For years, prospective tenants have been faced with the fact that regional cities lack adequate office facilities, and therefore have not been interested in any locations apart from Budapest. In turn, due to the lack of demand, developers are not interested in launching any office projects in these towns, closing the circle.
Any company that is planning to settle in Hungary outside of Budapest must be very committed to the site and must therefore also be patient. “A company looking for an office usually wants to be able to move in a matter of months. Since there are no standing capacities, they can’t do so in the case of regional sites,” said Adrienne Konthur, managing director of consultant CB Richard Ellis.
The situation is also reflected in the pricing. Given the dominance of Budapest on the Hungarian property market, one would assume that regional cities have less prestige and consequently prices there are lower. This is not the case.
“Since there are no offices waiting to be let, a company moving to a non-Budapest site has to opt for a built-to-suit office complex that has yet to be constructed. This actually makes regional cities more expensive in many cases,” Konthur said. The arrangement once more brings up the time constraints, since the company has to calculate with a waiting period of two to three years while the office is being built.
Regional cities also suffer a disadvantage when it comes to qualified workforce, which is much more available in the capital. “It’s probably not too easy to find, for instance, a Dutch-Norwegian interpreter in Békéscsaba,” added CBRE’s CEE research analyst, Gábor Borbély.
University towns, however, are in a more advantageous situation. The presence of a highly-skilled workforce that is essential for the knowledge-based sectors, and rents that are still cheaper than in the capital, provide a competitive edge to such cities.
A less pessimistic market?
According to data from economic research institute GKI, while the perception of the office market in the capital has further deteriorated, it has shown signs of improvement in the secondary cities, mainly in western Hungary.
Take-up – mostly in the B category – has slightly dropped to 63% in March from 67% in January in eastern Hungary, but went up to 73% from 71% in the same period in the western areas.
Projections for the next 12 months include stagnation in the eastern part of the country and increasing oversupply in the western regions. It might not sound all that good, but GKI said that respondents gave significantly less pessimistic answers now than they did three months ago. GKI analysts warn, however, that even with the improving sentiment of developers and tenants, the office market will continue to see hard times ahead.
This article appeared in the BBJ's Office Market Special Report on April 22, 2011.