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March 24th, 2016

CBRE says the real estate market will soar in 2016

2015 was a very successful year for the Hungarian commercial real estate market, given that investors spent nearly 750 million Euros on properties – which exceeds the previous year’s figures by as much as 60%. The amount of areas pre-leased in 2015 has reached a height unprecedented since 2009: it totalled 121 000 m2. Simultaneously, there were hardly any offices to let by the end of the year in the capital. More and more industrial estates are being constructed in rural areas and in the countryside – there are towns considered as important industrial centres where there’s practically no empty lots left to build on. Thanks to the increasing turnover in retail, salesmen present a growing demand for new store locations to inhabit: the approximately 620 000 m2 area monitored by CBRE in retail has seen the opening of 98 new stores in 2015, taking up a space of 35 000 m2, as reported at the global real estate advisor company’s yearly press conference.


The investment market

The Hungarian retail investment market has been continuously expanding since 2012: as for purchases, 2015 saw a record amount of investments in the real estate sector; investors spent a grand total of 745 million euros on purchasing Hungarian properties, which exceeded the amount made in 2014 by 60%. Last year, office buildings were the most popular, accounted for 50% of the total circulation, in which industrial properties took a large part of as well. Due to the recession, the background of investors has changed greatly in recent years: while during 2006-2007, the United Kingdom, Germany and Austria were the countries using the biggest amount of capital, by 2014-2015 the United States’ entrepreneurs took the lead. The previously marginal Hungarian investor’s circle, comprised mostly of local real estate funds, has become the second most important source of capital on the Hungarian real estate market. The German open-end funds – which had a significant activity before the recession – have not approached the Hungarian market in 2015. However, the lack of development activity reduces the range of potential investment targets, meaning that more and more financers are starting to take interest in older buildings that could have a notable amount of added value.

The 750 million euros prove that CBRE’s Investment Sentiment Survey and calculations were correct, as more than half of their clientele prognosticated a similar result. “Az far as 2016’s concerned, we will probably publish the expectations of the Hungarian investment community in April, but it wouldn’t be a surprise if the year ended with a total turnover of one billion euros” – as told by Lóránt Kibédi Varga, CEO of CBRE, in his opening statement for the conference. “This year we’re expecting a rise in investment liquidity in the case of portfolio transaction costs surpassing 100 million, and also in the case of properties that could cost several million – due to the escalation of bank funding. Even if only a few of these businesses come into fruition, it enables us to cross the one billion barrier” – explained Mr. Kibédi Varga.


The office market

The growing demands on the office market and the low development activity of the past few years led to Budapest’s office market to become overbought, meaning that the amount of empty lots and spaces has fallen to a level last reached in 2008. By the end of 2015, Budapest has surpassed its regional competitors, Warsaw and Prague, in regard to vacancy rates. The oversupply in the Czech capital is preventing the decrease of empty and unused office areas.

The 100 000 m2 of additional space set to be inaugurated in 2016 will possibly not put a stop to the decrease in vacancy rates either in Budapest, as approximately 57% of the office buildings and spaces that are currently being constructed has been pre-leased. Vacancy rates have decreased in all of the 20 market segments CBRE has examined, the average rate being 12.1%, 4.1% less than it was a year before.


The industrial real estate market

The recent boom regarding industrial investments and production has led to major developments on the industrial real estate market. While Central Hungary was the most frequented region in terms of industrial and logistical projects before the recession, after 2011, developments in Western Hungary started to dominate, and from 2014 onwards, Eastern Hungary took the leading role. This means that besides Budapest (2 million m2), now cities such as Tatabánya (530 000 m2), Győr (480 000 m2), Székesfehérvár (415 000 m2), Nyíregyháza (310 000 m2), and Kecskemét (210 000 m2), also form a notable market.

In most cities and towns in the country, personally owned and BTS developments comprise the most part of the stock, speculative projects constructed specifically with leasing in mind are only characteristics of the capital and its vicinities. This means that in most cities (such as Tatabánya, Győr, Székesfehérvár) there’s an insignificant amount of modern vacant industrial estates – vacancies are usually caused by the relocation of bigger companies. The vacancy rate in Budapest and its surroundings has decreased by 11% in two years, currently measuring at 10.6% - due to the strong demands and the lack of new speculative developments.


The retail real estate market

The continuously increasing consuming of households – having been growing for 2 years now – has noticeably contributed to the growing demands of leaseholders in the hypermarkets, supermarkets and the most important shopping streets of Budapest in 2015. The newly opened retail rentals could fill a medium-sized mall: CBRE has registered as much as a hundred new stores, spanning over a total area of 35 2000 m2. The 100 new units resulted in the expansion of 79 different brands in the capital, 14 of which are entirely new to the Hungarian market.

Almost half of the stores are owned by fashion brands, followed by furniture and sports retailers. Excluding electronics, the area covered has increased in all product categories. 31% of the new leases were provided by premium shopping centres in Budapest, in an area of 11 000 m2. On the other hand, the fact that frequented shopping streets have been expanded by 4300 m2, with no less than 12 new stores, shows the rising popularity and desirability of locations in the city centre.




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