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Investment Volumes Fall Across Central Eastern Europe

Office Market

Artist’s rendering of the mixed-use Zugló City Center project in Budapest by the developer Bayer Property Hungary. It will provide around 11,000 sqm of hypermarket and retail, cafes and restaurants in addition to 168 apartments and 130,000 sqm of office space.

CBRE has recorded EUR 350 million in annual commercial real estate investment volume for Hungary as of October, representing a 43% year-on-year fall in volume. This compares to a CEE average decrease of 45%; the leading investment markets of Poland and the Czech Republic returned mixed results, with drops of 61% and 9%, respectively.

“Investment volume for the year is hard to predict. We are more conservative and say circa EUR 500 million for this year,” commented Gábor Borbély, research director at CBRE Hungary, at the recent CBRE Press Breakfast.

“Next year, it should pick up and be around EUR 700 mln-800 mln. This is mainly driven by offices and retail. Hotel deals are unlikely now, as most owners benefit from their current position. The industrial sales pipeline is quite limited, and I would not say an exact share now,” he explained.

More expensive finance is seen as resulting in higher yields across Europe. CBRE puts prime Budapest office yields at 6.5%, compared to 5.75% for Poland, 5.25% for the Czech Republic and 7.5% for Romania.

With regard to supply, office delivery has fallen by 30% year-on-year as “development has dynamically slowed down,” according to Anikó Kovács, head of office advisory at CBRE Hungary. “New delivery in the Budapest office market for 2023 is put at 180,000 sqm. There is a need for ESG-compliant new and existing office stock,” she added.

For 2024, the office pipeline is estimated at 120,000 sqm, 40% of which is pre-let. There is sizeable delivery estimated for 2026, 55% of which is as part of the Zugló City Center by the residential constructor and developer Bayer Property Hungary. The project will provide around 11,000 sqm of hypermarket and retail, cafes and restaurants in addition to 168 apartments and 130,000 sqm of office space.

Pessimistic Over Retail

Attitudes towards the retail sector in Hungary are the most pessimistic in the CEE region, according to the CBRE index. No new shopping centers are in the pipeline, with development limited to the renovation of existing centers or retail as a component part of mixed-use projects and retail parks and strip malls in regional cities.

“The proportion of online shopping as a proportion of retail spending for Hungary stands at 8%; therefore, there is still strong demand for shopping in physical retail centers,” commented Erika Garbutt-Pál, head of retail at CBRE Hungary.

“All new developments in Budapest are part of larger urban development and redevelopment projects. Vacancy in the top-tier Budapest shopping centers is low, and the sourcing of suitably sized spaces for retailers in these leading Budapest shopping centers can be difficult,” she said.

“Shopping center owners are refurbishing centers to meet changing consumption habits such as an improved F&B content, a focus on services and entertainment and more common areas and meeting points,” Garbutt-Pál added.

Developer-led industrial stock in Greater Budapest stands at 3.4 million sqm, with a further 350,000 sqm under construction and another 520,000 sqm planned. In the Hungarian countryside, the total supply stands at 1.5 million sqm, with 140,000 sqm under construction and 80,000 sqm planned.

Despite the upturn in industrial development, 75% of such projects are undertaken by the companies themselves rather than speculatively by developers.

This article was first published in the Budapest Business Journal print issue of November 3, 2023.

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