Demand for Commercial Property Remains Strong, Says CBRE

Investment volume reached EUR 1.72 billion for 2019; 2020 should see at least similar levels, given the weight of capital that is looking to invest in Hungary, invited real estate professionals were told at CBRE’s annual Re-View market presentations at the Urban Betyár restaurant.  

The CE-5 (Bratislava, Bucharest, Budapest, Prague and Warsaw) provide a significant yield on major Western European capitals, even though there is the possibility of further compression given the strong demand and competition for product, in the view of Tim O’Sullivan, head of capital markets at CBRE Hungary.

In a big-ticket transaction in Budapest, the Hungarian OTP RE Fund acquired the Roosevelt office complex for a reported EUR 150 million at a yield of sub-5%. Although office yields are estimated at 5.25%, such trophy assets are transacting at lower yields.

Prime yields are put at 5.25% for office, 5.5% for shopping center and high street retail, as well as hotel, with industrial at 7%.

“New product coming to market further into 2020 may once again put downward pressure on office and hotel yields,” O’Sullivan said.

The office market has about 570,000 sqm under construction, bring the new supply expectation to 265,00 sqm for the year. However, development delays are likely to cause some of this pipeline to shift back. From the scheduled delivery, 70% is already prelet according to CBRE.

No Vacancy

“Overall vacancy in the Budapest office market stands at 5.4%, and at 3.2% in the class ‘A’ sector. Low vacancy, high occupancy and possible rental increases make this a landlord favorable market,” said Anikó Kovács, head of office advisory and transaction services.

Industrial vacancy has reached a new low of less than 2%, which effectively means that there is no vacancy for workable space in the market.

“The industrial market capacity will be helped by the opening of new storage facilities with 180,000 sqm,” commented Gábor Borbély, head of business development and research at CBRE Hungary.

“The meaningful growth of new office market is good news for office and logistic property tenants: if everything goes according to plan, inaugurations will reach decade-long heights this year. It is somewhat overshadowed by the high rate of prelease spaces, though it is still favorable for companies who would like to move this year or the next,” he said.

David Johnston, head of advisory and transactions, added, “A bottleneck could be in the industrial market, where occupiers are far more sensitive to a EUR 0.5-1 per sqm per month increase in rents. Developers such as CTP are building speculatively, but this is a drop in the ocean compared to what is needed in the market. Rising construction costs are a challenge with regard to the labor shortage.”

Budapest’s hotel accommodation capacity had increased by 1,600 rooms over the past three years; the likelihood this year is to see 2,150 rooms added in 18 new hotels in Budapest according to Laurent Lassier, head of hotel advisory. Most of these projects, however, are planned to deliver later in the year and therefore some deliveries could be moved to 2021.  

There are 32 active hotel developments underway across the country with a total room capacity of 3,750 rooms by the end of 2022. However delivery dates are slipping back in the current tight labor market. Occupancy in the Budapest hotel market has fallen slightly to 78%; however this is due to new market supply and the rates remain healthy.