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Anticipated GDP growth can lift retail real estate in 2017

After last year’s GDP slowdown the Hungarian economy is expected to accelerate this year, chiefly driven by consumption, which is expected to rise by 4.6% in 2017 after 5% growth in 2016, according to the latest market review of Cushman & Wakefield, which believes the developments will positively affect the retail real estate market.

(Photo: LaMography)

An increasingly tight labor market has resulted in a record low unemployment rate and significant wage pressures, Cushman & Wakefield notes, highlighting that high wage growth and subdued inflation are resulting in higher real earnings growth, which is likely to have exceeded 5% in 2016 and is expected to be around 4% in 2017.

Consequently, C&W observes, occupier demand for prime high street and dominant shopping center locations is seen remaining strong and rents will be under pressure to rise this year. This is already reflected in the 10% year-on-year rental growth in prime high street retail and 6.7% year-on-year growth for rents in prime shopping center locations, according to C&W. While rents remained unchanged over the first quarter of the year, prime rental levels are anticipated to increase further as the year progresses.

Landlords of existing shopping centers are concentrating on modernizing or refurbishing their projects, C&W observes. Prime examples include Mammut and Shopmark (formerly Europark). Shopping center development activity has remained limited during the last three years, but significantly improved market conditions have motivated developers to commence a series of new schemes including the 37,400 square-meter Ikea retail warehouse (due for delivery in Q2 2017) and the 53,000 sqm Etele City Center (Q4 2019), both in Budapest.

Based on first-quarter figures, total retail property investment volume in the first quarter of 2017 was above EUR 210 million, including the major acquisition of CBRE Global Investorsʼ portfolio by CPI Group, and with prime yields currently standing at 5.50%, the outlook for the rest of the year remains positive.

Investor interest in the Hungarian market is expected to increase further throughout the remainder of 2017, with a number of deals already well progressed in response to demand from international investors seeking prime shopping centers or retail parks. With investor interest picking up and more product coming on to the market, a further hardening in prime yields is anticipated.