Regional Investors Still Exercising Some Caution

Office Market

BudaPart Gate

Although investment volumes have been rising towards their pre-pandemic levels, investors continue to be wary in the uncertain economic and geopolitical environment.

Hungary and the Central European region continue to be seen as attractive investment destinations as CEE offers quality assets, in addition to a strong pipeline of asset-grade products. Investors are also increasingly concluding deals in the hotel and residential sectors.

Poland has maintained its dominant position among CEE countries, generating 58% of total investment transactions in the first half of 2022, JLL said. According to the consultancy, investment volumes for Poland amounted to EUR 6.4 billion for 2021. It put the investment total for the Czech Republic, Hungary, Poland, Romania and Slovakia last year at EUR 11 bln.  

As in recent years, the office sector dominated with 70% of investment activity in Hungary, according to JLL, followed by logistics with 11%. The consultancy has recorded six significant deals in the Budapest market thus far in 2022. The biggest was the purchase by GTC of the Ericsson and Evosoft headquarters from Wing for a reported EUR 160-170 million. Union Investment purchased the Szervita Square Building from Horizon Development for a reported EUR 70 mln-80 mln, and Property Market is said to have sold BudaPart Gate to S-Immo for a similar amount.

Colliers put the investment volume undertaken by domestic investors at 40% of the CEE total for the first half of 2022, with 20% and 11% conducted by Czech and Hungarian investors, respectively.

ESG Rising

As evidenced by recent CEE commercial office transactions, ESG investing (the integration of environmental, social and governance factors into the acquisition and exit process) is increasingly a concept and code of practice that has been adopted by investors as a central part of their strategy in both the top end and value-add sectors of the office market.

“ESG is increasingly higher up the list for investors and developers. This is partially driven by changing attitudes on responsibility towards the impact of real estate on the environment, but also by increasing requirements on the financing and reporting side of things that will ultimately impact the feasibility of business models going forward,” comments Kevin Turpin, Regional Director of Capital Markets in Central and Eastern Europe for Colliers.

“But we also see sustainability and green ratings moving from a ‘nice to have’ to a ‘must have’ for various players active on the market, in particular from tenants and banks. This means that investors and developers will need to react and adapt if they want their buildings to continue to be competitive and attractive in the future,” he adds.

Analysts expect a restrained investment of around EUR 1.1 bln-1.2 bln for Hungary this year, given the current uncertain economic and geopolitical climate. Colliers estimates that Central European year-end volumes will reach between EUR 9 and EUR 10 bln for 2022. 

By way of comparison, Hungary generated around EUR 1.3 billion in commercial property investment volume for 2021, significantly below the pre-pandemic levels of EUR 1.7 bln-1.8 bln, according to JLL.

“The underperformance of the market was mainly due to the significant undersupply of available products for sale (especially in an open-market tender),” the consultancy said.

The total combined investment volume for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia for 2021 was EUR 11.7 bln, according to Colliers. Poland dominated CEE market investment market activity, attracting EUR 9.4 bln, 58% of the volume. This was followed by the Czech Republic with 17%, Romania at 9%, and Hungary and Slovakia both at 8%, according to Cushman & Wakefield.

This article was first published in the Budapest Business Journal print issue of September 9, 2022.

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