Investing in Hungary 2018

INVESTING P ri c e: H U F 9 9 0

BENEFITS • CASE STUDIES • EU FUNDS • COMMERCIAL PROPERTY INVESTMENT • HOW TO MAKE IT BETTER

2018

IN HUNGARY

SUCCESS STORY CONTINUES ARENA BUSINESS CAMPUS • The next major development project of Atenor, a campus of office buildings and commercial spaces covering 72,000 sqm on Hungária Boulevard • The complex will consist of four buildings with an exceptional proportion and significance of green areas • Excellent location, metro station is only 300 meters away, the Aréna Plaza shopping center is five minutes away • The first, 20,000 m 2 Building A will be handed over in 2020 Q1.

VÁCI GREENS E & F • A large-scale campus style development with more than 130,000 sqm of exclusive “A+” class offices in the heart of one of Budapest’s most famous business districts

• BREEAM “Excellent” green certification and an extensive green working environment • After the successful sale of the first four buildings (A, B, C & D) the handover of the office buildings E & F is scheduled for 2020 Q2.

Contact: Atenor 1138 Budapest, Váci út 121-127.

Zoltán Borbély Country Director +36 1 785 52 08 borbely@atenor.hu

Nikolett Püschl Development & Leasing Manager +36 1 785 52 08 puschl@atenor.hu

INVESTING IN HUNGARY

CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Beyond the Modern Office Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Moving up the Value Chain: Shifting From “Made in Hungary” to “Invented in Hungary” . . . . . . . . . . . . . . . . . . . . . 8 Local Investors Play Significant Role in Investment Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 16-17 Atenor Listens Carefully to Needs and Dreams of new Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Development as a Budapest Investment Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 20-21 Inside View: Serving the Investment… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 How Hungary Fits Into the CEE Real Estate Investment Picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 24-25 Inside View: Balance Hall on Váci Corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Törley Creating a Sparkle in South-Buda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 28-32 Inside View: Screening of Foreign Direct Investments to Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Automotive Investments Still Fuel Local Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-36 H2 Announcements Herald Strong FDI Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-42 Hungary Still an Attractive Destination for SSCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-47 SSC Case Study: BT Praises Local Government and Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48-50

INVESTING IN HUNGARY 2018

| A BUDAPEST BUSINESS JOURNAL PUBLICATION

BBJ Editor-in-chief: Robin Marshall • Editorial: Kester Eddy, Christian Keszthelyi, Robin Marshall, Gary J. Morrell • Sales: Csilla Lengyel, Bernadette Oláh, Erika Törsök • Layout: Zsolt Pataki • Publisher: Business Publishing Services Kft. • Media representation: AMS Services Kft. • 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 2560-1490

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INTRODUCTION The post-financial crisis rebirth of Hungary continues apace, driven by EU money on the one hand, and foreign direct investment on the other. With the former, there are question marks about exactly how much money Hungary will get, and under what conditions, after 2020, when the current funding cycle ends, and the next, for 2021-27 comes into operation. To be fair, those same question marks hang over all of the EU’s Central and Eastern European member states. Assuming Brexit goes ahead (a probability, at the time of writing, but not a certainty, with a key debate due in the U.K. parliament just after this publication went to press), there will be less money in the budget in any case. Early indications from the European Commission are that it wants to switch at least some focus for cohesion funding from CEE to Southern Europe, an idea that has created as much uproar here as it has delight there. There have also been suggestions of attempts to tie funding to behavior, to reward those seen as being supportive of EU ideals and norms. This, though, would appear to be a concept that is

far easier to express than to achieve. It is well known that Hungary and the EU do not always see eye-to-eye, but the same could equally well be said of Poland and the EU, for example. How do you select those norms, and measure adherence to them? But all of this is yet to play out. The budget for the 2021-27 period has not been set. Before it can be, there will be European Parliamentary elections in May of next year, and they will be crucial to many things, not least the future direction of development for the Union. But while one element of funding for Hungary remains a matter of speculation, right now, the other does not. Hungary has proven itself increasingly adept at attracting foreign direct investment. To be sure, it faces challenges, perhaps most pressing being an increasingly tight labor market, and consequent upward pressure on wages. Partly as a result, we are already seeing more automation coming in, and the government has been increasingly keen to promote the creation of value added jobs. Research and development and innovation are the new watchwords.

