“Concerns persist over the rising vacancy rate, compounded by declining pre-lease activity leading to lower occupation rates in new developments,” comments Cushman & Wakefield.
CBRE says the Budapest office pipeline is dwindling as projects are delivered. Overall vacancy is expected to rise to 14%, although this will likely fall again as new supply dries up. The overall dynamic for the next few years is relatively subdued: the forecast completion volume for 2024 is around 173,000 sqm, and only 68,000 sqm for next year.
Despite a broad range of concerns that take in geopolitics and the economy, office working practices, and increasing maintenance and energy costs, developers are going ahead with their ongoing single-building or multi-phased projects.
The current financial environment favors those developers who are able to access their own development finances or sell assets to investors. However, with a lull in the investment market, an exit strategy for a developer at the desired time and at a favorable price is more difficult to conclude.
From a positive perspective, developers are delivering ever more high-quality and sustainable projects in response to market demand pressures and evolving EU Taxonomy regulations.
“Apart from a handful of ongoing projects, developers are still reluctant to jump into new ones. Those that have already started need a strong tenant base to continue as planned. A 30-35% pre-lease needs to be in place before a project goes ahead in the office market,” comments Valter Kalaus, managing principal at Newmark VLK Hungary.
Funding for development is primarily secured through banks, with a focus on green financing. Only a few developers can rely on significant amounts of their own resources, says Kata Mazsaroff, managing director of Colliers Hungary.
Colliers has traced 213,000 sqm of speculative office space under construction in Budapest, representing 15 projects with a possible handover date by the end of 2025. The total stock is approaching 4.3 million sqm according to the Budapest Research Forum (comprising CBRE, Colliers, Cushman & Wakefield, Eston International, iO Partners and Robertson Hungary; around 3.5 million sqm of this was developed on a speculative basis. The Budapest office market is the second largest in the Central European region after Warsaw.
According to Cushman & Wakefield, approximately 178,000 sqm of new space is expected to be delivered this year, which is exacerbating vacancy rates.
The absence of announced projects for 2026 suggests caution and perhaps a shift towards “brown” redevelopment opportunities, according to Cushman & Wakefield. The consultancy has traced five projects of 30,000 sqm or more.
The Dürer Park I and II by Property Market in Central Pest is scheduled to deliver more than 50,000 sqm of space. The 35,000 sqm Centerpoint III by GTC on the Váci Office Corridor will add another 35,000 sqm. The highest number of developments are in these two areas.
A notable South Buda waterside development is BudaPart, also by Property Market, on a 54-hectare site on the southern bank of the Danube at Kopaszi Gát (dam). The multi-phased, multi-functional project includes office, retail and residential elements, in addition to large park areas. It is based on the concept of developing a new city quarter on the 15-minute rule: everything should be within a short walking distance.
In the next two years, the 38,500 sqm BudaPart Corso, the 25,000 sqm BudaPart Central and the 22,000 sqm BudaPart Harbor are all scheduled to be delivered.
Most Budapest office projects are by established Hungarian or regional developers. The mixed-use office and hotel building, the Liberty South Wing, by the Hungarian and CEE developer Wing in District IX, has already delivered 10,000 sqm of office space certified to Breeam “Excellent” level.
Construction of the Liberty North Wing is underway, and 20,000 sqm of office space is expected to open in the first half of this year. In another project by Wing, the renovation of the Liget Center Auditorium office complex is set to deliver 3,200 sqm of space in a building opposite the Városliget.
The prolific Belgium office developer Atenor is due to deliver the 16,600 sqm BakerStreet in South Buda, having already handed over the 15,5000 sqm RoseVille in District XI. In addition, the Aréna Business Center B, just off District VIII’s Hungária krt., part of the Pest outer boulevard, is scheduled to deliver 15,400 sqm of space.
Another busy Hungarian developer, Futureal, is due to complete the second phase of the Corvin Innovation Campus at a mixed-use office, retail, leisure and residential project close to the center of Pest. Also in central Pest, TriGranit has completed the Millennium Gardens phase II, the final office section at the Millennium City Center on the banks of the Danube by the developer and its owner, Revetas, a specialist real estate investment manager focusing on the CEE region.
One new mixed-use project is the suburban Zugló City Center in Non-central Pest by the residential constructor and developer Bayer Property Hungary, providing office, residential and retail elements.
The developer aims to create a new city quarter. The project is due to deliver around 85,000 sqm of phased office space over this year and next, rising to a total of 150,000 sqm by 2026.
“Office supply will be very moderate as pre-leases of approximately 60-70% are needed to achieve bank financing, and tenants are rather focusing on cost savings, which does not allow them to move to a new scheme, usually demanding around EUR 20-21 per sqm per month,” says Attila Madler, asset management director at CPI.
He adds that demand remains stable, although there is a shift of state tenants moving to developments by government-related developers. Projects will mainly be undertaken at locations where more buildings can be developed and where developers have a good chance to attract state-related tenants to achieve the critical mass of pre-lease, he says.
“Other developers, having no government relations, will start developments once a pre-lease of approximately 60% is secured,” he believes.
This article was first published in the Budapest Business Journal print issue of May 17, 2024.
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