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Rents drop 10%-30% on the office market

Last year commemorates a difficult period on the Hungarian office market, which was felt by developers, owners and real estate agencies alike, property consultant Colliers International said in a press release.

Lease rates dropped by 10%-30% in 2009, while the amount of office stock, along with the vacancy rate, increased. Takeup on the market decreased, in fact going into negative numbers in the last quarter of the year. „In light of this we can continue to expect meager market activity, although we expect slight growth in the second half of 2010,” said Miklós Saly, director of the office leasing team at Colliers International Hungary about the state of the office leasing market, based on the agency’s latest market report.

The decrease in lease rates defined in large part the course of past year. The financial background, the possible purchase of office buildings before completion and investment strategy influenced the extent of the decrease. Developers’ and investors’ reactions also reflected this. Location remained the most important factor in survival.

There have never been such favorable conditions for tenants as now, yet in spite of this not many chose to capitalize on the opportunity. The reason for this is that companies are reluctant to undergo the complications involved in moving to a new office location, but rather choose the obvious and comfortable solution of renegotiating their current leases. This is logical in a business environment where 90% of landlords are flexible in their conditions. It is Colliers International’s experience that smaller, 200-square-meter to 1,500-square-meter tenants prefer to move, points out Saly.

The real estate advisor traces back the adverse situation the “A” class office market is in to the following: on the one hand market oversupply and the economic crises caused the fall in market activity; on the other hand tenant movement grew in the “A” class to “A” class category, which understandably caused the takeup rate to decrease.

Some of the agency’s most important deals of 2009 were the lease extension for Deloitte (Park Atrium Office Building, 5,000 sqm), Cognizant International servicing center lease (Arena Corner, 1,300 sqm) and Astron Informatika’s move (South Buda Business Park, 1,100 sqm).

During the course of 2010, an expected 171,480 sqm of new office space will be handed over. Colliers International Hungary’s market research team does not expect the amount of transactions to increase, rather a low level of market activity with a slight increase forecast for the second half of the year. The situation can be improved in the short term by the appearance of shared service centers on the Budapest market, which will no doubt have a positive effect on the takeup rate as well. A further plus is the continuous interest in Hungary regarding the outsourcing of business activity, as the financial crises affected this territory the least.

“Based on Colliers International’s experience from the past year, for 2010 I would recommend large tenants to secure pre-leases for built-to-suit buildings rather than moving office to existing space and for owners I recommend short-term “many a little makes a mickle” leasing strategy, Saly said, summarizing his market analysis experience. (press release)