There have been three constants to Hungary’s FDI success. The first is the government itself, which has been in power since 2010, a period of unparalleled continuity in Hungary’s post-communist history. The second element is Hungary’s pro-business agenda. It is a phrase you hear time and again, both from government spokespeople and investors, and one made most obviously tangible by the 9% corporate income tax rate, the lowest in the EU. The third element is the prodigious work put in by the point organization for attracting businesses to the country, the Hungarian Investment and Promotion Agency. You’ll find an article from HIPA inside, detailing some of its priorities and successes. Alongside that, we have cases studies from disparate companies and fields, a detailed look at the investment opportunities present in the real estate markets, and overviews of the two dominant fields of the Hungarian economy, automotive and shared services centers. We hope you will find this second annual publication a useful guide to Investing in Hungary. Robin Marshall Editor-in-chief Budapest Business Journal

TAILOR MADE BUSINESS SOLUTIONS FOR LARGE CORPORATES www.raiffeisen.hu/vallalatok

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BEYOND THE MODERN OFFICE BUILDING We talk with Viktor Nagy, IMMOFINANZ Country Manager Operations Hungary about the company, the local market and innovations. occupancy level and the good demand from tenant side proves us right.

Viktor Nagy

BBJ: Tell us about IMMOFINANZ’s current situation and future plans? Viktor Nagy: IMMOFINANZ is one of the leading real estate companies focusing on retail and office in seven markets in Central and Eastern Europe. Our total portfolio has a value of EUR 4.3 billion. More than 12% is located in Hungary with a carrying amount of more than EUR 510 million. We follow a clear brand policy for our properties which stands as a guarantee for quality and reliability. Our international office concept is myhive, while STOP SHOP and VIVO! are the brands for our retail parks and shopping centers. We have a strong focus on the needs and requirements of our customers, and our high

BBJ: What kind of offices are tenants looking for and how is it possible to remain competitive in the current office market? VN: Of course, in recent years, new and modern office buildings have been and are being built and delivered throughout the city. From the tenant’s side, new demands have emerged on the market and we are doing our best to serve them. We always focus on the needs of our tenants and their employees, providing environmentally and socially attractive buildings. Our offering covers location and infrastructure, through to flexible uses and a wide range of services. An important aspect is sustainable solutions

that optimize costs and energy consumption. Tenants obviously want their office to be in an efficient and environmentally sustainable office building and this is an important requirement for them when choosing the right property. After the successful launch of the international office concept myhive, we have been testing the offices and tenants of our service constantly to find out how we can further enrich our services to increase the comfort of our tenants and ensure the concept continues to be successful. People make less and less distinction between work and leisure activities, so as the two become more blended, we believe that tenants and employees need their workplace to reflect this. myhive does exactly this by creating a new

INVESTING IN HUNGARY

hybrid form of environment, actually somewhere between a hotel and an office. It is possible to arrive by bicycle and after a short, comfortable shower work can begin. You do not have to spend time buying theater or concert tickets, or even buying flowers, as our colleagues can help you to handle these things. We realize these things through the community manager in every myhive office, who is responsible for the comfort of the tenants, so they can enjoy themselves at work on a daily basis. This makes the myhive brand completely unique in the market. BBJ: How has the concept been received among tenants and what results have been achieved since the introduction of the brand? VN: As we mentioned already, myhive is our new international office brand, which has been

implemented in several IMMOFINANZ office buildings in Budapest. In the course of the investment, we sought to develop the infrastructure further to encourage networking activities, and the properties now offer extended services in the common areas. The heart of the myhive concept is the lobby, which brings to mind the comfort and welcoming design elements of a hotel lobby. We have also created community spaces accordingly, as the people here are more willing to talk, meet with each other and their clients in a friendly atmosphere. We regularly organize customer breakfasts, concerts, and customer parties where our tenants can meet each other, and beyond the work and relaxation, they can build valuable business relationships as well. The community manager is constantly present in the life of

myhive office buildings, not only organizing, but also keeping track of events and guaranteeing the quality of the services. We have developed an internal application that also enhances communication between tenants and provides up-to-date information to myhive members. In addition, as we are talking about an international concept, every myhive participant can use the network abroad for both private and business purposes. We are constantly testing the needs and expectations of our tenants, as a satisfied and happy co-worker is a satisfied tenant. Who would not want to work in a state-ofthe-art, modern office – and relax in it? We believe our myhive positioning started on the market at the right time and is on the right track. New, different to anything previous and, most importantly, it works.

