Strong Office Demand Expected to Continue After the Crisis
Office (along with logistics) is the commercial real estate sector in the most favorable position concerning the coronavirus crisis and its wider impact and aftermath, in the view of most analysts the Budapest Business Journal has spoken to.
Balance Hall, at Váci út 99, is billed by its developer CPI as a “conscious building”.
With strong demand fundamentals, Hungarian and regional developers such as Atenor, HB Reavis, CPI, GTC, Skanska, Horizon Development, Futureal and Wing have in recent years been able to move forward with office projects with the confidence that debt finance can be sourced if required, tenants can be found and preleases concluded.
Budapest office supply has continued to boom with vacancy falling to some of the lowest levels on record. At the same time, supply has been relatively constrained in comparison with past cycles and preleases now constitute a significant part of the market; companies looking for quality, well-located contiguous office space have to plan ahead.
Market and societal pressures have exerted an influence on developers and building-owners to meet the demands of tenants and their staff to embrace sustainable development policies. Architects and interior designers are being employed to deliver ever more imaginative projects to meet more sophisticated demands from building users.
With regard to the impact of the COVID-19 virus, Cushman & Wakefield says ongoing projects are proceeding with no delays reported, although permitting processes have slowed.
“Office is seen as the second least affected market sector, if the traditional long-term leases are taken into consideration. Clients seem to be advancing new lease plans, the only limiting factor is the lack of office viewings,” says Adorján Salamon, CEO of Eston International, an international associate of Savills.
“However, co-working/serviced offices could be put to the test with the current use of home offices. If companies and workers explore this approach [further],then it could change not only co-working but the traditional office approach,” Salamon says.
Total modern office stock in Budapest now stands at around 3.7 million sqm, 3.1 million of which is leasable class “A” and “B” complexes, according to the Budapest Research Forum (consisting of CBRE, Cushman & Wakefield, JLL, Colliers International, Eston International and Robertson Hungary).
The overall vacancy rate in Budapest stands at 6.2% as of the first quarter of the year. Total leasing demand for 2019 amounted to 637,00 sqm, which is the highest annual volume on record. In a Central European comparison, total modern office space in Prague stands at 3.67 million sqm, with a 5.4% vacancy rate, according to the Prague Research Forum.
The market has a potential pipeline of more than 570,000 sqm. Development of large-scale, phased speculative project by developers such as Atenor, HB Reavis and CPI reflects both the positive indicators in the Budapest office market and long-term market confidence in the ability to let and sell a project onto investors.
Cushman & Wakefield have traced an improved pipeline of 180,000 sqm for 2020, 60% of which is pre-let. The first 27,00 sqm phase of the Budapest ONE Business Park by Futureal and the 18,000 sqm first office phase of BudaPart by Property Market were completed in Q1.
JLL has traced 14 office projects that are due to deliver this year, the largest of which is the 34,500 sqm Agora Hub and the 34,000 sqm Agora Tower, both part of the phased 36,000 sqm Agora Budapest project.
Belgium’s Atenor has been developing the phased 130,000 sqm Váci Greens office in Váci út with Buildings “F” and “E” completing the project. In parallel with this, the developer has also undertaken development of the speculative, phased 85,000 sqm Aréna Business Campus in the outer boulevard of Budapest.
“Our ongoing developments, Váci Greens ‘F’ and ‘E’ as well as Aréna Business Campus ‘A’, are progressing as per their original plans. We do not have any delay as of today,” comments Nikolett Püschl, leasing and development director at Atenor Hungary.
The new supply scheduled for 2021 amounts to 211,000 sqm, all of which is currently under construction, while the new supply expectations for 2022 are about 280,000 sqm, although the vast majority of the latter volume is still in the planning phase and is therefore at risk of kick-off delays, in addition to the actual timeline dragging out, according to Anikó Kovács, head of office agency at CBRE.
Wing has manufactured a role for itself as a build-to-suit developer for high tech companies. The company is due to complete the 22,000 sqm, Univerzum Office Building, a BTS project that will form the Evosoft headquarters at the Nobel Prize Winners Research & Development Park. Simultaneously, the company is developing the speculative, 42,000 sqm Liberty Office Building, adjacent to the BTS Magyar Telekom HQ it was also responsible for.
In what is described by GTC as the largest deal for an office building that is under construction ExxonMobil have signed a 27,000 sqm prelease for the whole of the Pillar office center, located close to the Váci út Corridor in District XIII, due for delivery in the first quarter of 2022.
Another significant prelease was of 11,000 sqm at Green Court, again in the Váci Corridor, due to be delivered by Codic in early 2022. A software development company has signed a 7,500 sqm prelease at Atenor’s 23,500 sqm Váci Greens Building “E”.
These preleases reflect the growing confidence of tenants in the market as previously companies needed to see a building close to completion before concluding a letting.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.