Office buildings dominated commercial real estate market despite COVID

Office Market

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The pandemic has transformed the domestic real estate sector with strong investor interest in the logistics segment, while retail and hospitality properties took a back seat last year. Despite the effects of the COVID-19 pandemic, office buildings have proven to be the most popular investment asset according to the DLA Piper Hungary's Real Estate Intelligence Report 2022.

According to DLA Piper Hungary's annual real estate market analysis, office buildings continued to be in high demand despite the increase in the popularity of remote and hybrid work arrangements. Office properties accounted for around 57% of the law firm’s transactions, which represents a mere 3% decline compared to the previous year’s figure.

Logistics properties became the second most attractive asset class in 2021 with a share of 14%, despite the fact that the majority of logistics parks are owned by just a handful of players. Furthermore, interest in retail and hospitality properties has almost completely disappeared due to the pandemic.

“In 2021, the Hungarian commercial real estate market was characterized by two main themes: a substantial undersupply of assets and a high number of off-market deals. This resulted in fierce competition for open market assets, causing further yield compression, especially in the case of logistics assets,” notes Szilárd Kui, local partner and head of real estate at DLA Piper Hungary.

Domestic investors accounted for 73% of all purchases (which is 12 percentage points higher than in 2020), which may be explained by COVID-19-related concerns and travel restrictions among other factors. At the same time, the company says that interest from Far Eastern and Middle Eastern clients did not abate. On the other hand, a limiting factor in the case of such clients was that large ticket size assets are few and far between on the Hungarian commercial real estate market.

ESG considerations at the forefront

In recent years, sustainability has made its presence felt in the real estate market as well, with environmental, social, and corporate governance considerations playing an increasingly important role in the decisions of investors and tenants year after year. Developers are practically forced to obtain green certifications for new Class "A" office buildings, such as LEED and BREEAM, two internationally recognized certifications.

“Sustainability has become a pivotal aspect of business operations. The objectives are clear for everyone (achieving lower CO2-emissions, improving energy efficiency, and providing an appropriate work environment for tenants), and so the question isn’t whether a newly developed property should possess a green certification, but rather how sustainable operation can be guaranteed throughout the entire lifecycle of the property," underlines Kui.


 

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