Real Estate Review 2016

review REAL ESTATE P ri c e: H U F 9 9 0

Property Hungary 2016

OFFICE OVERVIEW • CITY DEVELOPMENT • INVESTMENT • FINANCE AND FUNDS • PROPERTY MANAGEMENT AND SUSTAINABILITY • OFFICE TRENDS AND TECHNOLOGIES • RETAIL • INDUSTRIAL • HOTEL

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BUDAPEST RENEWAL

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NEW PLANS RISE AS CLASS ‘A’ VACANCIES FALL

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DEAR READER, Real estate in Budapest, and all of Hungary, is generating increasing interest as the market continues to race upwards.

Last year, the Budapest Business Journal’s Real Estate Review chronicled a turnaround that the property sector had been awaiting since 2008. This year, the overarching theme seems to be growing interest in the market as vacancies fall and prices edge upward. This trend is reflected in our investment coverage.

Our office market coverage includes a survey of the increasing demand and the major deals, as well as a look at how owners are upgrading properties to meet demand quickly. We also interview the mayor of District XIII about his success in bringing development to old brownfield sites, to turn the Váci Corridor into the office hub of the capital.

In both the retail and logistics property markets, our research finds growing demand means tight space, while our coverage of hotels shows that developers are creating new spaces.

The articles on office design and green offices look at issues of key concern to asset managers and tenants.

We hope you find this Review informative and inspirational. Happy reading!

Tom Popper, editor-in-chief, Budapest Business Journal

CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Confidence finally starts to grow. . . . . . . . . . . . . . . . . . . . . . . . . . 4 Interview: Public projects add value . . . . . . . . . . . . . . . . . . . . . . 6 Sentiment is improving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Commercial real estate market on the upswing . . . . . . . . . . . 18 Investors return to Budapest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Financing likely to get easier . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Property investment by the numbers . . . . . . . . . . . . . . . . . . . . 26 OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 CityZen Office Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Office space limited as demand grows . . . . . . . . . . . . . . . . . . . 32 Buda Center feels like working on top of the city . . . . . . . . . . 36 IMMOFINANZ gains environmental certification for three office buildings in Budapest, with a further two in process . 38 Office takeup: GE preleases Váci Greens . . . . . . . . . . . . . . . . . 40 Atenor deliver latest phase of Váci Green . . . . . . . . . . . . . . . . . . 41 DVM group takes its business to the next level . . . . . . . . . . . . 42 Office upgrades create space quickly . . . . . . . . . . . . . . . . . . . . 44 Space means oppportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Balance Office Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 TriGranit Millennium City Center a Danube-side gem . . . . . . . 48

Budapest office market at a glance . . . . . . . . . . . . . . . . . . . . . . 50 Interview: ‘The mayor of Váci corridor’ . . . . . . . . . . . . . . . . . . . 52 Budapest office market by the numbers . . . . . . . . . . . . . . . . . 54 Reborn Reno awaits new tenants . . . . . . . . . . . . . . . . . . . . . . . 55 Interview: Attracting foreign investment . . . . . . . . . . . . . . . . . . 56 RETAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Retail: Not a shopper’s market . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Budapest retail by the numbers . . . . . . . . . . . . . . . . . . . . . . . . . 65 INDUSTRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Logistics space at a premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Hungarian industrial property market at a glance . . . . . . . . . 72 Hungarian industrial property market by the numbers . . . . . 73 HOTELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Hotel market draws new interest . . . . . . . . . . . . . . . . . . . . . . . 76 OFFICE DESIGN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Office interiors for the modern age . . . . . . . . . . . . . . . . . . . . . . 80 GREEN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Go green or go home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

REAL ESTATE REVIEW 2015 A BUDAPEST BUSINESS JOURNAL PUBLICATION

BBJ Editor-in-chief: Tom Popper • Real Estate Editor: Gary J. Morrell • Copy Editor/Proofreader: Robin Marshall Sales: Bernadett Oláh • Layout: Norbert Balázs • Publisher: Absolut Media Zrt • CEO: Balázs Román Media representation: Absolut Media Zrt • Address: Madách Trade Center, 1075 Budapest, Madách Imre út 13-14., Building A, 8th floor • Telephone: +36 (1) 398-0344 • Fax: +36 (1) 398-0345 • ISSN: 2416-0423

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INTRODUCTION Confidence finally starts to grow.

Confidence in Hungary is improving from the perspective of developers, investors, consultants and potential tenants in the office, retail and industrial market sectors. This change for the better follows several difficult years when market sentiment was essentially negative. During this time, Hungary has fallen behind its immediate competitors: Poland, Czech Republic, and

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Slovakia. More recently, Romania has re-emerged as a potential competitor.

However, it has to be remembered that real estate is a cyclical market and Hungary was previously leading development and investment destination in Central and Eastern Europe. Budapest was the first Central European city to establish a quality office market; the first city in the region where Western-style shopping

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centers were constructed; and the first to host a city logistics park. The first CEE commercial property investment transactions were also concluded in Hungary.

The optimistic view is that Hungary is moving up from a low point in the cyclical property market. In general there is a widening recognition among international players that Budapest is an attractive destination for office, retail, industrial and hotel development and investment.

The number of visitors to Hungary is rising, and the look and feel of Budapest is improving thanks to infrastructure development.

Further, there is a similarly positive trend in the willingness of banks to finance projects and acquisitions.

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In addition to the need for government to facilitate legislative processes to attract inward investment, there remains the need for Hungary to publicize itself to the international markets and to provide information on the Hungarian markets.

For this reason, the Budapest Business Journal’s Real Estate Review – Property Hungary 2016 aims to provide a comprehensive overview of the property market and issues relating to development, investment, sustainability, interiors, and urban development. We will also provide a a continuous flow of information through the website (bbj.hu) and the printed magazine.

Gary J. Morrell, Budapest Business Journal Real Estate Editor

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INTERVIEW: PUBLIC PROJECTS ADD VALUE While he acknowledges previous problems in the capital, respected architectural engineer and urban planner Pál Baross says the city is finally improving its approach to planning and urban design.

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To hear planner and developer Pál Baross tell it, recent enhancements to the public spaces of Budapest have made this country and its capital a more attractive place to invest in property.

“Budapest has emerged as an ‘added-value’ to the Hungarian real estate market. Up to now, most people in the property sector complained that Budapest was badly planned and had disjointed planning procedures, and that there was no clear vision of where the city was going,” Baross says. “However, over the last threeto-four years there has been major public space improvements in the downtown area in some of the squares and on the tram routes, all adding to a city where you can spend a lot of time as a business person, or tourist, or resident. This is reflected in city center residential prices that are rising or very stable. The city center hotel market and associated industries, such as cafés and shops, are also doing well.”

While he notes the benefits of much of the development in Budapest, Baross also questions the wisdom of some of the major public projects that the government has proposed, saying these are isolated schemes that do not work well with the existing design and layout of Budapest.

Despite the attractiveness of the city center, that part of town is limited when it comes to space for major development, according to Baross. The architectural engineer and planner argues that this means Budapest needs a special approach to development in the downtown area, not unlike that which works for cities like Amsterdam or Munich. Because large floor spaces cannot be developed in the center, Baross says, big international tenants have to look at areas just outside the center, such as the Váci út corridor.

“With regard to offices, downtown is an extremely difficult area in which to develop. I know this from experience when I developed the Vörösmarty tér project, and I know that the developers of Roosevelt House on the Danube faced a lot of difficulty,” Baross said.

CEU a major downtown project Baross does, indeed, have a lot of experience of development in this city. He has made a career out of planning and changing the look of Budapest, and is continuing to do so today. As director of the

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The new M4 metro: Public transit is key.

“It is extremely difficult to develop offices in the historic center, but for residential, hotel, retail and restaurant development it is quite easy. ...

Office developments have been out-of-center and this is an interesting contradiction.” campus redevelopment of the Central European University (CEU), he is leading one of the biggest development projects in central Budapest – one that has earned recognition for its environmentally friendly design. He is president of the Hungarian Green Building Council, and in 2010-2014, as head of the Municipality’s Real Estate Holding (BFVK), Baross was in charge of handling city properties and acting as the mayor’s advisor on development. In his long career as an architect and urban planner, he was the country manager for developer ING Real Estate Hungary and saw the completion of such major projects as the Allee shopping mall in Buda.

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easy,” he says. “In this way the office market has not been able to capitalize on the success of the center of the city. Therefore office developments have been out-of-center and this is an interesting contradiction.”

The Váci Corridor A big part of the solution to the need for office space in Budapest has been the Váci út corridor. Containing former industrial sites and brownfield locations, this large avenue, radiating north from just outside the city center, has several advantages that have helped it become the center for offices in this city.

“One of the most important issues is location: The right location has to be sourced in which to develop. It is very important that office development in an urban city context is close to public transport; such locations are essentially brownfield sites,” Baross points out.

“The drivers of the development of Váci út from a post-industrial area to a business district are seen as good public transport, initially large plots and cheap land prices, allowing high density development and the ‘open door’ policy of the district’s political leadership, including the engagement of successive chief architects with developers.”

While the Váci corridor is clearly an attractive location for office development, Baross believes that more could be done to make Váci út the kind of place where people enjoy taking a stroll. He says this would require more public spaces and more attention to pedestrian areas.

Pál Baross, leads CEU project and Green Building Council.

His latest project, the development of the CEU campus, is unique for a downtown development in that it actually does have a lot of space to work with.

“When the CEU project was selected for an award it was specifically mentioned that this is the first time that somebody has managed to put together a project consisting of six buildings and 40,000 sqm of new construction in downtown without any upheaval from an urban planning perspective,” he says.

In general, Baross would not recommend a major new office project in downtown Budapest.

“It is extremely difficult to develop offices in the historic center, but for residential, hotel, retail and restaurant development it is quite

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“My complaint is that due to lack of attention to the quality of public spaces, Váci út remains an arterial street and not a boulevard,” he says.

“Váci út also leads the Budapest office market in terms of accredited sustainable buildings,” Baross notes, and says the key for sustainable urban development is public transport. He points out that Budapest has a good transit network, although the quality of the service level is still a big challenge, and coming up with a formula of sustainable financing remains elusive. The recent addition of a cycle rental network is a positive step, especially servicing the downtown area, he says.

Another improvement for urban transit that Baross mentions is the redevelopment of the HÉV suburban railway system to Csepel that connects it with the city center. When it comes to encouraging sustainable transport, the CEU project is also doing well, Baross

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REAL ESTATE review notes, pointing out that the redevelopment does not add any car parking facilities but does add 200 cycle parking spaces to the city center.

Seeking a cohesive vision One criticism the planner and architect makes is that there is not one vision for Budapest. For this reason, different government administrations plan on a project basis, and each administration tends to ignore the vision of its predecessors.

“The Liget Center is a major project that is not integrated in any way,” Baross says of the plan to build a museum quarter in City Park. “The aim is to develop four or five new museums, and I have heard feedback that the museums themselves and the people who live here have not been consulted.” Even more troubling for Baross is that the Liget project essentially involves the park alone. “The planning process should have taken the perspective of extending the Liget to a number of brownfield sites that could have been brought into the orbit of the Városliget rather than cramping the development within a green area,” he says. “This is almost a French-type centralist attitude.”

He complains that the plan to move government offices up to Castle Hill similarly lacks a long-term strategy. “There is a unique vision of how the area should be, with a move away from a touristic location to an administrative location and these types of contradictions have not been resolved. It was not stated that a new function for the Castle District has been found in the urban plan. The planning principle for the area was as an historical/ heritage site that is mainly residential with a touristic element,” Baross says. “Now I see a planning principle that this is a seat of government, which is a major difference, but this has never been part of the planning debate.”

Other areas of weakness that Baross notes in Budapest’s vision are poor integration of university buildings and stadiums into the overall city plan.

“In general, we have no concept of the role of universities in Hungary in terms of physical facilities,” he argues. “Buildings such as the new water sports center in Margit Liget, or the new Fradi stadium are impressive, but they are not linked to a wider city plan. The development of public and leisure space is key for Budapest, although there are no new parks or green areas, the development of which I have been advocating for several years,” Baross says. “Another possibility would be to extend pedestrian areas in the city center.”

“Buildings such as the new water sports center in Margit Liget, or the new Fradi stadium are impressive, but they are not linked to a wider city plan.”

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Plans for a courtyard renovation at CEU.

PRIVATE DEVELOPMENT: CEU grows a green campus Central European University’s reconstruction of its downtown campus is one of the biggest projects underway in Budapest right now, and it has already distinguished itself for its environmentally friendly approach.

The first phase of the Central European University (CEU) Campus Redevelopment Project, a new building that is being grafted onto elements of the existing structures in the historical fifth district of Budapest, is under construction, and due to be completed this summer, with a second phase due for completion in summer 2018.

The project brings together issues of how to develop a modern high-tech functional building while simultaneously maintaining the classic Central European integrity of the center of Pest. It is one of the first non-commercial buildings to achieve Building Research Establishment Environmental Assessment Methodology (BREEAM) sustainability accreditation. “The project reflects CEU’s commitment to sustainability and green building that is energy efficient and conducive to an educational environment. Energy efficiency is a major element of the development and the CEU campus has BREEAM ‘Very Good’ accreditation. The project is the second higher education institute in continental Europe, and the first in CEE, to receive this distinction,” said the Campus Redevelopment Office.

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A planner’s sketch of a propsal for the Liget project.

PUBLIC DEVELOPMENT: Museum quarter targets tourism The government’s plans to build a museum quarter in City Park (Városliget) includes the renovation of the Museum of Fine Arts at Heroes’ Square, as well as the addition of several new museums.

The so-called Liget project represents an ambitious makeover, designed to create a whole new attraction for tourists in the city, but does have its critics.

The plan has stirred opposition from residents and the local mayor of District XIV, who oppose some of the changes and question the need for a HUF 200 billion investment to transform the park. Thus far, however, objectors have been thwarted in their efforts to hold a referendum against the project.

Under the current plan, the development will be carried out in two phases, the first to be completed in spring 2018, and the other in the second half of 2019, the government has said.

The first phase of the project is to include the makeover of the Museum of Fine Arts and the development of the new Hungarian Technical and Transportation Museum, and the House of Hungarian Music. The second phase is to include the new National Gallery, the Ethnographic Museum, the renovated Castle of Vajdahunyad, the Olof Palme House, the Children’s Theater of Városliget and the renovation of Budapest Zoo. Under the aegis of the project, green areas within Városliget will be renovated and expanded, providing recreational elements for the general public, officials have said.

PUBLIC DEVELOPMENT: Retaking Castle Hill The prime minister and other government offices would move governance of the country back into the castle area originally built for this purpose by Habsburg royalty, under the government’s plan for Castle Hill.

