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Market Research - Hungary

Hungary : Budapest office market - March 2019

Pre-letting office space is becoming a normal situation for tenants in the market

Pre-let transactions create best take-up volumes in ten years

 

Office take-up totalled 385,790 sq m in 2018, the highest volume seen in the last ten years. The outstandingly good result was boosted by large pre-lease agreements, which accounted for 25% of the annual take up. The average transaction size increased with 13 lease agreements over 5,000 sq m. The most active tenants were the financial and governmental companies. Completions totalled 230,575 sq m in 2018, which is the highest volume since 2009, however 78% of the new office areas were pre-let before the handover of the buildings. This meant that the vacancy rate was declining and stood at 7.3% at the end of 2018, one of the lowest rates ever recorded. The availability of prime office space in Váci Corridor and in the CBD submarkets continued to drastically reduce.

Approximately 126,000 sq m of office schemes are under construction for 2019, and further 191,000 sq m are expected for 2020. Based on the current trends the ratio of pre-lease agreements is going to remain high in the next few years, therefore we do not expect vacancy increase. By the beginning of 2018 rents went above the pre-crisis’ peak levels. The rent differences are increasing between grade ‘A’ and ‘B’ building. On average, the rents of grade ‘B’ offices are 30% lower.

Domestic investors helped keep Budapest at record investment levels

 

Due to high activity in the second half of the year, the annual investment volume reached the level recorded in 2017 indicating steady interest, and outstandingly good results 3 years in a row. The office sector is still the leading segment in the investment market, accounting for almost 50% of the total investment volume. The majority of the transactions were concluded by Hungarian property funds and private investors. The largest transaction of the year was closed by OTP Property Fund who bought six existing office buildings and two new projects under development from Futureal. After local investors are Asian purchasers who have entered the market buying core office properties in key locations. A significant compression was registered in prime office yields that dropped to 5.75% by the end of 2018.

 

Budapest EOM March 2019
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