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MOVING UP THE VALUE CHAIN: SHIFTING FROM “MADE IN HUNGARY” TO “INVENTED IN HUNGARY” Hungary recognizes the importance of innovation and research and development (R&D) as the key factor of the future growth of the society and the economy. The country’s clear ambition is to become the regional leader in innovation and R&D. The Hungarian government has been placing increasing emphasis on higher value added activities and investment projects, promoting a shift from “Made in Hungary” to “Invented in Hungary”. By the Hungarian Investment Promotion Agency Hungary plans to spend 1.8% of its GDP on research and development by 2020, and to further increase this to 3% by 2030. This strategy will primarily focus on strengthening companies to enable them to improve export capabilities and productivity. When examining Hungary’s performance within R&D and looking into the analytics of the European Statistical Office, it can be observed that the ratio of the business sector’s contribution in R&D related expenditures is the third largest in the region. The pharmaceutical and automotive industries account for a combined 65% of R&D expenditure within manufacturing while the rapidly increasing ICT sector recently reached 10% of the total of R&D spending in the business sector. 2017 witnessed a massive increase of 21% in R&D expenditure in Hungary, reaching an overall HUF 517 billion (EUR 1.6 bln). The number of R&D units increased by 14% to 3,100, while the total headcount of R&D related employees reached an absolute record in the country’s history, exceeding 60,000 people.

Major Hungarian universities have decades-long developed connections with the most innovative multinational and local companies operating in the country. Additionally, new governmental policy was initiated to modify the taxation and incentive system related to R&D activities to make Hungary into the most advanced manufacturing and innovation center in Central Eastern Europe.

Hungarian government is offering wide-ranging incentives – both refundable and non-refundable – to facilitate foreign direct investment and reinvestment by local enterprises.

The aim of the Hungarian Investment Promotional Agency (HIPA) is to help and support R&D-related projects in Budapest and in the countryside. HIPA provides tailor-made incentive offers, information on state subsidy issues and identifies investment opportunities. Significant and favorable changes have been introduced with the R&D cash subsidy system launched in 2017 by HIPA in accordance with the clear objective to make Hungary the innovation hub of the region.

One of the abovementioned incentive opportunities is the non-refundable VIP cash incentive provided on the basis of the individual decisions of the government. At the time of the introduction of the current legislative framework in 2014, the main focus areas of the incentive scheme were asset investments and investments to foster job creation. However, as the Hungarian economy is shifting from the “Made in Hungary” period towards the “Invented in Hungary” mindset with the aim of becoming the innovation center of Europe, from the beginning of 2017, favorable changes have been introduced into the VIP cash incentive system, extending its focus areas with the purpose of supporting R&D.

AVAILABLE INCENTIVES One of Hungary’s competitive advantages over other countries in the region is the government’s strong commitment to increasing the competitiveness of companies in Hungary. In order to achieve this, the

The newly-introduced objective of the post-financed cash incentive system effective from January 1, 2017 is to promote the R&D activity of large enterprises and the creation of R&D competence centers in Hungary. The program provides

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the opportunity to grant aid for R&D projects implemented in Budapest and in other parts of Hungary. The level of the cash incentive is based on several factors in relation to the R&D projects, namely, the location of the project, the level of cooperation of the company with research partners, etc. The amount of the incentive is also influenced by the level of commitments to be made by the company as a result of the realization of the R&D project (an increase in the R&D headcount, the number of employees with higher education, the length of the maintenance period after the completion of the project, etc.). The maximum intensity of the aid is 25% of the eligible costs of the project.

The Hungarian economy is shifting from the “Made in Hungary” period towards the “Invented in Hungary” mindset with the aim of becoming the innovation center of Europe.

Within the framework of the VIP cash incentive scheme, the aided R&D project will include exclusively industrial research and/or experimental development activity. The content of the project in respect to the type of the R&D activity will be supported with an R&D qualification. In order to be eligible for the incentive,

the eligible project cost – costs in connection with the R&D project to the extent and for the period of the project, namely, the depreciation of assets, rental fee, material costs (up to 25% of the total costs), staff related expenditures, etc,. – will reach the threshold of EUR 3 million, within a period of one-to-three years.

