Eskimos Chasing Seals Until new Supply Arrives

Katalin Sermer, Country Manager, S IMMO APM Hungary Kft

How do you view the office market in Budapest right now? How do you see things going for the rest of this year and into next?
Right now, we observe an increasing demand, rents rising slowly but steadily, declining incentives and increasingly long lease terms. These developments are mainly the result of limited supply leading to fewer alternatives regarding special features in location or size. The second half of the year will bring the first deliveries of new supply and any project that is not yet pre-let will offer a choice to those who will be on the move then. This trend will speed up in 2018, resulting in the relocation of more companies. However, competition should be determined by the differences in quality and rents, and should not press rents down, as happened in 2008-2009. In a mature property market, tenants should be offered the location that suits their needs and budgets best. At S IMMO we have invested largely in order to enhance the quality of the buildings in our portfolio and to remain competitive.

What are the greatest challenges to doing business in the market?
Tenants get more and more demanding when it comes to office spaces. They have a very precise idea of what their working environment should provide. It’s not only about the building quality but, of course, also about the reasonability of the costs, or the availability of a contact person. Due to our close observation of the market, we are always aware of the current requirements and wishes and focus our activities on that. It’s important to adjust to the trends quickly and know exactly what the tenants’ wishes are. At the moment, we register high occupancy rates. That also means that our buildings can only offer a limited choice of space, which can be disappointing for some (potential) tenants.

How much of the market is dominated by Budapest? Is there much appetite for new office space in the provincial cities?
S IMMO is only present in capital cities in the CEE region, therefore we have limited knowledge on this topic. The current dominance of Budapest is unquestionable. Though several companies have turned to provincial cities in the hope of finding cheaper accommodation, those locations are often short of qualified persons, which may make it difficult to establish your business there.  

The market is generally seen as being pro-landlord. When do you think that might turn around?
This is a perfect example of “too many Eskimos and too few seals”. The market tends to be pro-landlord when supply is scarce and turns pro-tenant as soon as there is oversupply. This happened recently when hardly any new supply arrived on the market. If all the projects in the pipeline are completed, the performance pressure on landlords will rise.

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