Recovery for Hungary’s commercial real estate market won’t be swift, and will present new challenges as speculative building has been a prime casualty in the recent collapse. In the period ahead, slower development will help ease office vacancies and logistical advantages make the industrial sector less vulnerable, but retail will be hampered by job losses and subdued spending. See the following article from Property Wire for more on this.
The commercial real estate market in Hungary has reached the bottom of the cycle but recovery is expected to be long and slow, according to analysts.
Improvement can be expected in 2011 with the industrial sector leading the way followed by the office market and then the retail sector, a new report from consultants King Sturge International says.
The high vacancy rate in the office market, some 25% in speculative buildings, will decline in 2011 largely because of a drastic decline of new delivery, the report says. This will allow the market to slowly absorb the available space in the next two years, bringing vacancy rate down to 16% by the end of 2012.
A more optimistic scenario may see the vacancy drop to 10%, but that assumes a faultless economic reform and bumper global economic growth. Some sub-markets such as CBD and Váci út corridor, will recover faster, but the further away from the downtown, the longer it will take to see a significant reduction in vacancies.
The major change created by the 2008/2009 crisis is that new developments will have to be pre-leased from 30% to 50% before construction can start, which historically rarely happened in the Budapest office market, the report points out.
The industrial real estate market was faster to adjust to the new economic difficulties. Developers stopped all speculative developments and currently only one warehouse is under construction on a Built-to-Suit (BTS) basis. Vacancy is high at 19.4%. ‘The market is still suffering from the Rynart bankruptcy which saw vacancies jump from 9% to 17% in 2008,’ the report says.
King Sturge believes that from an occupational perspective, the industrial sector will be the first to emerge from the crisis. ‘The Western Europe recovery will support Hungarian exports. In addition, the weak Forint and the excellent road network make Hungary an attractive logistics location. This will contribute to recovering demand for warehouse space,’ the report says.
The retail sector entered the crisis on a more solid footing than the other real estate sectors. Shopping centers are practically never built on a speculative basis and vacancy was always low. However, retailers are suffering greatly from declining consumption and high unemployment. King Sturge does not see any immediate improvements in these two factors.
The report points out that the government reform package will take time to generate jobs and increase Hungarian purchasing power with sectors such as the civil service facing pay cuts of 15%.
‘We are at the bottom of a long cycle, one that since 1992 has seen the emergence of a modern real estate sector. Supply and demand were growing year on year and even if rents were declining, yields were compressing. The global recession ended this cycle,’ the report explains.
‘Historically, all major European cities have experienced the same boom and bust and all have recovered. Budapest is facing its first serious crisis and it will recover, albeit slowly. But in every crisis there are opportunities. Tenants who are planning for growth can secure advantageous lease terms,’ it says.
‘Developments will have to be considered more carefully, with a better understanding of real market demand and not simply the volume of activity,’ it adds.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.