The region is seen as offering a significant yield premium on Western Europe as CEE has not been hit as severely as was the case in the 2009-2012 financial crisis.
Total investment volume for the so-called CE-5 (the Czech Republic, Hungary Poland, Romania and Slovakia) for 2020 was put at EUR 10 billion, representing a 31% fall on the previous year’s EUR 14 bln.
With attractive yields, investors are looking to invest in the strong development pipeline in Hungary for 2021, commented Lóránt Varga, managing director of CBRE Hungary. Vaccination rollout is key for an improvement in GDP as finance is available on favorable terms, interest rates are low and yields are attractive, he said.
After four years of historically high investment activity in Hungary, with annual turnover volumes consistently exceeding EUR 1.5 bln, the COVID-19 pandemic and the resulting economic turbulence caused a dip in activity last year, according to CBRE.
The 2020 investment volume totaled EUR 1 bln, showing a 40% correction year-on-year, reflecting a decrease both in the number of deals and the average ticket size. Nevertheless, the annual volume remained above the cyclical average since 2010.
Tim O’Sullivan, head of investment properties at CBRE Hungary, estimates that the total investment volume for 2021 will be EUR 1.2 bln-1.4 bln. Last year was dominated by office, which is stable, followed by industrial, which has momentum.
With regard to the significant role of Hungarian investors in the investment market, HUF 1.5 bln has been invested by Hungarian investors over the last two years. The annual investment volume for last year was split equally between domestic and foreign purchasers.
CEE Deals
Although the proportion of deals concluded by domestic investors fell for Hungary, they are concluding more transaction elsewhere in the CEE region.
“Interestingly, despite the travel ban and business restrictions, the share of foreign investors increased, and the share of domestic investors fell considerably from the preceding year’s record dominance,” says Gábor Borbély, head of research and consultancy at CBRE Hungary.
According to O’Sullivan, a record EUR 560 million was invested by Hungarian investors in CEE with the target countries being Poland, Romania and Serbia.
Hungary is seen as providing a prime office yield gap on top of Munich at 320 basis points and a 310-yield gap on top of state bonds. CBRE put office yields for Hungary at 5.75% and stable, prime industrial at 7% and strong overall, and retail at 6.25%.
The consultancy has traced 475,000 sqm of office space under construction and a further 455,000 sqm planned in the Budapest office market. From the 200,000 sqm pipeline scheduled for completion this year, 54% is preleased. Out of the 300,000 sqm due for delivery in 2022, 33% is preleased.
However, some shifts in handoves can be expected. Vacancy rates are expected to increase to low double-digit figures and headline rents are expected to remain stable with sustained pressure on effective rents.
Industrial has seen a significant rise in its development pipeline to 300,000 sqm, with several new players entering the market. Vacancy is expected to increase from the current record low of about 3%, although rental pressure is not expected in the near term.
This article was first published in the Budapest Business Journal print issue of February 12, 2021.