All but destroyed during intense fighting between the Russians and retreating Germans during World War II, Castle Hill, including the main palace built by the Habsburgs, was rebuilt during the communist era. The current plan, which may take years to realize, would see the Castle District restored to its former design, so that the prime minister could move in there.

It is seen by many as an expensive move that is more about symbolism than practicality.

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Castle Hill awaits change.

Nonetheless, thanks to the museum quarter project currently underway in City Park (see above), the National Gallery will soon be moved out of the former Palace, making room for offices.

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SENTIMENT IS IMPROVING In mini interviews, experts see growing interest in Budapest real estate.

Katalin Sermer Country Manager S IMMO APM Hungary Kft.

Ferenc FurulyĂĄs Managing Director JLL Hungary

I certainly see an improvement, perhaps more cautious than significant for the time being. The major players on the Hungarian real estate market are showing signs of activity, and in turn this should encourage others, too. Foreign investors may take longer to react. At the moment the creation of space for call centers seems to be an opportunity considering especially the cost of labor in Hungary compared to surrounding countries. The stabilizing of the economy should boost office and industrial requirements and soon I feel there will be a growing demand for residential development, which was awakening in the years before 2008 but came to a complete stand still during the following years. Legislation, economic environment, financial and tax conditions as well as the political situation are stable and reliable. Hungary has got the geographical, historical and cultural attributes that make it attractive, therefore tourists have demonstrated a steady interest in the country.

This interest will hopefully be adopted by business players.Â

Interest for Hungarian assets will increase further in 2016.

International investors in addition to domestic buyers will drive the market and liquidity will remain high in every asset class. Although several property portfolios were already transacted in 2015, we expect further portfolios and platforms to be sold in 2016 as well as prime single landmark assets. The market witnessed increasing activity on the transaction of claims and we expect secondary debt trading to remain an essential part of activity in 2016. It is anticipated that Hungary’s sovereign debt rating will be upgraded from junk level to investment grade in the course of 2016, which could in our view encourage the more conservative investors, for whom the strong market fundamentals and relatively high yields have not been compelling enough arguments till now. The gap in pricing expectations between vendors and bidders narrowed along with improved debt finance terms. The main remaining question is whether core German investors will return to the Hungarian market in the course of 2016.

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REAL ESTATE review Noah Steinberg FRICS CEO & Chairman Wing

Alan Vincent M.R.I.C.S. Managing Director CONVERGENCE

The perception of the Hungarian property markets has improved dramatically over the last 18 months.

International investors have actively re-entered the market across multiple asset classes, and a strong group of serious local investors has also emerged. International developers with a local presence are executing major projects for large tenants, as are the strongest local developers such as our company. Developers can now pursue significant built-to-suit opportunities since there are major tenant requirements which cannot be met with existing stock. Office occupiers looking to lease more than 1000 sqm of space in quality buildings have very limited options, a situation which allows for some speculative development.

There has been a strong rebound in hotel development to meet the demand generated by the attractiveness of Budapest as a leisure destination, and leasing is strong in retail schemes supported by growing turnover for the tenants. The industrial market has been slower to generate demand for development, although it appears now to be warming up. Finally, the residential market is showing dynamic growth after several slow years.

Both anecdotal evidence and international surveys show that a growing investor universe is looking for opportunities in Hungary. These investors from Asia, the Middle East, Western Europe and the U.S. now see Hungary as one of the best destinations in emerging Europe, and the continuation of this trend should lead to a sustained period of growth and stability in the Hungarian property markets.

We see a steadily improving sentiment towards Hungary from international investors. The majority are opportunistic investors looking for higher returns from distressed property. We do not yet see the return of a large number of core investors looking for investment grade property. There is limited interest from international developers apart from those who are already here and one or two CEE regionally owned developers�. Due to the limited availability of bank financing, the opportunities for developers are still restricted to build-to-suit and pre-leased developments or the renovation and renewal of existing buildings such as our new CityZen office building on Våci út.

We expect that with continued improvements in both the country risk rating and macroeconomic performance combined with structural economic reforms, more core institutional investors will come back to Hungary. A large part of the challenge is still the external perception of Hungary. A steady and predictable government economic program, less punitive sector-specific taxes, continued press freedom and less external politically motivated left wing media denigration of Hungary would all help to address this problem.

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REAL ESTATE review Árpád Török CEO TriGranit

Viktor Nagy Country Manager Office Hungary IMMOFINANZ

It may sound a little bit boring, but the Hungarian real estate market is still in a state of awakening – just as last year, and in the years ahead.

We have to be patient, it’s a long process, but there is definitely an improving trend: macroeconomic indicators are among the bests in the region – although GDP growth has lost its intensity, it’s still above trend growth, the level of inflation and unemployment rate is favorable, and the personal income tax reduction from 16% to 15 % will definitely boost consumer spending. Investor confidence is similarly growing – we can predict large platform transactions by foreign investors in 2016, although Hungarian investment volume is still only a third of the level it was at the peak of the market. The annual transactional volume reached around EUR 790 million in 2015, which is the highest volume recorded since the peak of the market in 2007. There is a similarly a positive trend in the willingness of banks to finance on the Hungarian market and the financing conditions are improving.

The retail market is definitely driven by the favorable consumer sentiment with decreasing unemployment and lower personal income tax despite the nationwide Sunday closures. And I can again only repeat myself – as long as the ban on retail development is in force, the retail sector will not see any significant growth.

IMMOFINANZ is the market leader for commercial properties in CEE, represented in eight core European countries, so we have international competence and experience. As such, we clearly see signs of recovery, both in terms of investment and demand in the market. Investors are actively looking into new and existing investment possibilities, and in the office market demand is clearly growing, as we can see from our own developments. Recently we’re experiencing prolongation of leases with existing tenants, which clearly demonstrates exceptionally high customer satisfaction, and also success in terms of new business relationships. In Hungary, we have 12 existing office buildings, accounting for 11-12% of our total office portfolio. In our view, development means not only investing in new projects, but also investing in existing assets to continuously improve our offering. Investing in more efficient operation can earn BREEAM In-Use certification and also – due to lower operational and service costs – bring in new tenants. We have ambitious plans in Hungary, with current managed assests worth more than EUR 460 million, which is about 8% of the group portfolio.

Investors like IMMOFINANZ, consider Hungary promising for long-term investment. The greatest way to improve sentiment is to have stability. That’s the simple answer, but then it’s also about clear legislation, with processes that are transparent, and of course healthy economic growth. We generate sustainable income for our investors with our properties, so we’re playing our part in improving sentiment!

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REAL ESTATE review István Kerekes M.R.I.C.S. Leasing Director Horizon Development

Mátyás Gereben General Manager CPI Hungary

I think sentiment remained optimistic, due to the relatively high yields compared to other markets of the region. It is really tempting for investors to check segments other than purely office and retail.

Developers will start their dormant projects very soon, even on a speculative basis. However, I am still experiencing a lower asking rent than would be necessary towards the market. I really believe that developers should not be that shy. Regulation changes effecting the Value Added Tax of new housing projects open the door for residential developers. I anticipate that new residential projects will pour onto the market in the coming 2-3 years. Office, retail and hotel will still be the most attractive fields for investors. I expect that the window of opportunity will reach the industrial sector, as well. Being present at this year’s MIPIM and Expo Real is a big step forward for Hungary.

I am really pleased about the unprecedented cooperation between the City of Budapest, the Hungarian Investment Promotion Agency, IFK (the Real Estate Developers’ Roundtable Association) and four major Hungarian developers (Horizon Development among them) that has enabled Budapest to get back on the investment map. If the government gave further support – by being present at events like this, similarly to Poland – that could further increase the level of trust towards Hungary.

Following 2015, when a record level of activity was registered in office take-up and also in the investment sector, we see a significant rise in interest towards Hungary and especially Budapest. The risk related to economic and political macro environment has been significantly decreased, rental levels have stabilized and there is a prediction of limited supply which struggles to serve current demand. In the same time a reverse trend can be experienced in other CEE markets (Warsaw, Prague), where oversupply and economic instability are the driving factors of the local investment market. Hungary has regained its competitive characteristics in the CEE region and is able to provide more competitive returns. In the next 5-18 months we see opportunistic and value-add investors seeking opportunities in Hungary as a potential investment target. After that we expect that the open-ended real estate funds will drive the investment activity.

This will attract not only BTS but speculative developments, primarily in the office and logistics sector. Opportunities are limited in the retail and hotel sector. Considering the high need for new office stock and the moderate pipeline, the early risers will be the winners with regard to office development. CPI is upgrading its existing portfolio while at the same time seeking value-add investment opportunities. More quality product will improve sentiment towards Hungary.

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REAL ESTATE review Csaba Széll Managing Director CE Land

Lóránt Varga Managing Director CBRE Hungary

The perception of the Hungarian property market has been showing a steady improvement since summer 2014. This is the case for both the commercial and residential segments. The six year period after the crisis hit every market segment very hard. Currently the cautious expectation of most market participants is that we are heading for a healthy upstream period of several years. How long this positive trend will continue is difficult to predict as Hungary, as a relatively small market, is very exposed to international trends. However, a positive sentiment prevails as Hungary has high profit margins, healthy vacancy levels, increasing consumer confidence and active local investors among other positive signs. I expect a limited volume of investment transactions as with yield compression potential sellers will probably hold on to their buildings despite some eager buyers. To summarize, better times are on the horizon but we have to be patient.

A clearly stronger sentiment for real estate investment opportunities is being experienced in Hungary. Total commercial real estate (CRE) investment volume in 2015 increased by 62% year-onyear, the highest pace among core CEE countries. In 2015, opportunistic U.S. money was the most active on the Hungarian market with a 38% share of total CRE turnover. We expect similarly high investment activity from their side. Hungary’s potential credit rating upgrade in the next six months could trigger the interest of the more conservative Western European funds and could give another boost for further investment turnover growth. The credit rating upgrade would definitely have a stimulating effect on investment sentiment and Hungary’s substantial yield premium (150-200 bps) on Czech and Polish assets, backed by improving market fundamentals, could trigger a higher inflow of foreign capital.

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REAL ESTATE review Peter Számely Head of CEE Real Estate Finance HYPO NOE

Marcin Łapinski ´ Managing Director Skanska Hungary

Sentiment and lending conditions for Hungary are certainly improving; we all expect Hungary to be promoted to investment grade as the rating agencies have upgraded their assessments of the Hungarian markets.

I hope that this will occur sooner rather than later but you don’t always know what is in the background. Otherwise, the market seems to be healthy and lenders have become more active. I think that the fundamentals are there and the market is fairly well developed and therefore everything is there to facilitate transactions.

Lending for Hungary is at least 150 basis points more expensive than Poland. I would expect the gap to narrow as in Hungary the margins are falling and based on expectations for Poland they may increase. Hungary needs more transactions and more trust in the government as there are fears that laws could be introduced at short notice that have an impact on profit expectations. We completed one small refinancing in Hungary last year and in that sense we are open for business but we are doing it very selectively – that is the right partner for the right product.

The CEE region is still considered as under-priced and there is lots of interests in newly developed, prime and sustainable office buildings.

We see yields decreasing in 2015/2016 and this trend should continue in 2017 as well. There are new investors inquiring about our developments, therefore with such positive signals from the market and growing demand for well located and well-managed properties, I expect increasing investment activity in the upcoming two years. The frozen development activity for the past years resulting in low vacancy rates provides a good opportunity for new projects. However, as always, location and timing are the keys to success, especially for projects being developed on a speculative basis. It is also worth mentioning that 2015 was quite an interesting year for developers hunting for pre-leases (a few significant transactions concluded) so let’s see if the trend continues also this year. Traditional large institutional investors looking for investment opportunities, and local funds are also expected to remain strong. We see interests in investment properties from all over the world: Asia, South Africa, Middle East as well as from traditional areas like Europe (Austria, the U.K., France, Germany) and the USA.

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INVESTMENT

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Sponsored by:

The volume of deals rose remarkably in all types of commercial real estate last year, and industry insiders forecast continued growth this year. As sentiment toward Hungary improves, even the high cost of financing is expected to ease in the near future.

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REAL ESTATE review EXPERT OPINION

HUNGARIAN COMMERCIAL real estate market on the upswing Benjamin Perez-Ellischewitz, director – head of capital markets Hungary at JLL speaks about this year’s big transactions and how the local market is improving dramatically.

Benjamin Perez-Ellischewitz, Head of Capital Markets, JLL

What caused the surge in commercial real estate transaction volume in the second half of 2015, in Hungary?

The marker upside is the result of three main drivers. First, the macroeconomic indicators of the country have improved significantly in the last few years and Hungary is looking attractive in the European context with significant growth, limited unemployment and increased consumption. Second, the fundamentals of the real estate market are strong with a very active leasing market, limited development pipeline and therefore expectations of yield compression

and rental increases. Third, financing conditions from banks are becoming more supportive of businesses.

Those drivers will remain in place for 2016 and beyond.

What were the most significant transactions from last year and what was JLL’s involvement in these?

JLL played an active role in the main real estate transactions of 2015 as among other we worked for AEW Europe in the disposal of their Hungarian assets (MOM Park, WEBC and EMKE) and on the acquisition of TriGránit

by TPG and the M1 Logistic Park by Prologis.

NOTE: ALL ARTICLES MARKED E XPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILIT Y

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What are your predictions for this year?

Based on the number of deals in exclusivity and the significant pipeline of transaction mandates already in place, I am confident that in 2016 we’ll see an increase in the liquidity and ultimately transaction activity on the market across all asset classes and lot sizes.

liquid with a much deeper pool of investors and cheaper debt finance. In term of asset quality, while the top end of the market is less represented in Budapest, I believe that new developments are totally on par with the type of assets one can buy in Western Europe in term of technical specifications or institutional quality of leases for example.

What are some of the larger transactions you are anticipating?

We are currently in exclusivity on significant retail and office assets representing some €500 million in asset value.

What are investors primarily looking for and do you expect ratios, by class, to shift in 2016?

As the number of large tickets remains limited, numbers could easily change but my prognostic is that we will pass the symbolic, one billion of transactions in 2016 with 50% for office, 30% for retail and 15% for logistics, the balance going to hotels and redevelopment sites such as the Budapest Stock Exchange.

How does Hungary compare to more developed EU nations in its real estate offerings?

The market in Hungary remains focused on the historical asset classes of office, retail, logistic and to a lesser extent hotels; while more mature markets in Europe have already witnessed the addition of new asset classes such as student housing, seniors homes, self-storage to name a few.

Moreover, mature markets remains more

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million preferred by private wealth and family offices to the large portfolio and assets considered by leading international institutions. The spectrum is therefore large from private investors from the Middle East, Austria or the United States, to American private equity and core European buyers.

What is the Hungarian National Bank’s involvement in commercial real estate investments? What are they buying and why are they buying it?

The Central Bank of Hungary is one of the few central banks allowed to invest in real estate. The bank became a significant player on the commercial real estate market and that will not change in the near future as they still have funds to allocate.