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The realization of the project will result in the increase of the R&D headcount of the company by 25 persons and the ratio of highereducated employees within this new R&D headcount will come to at least 50%. The headcount related commitments will also be maintained for a minimum period of two years after the completion of the project. The incentive procedure is managed by HIPA within its one-stop shop service system, providing comprehensive assistance to the companies. Since the introduction of the new R&D incentive scheme within the VIP cash incentive system, HIPA is in continuous discussions with companies planning to strengthen their R&D presence in Hungary, realizing R&D projects with a total value of approximately EUR 235 mln, creating almost 1,000 new R&D jobs in the years to come. R&D TAXATION BENEFITS Taxation measures also reflect the “Invented in Hungary” concept, the objective of which is to enhance the

R&D activity of the companies. Those companies performing R&D activity – within their own scope of activity or jointly with specified institutions – have the opportunity to decrease their corporate income tax base with their R&D costs. In addition to this, tax payers performing R&D activity are also entitled to social contribution allowances in the case of research or development employees with a PhD or higher academic degree, or students and PhD candidates in doctoral programs. LATEST SIGNIFICANT CORPORATE INNOVATION AND R&D DECISIONS Based on the new incentive measures, significant projects have been launched in the R&D activities of industrial research and experimental development at large enterprises throughout Hungary. The capital region stands as a renowned center of innovation, but at the same time the countryside is also attracting some of the most innovative companies.

ITRON LABS The U.S.-based Itron Corporation was established 40 years ago by a few engineers in order to improve the efficiency of taking electricity, gas and water meter readings. As a result of decades of development and innovation, previously manual metering has become more and more automated. In this technology, Itron is the absolute market leader in the North American market, employing more than 8,500 people. Itron has chosen Budapest to be the location of its newest R&D center. This project of Itron Labs was the first of the implemented projects with the R&D grant. The investment creates 100 new, high value-added jobs primarily on the development of Software as a Service (SaaS), based on the IT knowledge accumulated in Hungary. As part of the R&D activities, the company also aims to become familiar with new and more efficient energy and resource management solutions, with which it

INVESTING IN HUNGARY

can contribute to the acceleration of the development of smart cities in the age of the Internet of Things (IoT). CLOUDERA Cloudera was founded less than ten years ago by the leaders of Oracle, Yahoo!, Facebook, and Google. It primarily concentrates on data management and data analysis as one of the leading solution providers of cloud-optimized data analysis and machine learning. By now, the company has approximately 1,600 employees in 24 countries. The Budapest office of Cloudera initially provided technical and engineering support to facilitate the expansion of the company in Central Europe and to help meet the increasing demand for its services. As a result of its latest R&D investment project, Cloudera’s office space has expanded and 33 new employees have joined the R&D center, increasing the global significance of the Budapest unit. According to the plans, the current headcount could boom even more rapidly in the near future, providing numerous innovative positions in the innovative milieu of Budapest. FLOWSERVE (BUDAPEST) Established in 1997, U.S.-based Flowserve designs and produces systems for industrial pumping, industrial fittings, control valves,

The new [Flowserve] Budapest engineering center will serve as a key resource in researching and developing innovative product solutions, by applying cutting edge technologies.

nuclear valves, and precision mechanical sealings, and also provides various related management services targeting mainly the processing industry, and employs 17,000 people. The new Budapest engineering center will serve as a key resource in researching and developing innovative product solutions, by applying cutting edge technologies. The unit expects to employ 25 people by the end of 2018. The aim is to employ 150 engineers due to the continuous expanding of staff numbers in the forthcoming years. This team will focus on incorporating leading edge technologies in fluid dynamics, tribology, rotodynamics and mechatronics. The corporation opened its business service center (BSC) in Debrecen in 2016 to provide financial and accounting services for 25 countries. As this currently operating facility shows, it is not only the capital and its neighboring suburbs that are

