Although consumer demand in Hungary is continuing to rise, with around 4% year-on-year growth in retail sales for H1, there has been no new shopping center deliveries in Budapest in recent years.
The next delivery is not until late 2019, leaving Hungary with one of the lowest shopping center provisions in Europe; projects were put on hold due to concerns over economic issues and consequently consumer demand. However, market conditions are now regarded as appropriate for the delivery of new Budapest malls that would freshen the market. There is also significant development activity in prime high street retail in central Budapest.
The only recent large retail format delivery is a new 35,000 sqm IKEA store in the southern outskirts of Budapest. This is the third IKEA store in the Budapest area and one of the largest in the CEE region.
“A large number of international retailers, present on the local market, are in expansion mood, thanks to the strong economic environment; fashion, fashion accessories, cosmetics and the food and beverage category are very active at present,” commented Viktória Szabó, head of retail at Cushman & Wakefield Hungary. “Forecasts for the coming few years are still positive, even with a slightly more moderate speed of improvement.”
The next planned delivery will be the 53,000 sqm Etele Plaza by the Hungarian and CEE developer, Futureal. The complex is located adjacent to the 70,000 sqm Budapest One business park project, currently under construction at a transport focal point on the western edge of the city. Futureal aims to create a business, service and leisure center on the 22-hectare site; according to the company, an estimated 165,000 passengers pass through the transport hub daily.
The complex, designed by Chapman Taylor, is scheduled for delivery in the fourth-quarter of 2019. The is essentially the second brownfield development project by Futureal after the Corvin Promenade urban regeneration project. A start of construction for Etele Plaza is dependent on the conclusion of major preleases.
The other pipeline development, the 50,000 sqm ECE Aquincum by the German retail developer and shopping center operator, ECE, is located in the Óbuda area of Budapest, at another transport hub, and is not expected to deliver before 2021.
ECE has developed five shopping centers across Hungary in Budapest, Győr, Pécs, Debrecen and Szeged. In Budapest, the developer’s 68,000 sqm Árkád center, completed in 2002 and extended and renovated in 2013, is currently the largest shopping mall.
JLL put total modern shopping center stock in Budapest at around 770,000 sqm, low by European standards. The leading centers are generally considered to be the 47,000 sqm Allee, the 44,000 sqm Mammut, the 30,000 sqm MOM center, the 66,000 sqm Arena Plaza, the 45,000 sqm WestEnd City Centre and the 68,000 sqm Árkád center. These all have waiting lists for tenants and are, therefore, able to command the highest rents.
CBRE estimates prime Budapest shopping center rents at EUR 65-100 per sqm per month with prime Budapest high streets as high as EUR 130 per sqm per month. In response to market demand and lack of new supply, center managers and owners have undertaken extensive refurbishments and upgrades of existing retail centers.
Lone Star has acquired the Mammut center, one of the leading Budapest shopping centers and has plans to refurbish and modernize it. The Hungarian investor, Diófa Real Estate Fund, has purchased the rebranded Shopmark shopping center and plans to undertake extensive refurbishment. CPI has purchased the earlier generation Pólus Center and the Campona shopping center as part of a regional portfolio acquisition, and it, too, plans to undertake extensive makeovers.
The Budapest high street retail market is seeing significant activity. The major central retail areas consisting of Váci utca, Fashion Street and Andrássy út are all seeing development. In the central District V, the Mellow Mood Group is redeveloping the historic Párizsi Udvar (Paris Court, also known as the Parisi Udvar and the Brudern House) and is scheduled to deliver 2,000 sqm of retail space on two lower floors in addition to a five-star hotel.
Horizon Development is developing 1,100 sqm of retail space at Szervita tér (Szervita Square) in central Pest, due to be completed in 2019. “There is a large potential for high street growth and development. The stock could be refurbished and the ownership should be institutionalized. The segmented ownership structure is not in favor of large scale institutional investors, which is a bottleneck for investment activity,” commented Eva Sreter, head of retail at JLL Hungary.
There are currently no ongoing shopping center projects outside of the capital although developers are said to be exploring development possibilities in cities with populations of more than 100,000 people.
In terms of shopping center quality, Sreter sees room for improvement in terms of tenant mix, stock quality, smart devices and applications. Landlords should focus on increasing the presence of entertainment and social functions.
“With regard to the quality of shopping centers, the leading developments are regarded as being of a similar level to those in Western Europe, with an attractive tenant mix. A few of these, which were built as first-generation schemes – Mammut, Shopmark – are now working towards improvement. Owners of these schemes are investing into the refurbishment of these schemes, whilst trying to secure new brands as well,” concluded Szabó, of Cushman & Wakefield Hungary.