Positive Fundamentals Expected to Continue
All property market sectors are recording positive demand fundamentals, with in excess of one million sqm of commercial real estate currently under construction and due to be delivered in the next 18-24 months, commented Lóránt Varga, managing director of CBRE Hungary, at the 2019 Re-View by CBRE at the Urban Betyár restaurant.
Lóránt Varga presents CBRE Re-view 2019.
The annual event was attended by real estate professionals and clients of the consultancy. CBRE presented overviews of the office, retail and industrial markets from a development and investment perspective, alongside predictions for 2019, based on data compiled by CBRE.
Looking at the economic background to market activity, 3.7% in GDP growth is predicted for Hungary by the OECD for 2019, and Hungary has tended to record an upside of around 1% on economic predictions, according to Gábor Borbély, director of business development and research at CBRE Hungary. Hungary’s labor shortages remain a problem for economic activity.
Around EUR 1.7 billion in commercial real estate transactions were concluded in 2018, and an estimated EUR 1.5 bln in investment volume is predicted for this year. The represents “stable and continuous investment for the third year”, said Tim O’Sullivan, head of investment properties at CBRE Hungary.
The number of transactions in the office market is expected to rise; however, this will mainly be for smaller lot sizes worth around EUR 50 million. With regard to retail, most of the top ten Budapest shopping centers have been traded and there will be low liquidity in this sector.
CBRE expects both the office and industrial markets to perform similarly to last year, with the notable changes coming from the retail and hotel sectors.
“Over the last few years at least one or two of the major, prime shopping centers have traded, but we do not expect this trend to continue into 2019,” commented Ben Barclay, senior investment consultant at CBRE.
“This reduction in retail volumes, will be offset by the increasing volumes of hotel transactions, as we continue to see more international, core capital targeting the hotel sector,” Barclay added.
Investors are, therefore, considering alternatives to the established market sectors, such as hotel, where two transactions are ongoing and there are a further four or five hotels that could be on the market.
The German Model
Another possible investment target is residential with the acquisition of large complexes on the Germany model. There are already some signs of this in Poland and such investments are seen as being 12-18 months behind in Hungary.
O’Sullivan described Hungary as following Czech Republic in the development cycle: a low supply of investment assets is restricting investment activity and much of the investment grade stock has already traded within the current cycle.
CBRE has calculated that Hungarian funds represented 65% of the purchases last year, followed by South African investors.
“Foreign investors such as South African investors and the returning Austrian investors are competing with the Hungarian funds for assets,” O’Sullivan said.
Office yields are estimated at 5.75%, although these are viewed as being under pressure, and a least ten assets could test this figure if they became available. The 5.75% yield for industrial properties could also be tested, with the pressure to buy on investors. Yields for prime retail assets are put at 5.5%, although, as mentioned above, the leading shopping centers are not expected to trade.
When it comes to the Budapest office market, supply reached 230,000 sqm compared to demand of 536,000 sqm for 2018; 40% of take-up was in the Váci Corridor with the inner part of the sub-market particularly busy.
Budapest has an office pipeline of circa 500,000 sqm. “As a result of the strong demand in the market, the average vacancy rate in Budapest has fallen to 7.3%. Tenants need to make a quick decision in order to secure quality space,” said Judit Varga, head of office advisory at CBRE Hungary.
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