TESTIMONIAL “In selecting a location, we had several criteria that we considered, including a business friendly environment, proximity to transportation hubs for travel to other countries and regions of the world, access to public transportation for our staff, availability of quality office and laboratory space, strong English-speaking skills of potential staff and local service providers and cost of operations. In addition to these criteria, the most important consideration for us was the availability of talented engineers and the existence of a university with a world class mechanical engineering program that could serve as a pipeline for engineering talent.” Robert Phillips, Engineering Vice President, Flowserve

attractive to high-tech companies, but the regional hubs of Hungary also offer vital economic and social conditions as well as talented experts. FOSS FOSS has been creating end-to-end solutions that secure and improve food quality, from raw material to finished product from 1956. Some 80% of the grain, and 85% of the milk marketed globally is tested by products of the Danish company. FOSS employs more than 14,000 highly qualified employees worldwide. The Hungarian subsidiary of FOSS, Soft Flow Hungary, grew into a recognized R&D company in the last couple of years, and currently employing more than 30 talented people working in biotechnology, research and assay development with bioanalytical services. The Pécs unit has strategic importance, because it produces chemical elements that are the “soul” of the most innovative FOSS products. The project is creating 88 high valueadded R&D jobs, while building a new office with equipped SW development and R&D laboratories, facilities for simulations, and mechanical engineering to reagent production with necessary service- and quality control laboratories allowing for release and distribution of goods. EVOSOFT Evosoft Hungary is a key participant in the Hungarian IT sector, being an active contributor to industrial automation technology and control solutions, railway applications and

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medical devices, not to mention the development of the corporate IT systems at Siemens. The number of its software developers is on a steady rise. Currently the company employs 1,600 professionals in the field, giving work to its experts in Budapest and in the cities of Miskolc and Szeged.

and is striving to gain a stabile leading position in the R&D segment. The main goal of its project is to develop premium electrically driven and internal combustion engines. Numerous R&D related projects have been outlined for the period between 2017 and 2020.

As a key strategic partner of Siemens AG, evosoft Hungary is to grow through two new investments in the country. The development is expected to create 75 new jobs overall in Budapest and Miskolc. At the same time, evosoft has launched another project with the aim of modernizing its units in Szeged and Miskolc, where the investment will provide work to some 50 more colleagues. The company’s dynamic growth is also marked by its moving to a new center in Budapest at the beginning of 2021.

ROBERT BOSCH The Bosch Group is celebrating the centenary of its first branch office in Hungary. The company has a total of seven Hungarian production sites, where it manufactures automotive technology, e-bike components, industrial technology, and power tools. Bosch and its nine subsidiaries currently employ more than 13,500 people in Hungary, which makes the German company the largest industrial employer in the country. The total number of R&D experts reached 2,600 this year.

AUDI Audi is operating an engine development center in Hungary, which opened in June 2001. Audi’s main goal is to achieve the highest innovative solutions. It is one of the leading R&D players in the automotive industry

Utilizing the strong presence of engineering education and knowledge in Hungary, Bosch opened its largest development center in 2005 in Budapest. The Engineering Center Budapest is the home for developing autonomous and electric mobility

solutions as well as being one of the most significant automobile electronics research, development, and test centers of the Bosch group outside of Germany. In July 2018, the stone-laying ceremony was held for the second building of the Engineering Center Budapest, in which 1,800 new engineers, IT experts and other highly educated people will work for the global success of Bosch Group. CONCLUSIONS An investor friendly business environment, highly educated labor force and competitive incentive system: these are the factors that contribute to the future success for the regional research and development and innovation centers established in Hungary. The Hungarian government has been placing more emphasis on higher value-added economic activities. Promoting R&D projects has gained a significant role in Hungarian investment promotion policy. A new incentive scheme was launched by HIPA to support R&D activities at large enterprises and taxation measures also reflect the new concept, aiming to enhance the R&D activities of the companies in Hungary.

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LOCAL INVESTORS PLAY SIGNIFICANT ROLE IN INVESTMENT MARKET The conventional wisdom has been that local investors fill the vacuum that is left when international investors withdraw from a market due to economic uncertainty, as occurred in Hungary when the economic crisis began to bite in 2008, following record invest volumes in 2007. The other essential role of domestic capital was that local funds snapped up available secondary and add-on product. By Gary J.Morrell However local funds are now competing with returning international capital for top of the market product and therefore increasing competition in the Hungarian investment market, where there is now fierce competition for a limited supply of investment grade assets. One argument is that local funds have detailed knowledge of the market and the local contacts that gives them an advantage over foreign money. Domestic capital now accounts for around 50% of investment volume in both the Hungarian and Czech investment markets, bringing with them perceived longer-term stability and increased liquidity in the view of consultants. Around 45% of investment volume by domestic capital is a European benchmark, commented Benjamin Perez-Ellischewitz, head of capital markets JLL Hungary, at the Property Investment Forum 2018 organized by Portfolio and the Royal Institute of Chartered Surveyors.

exposure to the investment market. In 2015-2016, Hungarian investors accounted for around 30% of the entire market; CBRE forecasts that they will account for more than 50% of the market by the end of 2018. This exposure is in stark contrast to 2007, when they accounted for just 3% of the total investment market, CBRE notes.

