Market Talk: Likely Need for More Flexible Space Post-COVID
With positive supply and demand fundamentals in the Budapest office market prior to the COVID-19 crisis, the Budapest Business Journal asks developers and complex owners how they see the pandemic and its aftermath impacting the development, demand for and design of office projects.
Fortunately, the current pandemic situation did not result in any delay in our office projects, neither building-wise nor leased premises wise.
By the time of the start of the lockdown, we had already achieved a very advance status in all of three ongoing constructions. All materials were already in place and, furthermore, our development strategy of not using a general contractor but working with subcontractors who are fully managed by our in-house project managers proved to be the most secure and professional choice.
Due to the recent extraordinary situation, obviously the whole economy is impacted in some way. The office market is a segment that may show only a temporary change. In the last four-to-five weeks we have experienced that most occupiers are more careful, which is paired with a slight slowing down, although we do not expect less demand and any necessity for a change in pricing.
With regard to construction, we have introduced the strictest health and hygiene procedures, according to requests. Up to now, I can report that contractors are performing their contracted commitments up to almost nearly 95%, which is very good news.
Leasing and development director
We see that work in our portfolio has progressed properly so far, nevertheless, we are cautious with regard to deadlines, due to unexpected negative influences.
So far, we have had little chance to see the impact of the COVID-19 virus clearly, but we think it could be varied: the temporary slowdown of business activity, rationalization of business operations, decrease of activity on a permanent basis, restructuring or, in the worst case, the shutdown of businesses with no return could occur.
With regard to continuing to attract investors, just like after the last economic crisis, this will depend on how Hungary will be able to stand the ground, what central measures will be taken to keep enterprises alive and assist them to start prospering again, and how our whole economy reacts and comes out of this situation.
We have a small and vulnerable economy, but with forecasts saying that we will be among the least affected, a peaceful recovery would result in good sentiment towards us.
I do not think that the rental level will decrease; this is still a reasonable and necessary income for owners for a proper business case.
Depending on the actual consequences of the virus and the real demand experienced during the coming period, I assume that developments may slow down, may be postponed and rental areas rationalized, but the price level will not fall.
CA Ammo Hungary
Those developments which are under construction are likely to be completed. There might be some delays, due to more cautious site management, but the products will be there.
Office developments under planning may suffer some delays until the market responds to post-COVID demands, but we expect no serious fallback in the volume of office development.
It is hard to say what the impact of the virus will be, but humans are a social species and it has become clear in the past weeks that, besides productivity, people have a desperate need to communicate and interact face-to-face, which tells me that demand will be there.
For sure, occupiers’ needs will somewhat slow and companies will be more cautious with new leases and expansions, but I suspect no major change in demand.
We are already experiencing some tenant interest related to fit-out corresponding to social distancing (especially in the social areas of an office space), so this pandemic will influence design and fit-out.
Naturally, PM and FM have to adapt and we have to ensure that building systems (especially air handling) and operational processes correspond to a higher level of health and safety requirements.
Dr. Melinda Szilágyi
Fortunately, we secured the critical assets in time, so currently we do not suffer any delays. In the short-term, smaller lease negotiations are being placed on hold; however, these are not necessarily cancelled as the fundamental demand remains.
Accordingly, the commercial real estate market is in a waiting position to find some forecastable trend. This may have a weakening effect on leasing deals over the medium-term.
The methods of prevention and protection are known and understood in the real estate market. Since it is a common interest for both occupiers and landlords, a practical and safe approach for collaboration will be the first topic of the kick-off meeting of any current and new project.
The same applies for guidelines and future approaches regarding existing tenancies once the “back to the office” period resumes.
We believe that this experience has helped both employers and employees to understand the nature and the advantages and limits of home-office. We do not expect the downsizing of office leases in the near future; however, fit-out and space planning (allocation and utilization of areas within offices) are perceived as likely to change and adapt.
Moreover, as a result of the current situation, the IT systems of companies will enjoy a more dynamic and robust development.
Dr. Melinda Szilágyi
Diófa Asset Management
After only seven weeks of our everyday lives being directly affected by the COVID-19 pandemic, it would be too soon to draw any major conclusions. Long-term economic impacts are difficult to predict from where we stand today. We maintain our prudent planning to be able to minimize the risk of our projects being delayed.
When it comes to the construction of our ongoing Szervita Square Building project, we are still on track. We have the manpower available to continue everything as planned. As per the delivery of building materials, we have started to experience minor delays, but we still hope we can accomplish our projected Q4 2020 handover.
We have not experienced any decline in the demand for top quality office or retail space, neither in our own developments nor in the ones entrusted to our leasing and property management divisions by prestigious international funds. New inquiries reached us in March and April, and we are positive that the upcoming months will bring more deals.
The most imminent changes will be seen in our property and facility management practices. Horizon Development’s PM division manages premium multi-tenant office buildings including Eiffel Palace, Promenade Gardens, Váci 1 and Park Atrium. We acted quickly and took all necessary health and safety measures to responsibly react to the current situation.
Architecture, design and the fit-out of commercial interiors will most likely also be touched by the idea of social distancing and increased personal health concerns, which might ultimately result in a more generous use of space when planning layouts and seating concepts.
We are taking the current situation seriously and are aware that recent events will impact the whole economy, including our own business.
At this time, it is too early to estimate the impact on our industry, but we believe that [the experience with] home working will lead more companies to ask for more flexibility in their office setup.
We had already recognized this trend before the very recent coronavirus crisis; that is why this is a key feature of our myhive office concept. Offices and shops remain places of work and exchange and that will be so even after the COVID pandemic; however, it is too early to estimate the potential impacts of COVID in these sectors.
Tenants will most probably allow home office work more frequently and that is why more flexible office space will be in demand.
With regard to recent events, we are constantly monitoring the needs of tenants in our properties and are taking necessary steps like increasing the disinfection frequency or the distribution of hand sanitizer dispensers, etc.
We think companies will ask for more flexible solutions, as offered by myhive, and we are well prepared for these market needs.
Country manager operations
If we look at the big picture on the market, short delays can be expected in on-going projects; in the case of delivery from abroad and due to the stay-at-home restrictions, the workforce management might have to be adjusted, as many foreign workers have decided to return home.
Additionally, other regulations limiting everyday operations have caused a slow-down in administrative processes, which may also affect, first and foremost, new projects.
In my opinion the crisis could only slightly affect demand in the short-term. According to our experience, the agreements in progress are still ongoing, since the decisions can be delayed for a few weeks, or even a few months. We can expect a short-term decrease in new deals, but the number of large tenant interest is still significant.
This period has proved that home office can be implemented in lot of areas and there is no need for a constant office presence for employees. Another thing which has been highlighted is that people are in general social creatures.
Therefore, I think working completely from home is highly unlikely, as it negatively affects efficiency. People need change in their environment for inspiration and for motivation; they need human contact and team work is more effective in person at the office.
Sales and asset management director
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