Where are these investors coming from, for the most part?

The interesting aspect of the market coming back to life is that we see interest for different ticket sizes from the €5 to 10

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INVESTORS RETURN TO BUDAPEST The big increase in transactions in the capital show that sentiment toward property here is improving. Experts say the upward trend will continue.

I

nvestor sentiment towards Hungary is improving with favorable market fundamentals, although debt finance remains expensive and low pipeline in all market sectors means the supply of investment grade product is limited.

Total commercial real estate investment volume in 2015 increased by 62% year-on-year, and is set to rise again in 2016: Investors are showing increasing interest, with transactions expected to conclude in all sectors and at all levels. Hungary’s potential credit rating upgrade could trigger the interest of the more conservative

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Western European funds that have still not returned to Hungary. A gap, however, remains between Hungary and Czech Republic and Poland with regard to investment volume. That said, Hungary does provide a yield premium on both those other markets, which are considered slightly overheated by some investors.

“We saw a remarkable 60% growth in investment volume last year, putting Hungary back on the CEE investment map,” commented Gábor Borbély, head of research and valuation at CBRE Hungary.

“The high interest is sustainable, and we expect further growth in

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MOM Park shopping center went in a deal led by Morgan Stanley.

“We saw a remarkable 60% growth in investment volume last year, putting Hungary back on the CEE investment map. ...

We expect further growth in investment volume this year; we could get close to the EUR 1 billion mark.�

Emke office center was also part of the deal led by Morgan Stanley.

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investment volume this year; we could get close to the EUR 1 billion mark. An increasing pool of investors is making arguments in favor of acquisitions in Budapest with reference to strong occupational fundamentals. On the other hand, the low development pipeline is making some investors nervous with regard to whether they are able to enter the market. We have seen compression in prime yield and expect this trend to continue towards 7% in the case of offices.”

The total investment breakdown for 2015, according to JLL, saw Hungary with EUR 790 million, which compares to Poland with EUR 4.1 bln and Czech Republic with EUR 2.65 bln.

Big deals In a landmark deal – where a major European investor made an acquisition in Hungary for the first time since the economic crisis – a group of investors led by Morgan Stanley Real Estate Investing, in partnership with Hungarian developer WING and the Austrian retail manager and investor CC Real, purchased a portfolio including the 31,500 sqm MOM Park shopping center and the adjacent 19,000 sqm office building from Germany’s AEW Europe. The deal also comprises the 28,800 sqm West End Business Center and the 13,700 sqm EMKE office center.

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In the office sector, the 21,000 sqm Váci Corner office complex by HB Reavis, completed in 2014, is in the process of being sold to investors. Last year, GTC purchased the 31,500 sqm Duna Tower office complex for about EUR 52 mln. The purchase price reflects a roughly 7% yield on current rental income with an actual 80% occupancy. Csaba Széll, managing director of CE Land, who worked on the transaction, commented that the deal is important for the Budapest investment market as it reinforces its recovery after more than six years of depression and, further, the transaction was based on a fully transparent public tender process.

Most transactions in what has been considered a difficult investment environment have been off-market and therefore there is little transparency.

Although the fundamentals in the Budapest office sector are generally regarded as favorable, with falling vacancy and limited pipeline that is putting upward pressure on rents, there remains the problem of a limited supply of well-located, fully-leased class “A” office developments to meet the needs of potential investors.

According to Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, there are positive arguments for all sectors. He

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Being sold: Váci Corner Offices. sees offices as very under-priced with limited supply over recent years and rents still suffering from the days of oversupply, although genuine class “A” product will lease well and see rents rise. He sees the key issue holding the retail market back as a severe lack of stock, with only six or seven shopping centers that could be purchased.

Most of the best performing malls have changed hands and, with a favorable retail environment, there is little motive for building owners to sell. However, some secondary retail centers could be sold and possibly one of the top strata centers. German investors are expected to return as investor confidence rises.

Here come the Americans In 2015, opportunistic American money was the most active on the Hungarian market with a 38% share of total turnover, according to CBRE. U.S. investors will again be active, but the question remains when major German players will return. Over the last two years, Hungarian buyers have dominated the investment market. CBRE put prime office yields at 6.5%, retail at 7.15% and industrial at 8.5%, while high street yields stand at 6.5%. There is room for further compression based on the gap with the Polish and Czech markets, and future transactions could provide more

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solid benchmarks. “It is anticipated that Hungary’s sovereign debt rating will be upgraded from junk level to investment grade, which could encourage even the more conservative investors, for whom the strong market fundamentals and relatively high yields have not been compelling enough,” said JLL. The company puts yields in Czech Republic at 5.75-6% and shopping center yields at 5-5.25%.

A credit rating upgrade would definitely have a stimulating effect on investment sentiment and Hungary’s substantial yield premium (150-200 bps) on Czech and Polish assets, backed by improving market fundamentals, could trigger a higher inflow of foreign capital, according to Lóránt Varga, managing director of CBRE Hungary.

Cushman & Wakefield’s Edwards also sees things moving in the right direction. “Hungary has five or six years of investment to catch up on, compared to other Central European countries.

Clearly there are issues with politics in Hungary, although investors are looking beyond this and considering the economic story. We should not expect parity with Poland and Czech Republic, but the gap is closing.”

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Vision Towers: Phased financing.

FINANCING LIKELY TO GET EASIER

Credit in Hungary is around 150 basis points more expensive than in Poland, but experts say a better market should mean cheaper loans.

D

ebt finance for development and investment in Hungary has been both difficult to source and expensive in what is regarded as an uncertain economic and political environment, and this has been one of the major factors restricting property development. At the same time, the difficulty in obtaining finance has acted as a break on the investment market even though the market fundamentals are improving. This has been a major a disadvantage for Hungary when compared with its regional competitors, especially Poland and Czech Republic, where financing is easier to find and cheaper.

Indeed, an unfavorable lending climate is a downward spiral: The lack of debt finance restricts growth in the markets, while at the same time the assessment of Hungary is unfavorable in large part due to the lack of market development. There are, however, signs that lending conditions are improving, with Hungary now seen in an increasingly better light.

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Lending for Hungary is at least 150 basis points more expensive than, for example, Poland. Poland and Czech Republic are regarded as almost “core markets”, while lending conditions for Hungary are more stringent or only granted on a project-byproject basis. This gap is expected to narrow, however, as the margins are falling in Hungary, partly based on expectations they may increase in Poland. Both that country and Czech Republic are considered slightly overheated, and there are also some political concerns about Poland’s new right wing government.

Looking at the Hungarian office market, most recent projects have been financed by the developer’s own equity, or the developer has employed a cautious phased-development strategy based on pre-leases. Belgium’s Atenor Group, for example, says it is developing the phased 135,000 sqm Váci Greens office complex using its own equity. In Romania, also considered a less secure

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“Lending conditions from local banks are improving and have become more competitive. Now they are competing for products, and this is driving lending terms in a positive direction.” market by lenders, Atenor has completed the fully-leased 18,000 sqm initial phase of its Hermes Business Campus (HBC) in Bucharest. The threephase project is planned to deliver a total of 78,000 sqm of space.

Another prolific Budapest office developer, Skanska, is also financing projects with its own equity. Its latest development is the two-phased 26,000 sqm Nordic Light. In a significant recent office deal, Skanska sold the 17,800 sqm Green House office center to investors.

Phased development Futureal adopted a phased development approach for its 23,500 sqm Vision Towers office center.

A built-to-suit pre-lease deal for one wing of the center was agreed with KPMG before construction had even commenced. “With regard to finance, it was proven in the case of Vision Towers that if we start a good project from equity and we get the first tenants, then we get financing,” said Tibor Tatár, CEO of commercial development at Futureal.

Futureal is also planning the 70,000 sqm Budapest One business park adjacent to Kelenföld Railway Station and the terminus of the Metro 4 line. It is again pursuing a phased development strategy, with construction planned to go ahead once significant pre-lets have been concluded.

There are signs, however, that the assessment of Hungary by lenders is improving. “Sentiment and lending conditions for Hungary are certainly improving; we all expect Hungary to be promoted to investment grade as the rating agencies have upgraded their assessments of the Hungarian markets,” commented Peter Számely, head of CEE real estate finance at HYPO NOE. “The market seems to be healthy, and lenders have become more active.”

The European developer, HB Reavis has sold its first Budapest project, the 21,000 sqm Váci Corner in Váci út. A debt financing agreement was concluded for the project with Raiffeisen Bank, as was the case with many earlier HB Reavis projects. With

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Skanska sold its Green House. the successful development, leasing and sale of the project, HB Reavis is undertaking the development of another 136,000 sqm phased office development in the Váci business corridor.

“This is partially financed by equity and the banks are also very excited about financing the project,” said Zoltán Radnóty, CEO of HB Reavis Hungary. “We believe that as we start the first phase there will be competition for financing. Banks are very eager for good sponsors and good projects. I expect that there will be at least six banks competing. The land financing indicates that there has been an at least 100 basis point drop in standard financing margins over the last year.”

With regard to the investment market, Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, argues that the key issue holding the market back is high interest rates and the strict terms on which banks are lending. “That said, lending terms are improving as lending conditions from local banks are improving and have become more competitive. Now they are competing for products, and this is driving lending terms in a positive direction,” he said.

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Property investment by the numbers

WHO IS INVESTING IN HUNGARY Hungary 30%

Other 12% U.K .

ria

st Au

lan Nether

Shown is the split of commercial real estate turnover by USA 37% purchaser’s nationality in Hungary in 2015.

6%

5%

ds 8%

Germany 1% SOURCE: CBRE

TEN TOP-RATED CITIES FOR PROPERTY PURCHASES For CBRE’s EMEA Investor Intentions Survey 2016, survey respondents were asked: ‘In EMEA, which city do you believe to be the most attractive for making property purchases in 2016?’

These are the top ten cities they chose and the percentage of total respondents choosing each city.

16% 14% 12% 10% 8% 6% 4% 2%

ch ni

ue

mu

ag pr

pe

st

n

da

La

bu

mi

aw rs

wa

da

m

in

er

am

st

rL

is

be

pa r

id dr

ma

Lo n

do

n

0%

SOURCE: CBRE

YIELDS ON OFFICE INVESTMENT IN 2015 LOCATION

Q4, 2015

Q3, 2015

All of 2015 10-yr high 10-yr low

Budapest (CBD)

7.00%

7.25%

7.25%

7.75%

5.50%

Budapest (Central Buda)

7.50%

7.75%

8.00%

8.00%

5.75%

Budapest (Váci Corridor)

7.25%

7.50%

7.75%

8.50%

6.00%

Budapest (Periphery)

9.25%

9.25%

9.25%

9.50%

7.00%

SOURCE: CUSHMAN& WAKEFIELD

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VALUE OF CONSTRUCTION IN HUNGARY (IN HUF MILLIONS)

SOURCE: Hungarian Central Statistical Office

PERCENTAGE YIELDS ON PRIME RETAIL IN 2015 High Street Shops in Budapest 2015 Q4 2015 Q3 Váci utca 6.75 6.75 Andrássy út 7.00 7.00 Retail Parks 2015 Q4 2015 Q3 Budapest 8.25 8.50 Budaörs 8.25 8.50 Shopping Centers 2015 Q4 2015 Q3 Hungary 7.00 7.25

All of 2015 6.75 7.00

10-yr high 7.75 8.50

10-yr low 5.50 6.00

All of 2015 8.50 8.50

10-yr high 8.50 8.50

10-yr low 6.25 6.00

All of 2015 7.25

10-yr high 7.50

10-yr low 5.00

NOTE: All figures are gross percentages SOURCE: CUSHMAN& WAKEFIELD

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OFFICES

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Be here. Be more.

1134 Budapest VĂĄci Ăşt 37. www.cityzenoffices.hu

As the market rebounds dramatically, Budapest is experiencing record low office vacancy rates, and the number of projects in the pipeline is relatively limited.

Those who can are upgrading their old properties to increase supply, but we can expect space to be tight for the next year.

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CityZen Office Building Be here. Be more.

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CityZen; Offices Reborn The “new” addition to Váci út will be complete and ready for occupation in April. The 12,600m2 building, formerly known as Duna Office Center, has been comprehensively renewed

by ConvergenCE development and project management, with MádiLáncos Studio, architects.

The renewed main lobby

A landmark on Váci út for over 20 years, the 9 floor, 174 car space building was bought exactly 12 months ago. Within a year, permits were obtained and the façade extensively renewed as well as a completely new double height entrance atrium created.

The interior of the building has also been renovated to a high Grade A standard with new lifts, wet blocks and mechanical and ventilations systems to meet modern occupation standards, including an expected BREEAM Very Good green building certification. From the use of high-value finishing materials to long term sustainability and energy efficiency, the emphasis is on quality, efficiency and environmental awareness.

In what is arguably the best Váci út location, close to the intersection with Dózsa György út, and within 50m of the Metro, CityZen will provide a calm, sophisticated atmosphere in the middle of the busy Váci út corridor. CityZen is asset and property managed to their usual exacting standards by ConvergenCE.

Address and phone:

Online:

1134 Budapest Váci út 37.

info@cityzenirodahaz.hu

Tel.: +36 70 319 6916

www.cityzenoffices.hu

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Elaborated details in the building

Café in the CityZen lobby

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Biggest delivery of the year: Váci Greens.

Wing’s plan for the Magyar Telekom headquarters.

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OFFICE SPACE LIMITED AS DEMAND GROWS Budapest is currently experiencing record-low vacancies, and there is only a moderate amount of class ‘A’ office space in the pipeline.

O “I expect the current positive momentum to continue in 2016, as occupational activity remains relatively robust, supported by very little new speculative supply and increasingly favorable macroeconomic prospects.”

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ffice space is tight in Budapest, and it seems that vacancy rates will continue their declining trend in the immediate future.

The office pipeline in the capital for 2016-17 is put at roughly 90,000 sqm, representing an improvement on post-crisis delivery levels but still low in relation to rising demand. Since the financial crisis, only equity rich developers or those with the ability to conclude preleases have been able to develop in a market where debt finance is expensive. Overall vacancy is put at roughly 12% in a market of 3.28 million sqm. Cushman & Wakefield estimates that around 200,000 sqm of space will be delivered between 2016 and 2018, although a high proportion could be pre-let. Prime office rents in Budapest’s central business district are put at EUR 21 per sqm per month.

“The Budapest office market has re-calibrated to a more landlordfavorable position. I expect the current positive momentum to continue in 2016, as occupational activity remains relatively robust, supported by very little new speculative supply and increasingly favorable macroeconomic prospects,” said David Johnston, head of office agency at Cushman & Wakefield Hungary. “In 2016 demand will continue to outstrip supply and vacancy continue to fall. As the market continues to swing in favor of landlords, tenant incentives will continue to shorten for the best space, increasing effective rents. I expect to see positive rental growth in the most popular submarkets, a decrease in oversupply in some of the less central submarkets, and a few developers seriously considering speculative schemes.”