There has been a significant shift in the make-up of the investment market over the last few years, with the local investors rapidly increasing their

SPEEDY REACTIONS In the current market, international investors need to react quickly when product becomes available if they are

Promenade Gardens by Horizon Development in Budapest.

to overcome competition from local investors, who are obviously more familiar with the local conditions and potentially have closer contacts to developers and building owners. In Budapest, the Hungarian Erste Asset Management completed the acquisition of the 25,000 sqm Promenade Gardens following a forward purchase agreement with Hungary’s Horizon Development, Continued on page 16 ► ► ►

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ATENOR LISTENS CAREFULLY TO NEEDS AND DREAMS OF NEW GENERATION Atenor’s projects are not just about delivering “A+” class buildings, but contribute to completely new neighborhoods which are more sustainable, open and fun to work and live in. Real estate developer Atenor is a listed on Euronext Brussels, and invests in large-scale projects that meet strict criteria in terms of location, urban planning, economic effectiveness and respect for the environment. Its mission is to work in harmony with the evolution of the city. Very early, Atenor positioned itself as an urban stakeholder, aware of the challenges of the cities of tomorrow. The livability of cities has a significantly increasing relevance, especially when multinational firms make a decision to establish new businesses abroad. The environment where these employees spend their time is crucial to be representing value. Today, Atenor is active in seven countries: Belgium, France, Germany, Hungary, Luxembourg, Poland, and Romania. The number of projects currently in the portfolio is 18 with an area of 800,000 sqm, from which Hungary represents 200,000 sqm. Budapest is definitely a city with a variety of cultural, gastronomical, sport, recreational and well-being opportunities, which is a remarkable advantage for companies wishing to transfer expats and attract new talents. The Budapest office market is tracking the characteristics of this ever changing industry and responding properly to the increasing demand for flexibility and agility. Undoubtedly, Hungary is a major focus for Atenor, as it is well ahead of the regional average in terms of economic growth. Hungary, Poland and Slovenia

are expecting the strongest GDP growth in the CEE region – in the range of 4.2-4.7% per annum. GDP growth was among the highest in Hungary (4.4%). This expansion is mainly driven by the construction, office, retail and ICT sectors. OUTSTANDING The Budapest office market has an outstandingly good performance in terms of take-up; a record high annual volume is expected (more than 350,000 sqm) and in terms of supply the total completion volume in 2018 is expected to reach 250,700 sqm, with and 285,000 sqm of new office area under construction for 2019-2020. Of the volume for 2018, a very impressive more than 90% is pre-leased and there is already an approximately 45% occupancy rate for those projects to be delivered in 2019.

The total annual leasing activity is more than 50% higher than last year. Nearly half of this is attributable to new leases. The Váci Corridor is the most significant submarket of the Budapest office market: 24% of the stock concentrates here and 20% of the grade “A” office space is located here. It attracts the highest share of demand, with almost 50% of the total net take-up, resulting in a 118% increase compared to last year. Some 153,972 sqm of office area is under construction in the Váci Corridor for 2019-2020, from which 30% is already pre-let. The vacancy rate in the Váci Corridor submarket (5.5%, in Q3 2018) is under the market average (6.4% in Q3 2018) The largest and most successful project in the Váci Corridor is Atenor’s

