Hungary continues to return positive investment indicators, with vacancy rates low and demand rising in all market sectors. The country is attracting a wider pool of institutional investors, even as Hungarian funds continue to be active. In this positive environment, annual investment volumes are expected to approach EUR 2 billion for 2017.
According to JLL, circa EUR 750 million in investment transactions was concluded in the first half of 2017. CBRE expects 2017 investment volumes to be in region of EUR 1.5 bln-1.8 bln, reaching or even surpassing last year’s level. Bence Vecséy, director of investment services at Colliers International Hungary, estimates that investment volume could reach the EUR 2 bln figure, making this the most active year ever in the Hungarian investment market.
Czech Republic and Poland continue to be the leading CEE investment destinations, although the gap between Hungary and these countries is narrowing. The Czech market recorded EUR 2.2 bln in investment volume in H1, followed by Poland with EUR 1.53 bln, according to Colliers International figures.
Improving sentiment towards Hungary and increasing competition for product is causing yield compression. JLL estimates prime Budapest office yields at 6.5%, shopping centers at 6% and logistics at 7.75%. “The gap between Hungary and Czech Republic and Poland is closing, and should narrow to some 50 basis points by the end of the year,” said Benjamin Perez-Ellischewitz, head of capital markets Hungary at JLL.
In a recent deal the institutional investor, Corpus Sireo Real Estate, made its second Budapest office acquisition with the purchase of the 14,500 sqm Eiffel Palace office building from the National Bank of Hungary (MNB) for EUR 53.8 million, at a yield of around 5%.
Says Tim O’Sullivan, head of investment properties for Hungary & SEE at CBRE: “The underlying fundamentals are solid in the CEE markets and have proved stable. Furthermore, the banks are more open for leveraging, allowing a greater depth of investors to enter the market, resulting in more investors being able and willing to invest in the region. This competitive tension is driving pricing and pushing yields.”
Offices will remain the most active sector across Hungary and CEE according to many consultants. “The Hungarian market is much more oriented towards offices, with a yearly split forecast of 50% for office and 35% for retail, with the balance for logistics, hotels and alternatives,” commented Kevin Turpin, head of CEE research and consultancy at JLL.
However, retail in Hungary has made a significant leap in activity this year, with more stock being made available to investors. “Demand for retail has always been there, but vendors were not necessarily willing to sell. This year has seen a change in this attitude as retail yields have compressed and the number of willing buyers increased,” notes O’Sullivan.
“CEE presents an interesting opportunity for investors,” he continues. “Arguably, the market here is late in the cycle compared to Western Europe. This time lag between geographies offers investors an interesting solution for their capital allocation as they hunt for higher returns. CEE still offers value for investors who may be priced out of the Western markets but want to stay close to their core country. The four countries in Central Europe offer great opportunities for investors to build a diversified portfolio while seeking stabilized returns,” O’Sullivan adds.
This year could see CEE regional development reach EUR 13 bln, which would set a new record.