In the long run, I am optimistic because new office developments, especially refurbishments, are needed in several parts of Europe. Lisbon is a perfect example, where Atenor is building two large office projects and cannot build quickly enough. I am convinced that moderate demand will return to the Budapest market as well. However, quantitative demand will be replaced by qualitative demand, with a particular emphasis on ESG criteria. This is the kind of demand we satisfied with our new preleased E.On headquarters building, BakerStreet 1. The development market is open to everyone; however, currently, it is not a profitable sector. Therefore, newcomers do not tend to enter from international markets. On the other hand, we are experiencing frequent market entries from the local construction industry side, often associated with less transparent, off-market transactions.
Norbert Schőmer
Country Manager
Atenor Hungary
Poland and Spain are popular investment destinations, while there are concerns about doing so in the United Kingdom and Germany. Hungary stands somewhere in between these positions as investors are maintaining a wait-and-see position towards the country. A fall in interest rates and open trading are priorities for investment everywhere.
Although volumes have risen in Poland and Romania in the first half year, they have fallen in Hungary. If one or two office deals are closed, this will help the market, although investment volumes will be limited to EUR 350 million-400 mln for the year. After a dry period for the Hungarian investment market, there should be more stability by the end of 2025.
Benjamin Perez-Ellischewitz
Principal
Avison Young Hungary
Retail development is dominated by smaller retail parks and strip malls, as stagnant retail sales do not justify large retail developments. There is market demand for retail parks of 15,000-20,000 sqm in the Budapest area, but outside the capital, these are 4,000-7,000 sqm, adjacent to or including a food market. Such projects that provide a fresh-air environment are popular with customers in the post-COVID period and popular with retailers due to their low service charges. Regarding existing shopping center stock in Budapest, the first-tier centers have very low vacancy rates of around 1-2%. There are existing tenants waiting to relocate within shopping centers such as Allee, Westend and Arena Plaza. However, new brand entrants such as the Polish W.Kruck [its oldest jewelry retailer] have successfully created a critical mass of stores in a short time by locating to what are considered second-tier centers.
In the current demand environment, a number of shopping center owners have improved their F&B and food court offerings. Further, Leed and Breeam In-Use sustainability accreditation is seen as necessary for owners to obtain finance. From the tenants’ perspective, the concern is for lower energy and service charges.
Retail saturation for Hungary per 1,000 inhabitants is below the EU average, and that of other Central European countries, and evidence shows that Hungarians have a preference for the physical shopping experience. With rising tourism visits, footfall is growing in the Váci utca and Andrássy út areas, with more mid- and high-end retailers locating on these major Budapest high streets.
Anita Csörgő
Director, head of retail
Colliers Hungary
In the longer term, ESG-compliant projects will likely become the standard for viability as regulatory pressures, investor expectations, and consumer preferences increasingly prioritize sustainability. Non-ESG-compliant projects may face higher risks, reduced funding opportunities, and declining market appeal, making ESG alignment essential for long-term success and competitiveness.
The influence of EU Taxonomy and ESG expectations extends beyond the office and logistics sectors, significantly impacting residential real estate, retail, hospitality, and healthcare. These industries will need to adopt sustainable practices, focusing on energy efficiency, waste reduction, and responsible resource use. In addition, social factors like labor rights, community engagement, and sustainable supply chains will become critical. Regulatory pressures and evolving investor expectations will drive these changes across various sectors, pushing them to align with ESG principles.
Zsombor Barta
Ambassador,
Hungarian Green Building Council
Industrial development seems to be on a steadily increasing path in Hungary. The 2024 FDI is forecast to reach a record level this year, which is fundamentally linked to industrial development, more precisely to the automotive industry.
Domestic logistics is potentially not growing as it is strongly related to local consumption (in a slight decline), but international logistics has evident growth this year. The tendency is not clearly visible yet, as the Budapest logistics property market is starting to become slightly overheated due to a possible oversupply of space. The industrial market, on the other hand, is on the rise due to Tier 1 and Tier 2 suppliers and 3PLs [third-party logistics] serving the performing industry sectors. This is more of a regional trend these days.