Váci Greens

INVESTING IN HUNGARY

Váci Greens development. This is a large scale campus style development with more than 130,000 sqm of exclusive “A+” class offices within an extensive green working environment. The scheme consists of six buildings, built in two phases (phase I – Buildings A, B & C and phase II – Buildings D, E & F). Located in the heart of one of Budapest’s most famous business districts, Váci Greens is definitely the office solution for local or international companies willing to minimize their costs while offering their employees a comfortable, sustainable and friendly working environment. Easily accessible by any kind of transportation, this office complex provides its tenants with all the benefits that they would expect at work. Váci Greens has been designed to combine the best architectural design with latest construction techniques and technological building systems. These results have reduced operational costs. In addition to cost benefits, these design considerations ultimately reduce the environmental impact of the project, which is reflected by its BREEAM “Excellent” certification. SUCCESS STORY The first four buildings of Váci Greens extends to nearly 80,000 sqm and have been the success story of the Budapest office market over the last seven years. They are 100% leased to international tenants. Each occupier saw the huge benefits from being located in a campus style office location. The efficiencies of the buildings’ floor plates, the huge array of amenities onsite, as well as the long-term benefits from being located in a best-in-class and top rated sustainable building. In today’s competitive labor market, occupiers recognize the need to retain and recruit staff, and Váci Greens is the perfect destination to respond to this critical challenge. Atenor has started the construction of the last two buildings E and F – which will provide further Grade “A+” office spaces, and add a further 50,000 sqm. Atenor continues to use

Aréna Business Campus

the latest construction techniques and technological building systems that will result in reduced operational costs and a continued improvement on minimizing the environmental impact of the project. Buildings E and F will provide efficient floor plates with numerous opportunities for subdividing individual floors for multiple occupation. When compared to other locations, this will lead to reductions in the area required to accommodate tenants’ requirements, as well as lower occupational costs. Atenor is growing dynamically and diversifying its portfolio. The company recently purchased the District VIII plot known as the Aréna Business Campus where another megaproject will be developed with a total of 72,000 sqm. It is located on Hungária körút, just 300 meters from the metro and 5-8 minutes from the city center. The Aréna Business Campus submarket shows a diverse picture with modern office buildings with access to excellent public transport as well as mixed-use and residential areas. Only 13% of the total Budapest office market concentrates here, therefore Atenor realized that there is a great potential in this location. ENHANCE Most of the office schemes are scattered all over the submarket, however a new “office corridor” is

forming alongside the Hungária körút and Könyves Kálmán körút. The development of Aréna Business Campus will enhance this process. At present, the lowest vacancy rate was measured in this Pest submarket (3.9% in Q3 2018). Strong international enterprises are present in the submarket with new inquires as well as expansion needs. To be able to serve these needs, Aréna Business Campus construction started in 2018. The scheme consists of four buildings and among them a huge internal garden and pedestrian area creates a unique and relaxing atmosphere. This office complex was planned with special attention to the needs and dreams of the city’s residents and users of today and of the generations to come. Aréna Business Campus is ideal for occupiers who would like to be located close to the city center and enjoy an outstanding modern, high-tech and innovative milieu. The top quality technical specification, the numerous in-house services that the buildings and green garden will provide will help make a completely reborn environment. Through our innovative urban planning and architectural excellence, our aim is generating a cultural, economic and social upgrade and delivering appropriate answers to the complex, ever changing needs of urban professionals.

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MOM Park

Continued from page 13 ► ► ► a deal that well reflects the role of Hungarian capital at the top end of the Budapest office market. In another investment deal, Skanska sold its 36,000 sqm Mill Park development to the Erste Real Estate Fund in August 2018. This is the second investment deal between the Hungarian investment fund and Skanska in Budapest, following the Nordic Light transaction in 2016, and very clearly indicates the continued business cooperation and contacts between developers and local funds. The majority of domestic investment has been undertaken by three larger open- ended Hungarian funds (Erste, OTP and Diófa), who continue to

receive cash inflows to their funds and as a result must continue to deploy this equity as the funds grow.

from both domestic and international investors according to Bálint Erdei, founder & CEO of Redwood.

“These domestic funds are now able to compete with international capital in terms of scale and have started to squeeze out some of the potential core capital targeting Budapest. In addition to these ‘big three’ funds, smaller closed-ended local entities have continued to grow,” says Ben Barclay, a senior investment consultant at CBRE Hungary.

REGIONAL BREAKDOWN With regard to the regional breakdown between local and international investors domestic capital has been the most active in both Hungary and Czech with a record share of volume according to Kevin Turpin, head or research and strategy for CEE at JLL.