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Váci 1: Classic heritage building.

A large proportion of the new supply is preleased, and last year saw the highest take-up on record backed by pre-leases. Demand for office space in 2015 reached an all time peak with take-up totalling 364,800 sqm according to CBRE. Undersupplied The Budapest office market is regarded as being undersupplied by many property professionals working in Hungary. Tim Hulzebos, managing director of Colliers International Hungary argues that if there is a 5,000 sqm requirement for new modern space then there are only one or two options – far too limited for a city like Budapest – and therefore new buildings are required.

Some quality buildings are appearing on the market, however. In the latest, Belgium’s Atenor Group has delivered the 24,500 sqm “Building B”, the third phase of Váci Greens, the biggest office project in Budapest, after a nine month construction period.

Atenor plans to continue with the construction of a fourth phase this year. Upon final completion, the project will consist of six buildings with around 135,000 sqm of office space. “Building B”, designed by TIBA architects studio, has a “Very Good” BREEAM sustainability rating. Olivier Ralet, executive officer at Atenor emphasizes that the company undertook Váci Greens

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when Budapest was generally perceived to be a very difficult development market, and it is being financed from the company’s own equity. “We commenced the project due to a need for office space in Budapest, the supply of large development plots in Váci út with excellent public transportation links and the support of the local authority,” he said.

In recent years the so-called Váci út business corridor in the 13th district has established itself as arguably the business center of Budapest; international developers such Atenor, Skanska, HB Reavis, Wing, Futureal and CPI have all developed office centers, attracting such tenants as GE and E-On. Dr. József Tóth, mayor of the 13th district, comments that Váci út is continuing to attract office and residential development as it has a very good public and road transport infrastructure, relatively cheap development plots, and planning regulation system that encourages inward development.

A further Váci út pipeline project by Hungary’s Wing will deliver the 12,000 sqm V17 office block this year. An 8,500 sqm pre-lease with E-On has been concluded. “Obviously, there has been very little office development in recent years and so we see very positive trends in the market in terms of enhanced or increased occupier demand and, while there is vacancy in the market, there is also a

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Budapest One business park.

“Obviously, there has been very little office development in recent years and so we see very positive trends in the market in terms of enhanced or increased occupier demand.” lack of large, vacant, contiguous modern space. Overall vacancy rates have been falling and large quality tenants have needs that are unfulfilled,” said Noah Steinberg, CEO & chairman of Wing.

Also in the Váci út corridor, Skanska is due to complete its latest Budapest project, the “Gold” LEED accredited, two-phased 26,200 sqm Nordic Light.

Beyond Váci Outside of Váci út, Futureal is constructing the 25,000 sqm Corvin Technology & Science Park, the latest office phase of the Corvin Promenade urban rehabilitation project in the slightly out-of center ninth district. This is essentially a built-to-suit project for Nokia for the establishment of an IT and telecommunications center. Another significant built-to-suit project is the 55,000 sqm Magyar Telekom headquarters by Wing, also in the ninth district.

In the central fifth district, Horizon Development is set to deliver 5,700 sqm of office space in Vörösmarty tér at Váci 1, a classic

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Central European heritage building. The project reflects Horizon’s preference for developing high-end space in historic buildings in central locations .

With regard to further pipeline, Futureal plans to develop the Budapest One business park adjacent to the terminus of the Metro 4 line, located on the western edge of Budapest. The 70,000 sqm project is seen as part of the redevelopment of a road, metro and rail transport hub.

Futureal is pursuing a phased development strategy with construction going ahead once pre-lets have been concluded. The project provides the possibility for up to 25,000 sqm in phase 1.

“Vacancy is high, but there are not many possibilities for the 10,000 sqm requirements that we can offer. Also, technical specifications from tenants are changing very quickly and the project will offer high quality space that conforms to this,” said Tibor Tatár, CEO of Futureal.

Also on the Buda side of the city, the Hungarian GRT Group is expected to deliver the third 18,000 sqm phase of the Office Garden in the 11th district next year. The completed project envisages office space in five buildings in a park environment.

A sign of growing confidence in the Budapest office market is that HB Reavis is planning a 136,000 sqm Budapest Central tower block at Árpád Hid on Váci út. The complex is planned to consist of five phases delivering a GLA of 126,000 sqm of offices, the first phase due to be delivered in the first-quarter of 2018. London-based MAKE architects and the Hungarian Finta Studio have designed the project.

Slovak developer HB Reavis delivered its first Budapest project, the 21,000 sqm Váci Corner office complex in Váci út last year. That complex was designed by the prolific Hungarian architect, László Szász and has been given a BREEAM “Excellent” accreditation.

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BUDA CENTER FEELS LIKE WORKING ON TOP OF THE CITY

B

uda Center took a flying start this year and is well positioned to increase its occupancy further. Located at the bottom of Gellért hill the office building offers nearly 6,000 sqm premium office space – and a lot more. Numerous services are within reach and good transport connections are also key features of the facility. Major hubs like BAH junction, MOM Park shopping center, Déli pályaudvar and Ferenciek tere are easily available by public transport, while the two-level underground garage awaits tenants arriving by car.

Buda Center represents high technical standards and offers several amenities giving comfort, safety and a pleasant work environment. The spectacular, renewed façade provides excellent visibility for the building, while the refurbished reception area and lift lobbies create a friendly atmosphere in the interior. Over the

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past two years the office building was upgraded technically as well, including the installation of a new fan-coil system, a new boiler and chiller. New flooring and painting in the garage were also added.

Each floor can be fitted out flexibly to open-plan or cellular layout, with a tea kitchen and restrooms in every unit. The building is Asset manager: S IMMO APM Hungary Kft Year built: 1991 Year of renovation: 2014-2015 Gross leasable area: 6,000 sqm

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rich in natural light, the windows are openable and external and internal sun shading is also available. One of the main attractions, a large panoramic roof terrace, was opened recently enabling tenants to have a break and enjoy the amazing view of the city. The 200-sqm open-air space is suitable for corporate events as well.

So it cannot be a coincidence that Buda Center started this year with five new lease agreements for about 1,170 sqm altogether. One of the new tenants is Aktuรกl Bau, a major Hungarian construction

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company that created a highly imposing office on the 5th floor.

Vacant areas in the building include offices and retail spaces up to 1,000 sqm.

The office building is in the portfolio of S IMMO Hungary, a subsidiary of S IMMO AG, a major Austrian real estate investor. The company has been operating on the Hungarian property market for 15 years. Its dedicated local staff consists of professional property managers and leasing experts.

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IMMOFINANZ GAINS ENVIRONMENTAL CERTIFICATION FOR THREE OFFICE BUILDINGS IN BUDAPEST, WITH A FURTHER TWO IN PROCESS IMMOFINANZ’ three office buildings were awarded recently with the BREEAM In-Use certificates: Szépvölgyi Business Park, Greenpoint7 and Central Business Center, all located in Budapest. This certification is ongoing for the Group’s Átrium Park and Haller Gardens, and the results of the Baseline reports on these assets are expected soon. BREEAM In-Use is a scheme to help building managers reduce the running costs and improve the environmental performance of existing buildings.

Szépvölgyi Business Park

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Greenpoint7

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Haller Gardens

“Receiving the BREEAM In-Use certificate plays a key role in maintaining our competitiveness. We have experienced that it is of increasing importance for tenants to have their office in an environmentally sustainable building, and this is one of the important factors when choosing a property in Budapest. We are happy that three of our office buildings have been successfully certified, with more following soon”, said Viktor Nagy, Country Manager Office Hungary, IMMOFINANZ. The process scored Building Management as “Very Good” for all three buildings, where the inherent performance characteristics of the building based on its built form, construction and services are graded. This assessment reflects management policies,

procedures and practices related to the operation of the building.

Also included in the assessment is the actual usage of key consumables including energy and water, as well as measurement of the environmental impacts of a building, such as carbon and waste generation.

The BREEAM In-Use certification scheme is a code for a Sustainable Built Environment which also takes into account the health and well-being of users of a building, including occupant satisfaction, air quality monitoring and hygiene procedures, with the three assets gaining significant ratings in all these areas.

Maintenance, procurement and improvements of the three buildings were also highly scored.

ON IMMOFINANZ

ON IMMOFINANZ HUNGARY

IMMOFINANZ is a commercial real estate company whose activities are focused on the retail and office segments of eight core markets in Europe: Austria, Germany, Czech Republic, Slovakia, Hungary, Romania, Poland and Moscow. The core business includes the management and development of properties. The company has a real estate portfolio of approx. EUR 5.8 billion that covers more than 380 properties. IMMOFINANZ is listed on the stock exchanges in Vienna (leading ATX index) and Warsaw.

IMMOFINANZ properties in Hungary represent 7.9% of the company’s total portfolio, including 32 properties (25 standing investments and 7 pipeline projects) with a carrying amount of EUR 461.2 million. The standing investment portfolio splits into 12 office buildings (11.3% of the total office portfolio) and 13 retail properties (6.8% of the total retail portfolio). In the first three quarters of the 2015/16 financial year, rental income in Hungary represents itself stable and totals EUR 19.0 million, which accounts for 8.0% of the Group’s total rental income.

Immofinanz.com offices_hu@immofinanz.com +36 1 236 0435

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Inside GE’s existing facility at Váci Greens.

OFFICE TAKEUP: GE PRELEASES VÁCI GREENS More than 2,000 are expected to be employed at the multinational’s new shared service center and research center.

I

n this tight office market, Váci Greens, the largest office delivery of the year, was already booked before construction was finished.

GE has established an international headquarters at Váci Greens, reflecting that Budapest and the developers here have the ability to attract a major international corporation to set up a base in the city.

Belgium’s Atenor Group delivered the 24,500 sqm third phase of Váci Greens, “Building B”. The new building is already 60% preleased to GE Infrastructure who have taken 15,000 sqm, and overall GE will have around 4,000 employees at Váci Greens. The 17,000 sqm “Building C” (despite being the third letter of the alphabet, actually the second phase of the project) is already 100% let to GE. GE Healthcare will establish a European shared service center and a research center for the training of engineers at Váci Greens,

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only its third such facility in the world after the United States and India. By 2017, more than 2,000 people could be employed on six levels at the center, according to GE. This will likely be made up of around 80% Hungarians and 20% other nationalities.

In total, GE has leased 45,000 sqm of space in three buildings at Váci Greens. Currently it has 2,400 employees here, speaking 37 languages and from 50 different nationalities. “The investment by GE on the fit out at Váci Greens’ GE offices was HUF 6.5 billion and includes two restaurants, a gym, a medical center and a conference center,” said Joerg Bauer, president of GE Hungary.

“Our aim is to provide a pleasant working environment with leisure and health facilities and a substantial supply of cycle racks, showers and changing rooms.”

GE currently employs more than 10,000 people in Hungary.

The company has 11 factories, five R&D centers and three business service centers in Hungary.

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EXPERT OPINION

ATENOR DELIVER LATEST PHASE OF VÁCI GREENS The biggest office completion this year is the third building in a six-phase project and boasts a BREEAM Excellent rating.

According to Zoltán Borbély, Country Manager at Atenor Hungary, there very few office projects in the pipeline and this does not reflect the actual demand. Office vacancy on Váci út has now dropped to below 10%. “This tells us that we should quickly go ahead with as much office space as possible because demand is there. Very few flexible floor plates of 2,000-3,000 sqm and above are available on the market. We are already in negotiation with potential tenants for Building D (fourth phase). Because of the overall size of the project, we are able to offer tenants a phased occupancy in-line with the organic growth of a company,” he said.

Olivier Ralet, member of Executive Committee at Atenor

Zoltán Borbély, Country Manager at Atenor Hungary

The Belgium Atenor Group has delivered the 24,500 sqm Building B, the third phase of Váci Greens, the biggest office project in Budapest after a nine-month construction period. Atenor plans to continue with the construction of a fourth phase this year. The phased project will consist of six buildings with circa 135,000 sqm of office space on completion. Building B has a BREEAM Excellent sustainability rating and has been designed by TIBA architects studio.

The new building is already 60% preleased to GE Infrastructure, who have leased 15,000 sqm and overall GE will have approaching 4,000 employees at Váci Greens. The 17,000 sqm Building C (second phase) is 100 percent let to GE. Atenor used durable materials in the construction of the project and a very efficient Building management system reducing service charge.

According to Atenor, energy efficiency forms a significant part of accreditation requirements as reflects the heat pumps that are in use at the complex. Váci Greens has low energy consumption appliances with a high efficiency ventilation system. Energy efficient lighting is also a minimum requirement. Credit points by the assessor were given for the provision of bike racks, showers and changing rooms.

In recent years the 13th district has established itself as the “business center of Budapest” – a preferred location for offices.

The remaining buildings at Váci Greens are to be completed in the next three years with an acceleration in the phased development schedule due to the favorable market conditions. Atenor would ideally like to develop another similar-sized project in Budapest. Also in CEE, the company has completed the fully leased 18,000 sqm phase 1 of the Hermes Business Campus (HBC) in Bucharest. The three phased project is planned to deliver a total of 78,000 sum of space.

“Atenor is strongly committed to offering sustainable solutions adapted to urban life. Our vision to develop large mixed metropolitan space contributing to urban regeneration,” said Borbély. Designed to create high added-value living and working areas, our projects are rooted in their environment and context in areas with a high and ambitious potential.”

Olivier Ralet, member of Executive Committee at Atenor, commented that the company initially undertook the Váci Greens project when Budapest was generally perceived to be a very difficult office development market. “We made the decision to commence construction of the project due to a need for office space in Budapest, the supply of large development plots in Váci út with excellent public transportation links and the support of the local authority,” he said.

NOTE: ALL ARTICLES MARKED E XPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILIT Y

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DVM GROUP TAKES ITS BUSINESS TO THE NEXT LEVEL

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DVM group has experienced outstandingly busy months in its otherwise also vibrant life and looks forward to an even more eventful future.

Not long after celebrating its 20-year anniversary with a memorable party, the company moved to a new, stylish office, exponentially increased the number of its employees and has unique projects in the pipeline. Its dynamism and strive for excellence seems unstoppable.

DVM group recently moved its headquarters into Váci 1, an iconic heritage building in the heart of Budapest’s central business district.

A lively green vertical garden, creating a welcoming atmosphere across the reception, is visible from outside through the huge glass entrance. The state-of-the art new office of 1,400 sqm reflects DVM group’s past and future alike. With a vast wall montage showing project details from the first 20 years of the group’s professional history and a glory shelf packed with awards, the company honours its experts’ well-earned achievements and inspires them in style.

The view from the windows opening to Vörösmarty tér and Váci utca enriches the elegant atmosphere of the office interior.

