Analysis: More property investors consider Hungary

Sustainability

The following story, by David Lawrence, is from the July 18 print edition of the Budapest Business Journal.

When the experts took a look at their crystal ball, they found reasons to be cautiously upbeat about developments in Hungary, and the region.

Summer is the time when commercial property consultants release their half-year market figures with a view to predicting investment and development trends for the year. 

In positive news, newly released research indicates that investor appetite for Hungary has increased significantly in the first half year as €230 million of investment transactions in the retail, office, logistics and hotel sectors was concluded according to JLL. This represents a significant year-on-year increase compared to the same period of 2013. The largest investment deals were agreed with foreign investors; however the local investment market has also been active with a number of smaller deals in the retail and industrial sectors. Sentiment is improving with regard to investment in Hungary according to Tim O’Sullivan, from the Capital Markets Group at CBRE. “Investors are re-entering Hungary after 2-3 years in addition to new equity that is looking at the country,” he said. 

The less positive news is that, although various private equity funds, Middle East funds and CEE regional investors are actively investing in Hungary, the major Austrian and German funds are still pursuing a “wait and see” strategy, preferring the thriving Polish and Czech markets. A liquid investment market is a central element for a working development market, as developers, lenders and investors require a possible exit strategy when making a decision as to whether to enter a particular country.            

Investment, development and tenant demand in Hungary has been subdued in the aftermath of the 2008 economic downturn and subsequent eurozone crisis as the country has suffered from “negative sentiment”. Uncertainty from both an economic and political perspective has been deterring the more conservative institutional investors from making acquisitions, despite the fact that Hungary was the first CEE country where an established investment market was created in the ’90s. However it is now Poland, the Czech Republic and increasingly Romania that are attracting most interest from investors. 

SIGNS OF RECOVERY 

Distinct signs of a recovery in the investment market are evident, as the Dutch ING Real Estate has completed the sale of its remaining 50% stake in the 47,000 sqm Allee shopping center in Budapest to an ING insurance fund for a reported €95 mln. The German investor, Allianz Real Estate has already bought a 50% share in the leading Budapest retail center for €100 mln. The mall in the central Buda area opened fully leased in 2009 and there is an additional 7,000 sqm of offices. Prime Budapest shopping center yields are put at 7.25-7.50% compared to 5.75% in Poland according to JLL. 

In an office sector deal the IVG Group has sold the 5,300 sqm Stefánia Park to a private German investor after a successful tender. “Hungary offers good quality product at a yield premium on other CEE markets,” commented Colliers International, who acted for the buyers in the deal. Prime Budapest office yields are put at 7.50% compared to 6% and falling in Prague.   

In a hotel transaction the Dubai-based Al Habtoor Group has purchased the InterContinental Hotel in Budapest for an undisclosed fee. The group, which is active in hospitality development, bought the Le Meridien Hotel in 2012.  

Total investment transactions for CEE reached €2.87 billion for the first half of 2014 according to preliminary figures released by JLL. This represents a circa 65% year-on-year increase in volume compared to the same period of 2013 when investment volume was €1.7 bln. Unsurprisingly, Poland remains the leading CEE investment market with a circa 50% share of investment (or €1.433 bln), followed by Czech Republic with 25% (or €719 mln), Romania with 15% (or €431 mln), Hungary with 8% (€230 mln) and Slovakia 2% (€34 mln). 

Cushman & Wakefield (C&W) has recorded around €2.480 bln in transactions for CEE for the first half year, representing a 12% increase in volume compared to 2013 for the first half year according to its research. The figure for Hungary is €283 mln.   

GOOD NEWS FROM THE GREEN HOUSE

A further sign of improving investor sentiment is that Skanska’s Green House (pictured above), completed in 2012 and almost fully let, is under due diligence and a sale to a Hungary-based fund is expected to be completed this summer. The 17,800 sqm office building with LEED Platinum certification is located in the ever popular Váci út Corridor business district. Skanska is also set to commence construction of the first phase of the 26,000 sqm Nordic Light in Váci út. In Warsaw Skanska has sold the Atrium One office center to the German investor, Deka for €94 mln. 

Opportunistic property investors were already active last year and a more active institutional sector with more bids from cross-border investors is expected. However when the major Austrian and German investors return to Hungary remains to be seen. “Interest from institutional investors is slowly picking up for Hungarian assets but we do not foresee their cautious enquires translating into successful transactions in 2014. It is more likely they will be in the second wave of investors following the closing of a number of large deals in the market. Currently, it is mainly opportunistic investors, exotic and new wealth, private wealth and a number of local investors targeting Hungarian assets. We believe that this will not change in the near term, however, according to our forecast the 2014 investment volume might exceed the 2013 volumes by 30-40%, reflecting appetite for Hungarian property,” commented Marcell Szotyori, Assistant Director for Capital markets at JLL Hungary.

Total investment for Hungary for the year is expected to exceed €500 mln. Michael Edwards, Partner at C&W sees the closing of the Skanska deal as significant for Hungary. “The institutionals are holding back, however a significant move by one will open the door,” he concluded. 

 

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