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Low Vacancy Continues to Shape Budapest Office Market

Demand in the Budapest office market has continued to boom with vacancy falling to some of the lowest levels on record. Established Hungarian and international builders are going ahead with speculative, long-term phased projects and built-to-suit (BTS) developments, with a low supply of 5,000 sqm plus contiguous sqm class “A” spaces.

Balance Hall by CPI.

Preleases now constitute a significant part of the market; companies looking for large offices in the short-term have very few opportunities. With demand high, some building owners are looking to upgrade older buildings to meet current design and sustainability requirements.

Total supply in the Budapest office market has reached around 3.6 million sqm according to the Budapest Research Forum, consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary. From this figure, a little more than three million sqm is defined as Class “A” and around 600,000 sqm classified as owner-occupied space.

Vacancy has fallen further to close to 7%. The lowest vacancy has been recorded in non-central Pest at 3.5%, while the periphery has continued to suffer from the highest vacancy rate at over 30% according to the BRF.

“As a result of the strong demand in the market, the average vacancy rate in Budapest has fallen to 7.1%. Tenants need to make a quick decision in order to secure quality space,” says Judit Varga, head of office advisory at CBRE Hungary

The BRF has traced 25 speculative and owner-occupied projects under construction in Budapest, representing a little more than 530,000 sqm of space. Atenor, Futureal and Wing all currently have more than one office project in development.

In a large-scale, phased speculative development, Belgium’s Atenor is developing the 50,000 sqm Váci Greens buildings “E” and “F”, the final stages of a 130,000 sqm project that will consist of in six buildings upon completion.

Confidence

In parallel with development of the final phases of Váci Greens, the developer has undertaken construction of the speculative, phased 85,000 sqm Aréna Business Campus in District VIII. Such large-scale projects reflect the current confidence in the Budapest office market.

“With regard to our development strategy, we are following this huge demand by developing three projects at the same time: the 50,000 sqm Váci Greens E and F; the 25,000 sqm Building ‘A’ at Aréna Business Campus; and a new development in Buda,” comments Nikolett Püschl, development and leasing manager at Atenor Hungary.

Hungarian developer Futureal has undertaken the first 27,000 sqm phase of the 65,000 sqm Budapest One Business Park in Kelenföld. The urban mixed-use project follows a similar model to the Corvin Quarter development in District VIII, where Futureal is due to complete the 27,000 sqm phase one and two of the Corvin Technology & Science Park. The developer is also close to completing the second 7,500 sqm phase of its Advance Tower project in Váci út.

Wing has commenced construction of a 21,400 sqm BTS headquarters for evosoft Hungary. In the largest recent completion, the developer delivered the 58,000 sqm Magyar Telekom Group headquarters. Located in District IX this is currently the largest single office block in Hungary.

Noah Steinberg, chairman and CEO of Wing, says the advantage of a BTS project is that the developer is able to agree a long-term lease with a major tenant, which puts it in a position to be able to tailor the building to the specific needs of the end user. In return for this, the tenant has to commit to a long-term lease of more than ten years.

That contrasts with speculative buildings, which are designed by necessity to a more flexible specification to meet the needs of multiple potential tenants, Steinberg explains.

Largest Prelease

The largest recent prelease in Budapest was a 19,000 sqm deal at Agora Tower by HB Reavis with Raiffeisen Bank. The 34,500 sqm Agora Tower and the 32,500 sqm Agora Hub represent the first phase of Agora Budapest. Due to be completed next year, the complex is planned to provide a total of 136,000 sqm of office, retail and service space.

CPI, meanwhile, is developing the 16,000 sqm Balance Hall in the Váci Corridor. This represents the third phase of the Balance Office Park on Váci út and is scheduled to be delivered at the end of 2019, bringing the total space at the complex to 35,000 sqm; there remains the possibility for a fourth phase of development.

Office demand and supply is high across the Central European regions; JLL says it has traced 3.5 million sqm of office stock in Prague, for example. Vacancy has fallen to around 4% according to the Prague Research Forum (consisting of CBRE, JLL, Cushman & Wakefield, Colliers International and Knight Frank).

An estimated 350,000 sqm is under construction and due to deliver in 2019-2021 and circa 215,000 sqm is scheduled to be completed this year. There is currently an estimated 4.23 million sqm of office space across Czech Republic, which has established secondary office markets in Brno and Ostrava as well as Prague. In Warsaw, JLL has traced 750,000 sqm of office space under construction and due to be delivered by 2021.

Budapest supply is forecast to fall back significantly this year with an estimated 138,000 sqm expected to be handed over, 44% of which is already prelet according to Cushman & Wakefield. This compares to the 230,000 sqm of space delivered in 2018.

“The Budapest office market delivered strong fundamentals in the first quarter as the vacancy rate continued to break record lows. Due to the lack of available units, the market has started absorbing class ‘B’ office space,” commented Cushman & Wakefield. Prime rents are seen as being under pressure and likely to rise. 

Agora by night.