The spacious yet efficient areas of the two-storey HQ support every aspect of modern business life, where design goes hand-inhand with sustainable and energy-efficient solutions. Beside large, representative meeting halls and practical internal focus rooms, sound-insulated phone booths ensure that conversations and calls are carried out without disturbing others. Ergonomic open space zones are separated by cosy lounges and functional project areas to facilitate teamwork and knowledge-sharing. In addition to its natural gastronomic purposes, the well-equipped, roomy kitchen also serves as a vivid meeting point for colleagues from different departments.

43

Attila Kovács MRICS

completed in 2018. The first, Szervita Square development – in close vicinity to Váci 1 – will offer high quality office and retail space and luxury residential units for premium tenants in downtown Budapest. Promenade Gardens, our next design & build project on the popular 13th district Váci office corridor, is a large-scale office development of 25,000 sqm.

The property market has gained impetus, and we have no intention of slowing down either. The company’s stable background, trusted reputation and successful endeavours in the past provide a steady base for further growth and exciting plans.” www.dvmgroup.com

Offering the most comprehensive range of integrated building services in Hungary, it comes as no surprise that DVM group has grown by a great extent in recent years, so moving was well timed.

“With now almost 80 experts on board and counting, the expansion of our team enhanced our capabilities further to provide clients with an even higher quality of service. Our experienced professionals have been active across all fields of building services, from design and project management to general construction, sustainability consultancy and development management. We are proud of the fact that we have been involved in a great number of recently awarded projects -such as CBRE and Deloitte office fit-outs, Central European University, Helvetic Clinics and Roosevelt Office Buildingeither from design, project management or construction aspects.“ - explained Attila Kovács, managing partner of DVM group.

“The revitalized Váci 1 building will be our new home for the next ten years, and it will also welcome a major international retail anchor tenant’s flagship store in May. We have two general design and general construction projects in the pipeline, both set to be

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Convergence is turning Duna Office Center into the CityZen Offices.

OFFICE UPGRADES CREATE SPACE QUICKLY With vacancy high and the pipeline limited, investors are renovating older spaces to bring new class ‘A’ office space onto the market.

C

onstruction may be underway but demand is huge now, and those who can provide office space quickly will find clients. In this situation, the fastest way to deliver new class “A” office space is to upgrade old office space.

the purchase of three buildings from Volksbank. They are in the process of refurbishing the Duna Office Center, rebranding and bringing the standard up to current tenant requirements.” The refurbished center will be called CityZen Offices.

Given the limited pipeline and rising demand, building owners and long-term investors are undertaking refurbishments in an attempt to reposition office centers.

In a recent transaction, GTC has completed the purchase of the 31,500 sqm Duna Tower office complex for around EUR 52 million.

GTC see value-add potential in the development, which was originally delivered in 2006. Duna Tower is arguably the highest office complex in Budapest at 60 meters with 16 floors of office space overlooking the Danube close to Árpád Bridge in the Váci út corridor. “We will invest in upgrading the building’s specifications and amenities to improve the service and comfort level for new and existing tenants,” said Thomas Kurzmann, CEO of GTC.

“There are few new developers coming to the market. However, more developers who were very active in the past are contemplating starting projects, even on a speculative basis,” said Gergely Pados, managing director of Cushman & Wakefield Hungary. “Then you have the other tier, of which Convergence is a good example, with

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Duna Tower: Arguably the tallest in the city.

Another investor, S IMMO has a Hungarian portfolio of seven office buildings totaling 100,000 sqm. S IMMO is upgrading the 7,000 sqm Buda Center located in the central Nagymező utca. The Austrian investor’s portfolio also includes Haller Gardens, the Central Business Center and the Árpád Center.

Another investment group, CPI has a portfolio of ten office buildings in locations across Budapest. “Considering the high need for new office stock and the moderate pipeline, the early risers will be the winners with regard to office development. CPI is upgrading its existing portfolio while at the same time seeking value-add investment opportunities. More quality product will improve sentiment towards Hungary,” said Mátyás Gereben, general manager at CPI Hungary.

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“CPI is upgrading its existing portfolio while at the same time seeking value-add investment opportunities. More quality product will improve sentiment towards Hungary.”

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SPACE MEANS OPPORTUNITY CPI distinguishes itself with expert teams and its long-term presence

CPI Property Group is a leading real estate company with core activities in CEE and Germany, concentrating on long-term investments, real estate leasing and Asset Management.

CPI Property Group maintains a well-balanced and diversified portfolio with a value of more than EUR 3.6 billion.

This includes a comprehensive range of properties located in Germany, Czech Republic, Slovakia, Hungary, Poland and Romania.

Significant features that make CPI stand out include its long-term relationships with lending institutions and experienced regional teams in core markets. The Group has a substantial track record in acquisitions and development in conjunction with financing of projects and issuing of new corporate and project bonds. CPI Property Group has its registered seat in Luxembourg and as a public company is listed on the Regulated Market of the Frankfurt Stock Exchange.

CPI Hungary has become the member of the CPI Property Group by the acquisition and fusion of Budapest based Ablon and ORCO/ Endurance portfolio in the end of 2013. The company’s main focus is to invest into and utilize its diversified portfolio following a long term investment and asset management strategy and become a strong, recognized player in the Hungarian real estate market.

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The portfolio includes office, retail, logistic and hotel properties with a gross lettable area of 290,000 sqm.

“As a proof of CPI Hungary’s long term strategy, we have managed to conclude new leasing contracts on 55,000 sqm in 2015 and we are expecting to beat this number in the upcoming year. We have invested close to 3 million euros last year in order to improve the quality and the efficiency of our assets and in order to satisfy the ever-growing requirements of our tenants. This refurbishment program will continue in 2016 along with an innovative asset management program which mainly focuses on sustainability and enhancing the ‘human factor’ in our buildings” – says Mátyás Gereben, the Country Manager of CPI Hungary.

“The Hungarian property market enriches and indeed influence the architectural heritage of Budapest with iconic buildings, while older office buildings are also being renovated. The success of sustainable development does not purely lie in the newly developed assets as older buildings represent the majority of the market, so it is only by modernizing them that we can achieve the ultimate goal, i.e. create a people oriented world. This is the philosophy behind our comprehensive refurbishment program. The first milestone along this path is the refurbishment of Balance Office Building.” says Bea Déri, PR&Marketing Director of CPI Hungary. www.cpigroup.hu

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BALANCE OFFICE PARK A renaissance along Váci Road

Balance Office Park, currently being assessed for a BREEAM very good certification, is CPI Hungary’s most innovative project in the pipeline, with a completion deadline by end-of-year 2017.

The complex consists of two buildings, with a total of 15,600 square meters of leasable area. The refurbishment program will be carried out in two phases: the first phase, Balance Building, will be completed by the middle of 2016 with 9,400 square meters of modern, high-tech office space. Phase 2 consists of 6,200 square meters of the very unique Balance Loft, featuring an industrial and modern style that suggests the characteristics of a loft building.

Balance Office Park is located in the Váci Corridor, the main office corridor of Budapest. An oasis within the metropolis, the complex will be opened in completely new surroundings, in the middle of a

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3,000 sqm green park. Tenants can use the underground car park and bicycle racks with a shower room.

To create a modern and human-oriented environment, CPI introduces its own Human Innovation Program, which offers a new generation, sustainable work place for its tenants, with a human service center. Within the human program the following services are available: health care services, recreational services, outdoor sport facilities, document administration services, gastro points, healthy food delivery, a living garden and cultural program services.

The park performs well in all criteria of the BREEAM certification, which recognizes a special focus of sustainability and environmental design combined with a high level of competence in the BREEAM assessment process. www.balancebuilding.hu

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TRIGRANIT MILLENNIUM CITY CENTER A DANUBE-SIDE GEM The three-hectare patch of greenery and modern buildings on a former brownfield space includes the Palace of Arts, the National Theater and environmentally friendly class ‘A’ offices.

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THE REAL ESTATE

O

n beautiful grounds that include the modern culture complex of the Palace of Arts and the National Theater, Millennium City Center is truly a city within the city. The green, campuslike surroundings, with exquisite panoramic views of the Buda hills and the Danube River, has offices where 7,000 people work, and the area has a host of amenities serving almost 100,000 visitors.

Between 1999-2011, TriGranit developed structures with a total area of 360,000 sqm on Millennium City Center’s three-hectare plot. The development includes the world famous Palace of Arts and theater complex; the Duna-Pest Residences, with more than 310 luxury apartments; five Millennium Tower class “A” office buildings; and the initiation of construction of Millennium Gate. The total value of the development project exceeds EUR 500 million.

The class “A” office buildings of Millennium City Center represent an outstanding level of quality on the Hungarian office market, being among the first LEED® registered buildings in Hungary. Designed by top Hungarian architects, these award-winning office buildings combine unique building solutions with the most modern technical features.

They provide an attractive and high-quality working environment on 120,000 sqm of space., The ground floor of the buildings provides 6,600 sqm of space for retail tenants.

Standing amid the attractive greenery of the complex, it is hard to believe that all this all a “brownfield” development in an area that once hosted manufacturing.

“Carrying out developments on an old industrial area requests more professionalism, time and investment. The whole development area has to be recultivated by changing the soil in order to create a

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healthy environmental space. But all this extra efforts are worth it - all of our brownfield developments are still today one of the most popular and successful city centers in their given region, the city’s society.” said Árpád Török, CEO of TriGranit. The site has attracted plenty of tenants.

In 2011, K&H Group purchased from TriGranit an office tower in Millennium City Center, which became the K&H Group Headquarters. In the same year, Heitman acquired a 74% share in Millennium Towers I, II and III, as well as building “H”. Millennium Gate has been sold in 2014 to the Dutch-registered International Medical Centers B.V. The Millennium Office Towers I, II and III, with a GBA of 96 200 sqm, has become one of the most popular locations for local and foreign companies in the last 10 years. Major tenants include Vodafone, Morgan Stanley, Nestlé, JTI Hungary, Lexmark, ProLogis and Boehringer. The popularity of the eight-storey office buildings is reflected by the regular extension of lease agreements of these companies.

The Millennium Towers K and H were the first office towers receiving the LEED Gold certificate in Hungary.

TriGranit is one of the largest fully integrated, privately owned, real estate platforms in Central Europe, focusing primarily on quality retail and Class “A” office buildings in strategic urban locations. TriGranit conducts a full spectrum of real estate activities including acquisition, development, construction and property and asset management.

In its two decades of operation, TriGranit has developed nearly 50 landmark projects, creating one million square meters of GLA in seven CEE countries, and it has won more than 40 highly prestigious international awards.

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Budapest office market at a glance

OFFICE DEMAND, 2015, Q4

OFFICE TAKEUP BY SECTOR

C

M

Y

SOURCE: Budapest Research Forum

CM

MY

OFFICE ASKING RENTS CHANGE (YEAR-ON-YEAR 2015, Q3)

SOURCE: CBRE

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CY

CMY

K

SOURCE: CBRE

2016. 03. 30. 13:02

skanska_ad_190x250_03_print.pdf 1 2016.03.21. 12:35:52

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Your future office, Nordic Light.

C

M

Y

CM

MY

CY

CMY

K

Letting agency:

+36 1 374 3040

Skanska the innovative and sustainable developer 1134 Budapest, Kassรกk Lajos utca 19-25. www.skanska.hu | property@skanska.hu

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District XIII Mayor József Tóth: ‘Many opportunities for investors’.

INTERVIEW: ‘THE MAYOR OF VÁCI CORRIDOR’ József Tóth, the official who helped make District XIII the capital’s prime office location, describes his continuing efforts to support development.

I

t is no accident that the so-called Váci corridor has become Budapest’s “business center”, hosting the majority of the capital’s office development. Váci út and the area around it were converted into an office Mecca thanks to forwardthinking initiatives by the local government, which has been led by District XIII Mayor József Tóth since 1994. By engaging planners in the process and actively courting developers, Tóth and his team have made brilliant use of the copious brownfield space left behind in an area that once hosted industrial activity. We spoke to Tóth about his continuing stewardship of the Váci corridor, and general development in the District XIII.

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What is the current stock of class “A” office, retail and residential development that have been undertaken in the 13th district in recent years?

The past year saw the construction of 18,000 new apartments, approximately one million sqm of new real estate. Some 70% of the offices in the district are “A” category, possessing the highest possible green certificates, such as Green House, Klapka u. 19 (LEED “Platinum”); Váci Greens, Madarász u. 6; and Vision Towers (K4), Angyalföldi út 8. The southern tower of Vision Towers received BREEAM “Excellent” certification, while the northern tower was awarded with BREEAM “Very Good”.

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How do you cooperate with developers in the design and planning process?

The representative body of the local council secures the legal requirements for realization of projects by creating decrees.

We generally join the planning process when the draft plan is ready. The planning council negotiates on every important plan, and makes recommendations that are usually happily accepted by designers and investors.

The majority of real estate developers ask well-known and outstanding architects to handle the jobs, but there is room for further improvement. For example, developers can take the option to tender a plan, not choosing a designer but actually choosing József Tóth at the ‘topping out’ ceremony for the V17 building on Váci út. the plan itself. This way, the local council would have the opportunity to contribute to the creation of plans that determine the skyline of the district.

What do we provide? We can show future prospects: • Stability and reliability • Quality green areas, public places, creation and maintenance of roads • Quality local council services and institutions • Reliable and predictable tax policy • The generally good conditions of the district To sum up, the district government has credibility, and trust in the district government is an important characteristic of the area.

Would you define Váci út as the major office district of Budapest?

Yes, Váci út and its surroundings are the most frequented investment area in Budapest. The area has been among the leaders, preserving its competitiveness.

How can the look and feel of Váci út be improved as a living and working environment? Should it have the feel of a boulevard?

Currently vehicle traffic through Váci út dominates it greatly. If the Aquincum bridge is built and Metro line 3, suburban railway and other alternative routes are renovated, the heavy traffic on Váci út could be eased, and then we could discuss ways to humanize the street. These are currently long-term plans.

What we can do now is motivate investors to establish internal walkways, agoras, coffee houses and stores in the offset areas opened for public use. In this way an urban walkway surrounded by parkland is currently being built from Rákos patak to the Gyöngyösi út metro station, parallel to Váci út.

How much more office, retail and residential development is in the pipeline in the near future?

Váci út, Róbert Károly körút and Dózsa György út all offer many opportunities for investors. We mainly support office buildings in these areas. In private investment, at the junction of Váci út and Róbert Károly körút, there are preparations for two big investments,

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“What we can do now is motivate investors to establish internal walkways, agoras, coffee houses and stores in the offset areas opened for public use. In this way an urban walkway surrounded by parkland is currently being built from Rákos patak to the Gyöngyösi út metro station.” which are chiefly office buildings but also feature retail and services functions. The office corridor of Váci út will be further expanded, beyond the projects that are currently under construction.