Our strategy targets all of the above, and we are growing our regional industrial development portfolio year-on-year. We have managed to win key built-to-suit projects, for example, in Kecskemét and Miskolc, and we are focused on not only providing speculative space for immediate requirements but even more so for more complex BTS requirements. Our portfolio has a fair balance of around 25,000-40,000 sqm of speculative space, and a similar amount of BTS schemes developed year-by-year.
Balázs Czifra
Director of sales and asset management
Innovinia
The Hungarian office market presents a mixture of challenges and opportunities with several critical influences shaping the landscape: rising vacancy rates and limited good space availability, ESG compliance pressure, increasing fit-out costs and service charges.
In the current environment, longer-term phased developments based on preleases can be viable, but their success largely depends on several key factors. With vacancy rates around 14% and many office leases signed pre-COVID now expiring, there is some uncertainty about future demand for large office spaces.
However, if developers can secure strong prelease commitments from corporate tenants early in the process, phased developments can provide flexibility. Large companies are increasingly looking for high-quality, ESG-compliant office spaces, which can generate demand for new projects. Developers who can guarantee modern, sustainable spaces are more likely to secure these preleases, mitigating the risks of longer-term projects.
Valter Kalaus
Managing principal
Newmark VLK Hungary
At Prologis, we focus on the balance between supply and demand, one of the most critical factors in the economy, and develop accordingly. It is important for the market’s long-term health that all participants monitor the market-affecting factors and react appropriately. The cyclical nature of the market requires speculative development to take a back seat every few years until the market absorbs the available capacities. We are currently focusing on BTS requirements.
The momentum in the industrial logistics segment started to slow down significantly more than a year and a half ago since the absorption capacity of the market was below average. This is partly due to the fact that most companies had already halted their operations in the first half of 2023 because of the general slowdown in consumption, with many postponing previously scheduled expansion plans. Furthermore, the lack of demand has been compounded by the already evident speculative oversupply. Logistics demand is currently much lower in and around the Budapest area, with industrial demand coming largely from Asian inquiries related to the electric vehicle industry.
Zsuzsanna Hunyadi
Director of leasing and customer experience
Prologis Hungary
All phases of the development process are thoroughly impacted by EU Taxonomy and ESG expectations. Already, and especially in the concept generation process, one needs to consider all that we know about ESG and its course of development. This very process itself can also be ESG-conscious, when using BIM planning tools and extensive financial modeling solutions.
In the process, the function (residential, public, commercial), size (in harmony with its environment), layout (much open, collaborative space, natural light, amenities), location (public transport access, green- or brownfield), engineering content (EPC conscious heating and cooling, photovoltaic electricity generation, use of rainwater, intelligent building monitoring and controls), building materials (carbon-conscious and recycled materials, plus the potential for later recycling), and building process (ESG certification of suppliers and contractors, energy and time-saving methods and transport options) all factor into the future ESG credentials of the new building.
This is completely future-oriented work. Project development has always targeted customers (tenants and investors) five or six years into the future from the start of the concept development process.
Péter Kocsis
Deputy CEO (strategy, risk management information systems data) and CFO
Wing
(sorted by company alphabetical order)
Norbert Schőmer, country manager, Atenor Hungary
Benjamin Perez-Ellischewitz, principal, Avison Young Hungary
Anita Csörgő, director, head of retail, Colliers Hungary
Zsombor Barta, ambassador, Hungarian Green Building Council
Balázs Czifra, director of sales and asset management, Innovinia
Valter Kalaus, managing principal, Newmark VLK Hungary
Zsuzsanna Hunyadi, director of leasing and customer experience, Prologis Hungary
Péter Kocsis, deputy CEO (strategy, risk management information systems data) and CFO, Wing
This article was first published in the Budapest Business Journal print issue of October 18, 2024.
Producing journalism that is worthy of the name is a costly business. For over 30 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.
