm phase of the Nordic Light office complex to meet the WELL Building Standard.
“Employee wellbeing was at the forefront when designing Nordic Light and this will be our first office project in Hungary to receive WELL certification,” says Łapiński. The complex is already 80% prelet.
As confidence in the market grows, developers are undertaking more ambitious projects. In a major phased development in the Váci Corridor, the European developer HB Reavis is constructing the 136,000 sqm Agora Budapest. This long-term, phased development project is planned to be completed in 2023. The first speculative phase (which is targeting BREEAM “Outstanding” and WELL “Gold” accreditation), Agora Hub and Agora Tower, will deliver 65,000 sqm of office, retail and service space by 2020. Jan Hübner, country CEO at HB Reavis Hungary, commented that construction of a further 60-70,000 sqm phase is planned to go ahead in 2020. The Belgium developer Atenor has officially handed over the 14,000 sqm speculative Váci Greens D, the fourth component of its phased office project that will consist of 130,000 sqm of space across six buildings upon completion. In parallel with development of the final phases, the developer has undertaken work on the speculative phased 85,000 sqm Arena Business Campus in District VIII in Budapest. The announcement of such a further large-scale project reflects the current confidence in the Budapest office market.
Location, Location, Location
As developers are looking to go ahead with office developments to meet strong demand, there is increasing competition for suitably-sized sites that provide visibility and meet the requirements of tenants and staff regarding access to amenities and public and road transport links. Despite its green environment close to the Danube and the Budapest Technical University, the south Buda area is lacking in development sites with direct metro access, which has been one of the major reasons for the success of the Váci Corridor.
Third party sustainability accreditation organizations such as BREEAM, LEED and WELL have requirements with regard to exterior architectural design and, for example, the use of materials in construction, interior design and property and facility management, and locational and urban development issues. The norm today is for developers to source sites with direct access to metro, train, bus and tram stations, which is now a basic requirement of tenants and staff working in office centers. Further, new developments now invariably include bicycle parking and changing facilities and electric car charging possibilities.
For their part, local authorities are proactively promoting suburban districts to developers as part of urban redevelopment schemes. The concept is of a reciprocal benefit to both the developer, the companies that locate to the project and the surrounding population.
In 2019, nine buildings with a combined GLA of 144,000 sqm and 62,000 sqm of refurbished space are scheduled to be delivered, according to CBRE. The South Buda area and Váci Corridor will receive two-thirds of this.
Mill Park in Budapest by Skanska.
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