Many new flats and apartments are being built – chiefly by private investors, although there is local council investment as well. The Marina harbor is also being expanded, and its residential quarters are being renewed. District XIII is one of the most sought-after and also the most expansive areas in the Hungarian residential market.

Today there are hundreds of thousands of square meters of property that has construction permits, and much off it is under construction. Some examples: • Wing – 17,000 sums • Dunyov u. – Váci út corner (former Felvonójavító) – 26,000 sqm • Skanska (Váci út-Süllő út corner) – 25,000 sqm • Atenor phase 3 and 4 - 22,000 and 15,000 sqm (Váci út – Fiastyúk u.)

• HB Reavis 230,000 sqm (Váci út – Róbert Károly körút junction) The past year saw a significant number of developments in the district, but still not like before 2008.

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Budapest office market by the numbers PRIME OFFICE RENTS (DECEMBER 2015) EUR/ sqm/ mo

EUR/ sqm/ yr

% growth in 1 yr

21

252

0

Central Buda 15

180

0

Váci Corridor 15

180

3.4

Periphery

120

0

CBD

10

OFFICE MARKET Q4, 2015 Completions (sqm)

3,020

Speculative Stock (sqm)

2,595,650

Owner-occupied Stock (sqm)

685,320

Total Stock (sqm)

3,280,970

Vacancy (sqm)

395,800

Vacancy Rate (%)

12.1%

Pre-lease (sqm)

40,520

New Lease (sqm)

42,855

Lease Expansion (sqm)

16,115

Lease Renewal (sqm)

38,480

Owner Occupation

23,005

Total Demand (sqm)

160,975

Net Absorption (sqm)

48,280

SOURCE: Budapest Research Forum

SOURCE: CUSHMAN & WAKEFIELD

KEY OFFICE MARKET INDICATORS 2014

2015

Change

2016 forecast

New supply (sqm)

68,200

50,900

- 25%



Take-up (sqm)

241,500

364,800

+ 51%%



Total Leasing Activity (sqm)

455,400

536,300

+ 18%



Net Absorption (sqm)

124,900

176,000

+ 41%



Vacancy Rate (end of period)

16.2%

12.1%

- 4.1 pps



Availability in Pipeline (sqm)*

61,000

62,000

+ 2%



Average Asking Rents

EUR 10.4

EUR 10.7

+ 3%



*Available areas in projects currently under construction SOURCE: BRF, CBRE Research

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REBORN RENO AWAITS NEW TENANTS

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pring opening offer at Reno Udvar on Váci út, just an arm’s length from downtown Budapest. You will find the right size to fit your needs at Reno Udvar on Váci út. Warehouses from 10 square meters to 1,500 square meters available at significantly discounted prices.

Beside that, low rent, favorable utility costs, configuration and renovation per your wishes, custom-tailored offices in a size that fits your needs. Choose the largest office corridor in Budapest five minutes away from downtown and rent a B+ category office at the price of the B- category. Sizes as per your needs: offices ranging from 12 square meters to 1500 square meters.

Last, but not least, we have stores to rent from 44 square meters to 400 square meters available at significantly discounted prices. Open

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a store or start a business in the much frequented Reno Udvar and join RÉGIÓ toy store, Brendon children’s store, Cardo furniture store, Eleven Park Playhouse – the largest indoor playground in Hungary – and many others.

Our courtyard, accessible by public transportation or by passenger cars, offers plenty of parking spots and storage opportunities. Easily accessible location, convenient loading, separate truck gate, and reception service.

Due to the close proximity of Megyeri bridge, motorways M2 and M0 as well as highways M3 and M5 are reachable quickly.

For further information about our offices, warehouses and stores, please send an inquiry to iroda@ari.hu or call us at (+36) 30 601-1000.

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INTERVIEW: ATTRACTING FOREIGN INVESTMENT Róbert Ésik is President of the Hungarian Investment Promotion Agency (HIPA), which works to support foreign firms that want to invest in Hungary.

Here he discusses the possibilities for FDI in property.

One common theme we are hearing from people in the Hungarian property business is that there is high demand for office, industrial and retail space, but low vacancy rates. In this situation, it seems we need more construction. How can FDI help this situation, and what can HIPA do to facilitate the right kind of FDI? In terms of offices, there is over 3.24 million square metres of modern office space in the Hungarian capital, making Budapest the second largest office market in Europe.

At a city level, Budapest reached its first top 10 position in the survey. Reaching 8th place, the Hungarian capital is one of the most attractive CEE cities, following Warsaw (6th), while London retained its preferred status, with 15.1% of all investors favouring the city, but the gap between London and other cities is closing. Madrid came second with 12.2%, closely followed by Paris (11.6%).

What can an organization like HIPA do to make Hungary more attractive to foreign property companies? How can HIPA make it easier for them to invest?

Until very recently, the city was dotted with The Hungarian Investment Promotion construction sites; some 780,100 square Agency (HIPA) operates under the metres of office space was built in the last supervision of the Ministry of Foreign four years. Consequently, compared to many Affairs and Trade. Through its extensive Western European cities, the capital’s office network of contacts in the public and stock is relatively new. In terms of quality, private sectors, HIPA provides foreign Budapest does not differ greatly from its investors with high-quality support for Western European peers as most buildings critical investment decisions, and a have been constructed to internationally Róbert Ésik, President of HIPA. wealth of supplementary services. HIPA accepted German and US standards. helps them through the whole investment process, from start to Potential tenants have considerable opportunities, with 524,300 finish, through a one-stop-shop service model, free of charge. square metres – 16.2% of the total office space – currently available.

Assuming a requirement of 1,000 square metres (for a business Are you mostly looking to attract foreign developers of 100 to 120 people), there are over 100 suitable buildings. Cost- who will build new properties, or are you also working conscious solutions in newly built properties, as well as effective hard to bring in firms who invest in, and manage, lay-outs and close-to-city locations are particularly popular with assets? Is one type of activity preferable to the other?

HIPA operates an internal database of industrial parks, investment SSCs. sites, industrial halls and offices in Hungary. One of the most What are the attractions of the Hungarian market for comprehensive resources of its kind, the HIPA database forms part of the information package for potential investors. The Investment foreign real estate companies?

According to CBRE’s 2016 EMEA Investor Intentions Survey, there Sites Database, which lists over 700 greenfield and brownfield sites is a big uplift in interest in Central and Eastern Europe (CEE). and offices throughout Hungary, simplifies the task of matching When taken as a group, CEE markets saw their proportion of investors’ needs to potential locations. Searchable by size, location, preference rise from 6% in 2015 to 23% this year. This can partly available infrastructure and incentives, the database is an excellent be explained by the investors’ continued “search for yield”. In H2 starting point for any prospective investor.

2015, prime yields in continental Western Europe fell very sharply, and this has resulted in the yield gap between CEE and Western Moreover, our Hungarian Investment Project (HIP) department is Europe increasing markedly, raising CEE’s attractiveness to real handling real estate projects which have been legally, financially and technically audited by the Agency and which have a serious estate investors.

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“A major goal is to make Hungary and Budapest even more widely-known to the professional public, to emphasise comparative advantages of the Hungarian real estate market.”

What was HIPA’s contribution to the Budapest exhibition stand at the MIPIM conference in Cannes?

The Municipality of Budapest, the Real Estate Developers’ Roundtable Association (IFK) and the Hungarian Investment Promotion Agency (HIPA) represented Hungary and promoted Budapest at the international real estate exhibition of MIPIM this March. This unique co-operation resulted in a custombuilt Hungarian exhibition stand of nearly 80 sqm – designed by BVA Budapesti Városarculati Nonprofit Ltd. – where numerous Budapest real estate development projects of high potential were presented to possible investors. Before this year’s contribution of the three organizers, Hungary hadn’t been represented at MIPIM for 6 years, although this is one of the most important exhibitions of the global and the European real estate market.

MIPIM is one of the most important fairs of the property and investment market, where all industry players are represented, from development and financing to construction and marketing.

The program of the prestigious event focuses on new trends and innovations in the field of real estate investment. This is where the exchange of information about potential future developments takes place, but property projects to be included in future investment portfolios are also explored here.

What was the reaction to the stand from foreign property companies?

We were able to welcome a good number of visitors at the advantageously positioned, superiorly designed Hungarian stand and had the opportunity to get very positive feedback. We worked a lot on the image and the programs at the Hungarian stand, even on the smallest details, and it was totally worth it. If you are comparing with, e.g., the stand of London or Istanbul, that’s a big thing.

What was the reaction from the “Budapest contingent” of Hungarian property companies to the stand?

The head of the co-exhibitor IFK, comprising private real estate development companies, confirmed that – taking into account the opinion of member companies participating in the exhibition and on the basis of the number and depth of negotiations – it was obvious that Budapest was one of the most popular investment destinations within the region. Compared to other cities, prices there are more favourable, thus the rate of return indicators are also very attractive. Foreign investors can also see that it is worth developing and purchasing residential and office market property within our country.

What are some of the initiatives that HIPA is planning in the near future to promote the Hungarian real estate market?

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We will continue to strengthen our common presence at exhibitions – next at Expo Real in Munich in October and at MIPIM 2017. A major goal is to make Hungary and Budapest even more widely-known to the professional public, to emphasise comparative advantages of the Hungarian real estate market, i.e. yields above EU average, low market entry price level, strong demand for new developments, low office vacancy rate and hotel performance indicators at all-time highs.

Regarding HIPA’s activities, a stronger focus will be put on the real estate part of our Hungarian Investment Project portfolio and also on the Budapest Prime real estate portfolio that is communicated in our brochures and on our continuously updated and informative HIPA website.

We believe in the effectiveness and success of the cooperation of the major players of the Hungarian real estate market as justified by the success of MIPIM 2016.

Is there anything else you would like to add?

After several years of stagnation, the real estate market in Hungary has taken a growth path since 2014. This is well demonstrated by a turnover of nearly EUR 750 million in 2015, which represents an increase of 60% compared to 2014 figures. However, growth is expected to continue this year; according to market forecasts, the turnover may reach EUR 1 billion this year.

Just as in the competition for foreign working capital (FDI), primarily the Visegrád countries, namely Poland and the Czech Republic, are the main competitors of Hungary in the real estate market. Trends are in favour of our country: while it had a share of only 3% of the real estate market in Central and Eastern Europe in 2012, this figure increased to as high as 13% last year.

A boom in tourism may bring additional help in the strengthening of the Hungarian property market, since an increasing number of tourists visit Budapest year after year; consequently, the hotel industry prospers, and passenger traffic at the Budapest Ferenc Liszt International Airport is constantly growing. In 2015, the airport reached the record-breaking figure of 10 million passengers per year, and, in addition, it won the “Best Airport of Eastern Europe” award for the third time consecutively based on the votes of the travelling public.

At the same time, internal factors also help the housing and property market: the family housing benefit aimed at large families and the reduced VAT rate of 5% applicable to newly built homes.

In addition, not negligible factors are that Budapest will host the World Championship of Water Sports in 2017, and our capital city has officially submitted its application for the right to organize the 2024 Olympic Games. These events and applications direct the whole world’s attention to Hungary, and they also carry a significant investment potential.

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With shoppers pushing sales figures to pre-crisis levels, more major retailers are looking to get into the limited number of retail spaces that are currently available in Budapest. In the long-term, expect construction. For now, those looking to rent retail space need to get in line.

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RETAIL

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The WestEnd mall: Central and popular.

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RETAIL: NOT A SHOPPER’S MARKET Strong retail trade is helping to drive the demand for quality store space, but the supply and projects in the pipline are limited. For now, anyone shopping for commercial space in the city can expect to pay dearly.

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tores are busy, and retailers seem positive about their prospects in Hungary, but there is a limited supply of highquality, high-traffic space for those looking to set up shop in the country.

There have been no new major mall deliveries in Budapest in recent years, and with no projects under construction, the next shopping center completions will not be until 2018 at the earliest.

With economic concerns causing uncertainty among developers in the recent past, pipeline projects have not gone ahead, even though these projects are by established European developers who have delivered retail projects elsewhere in CEE. Retail pipeline is limited to a number of landmark high street projects in central Budapest.

Meanwhile, the growth in household consumption has resulted in strong demand from incoming retailers for the limited supply of prime shopping center and high street space.

Small stock, improving traffic New retail supply has reached historic lows in recent years. Since 2012, less than 50,000 sqm of new retail space has been delivered in Hungary. JLL put total shopping center stock in Budapest at around 770,000 sqm in 25 assets. As a comparison, the current stock in Czech Republic stood at 2.65 million sqm last year, with around another 80,000 sqm under construction. The Warsaw agglomeration has more than 1.14 million sqm of shopping center space.

The supply side of the Budapest retail market could be regarded as challenging; leading retailers entering the market require large units in the best shopping centers where there are often waiting lists for tenants. In response to pent up demand, center owners have been undertaking asset management and refurbishment. Strong demand in combination with falling availability has put upward pressure on rents. CBRE put prime Budapest shopping center rents at EUR 5585/sqm/month. Prime high street rents in VĂĄci utca and AndrĂĄssy

The 31,500 sqm MOM center.

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út are also rising. At least 10,000 sqm of new high street space is expected to be delivered by 2018, with rents estimated to be EUR 95-110.

As retail turnover increased, 98 new stores opened in 2015 on a total of 35,200 sqm within the 620,000 sqm of modern retail space monitored by CBRE in Budapest. In partnership with local authorities, developers have also been improving the infrastructure of the major high streets in the center of Budapest.

Retail sales in Hungary grew by more than 6% year-on-year in 2015 – a clear acceleration compared to previous years, according to CBRE; similarly high levels were last seen in 2006. Retail sales figures are forecast to remain fairly robust according to Cushman & Wakefield.

“Hungary has a much lower shopping center stock, mostly due to the more difficult macroeconomic environment and thanks to the ‘Budapest effect’ [the focus on construction in the capital],” said Jonathan Hallett, head of CEE at Cushman & Wakefield.

The management of Allee shopping center recorded more than 17.5 million visitors last year, and an increase in the turnover of shops of nearly 10%. The owners of the mall opened 12 new shops. Allee consists of 46,000 sqm of retail and entertainment units, a 7,000 sqm office center and 89 residential units. The complex was delivered in 2009 by ING Real Estate and has since been purchased by the Allianz Group and NN Group.

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“The number of new stores that opened in 2015 would fill a mid-sized shopping center as CBRE registered nearly 100 new store openings by 79 individual brands out of which 14 were new entrants to the Hungarian market.”

CBRE has registered a growing number of new retailers on the Hungarian market. Thirteen brands have recently entered the country or are scheduled to do so as they target prime high street locations and prime shopping centers in Budapest.

As for central high street retail provision, Fashion Street, developed by the Hungarian company Immobilia, provides 8,000 sqm of retail space and restaurants, Váci utca has been renovated, connecting the southern and northern parts of the street, and Andrássy út is attracting luxury brands in addition to restaurants and bars.

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Big in Pest: Arena Plaza.

