Investment Rebound Expected This Year

Office Market

The Green Heart office building was part of a EUR 267.6 million deal signed by Hungarian real estate investor Indotek Group to purchase 11 office buildings in five business parks from GTC in New Belgrade, a prime business district in Serbia’s capital.

With a substantial amount of capital looking for a home, investors are certainly considering Hungary; it is seen as an attractive investment destination by investors, with a significant yield premium on Western Europe and regional peers Poland and the Czech Republic.

“Our 2021 volume forecast is in the range of EUR 1.3 billion-1.4 bln, marking a considerable rebound from the EUR 1 bln registered in 2020 – however, still down on the EUR 1.7 bln in 2019,” says Gábor Borbély, director of business research and development at CBRE Hungary.

“In the first half-year, we counted circa EUR 550 million, up by 10% on 2020. The deal pipeline for the rest of the year remains strong and somewhat more diversified across sectors, yet offices are set to remain the backbone of the investment market over the near- to medium-term. Looking into next year, we expect more large ticket transactions to come to market,” he adds.

Despite the attractions of Hungary, a significant gap remains between this market and Poland and the Czech Republic when it comes to investor preferences, and this has not changed according to CBRE.

“Based on volume, Hungary remains third after Poland and the Czech Republic in the region; in this sense, there is no change. However, there was stronger liquidity in the first half-year in Hungary, probably due to the earlier relaxation of business restrictions,” Borbély notes.

“While Czech and Polish volume contracted compared to the first half-year, Hungarian volume was boosted by large domestic purchases earlier this year. These Central European markets have different characteristics and fit different investment strategies; investors are well aware of these differences. Although there is clearly some overlap in the purchasers’ pool of these countries, Hungary is attractive to more opportunistic, yield-driven buyers, as compared to the Czech Republic,” he comments.

Domestically Driven

Looking at the split between domestic and foreign investors, activity in the first half-year was driven predominantly by domestic or Hungarian-owned companies. Together, these accounted for 85% of the total volume, according to CBRE.

There has been a growing trend over the past 18 months or so for domestic investors to look beyond Hungary for assets as they look to diversify their growing asset base. The most notable examples have taken place in Poland, with Wing’s majority acquisition of Echo Investment, Futureal’s purchase of Polnord, and Optima’s majority investment in GTC S.A.

Elsewhere, Futureal’s subsidiary, Cordia, has purchased the developer Blackswan in the United Kingdom. Most recently, Indotek Group acquired a sizeable office portfolio (122,175 sqm gross leasable area) in Belgrade from GTC, and Adventum International announced the purchase of a dominant office asset in Bucharest.

There is also known interest from some of the above parties to expand beyond CEE, looking as far afield as Italy and the Iberian Peninsula, according to CBRE’s Borbély.

Offices remain the most liquid asset class in Hungary, likely matching or potentially even exceeding pre-COVID investment activity. Prime yields for office and logistics assets are at or below their pre-COVID benchmarks at 5.25% and 6.75%, respectively.

The office sector remains closest to equilibrium, with a healthy supply and demand for quality products. Investor demand for industrial assets, on the other hand, far outstrips the somewhat limited number of developments for sale, CBRE concludes.

This article was first published in the Budapest Business Journal print issue of July 30, 2021.

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