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Budapest ahead of old rivals

Budapest ahead of old rivals

Better-than-expected economic performance of the region’s countries and the general positive sentiment encourage more and more investors to launch new projects, so much that the expected expansion of office market supply will exceed the demand at the regional level. The new supply is expected to slow down the growth rate of rent, and it can even lead to reduction in the next three years. While in the past Warsaw was the clear favorite of the Central and Eastern European region and the dominant for a long time, regional rivals are becoming more powerful now. Prague and Budapest are expected to be the best-performing Central European markets, portfolio.hu wrote.

The rise of Budapest

The Budapest office market showed the signs of recovery already last year, but the Hungarian capital has definitely become an attractive destination in 2015, both from the investor and the developer point of view. Although the economic recovery experienced in recent period has greatly improved Budapest’s image and increased tenant activity – record rental volumes were measured in the second quarter of 2015 and net absorption is 40% higher than this time last year – but it still has not caused rent increases. The offered rent was 21 euros per square meters in the first half of 2015 – the same as in the last five years – and it was usually associated with significant discounts.

It shows the exceptional situation of Hungary that vacancy rate is continuously decreasing – unlike in Poland and the Czech Republic – the indicator has fallen from historical heights under the number measured in Prague for the first time. This – together with that there are very few speculative developments – is expected to cause an increase in rental prices in the medium term, portfolio.hu wrote.

After the modern office stock in Budapest expanded by nearly 70 thousand sq m in 2014, only one building with 20 thousand sq m was handed over this year, and additional growth is only expected in the Vaci Greens complex during 2015. It shows the developer activity, however, that several projects under construction are expected to completed in the next two years, while a number of companies announced new grandiose projects, and not just on Vaci Road, which was a relatively safe choice even in times of crisis.

What are the investors looking for?

There was a huge breakthrough in the Budapest investment market in the summer, when the fund managed by AEW Europe sold a portfolio of three elements an international consortium. While in 2014, investment activity was boosted “only” by local investment funds, the joint purchase of Morgan Stanley Real Estate Investing, WING and CC Real tells foreign investors that Hungary deserves attention. Although a shopping center is also part of the portfolio, the most popular investment product remains office house in Budapest.

The competitors

According to portfolio.hu, in Prague, demand for modern offices also increased significantly in 2015, contracts were signed for 130 thousand sq m in the second quarter, which is nearly double that of the previous year. The quarterly absorption rate (72 500 sq m) has not been so high since 2008.

In the first half of the year, the rental volume reached 390 thousand sq m in Warsaw which is a 50%-increase year on year. Despite this, there is a sharp contrast between Warsaw and the secondary cities. There is prominent demand in the latter, while the lots of new developments prevent the increase of rental prices in the capital.

The first semi-annual rental volume was close to 140 thousand sq m in Bucharest; moreover, pre-lease activity has not been so high since 2008. Compared to the rate of office stock, the Romanian capital has the second strongest development activity in Europe. More than 400 thousand sq m of office space handover is expected until the end of 2016. However, most of these are speculative projects which hinder the growth of rental rates.

based on the article of portfolio.hu
translated by BA

Source: http://www.portfolio.hu

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