Major in Buda: Mammut mall.

Central and high: Fashion Street.

The number of new stores that opened in 2015 would fill a mid-sized shopping center as CBRE registered nearly 100 new store openings by 79 individual brands out of which 14 were new entrants to the Hungarian market.

Fashion and Buda lead Nearly half of the new stores were opened by fashion brands, followed by furniture and sporting goods stores. With the exception of electronic stores, all other sectors increased their retail footprint.

Retailer activity has also increased in central prime high-street locations in Budapest where CBRE registered 12 new store openings on a total area of 4,300 sqm.

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Analysts consider the best performing Budapest shopping centers in Buda to be the 47,000 sqm Allee, the 44,000 sqm Mammutt and the 31,500 sqm MOM center. In Pest the dominant centers are the 66,000 sqm Arena Plaza, the 45,000 sqm WestEnd City Center and 68,000 sqm Árkád shopping center. These have waiting lists for tenants and therefore are able to command the highest rents. There is a widening gap between the primary and secondary markets.

“The target entry point is typically through one of the best performing shopping centers and central high street streets (Váci utca for mass market products and Fashion Street and Andrássy út for high-end and luxury goods),” said Viktória Szabó, head of retail at Cushman & Wakefield Hungary. “A question remains as to the

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Allee mall. timing of the two pipeline projects The project is planned to become a

by Futureal and ECE. We are now business and leisure hub that will moving in the right way for new include retail and service elements development in the next one-toadjacent to office centers. ECE three years. The pipeline projects has agreed to project manage the are in good locations and the development. With the other major question is whether the developers pipeline project, the German retail can conclude pre-leases with the developer and operator ECE is A sketch of Etele City Center. required number of anchor tenants planning the 50,000 sqm Árkád and tenants for mid-sized units.

Acqincum. The last Budapest These need to be new tenants and formats for the Hungarian market delivery was the 20,000 sqm expansion and refurbishment by ECE that are not located in competing centers. With the lack of new of the Árkád shopping center, bringing the size of the development to development, developers are having to accommodate new tenants 68,000 sqm and making it the largest retail center in Hungary. by relocating existing tenants once lease contracts have expired,” she added.

The positive retail figures do not seem to have been negatively impacted by the Sunday closing laws introduced last year, according The planned 44,000 sqm Etele City Center by Futureal is located next to most retailers and shopping center owners; the indications are to the Budapest One business park, adjacent to the terminus of the that consumers have simply changed their habits to meet the new recently completed Metro 4 line on the western edge of Budapest. opening times.

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Budapest retail market by the numbers SPLIT OF RETAIL TAKEUP IN 2015

35,200sqm in total

SOURCE: CBRE

PRIME RETAIL RENTS IN SEPTEMBER 2015 High Street Shops in Budapest EUR/ EUR/ % sqm/ sqm/ growth mo mo 1yr Váci utca 100 1,200 5.3 Andrássy út 40 480 0 Retail Parks EUR/ EUR/ % sqm/ sqm/ growth mo mo 1yr Budapest 7.5 90 0 Budaörs 7 84 0 SOURCE: CUSHMAN & WAKEFIELD

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SPLIT OF BUDAPEST RETAIL STOCK, 2015, Q3

5-yr CAGR (%) 0 -4.4 5-yr CAGR (%) -1.3 -3.8 SOURCE: CBRE

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INDUSTRIA

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IAL

The M0 motorway, and other infrastructure, help make Hungary a natural location for logistics in the region.

But lagging development means there is limited space to meet a growing demand for logistics facilities.

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LOGISTICS SPACE AT A PREMIUM Development favored the neighboring countries over the last few years, but now the low vacancy rate for industrial space in Budapest means that this is likely the next frontier for development.

M

ore industrial development in Hungary is required to meet increasing demand and to catch up with Poland and Czech Republic, which have dominated Central European market activity.

Vacancy in Hungary has shrunk due to a remarkable market recovery over the past two years, driven by a combination of the active occupation market and limited development activity. JLL expects that vacancies will continue to decline throughout the year and bottom out at around 11.5-12 %, the lowest level since 2007.

The limited supply of stock is seen as putting a brake on market activity as international industrial developers are sizing up the market.

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Demand from occupiers is very strong: Almost all the new space coming to the market in Hungary is occupied within a matter of months. Cushman & Wakefield (C&W) estimates there was 350,000 sqm in leasing activity for 2015. Over the past five years, there has been no speculative industrial development in Hungary, as developers have had their hands full trying to satisfy demand for new buildings. However, a limited number of speculative developments are underway across Central Europe (Poland, Czech Republic, Slovakia, Hungary and Romania). New industrial supply for Central Europe for 2015 is put at 1.54 million sqm, a record annual delivery since the economic downturn of 2007-8. Total class “A� industrial and logistics stock in the region stands at 20 million sqm, compared to 24 million sqm in Germany, says C&W.

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Airport City Logistic Park in Budapest.

“The overall vacancy rate in Hungary is at a historically low 10.6%; looking at purely warehouse space, we are talking about sub-10% levels.”

“Last year Poland and Czech Republic were the dominant countries in terms of new construction – together 1.4 million sqm – and a recovery was recorded in Slovakia with 80,000 sqm. Development in Hungary has been minimal in recent years,” said Ferdinand Hlobil, head of CE industrial at C&W. Vacancy at historical low Average industrial vacancy for Central Europe has been declining since 2009, and had fallen to 6.8% as of the turn of the year as take up has outperformed development.

Logistics center owners are in a strong position as incentives are being reduced. Availability in Hungary is seen as being very fragmented, and a total requirement of 10,000 sqm of space would need to be split into two or three units due to a limited supply of large contiguous units.

There is currently one industrial construction project ongoing in the Budapest area, a 22,000 sqm built-to-suit scheme in Alsónémed that is to be delivered this year. JLL put effective prime industrial rents at EUR 3.20-3.50/sqm/month as tenant incentives are shrinking due to limited availability.

Limited rental growth is anticipated in the coming months. This low level of available space has seen developers begin to release speculative developments that are due for completion in the latter half of 2016.

A number of regional industrial developers and logistics park operators are considering entering the Hungarian market.

“The overall vacancy rate in Hungary is at a historically low 10.6%; looking at purely warehouse space, we are talking about sub-10% levels,” commented Gábor Halász-Csatári, head of industrial at C&W Hungary.

Prologis currently has the biggest market share of developers with 588,000 sqm; the company has begun the development of an 8,000 sqm build-to-suit facility (DC2) at Prologis Park Hegyeshalom, on the Austrian border, for logistics provider Fiege. According to the Budapest Research Forum (BRF), Prologis is followed by: BILK with 198,000 sqm; Logicor with 119,000 sqm; Wing with 108,000 sqm; Goodman with 67,000 sqm; and CA Immo with 62,000 sqm.

“E-commerce (as elsewhere in Europe) is gaining momentum.

Occupier deals that are concluding are driven largely by the automotive, pharmaceutical, electronics and FMCG sectors. The emergence of large e-commerce companies such as Amazon is still awaited on the Hungarian market, however.”

The largest logistics park in the greater Budapest area is the International Logistics Center by BILK, with 200,000 sqm of space, followed by Prologis Park Budapest Gyál at 150,000 sqm, and the 130,000 sqm Prologis Harbor Park. Around 30% of the overall Budapest stock is owned by Prologis.

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Prologis Park Hegyeshalom, on the Austrian border.

Enter CTP The entry of CTP into Hungary is a further indication of the improvement in the industrial sector. The Czech-based logistics park developer and operator has extended its activity to both Hungary and Romania, having developed parks across Slovakia, and the Hungary portfolio comprises two purchased assets consisting of the re-named 34,000 sqm CTParkÜllő on the M0 Budapest ring road, and the 6,000 sqm CTParkTatabánya warehouse and production facility. “Strong fundamentals and an increasingly attractive investment climate means that Central Europe will continue to feature in the expansion of major multinationals, with the automotive and ecommerce sectors leading the way. The region still has plenty of room to grow and that is why it is attractive to us,” said Ramon Vos, CEO of CTP. The Central European market is regarded as undergoing diversification as developers differentiate their respective strategies according to Cushman & Wakefield. Companies such as Goodman and Panattoni are focused on developing new projects, another group consisting of CTP, P3 (PointPark Properties) and Prologis are constructing parks then retaining ownership or expanding their portfolios by acquiring existing facilities, while a third group of investors such as Logicor have a preference for acquiring completed parks.

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“These are essentially international industrial developers and park operators who already have a presence in Czech Republic, Slovakia and Poland. Most of them prefer acquisition or single tenant builtto-suit opportunities to start with,” commented Tamás Beck, head of industrial at Colliers International Hungary.

Intrinsic part of the network Prologis purchased the M1 Logistics Park from CA Immo, and Blackstone acquired five logistics assets for its logistics platform, Logicor, as part of a pan-European deal, an indication that Hungary is now regarded as an intrinsic part of the Central European logistics network.

Poland continues to be the leading CEE industrial market, as total quality industrial stock in the Warsaw area alone stands at around three million sqm, with around ten million sqm across the country, while Czech Republic has an industrial and logistics stock of more than five million. Hungary has 1.85 million sqm.

One concern expressed with regard to Hungary is the lack of development in regional cities, as has occurred in Poland, Czech Republic and Slovakia. Although Hungary has a very good road network, with the highest density of highways in CEE, the country is very capital-centric. Manufacturers generally have a preference

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BILK: 200,000 sqm. for secondary cities and from a positive perspective Hungary and Central Europe have lower labor costs than Western Europe, according to Eurostat and Cushman & Wakefield. However the majority of development outside of Hungary is owneroccupied, with companies such as Audi developing their own facilities.

The quality of the motorway network allows companies to establish themselves around the capital.

In the post-2014 period, industrial development in eastern Hungary dominated the regions. According to CBRE research, in addition to Budapest with two million sqm, there is 530,000 sqm in Tatabanya, 480,000 sqm in Győr, 415,000 sqm in Székesfehérvár, 310,000 sqm in Nyíregyháza and 210,000 in Kecskemét.

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Logicor’s Tulipán Park Biatorbágy.

The level of vacant space is marginal in most of the provincial cities such as Tatabanya, Győr and Székesfehérvár, and is usually caused by a major company leaving a warehouse facility.

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Hungarian industrial property market at a glance TAKEUP OF INDUSTRIAL PROPERTY, 2015, Q3

SOURCE: CBRE

CEE INDUSTRIAL STOCK, 2015 (IN MILLIONS OF SQM)

SOURCE: CUSHMAN & WAKEFIELD

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SPLIT OF INDUSTRIAL LEASING IN 2015, Q4

SOURCE: Budapest Research Forum

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PRIME INDUSTRIAL RENTS (DECEMBER 2015) Budapest

EUR/sqm/ EUR/sqm/ % growth mo yr in 1 yr 3.50 42 2.9

Debrecen

3.50

42

0

Miskolc

3.50

42

0

Győr

3.50

42

0

Székesfehérvár

3.50

42

0

Hungarian industrial property market by the numbers

SOURCE: CUSHMAN & WAKEFIELD

PRIME INDUSTRIAL YIELDS LOCATION

Q4, 2015

Q3, 2015

All of 2015 10-yr high

10-yr low

Budapest

8.5%

9%

9%

9.5%

7.75%

Debrecen

9.75%

9.75%

9.75%

12%

7.5%

Miskolc

9.75%

9.75%

9.75%

12%

7.5%

Győr

9.25%

9.25%

9.25%

10%

7%

Székesfehérvár

9.5%

9.5%

9.5%

10%

7%

SOURCE: CUSHMAN & WAKEFIELD

HUNGARIAN INDUSTRIAL PROPERTY MARKET, 2015, Q4 Logistics Park

City logistics

Total

Completions (sqm)

5,000

0

5,000

Modern stock (sqm)

1,695,235

186,415

1,881,650

Vacant space (sqm)

174 185

26,095

200,280

Vacancy rate (%)

10.3%

14%

10.6%

New (sqm)

16,240

1,530

17,770

Renewal (sqm)

52,445

800

53,255

Expansion (sqm)

10,165

0

10,165

Pre-lease/BTS (sqm)

0

0

0

Leasing activity (sqm)

78,860

2,330

81,190

SOURCE: Budapest Research Forum

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HOTELS

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The lobby of the new Ritz-Carlton awaits completion of the rest of the hotel, which is set to open this year.

The luxury renovation is one of many major developments taking place as investment in hotels increases, following the general trend in Budapest property.

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HOTEL MARKET DRAWS NEW INTEREST More investors are seeking to own hotels in Budapest, and there is a trend toward refurbishing historic buildings into luxury accommodation.

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he Hungarian hotel market has picked up, with 15 new hotels delivering 800 new rooms in 2015. Last year countryside guest arrivals grew by 7.4% year-on-year, and in Budapest the growth rate was 7.6% according to CBRE. With the success of the sector, hotels have become attractive investment assets for both developers and investors. In Budapest there is a trend for the development of hotels in refurbished historic buildings (mainly boutique hotels in central Budapest), while outside of the capital the development of wellness and spa-related schemes is the favored option.

Visitor figures for Budapest are increasing for leisure tourists and an increasing number of conference groups are also visiting the city, not only in peak tourism periods but also off-season. According to the hotel and hospitality consultants Horwath HTL, the Budapest hotel market recovery has long been overdue to follow neighboring European capitals such as Prague and Vienna. Further, constant infrastructure improvements and the creation of quality attractions and entertainment hubs have made Budapest a better overall tourism product. The five-star hotel market is achieving higher per room revenues, and the four- and three-star categories (notably centrally-located boutique hotels) are reaching occupancies of well above 80%. The overall occupancy rate in Budapest stands at 81%, ranking the city at the upper end of European capitals.

One of the largest editions to the Budapest hotel market last year was the 85-room Prestige Hotel Budapest design hotel in the central District V. Jordanian-born Mazen Al Ramahi, who also developed the Boutique Hotel Budapest in Só utca and the Continental Hotel Budapest in Dohány utca, owns the Prestige Hotel Budapest. He describes the Prestige Hotel as: “A great combination of modernity, classic old-fashioned elegance and the latest technology.”

The total cost of the Prestige Hotel development was EUR 10 million, funded from the equity of the owner and a loan from OTP Bank. The target of the management is at least 80% occupancy.

The Prestige Hotel is also home to a high-end eatery, Costes Downtown, which became the latest Budapest restaurant to win a Michelin star only six months after opening.

In a development at the top end of the market, the luxury international hotel chain, Ritz Carlton, will establish a Ritz Carlton Hotel at the Le Meridian Hotel in the central fifth district of Budapest. Wide-ranging renovation work on the listed-building is due to start this year as the hotel will change its brand to Ritz Carlton.

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Infrastructure improvements and the creation of quality attractions and entertainment hubs have made Budapest a better overall tourism product. The five-star hotel market is achieving higher per room revenues, and the four- and three-star categories are reaching occupancies of well above 80%.

