Plaza Stop 2.0: Hungary’s retail sector faces crisis under planned new regulation

The Hungarian government is preparing to radically transform the Hungarian commercial real estate market with new regulations. The proposal would not only make it more difficult to launch new investments, but would also drastically restrict the leasing of existing shopping centres and shops. The amendment has caused a huge stir among economic operators, while the ministry has not yet provided any substantive explanation for the purpose of the tightening.

The new draft rules would mean that medium and large commercial properties could no longer be sold or rented without a government licence. As it stands now, even the renting of a commercial premises larger than 400 square metres would require a so-called ‘change of use permit’, not only for new investments but also for existing properties. This in itself is a major administrative hurdle, but the draft goes further: if a tenant leaves the lease, the new tenant would have to reapply for a permit. As tenants in shopping centres change frequently, this uncertainty would cause a serious loss of value in the property.

Full control in the hands of the Hungarian government?

Many argue that the aim of the regulation is not really to regulate the urban landscape or commercial structure, but to extend state control over the commercial property market. After all, if all sales and rentals are subject to official approval, only businesses that can “convince” decision-makers that their business is “fit for purpose” will effectively stay in business. This system can be particularly beneficial for those close to the government, while making it impossible for others to operate. According to an article by HVG, it is no coincidence that the explanatory memorandum of the draft is also extremely vague: the ministry has said that “clarification is needed in certain cases”.

Initial reactions to the proposed changes

Experts say this could make the market environment so unpredictable that there would be few investors willing to start building new commercial property. The current regulatory environment already poses significant obstacles for developers. Hungary lags behind Central European competitors such as Poland and Romania in terms of property development and international brand openings. This is particularly painful at a time when the Hungarian real estate market is just starting to recover from last year’s trough. Foreign investors have also just started to show renewed interest in the retail sector.

There is almost unanimous confusion among domestic retailers. They see no economic, legal or urban planning rationale for the tightening, especially when the government itself has set itself the goal of encouraging investment. The National Confederation of Commerce (NCC) says the regulation poses a huge risk not only to new projects but also to day-to-day operations. For example, shop-in-shop concepts, where multiple businesses operate separate retail spaces within a larger store, could also be affected.

As the division of the sales area would also require a separate licence, this would make similar collaborations virtually impossible. Moreover, the licences would not be linked to the property but to the specific tenant. In other words, if, for example, the same premises were to be used for the sale of technical goods instead of shoes, the licensing procedure would be repeated.