The low speculative office pipeline will likely result in a limited supply of quality, well-located offices that conform to ESG expectations and regulations, despite rising overall vacancy rates heading towards the 15% mark. Indeed, a gap is evident between well-located high-end offices and class “B,” non-centrally located and non-ESG compliant space; availability is significantly higher in the latter category.
The total speculative office pipeline, excluding on-hold projects, through to the end of 2027, amounts to 84,100 sqm, with the Váci Corridor (including the second phase of the H2Offices project and Centerpoint III) accounting for the largest share, at 59,200 sqm.
Colliers says the remaining projects are relatively small in scale and scattered across the city. In the current uncertain economic environment, developers require a substantial prelease before proceeding with a development.
“Financing is crucial, and most banks require a 45% to 50% prelease for an office development. Securing sufficient preleases for each phase is crucial to avoid financial strain,” comments Valter Kalaus, managing partner of Newmark VLK Hungary.
Prelease requirements are expected to remain high, maybe as much as 60% to 70%, according to Mátyás Gereben, country manager at CPI Hungary.
The Budapest office market has expanded by 750,000 sqm over the past five years, much of which is the work of a relatively small number of established Hungarian and regional developers. The top six landlords in the Budapest office market are CPI, OTP Real Estate Investment Fund, Erste Real Estate Fund, GTC, CA Immo, and Wing, according to Cushman & Wakefield.
“New developers could certainly enter the market, especially if they have the capital and innovative approaches to meet the current demands of the office sector, such as sustainability and ESG compliance,” argues Kalaus.
“It would definitely benefit the entire industry, as some well-known developers are leaving the market. The number of key players is falling; therefore, competition is not as fierce as it should be. However, given the established presence and expertise of CEE and Hungarian developers, they will likely remain the dominant players in the short- to medium-term. These experienced developers have a deep understanding of the market and strong networks, which gives them an edge,” he adds.
Total Budapest office stock stands at around 4.42 million sqm of space, according to the Budapest Research Forum (which comprises CBRE, Colliers, Cushman & Wakefield, Eston International, iO Partners and Robertson Hungary). Of this, 3.57 million sqm consists of speculative class “A” and “B” space.
According to a full office market review of 335 buildings undertaken by the BRF and based on such criteria as technical specifications, services, energy provision and location, 42% of offices are class “A” and 58% class “B.”
Vacancy is put at 14% and rising. The lowest rate is in the Central Buda submarket and stands at 7.8%; the highest is in the periphery at 27%. The greatest demand is in the Central Pest submarket at 27%, closely followed by the Váci Corridor, reflecting the continued popularity of these locations.
CBRE has traced 530,000 sqm of office space under construction. However, supply figures and the prelease ratio are distorted by the number of public sector organizations that have agreed preleases at the BudaPart and Durer Park developments by Property Market and Zuglo City Center by Bayer Property.
The consultancy estimates a current pipeline of 165,000 sqm for 2025, 270,000 sqm for 2026, and 92,000 sqm for 2027. In all cases, there is a significant prelease ratio of more than 60% for each year. However, the high prelease ratio is partly due to the afore-mentioned public sector take-up activity.
“The current economic and financial climate is not conducive to new starts on a speculative basis, so we expect these projects to commence after a reasonable level of pre-letting or owner-occupation,” says CBRE.
Overall vacancy is expected to rise to 15% by year-end, with further pressure on overall vacancy rates as public sector authorities vacate around 225,000 sqm of older stock, in the view of the consultancy.
Regarding demand, Budapest has demonstrated a strong recovery with leasing activity growing 8% year-on-year for 2024, exceeding 500,000 sqm, the fourth successive year of growth. Budapest continues to attract and retain occupiers despite broader global market shifts, says Cushman & Wakefield. The BRF has traced lease renewals as representing 45% of total demand in the first quarter of the year.
Cushman has traced 17 office projects due to be delivered by 2027, with only three going ahead on a speculative basis by established Budapest office market developers: Skanska, GTC, and Atenor. This year, we will see a sharp drop in speculative development, with only 42,000 sqm slated for delivery.
One of that trio of rare speculative Budapest office developments was started last year without pre-announced lettings (although at least one significant prelease would seem to have been agreed), and has seen Skanska undertake construction of the second 22,000 sqm phase of its H2Offices complex in the Váci Office Corridor. The project is scheduled to be completed in the first quarter of 2027.
Reflecting tenant preferences, older buildings have an overall vacancy rate of 10% while vacancy in newer office complexes has fallen to 6.4%. But that might offer a route to future development.
“By acquiring buildings at competitive prices and investing in cost-effective refurbishments, property owners can transform outdated stock into modern, best-in-class offices, capable of commanding premium rents. Successful projects like Academia and BEM Palace demonstrate the significant value repositioning can unlock in these coveted locations,” comments Cushman & Wakefield.
The 12,500 sqm Academia office center project the consultancy mentioned was undertaken by Europa Capital in partnership with ConvergenCE as asset manager. It saw the extensive renovation and redevelopment of a turn-of-the-century historic building in the Central Business District in line with BREEAM, WELL and other sustainability accreditations.
This article was first published in the Budapest Business Journal print issue of May 16, 2025.
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