Following the dramatic mood of 2009, when the players of the Hungarian office market experienced the most difficult times, the overall mood improved last year, with take-up increasing and vacancy slowly starting to decrease by the end of 2010, as new completions decreased significantly, the latest office market report of Colliers International reveals.
Total modern office stock increased by more than 145,000 sqm in 2010 as a result of new deliveries, of which 77% took place in the first half of the year, Miklós Saly, director of office agency at Colliers International Hungary said. There was only 6,300 sqm of new space delivered in the last quarter. Lease transactions last year totaled at 282,000 sqm, of which 39.6% (around 111,000 sqm) was signed in the fourth quarter, exceeding the average 55,000 sqm volume of the previous three quarters.
“Renegotiations played a large role on the market in 2010, accounting for around half of all take-up during the year,” Saly said. “Experience shows that around 90% of large companies leasing space of more than 5,000 sqm eventually decide to renegotiate in their current buildings. Last year transactions excluding renegotiations totaled 165,000 sqm. This indicates that the market, for the first time since the beginning of the economic crisis, was able to absorb office space equal to – or even more than – the size of newly delivered office buildings. As a result, the vacancy rate stood at 25.7% at the end of the year, slightly less than the previous 26.1% at the end of 2009 and then the high of 26.8% registered at the end of Q3.”
Absorption on the market increased due to shared service centers (SSCs) and some office space expansions. Willingness to move remains the characteristics of smaller firms only, while the government was not active on the market in 2010. There was some success in terms of leasing in 2010, as two prime buildings, Capital Square and Eiffel Square leased more than 70% of their space. This underscores that projects in good locations can be leased; although rents continue to trade at 20%-30% discount to pre-crisis rents. The number one location remains the Váci corridor, but the Southern Buda region performed well too. There were also successful lease transactions in the Inner-Buda region, e.g. in MOMentum offices, which has reached 25% occupancy rate within approx. 6 months time (with tenants like DLA Piper, REM Ingatlan Zrt., and a medical company signed at the end of 2010).
Colliers International forecasts that take-up will remain strong in 2011, with a significant number of renegotiations, parallel with the decline in the amount of available quality space on the market. The number of completions is expected to decline significantly this year, to only around 50,000 sqm (of which only 26,000 sqm will be actually vacant, as pre-leases have been signed for the remainder). Further new developments are unlikely to begin until 2012, at the earliest. Meanwhile, we expect absorption to rise leading to a decline in vacancy rates.
“We believe that rents have reached the bottom level of €11-€13 prime rent, and will not decline further this year. Office developers remain in a tough position due to the lack of financing, with only few deliveries and new projects planned for the next few years. Large, tested, equity-rich investors, such as Belgium’s Atenor or Sweden’s Skanska, are able to launch new developments even under these circumstances, and could thus be in a good position when the amount of quality supply dries up in 2012–2013,” said Saly.
For larger companies where existing contracts expire in 2012–2013, the only solution to ensure moving to a new quality location (if they decide to move) is to sign a pre-lease agreement before the end of 2011. This would be a win-win situation, as the company would have a say in how the project is developed, while the developer would be able to launch the project with the signed pre-lease, and lease the remaining space in the building at a higher price in 2013, for example. This would also help promote new developments being launched.
Overall, Colliers International expects 2011 to be a positive year showing further improvement compared to 2010. (BBJ)