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Supply on office market to jump in 2006 - DTZ

Supply on Budapest's modern office space market could expand as much as 200,000 square meters in 2006, well over the 70,000 to 85,000 square meter annual growth for each of the past three years, according to market research company DTZ Hungary.

DTZ expects the new supply in 2006 to be in line with increasing demand, but says the 330,000 square meters expected to come onto the market in 2007 will probably produce a glut. Contracts for the lease of 237,000 square meters of modern office space were signed in 2005, 7,000 more than in the previous year and 100,000 square meters more than in 2003. The vacancy rate fell further to 11.6% in 2005, compared to 15.2% in 2004 and 20.5% in 2003. Contracts with companies extending their leases accounted for 29% of the total area, and contracts signed by companies expanding in the same building accounted for 13%. Companies new to the market or introducing new activities accounted for 19% of new contracts in terms of space in 2005.

Property investors' yields on prime quality office space was 6%-6.5% in 2005. They could expect yields of 7% on top-category real estate space and 9% on prime warehouse space.

DTZ said it expects monthly rental fees to remain more or less unchanged at €12-€14 per square meter in both 2006 and 2007, with the best office space going for €16-€17 per square meter. DTZ noted that actual rents are actually €1-€2 under the advertised amount, including signing bonuses.