“Budapest, located in the heart of Europe, is an exciting location with great potential, so we are confident that the decision to open a a brand new facility in the city is an excellent one, as Budapest is attractive for both business and leisure travelers alike,” said Marcus Loevenforst, general manager of The Ritz Carlton Budapest. Work on the development will entail a complete reconstruction of the existing building at Erzsébet tér.

In another project, Sameer Hamdan and Zuhair Awad, the Jordanian partners behind Hungarian hotel developer and operator Mellow Mood, are overseeing a project to redevelop the Párizsi Udvar building into a four- or five-star hotel. A permit has been obtained for the reconstruction of the listed building in the central fifth district and plans call for delivering a 15,000 sqm hotel by mid-2017.

Mellow Mood has developed several hotels in Hungary, ranging from the luxury Buddha-Bar Hotel to high-end hostels.

In the longer pipeline, the Eric van Egeraat designed Emerald Residence in central Budapest is scheduled to deliver 100 hotel rooms, 72 apartments and 1,500 sqm of retail units close to Váci utca in 2018.

At the luxury end of the market, there are plans to redevelop the former Hungarian National Ballet Institute building – also known as the Drechsler Palace – on Andrássy út into a 168-room hotel.

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The lobby of the new Prestige Hotel.

Michelin Star winner Costes Downtown, inside the Prestige.

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OFFICE

DESIGN

Designs for Budapest offices, like the one shown here, are created by a sophisticated group of firms who promise to build productivity into their interiors. These designers argue that, when choosing furnishings, good ergonomics makes for good economics.

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A design by Kinnarps Hungary.

OFFICE INTERIORS FOR THE MODERN AGE Experts say that ergonomics and a good working environment can play a big role in productivity.

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hen making decisions about designing a work space, experts say forward-thinking managers should consider more than the immediate cost of furnishings: A good design must also address the needs of the workers who will inhabit that space, as happy, healthy workers can best contribute to the goals of their employer. Interior design firms in Hungary say they try to take into consideration the latest trends in design while also focusing on functionality and ergonomics. But deciding to accept major changes in their working environment sometimes requires a leap of faith on the part of both the employer and the employees.

needed, among other factors. “An office audit is used to identify the issues in a given space and to assess what parts of a space may be harmful to employees, such as engineering, the furniture, lighting, climate and ergonomics,” says Feuertag. This is done first by asking relevant questions, and also by shadowing employees during working hours, as well as by holding workshops and lengthy consultations.

“We are often drawn to the way things have always been: one desk, one chair, one large and two smaller boardrooms, a kitchen. What we need to do is avoid the superfluous spaces and try to create an office that works best for the needs of the company,” says Tiberius “The biggest challenge in winning someone over is to help them Soltész, country manager of Kinnarps Hungary, adding that people conquer the fear of the unknown. But what’s interesting is that need to step out of their comfort zones to make change happen. few people know just how bad their current situation actually is,” explains Ottó Feuertag, the owner of Europa Design.

Open concepts that work One way to cater to the needs of the modern workforce is through When taking on a new assignment, Feuertag says, his first task an open-office concept. Although this setup is not ideal acoustically speaking, it is actually the best use of space, according to Ferenc is to look at a company’s overall strategy, its priorities and the way in which the employees work: whether they are agile or Masznik, the executive director of Office Line. The open office facilitates different working styles, particularly collaborative ones, more sedentary, and to what extent communal work spaces are

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A design by Office Line.

Herman Miller furnishings, recommended by Europa Design.

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REAL ESTATE review and since employees are encouraged to move away from their computer screens every hour, there is ample opportunity to take advantage of the communal spaces.

“Many in upper- and mid-management have a theoretical knowledge of how collaborative spaces work but that’s not actually what happens in practice,” says Károly Kis, managing partner of Blue Business Interior. “They need to be educated about the nature of collaborative practices including spontaneous meetings of all sizes and lengths, for which most large meeting rooms are not even required.”

Breakout or communal spaces may also be designed to contain areas for play, where employees can bond with each other through positive and fun activities, says Masznik. These spaces can also reduce the need for external team building activities that have long been a popular method for engaging employees with one another to solve complex problems in playful and creative ways, while also getting to know each other’s work habits.

The science of ergonomics The science of ergonomics is an essential component in any welldesigned office. Most understand that ergonomics involves a good office chair that provides ample support, and this certainly is a key component. “Some 85% of sick leave can be attributed to a bad office chair,” says Feuertag. But the size of the desk, lighting, air circulation and humidity are also vital parts of this complex science.

Soltész, of Swedish company Kinnarps, says ergonomics have been a hot topic in Sweden for the past 10-15 years. “I’m happy to see that ergonomic work spaces are becoming important to an increasing number of our clients in Hungary.”

Feuertag explains: “Unfortunately, the Hungarian market reacts slower to changes than surrounding markets and is less open to new ways of working. It is more conservative.” Soltész doesn’t see conservatism as a concern, but rather as evidence that Hungarians are perhaps more deeply connected to tradition. The market is changing, however, and multinationals are helping foster that change, bringing their corporate culture into an environment that could do with some fresh blood.

“The sitting-standing desk which can easily be adjusted electronically is starting to make an appearance in Hungary,” says Soltész, adding, “It is good for circulation, for your spine and your general well-being.”

Technological developments also play a key role in the emergence

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Europa Design’s cell phone booth offers privacy in an open office. of new trends, with everything from smart offices to wired and wireless consoles that can accommodate all the gadgets that are making their way into local offices.

Along with being good for our bodies, furnishings can also be good for our environment. Green practices are another hot topic, and this also belongs in part to the category of smart offices, where energy efficiency is maximized by automatically switching off lights when they are not required, or reducing heating based on patterns of usage and occupation of a given space.

Environmental considerations extend not only to the use of recycled materials, but also to sustainable materials. A number of furniture manufacturers have upped the ante by using waste from production processes to fuel industrial machinery or by introducing zero emissions programs. “There is also a great deal of used furniture on the market, as well as the option to rent furniture, which is not only an environmentally friendly option, but can also provide big savings,” says Masznik.

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The kitchen and (below) dining room of Eaton’s new offices.

CASE STUDY: A new home for Eaton Enterprises Eaton Enterprises Hungary, a power management company that has a rather diverse portfolio, recently opened its business service center at Krisztina Palace in Budapest’s District IX. Europa Design was given the project, and according to its owner Otto Feuertag, the management of Eaton gave his team plenty of room to create.

They came up with a clean and modern design, which features sitting-standing workstations, 120-degree workstations and honeycomb cubicle stations that are made up of adjustable panels to provide optimal sound insulation.

“The color scheme comprises warm, earth tones and the interior floor treatment mirrors the exterior of the building and its broken façade, which throws light onto the space in very interesting diagonal patterns,” says Feuertag, who incorporated these patterns into a unifying design throughout the entire space.

Sunken sofas and tall screens denote the break-out rooms that have been designed with various acoustic features in mind to

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create sound buffers that reduce unwanted noise – important ergonomic considerations in an open concept office.

Eaton’s office also includes a full range of smart features such as lighting and climate control that can be adjusted remotely through an iPhone interface.

The company has occupied this space for six months and the client and their employees are apparently happy with the results, as Feuertag and his team have been signed on to carry out the second phase of the project.

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GREEN OFFICES

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BREEAM, LEED or other types of environmental certification are now basics for class ‘A’ office space in Budapest. Tenants and building managers know that a more efficient building is also more economical.

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Nordic Light.

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GO GREEN OR GO HOME

Budapest developers and asset managers know that clients expect new properties to be efficient and environmentally friendly.

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nyone hoping to make “serious green” in office development or asset management in Hungary must make sure that their property is seriously green.

The conventional wisdom is that sustainable features are now prerequisite for a higher end office project to be successful throughout the planning phase, construction, asset management and the option of an exit strategy. Every quality product designed over the last two-to-three years has been designed with the intention of being green accredited, with sustainability has been incorporated from the initial design of a project.

Sustainability accreditation is now widely regarded as a precondition for sourcing debt finance, letting a project and selling onto to an investor. Thus economic interests are effectively part of the same process as conforming to the international sustainability regulations that have the wider aim of minimizing the environmental impact of a building. In addition to the immediate pipeline, investors and building owners are upgrading office centers in their portfolios to meet the requirements of sustainability accreditation organizations such as the U.K.-based Building Research Establishment Environmental Assessment Methodology (BREEAM) and U.S.-based Leadership in Energy & Environmental Design (LEED), which is increasing the proportion of green accredited stock in the Budapest office market. From the tenant perspective, potential occupiers require sustainability accreditation. This relates to the need for a work place to be a productive and healthy environment when it comes to issues such as air quality, humidity and the provision of natural light.

GREEN BUILDINGS IN THE PIPELINE BUILDING NAME

SPACE

CERTIFICATION

V17

12,000 sqm

BREEAM

Váci Greens B

23,000 sqm

BREEAM

Corvin 1V

25,000 sqm

BREEAM

Office Garden 111 18,500 sqm

LEED

Nordic Light

LEED

26,000 sqm

SOURCE: Colliers International

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“Sustainability accreditation is something that is expected from investors and tenants and many developers have learnt to work with this requirement. We now have a sufficient number of assessors in the country for BREEAM, LEED and DGNB.” Colliers International recorded 398,000 sqm of BREEAM operating buildings, 219,000 sqm of LEED operating buildings and 7,300 sqm of DGNB/OGN operating buildings in the Budapest area as of the end of 2015. The majority of BREEAM certifications are rated “Very Good”; this is the third rating in a spectrum of five from “Outstanding” to “Pass”. The majority of LEED certifications are “Gold rated”, the second in a scale of four from “Platinum” to “Certified”.

Up to the “Very Good” level qualification, extra investment is not seen as being required. However, developers who move up to LEED’s “Gold” or “Diamond” categories need to include very high tech or very alternative green energy supply systems. These tend to be more expensive and there is an up to 10% extra cost, although this also brings in increased energy savings.

More green buildings in Budapest The number of green buildings in the Budapest office market is increasing, due both to the delivery of new buildings and the upgrade of existing buildings. According to Colliers International, the proportion of green office buildings now exceeds 25% of the entire office building stock. With the total approaching 900,000 sqm in the Budapest area this represents an eight-fold increase from 2011 to 2015. Colliers’ figures recorded 49 certified buildings and 10 certified tenant spaces as of last year.

The most commonly used certification organizations in Hungary are BREEAM, followed by LEED. A much smaller minority of

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V17: Get there by bicycle. office buildings have been certified by the German/Austrian DGNB system, the favored sustainability accreditation in German-speaking countries.

“I think that sustainability accreditation is something that is expected from investors and tenants and many developers have learnt to work with this requirement. We now have a sufficient number of assessors in the country for BREEAM, LEED and DGNB,” said Pál Baross, President of the Hungarian Green Building Council (HuGBC) and a qualified BREEAM and BREEAM in-use assessor.

He argues that one of the most important issues in sustainable development is location, and that it is very important that any office development in an urban context is close to public transport.

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A good team of architects With regard to the development process, Baross says another key issue is picking an architectural team that has knowledge of sustainable design.

“Increasingly, architects are creating good green product, whereas previously it was mostly engineers who ran a building more efficiently based on energy efficient installations; now architects are also learning how to select facades that are much more energy efficient and how to utilize green water, how to create sufficient light in a building so there is less need for artificial lighting. So the real advance has been on the architectural side as developers and tenants have very clear expectations that a building should be sustainable. Energy saving is of course one of the principle

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REAL ESTATE review aspects but there are many other issues that lead to user-comfort in the building. Energy saving and carbon footprint is the easiest quantifiable and documentable aspect of the product,” he added.

According to Atenor, energy efficiency forms a large part of accreditation requirements as reflects the heat pumps that are in use at the complex. Its Váci Greens project has low energy consumption appliances with a high efficiency ventilation system.

Energy efficient lighting is also a minimum requirement. Credit points by the assessor were given for the provision of bike racks, showers and changing rooms. The Atenor Group has now delivered the 24,500 sqm “Building B”, the third phase of Váci Greens, which is the biggest current office project in Budapest. The project will eventually consist of six buildings with around 135,000 sqm of office space. “Building B” has a “Very Good” BREEAM sustainability rating.

In the pipeline With regard to the Budapest pipeline, the Hungarian developer Wing is aiming to achieve a “Very Good” rating for its 12,000 sqm V17 office project in Váci út, due to be delivered in summer. According to Wing, V17’s credentials include a green area of 900 sqm, a storage room for 90 bicycles, showers and changing rooms, natural ventilation and fresh air supply, maximum use of natural light, special multifunctional glass front, and external/internal shading.

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“Now architects are also learning how to select facades that are much more energy efficient and how to utilize green water, how to create sufficient light in a building so there is less need for artificial lighting.”

Other environmental features include the way drinking water is used, minimized sewage discharge and sewer utilization, and the use of rainwater for irrigation. Further, there are solar collectors to provide hot water, an energy-saving operation and individual control of the engineering system serving the leased areas. Elements used in construction include recyclable materials for long-term use.

Eiffel Palace.

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REAL ESTATE review Elsewhere, Skanska is due to complete its Nordic Light office center.

The two-phased 26,000 sqm development in the Váci út business district has been pre-certified at “Gold” by BREEAM for core and shell, and the final certification will be awarded in the first year of operation. The certification reflects design features that include elements of water and energy efficiency. The complex includes the provision of bike storage with showers, electric car charging facilities, water efficient energy and solar collecting for hot water, Existing greenery Eiffel Palace, which was sold to developers last year, has achieved both LEED “Gold” and BREAAM “Very Good” accreditation. According to developer Horizon Development, the complex has a highly efficient glass facade, 75% of the interior has access to daylight, 90% of space has city views, it boasts energy saving features, 33% reduced water costs and 12% of the building was constructed with recycled materials.

“Beneficial features of these buildings, such as excellent location, which resulted in thousands of people going to work by public transport or by bicycle, contributed to achieving these good qualifications.”

As development returns to the market, the supply of sustainable offices is increasing. At the same time, investment funds such as CA Immo and Immofinanz are in the process of certifying their portfolios of existing buildings, which will add at least another 200,000 sqm of green buildings to the office stock.

of saved energy and environmental efficient operation,” said Colliers International, who provided the certifying consultative role for CA Immo. “Of course, the beneficial features of these buildings, such as excellent location, which resulted in thousands of people going to work by public transport or by bicycle, contributed to achieving these good qualifications.”

CA Immo’s IP West is set to receive LEED “Gold” certification.

“The certification of this size of portfolio, totaling 154,000 sqm, is a significant step towards environmental awareness both in respect

Increasingly, building owners, as well as developers, are attracted to BREEAM: Ten buildings were awarded “In-Use” certification over the last ten years.

IP West.

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