Uncertainty in the Investment Markets
BudaPart Gate, developed by Property Market, bought by S Immo.
While international, regional, and domestic investors continue to show interest in the Hungarian and Central European investment markets, the current low level of activity reflects the geopolitical uncertainty in the region; a calm summer in the investment markets is expected.
Benjamin Perez Ellischewitz, principal at Avison Young Hungary, expects a total investment volume of around EUR 1.3 billion for the year against a background of uncertainty caused by the war in Ukraine, potentially high interest rates and price inflation on building costs. He anticipates a quiet summer as investors press the pause button and reconsider their strategy for later in the year.
“Large assets of EUR 100 million-plus are not currently liquid in Hungary, and all the Central European markets are moving slowly,” he said. He argues that the investment volume for 2021 ended significantly higher than initially expected at EUR 1.4 bln.
Avison Young has successfully mediated the disposal of two architecturally significant assets in Budapest’s Central Business District. Báthory Street 12 and the Herzog Villa at Andrássy út 93 are two fully leased single-tenanted office buildings in prime locations in the CBD. They have been locally managed by Teichmann & Companions since their acquisition in 2015. Investors are increasingly looking at value-add possibilities in earlier generation office stock and older historic buildings that require renovation.
Gábor Borbély, head of business development and research at CBRE Hungary, has traced EUR 580 million in investment volume for the first half year and, taking into consideration the investment pipeline, expects EUR 1.2 bln for the whole year. Much depends on whether the geopolitical situation improves, he says. Investors operating in Hungary remain cautious, according to Cushman & Wakefield.
“Investment volumes in 2021 reached EUR 1.13 bln. Whilst 2020 and 2021 […] were down on recent years, they exceeded the EUR 1 bln mark, demonstrating underlying resilience to a challenging environment,” the consultancy comments.
“International capital continues to be active in Hungary, and domestic sources of capital continue to hunt increasingly larger opportunities. Indeed, more than 40% of the capital invested in commercial real estate in 2021 originated in Hungary,” it adds.
The office sector continues to be the most sought-after in Hungary, constituting 73% of total investment activity for the second half of 2021, according to Cushman & Wakefield. Union Investment’s purchase of the Szervita Square Building and S Immo AG’s acquisition of BudaPart Gate indicate a strong performance for products at the top end of the market. However, industrial and retail recorded weak figures with 3% and 4% of market activity respectively, reflecting the lack of assets available in these sectors.
The purchase of the 18,000 sqm BudaPart Gate from Property Market by S Immo, with its head office in Vienna, was also an example of foreign capital acquiring prime Hungarian office stock. Domestic investors have continued to dominate market activity, despite increasing competition from international investors. Of the investment activity traced for 2021, domestic investors were responsible for 30%, while cross-border investment activity undertook 70%.
The conventional wisdom is that, despite issues relating to the war in Ukraine and other economic factors impacting the commercial property market, a large amount of capital is still looking to be invested. Hungary and Central Europe remain attractive investment destinations that offer a yield spread and a range of assets appropriate for specific investor preferences.
This article was first published in the Budapest Business Journal print issue of July 29, 2022.
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