In the latest Budapest office market completion Redwood Real Estate has delivered the 5,000 sqm Ecodome center, a rare office development up in the historic Buda Castle District of the capital that has attracted firm bids

“Of interest is the growth of domestic capital in Czech Republic and Hungarian markets, where domestic volumes are growing year-on-year and for the first half of 2018 make up 67% and 43% respectively,” he said. JLL Czech Republic argues that, in the long-term, Czech

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funds will represent 50% of investment volume in the country. Cushman & Wakefield Czech Republic estimates that 55% of investment acquisitions in the market were undertaken by domestic capital for the first half of the year and this it will constitute circa 50% of investment volume for the full year. “Their investment criteria are broader than those of active international investors and play a crucial role in the core plus, regional, and smaller lot size investment segments,” commented Cushman & Wakefield. As many as eight major local investors are active. In Budapest the four completed phases of Váci Greens by Atenor have been purchased by private Hungarian investors, OTP Real Estate and the Slovak domestic fund, IAD Investment. FUTURE CONFIDENCE “One important point is that, out of the four buildings at Váci Greens that were sold to investors, three were purchased by Hungarian investors. This again is good news, as it is means that local money is interested in the market and is now able to consider the purchase of such big-ticket sized developments and this gives us a lot of confidence for our future projects,” commented Zoltán Borbély, country manager at Atenor Hungary.

“These domestic funds are now able to compete with international capital in terms of scale and have started to squeeze out some of the potential core capital targeting Budapest. In addition to these ‘big three’ funds, smaller closed-ended local entities have continued to grow.” for international institutional equity, but this gap has now closed as the funds can afford even the largest lot sizes, as shown this year with Erste Fund’s acquisition of Mill Park and OTP Fund’s acquisition of MOM Park. In the long-term, should the economy slip into a downturn and retail customers start to withdraw their money from these funds, there is the question as to whether will they have the required equity to meet their expected returns and undertake the necessary capital expenditure investment,” he adds. As to whether the increased role of local capital is ultimately healthy for the market, Benjamin PerezEllischewitz argues that a significant pool of local capital should be

reassuring as it shows a positive evolution in the accumulation of capital and the development of a local based saving systems from private investors – this is the role of local open-ended funds – and also the development of local private groups including developers and asset managers. This gives international investors a clear sign that local investors can provide liquidity to the market if there is an exit of international capital. “If local investors are more aggressive with their pricing and buy more than before; so be it. What is crucial is that the market keeps a good level of transparency,” he said at the Property Investment Forum 2018.

Domestic funds are seen as providing a healthy level of liquidity for the market that was not present in the previous cycle. “This has enabled investors to confidently underwrite their exit yields and therefore helped stimulate more transactions. However, they are also putting off potential core capital from targeting Hungary as it increasingly realizes it cannot compete with the local funds,” explains Barclay at CBRE. “A few years ago these local players were unable to transact lot sizes of EUR 60 million plus, meaning that there was still a gap in the market

Váci Greens interior.

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Budapest One Business Park by Futureal.

DEVELOPMENT AS A BUDAPEST INVESTMENT OPTION Hungary has achieved the strongest growth in the CEE region along with Poland , with 4.4% predicted for the full year by the National Bank of Hungary (MNB), although a slowdown to 3.5% is expected for 2019. These positive GDP figures are reflected in the appetite for real estate development: figures from the Hungarian Central Statistical Office indicate a 15.5% year-on-year increase in building construction activity for the first half of 2018. By Gary J.Morrell With regard to the office sector, the current office development boom would appear to be more sustainable in comparison to previous periods of high office development. Developers are now undertaking more measured development strategies and hedging their bets by developing in phases and commencing construction only once a substantial prelease has been concluded. In this way most analysts consider that the markets are better prepared to face a potential economic downturn.

In this landlord-dominated market, some developers are now opting for speculative development and undertaking large, urban, phased, longterm projects. Across the CEE region, the supply of modern office stock is rising by almost 10% with investment in the office market standing at an all-time high, according to Skanska. There is a high level of space under construction and due to deliver in 2019 according to Cushman & Wakefield. Tenant demand has moved towards office developments with direct access to amenities within the city and, in response, developers are designing projects that are perceived to add to the

quality and infrastructure of the area surrounding a large-scale project. PRO-ACTIVE PROMOTION Local authorities are, therefore, pro-actively promoting suburban districts to developers as part of urban redevelopment projects. The concept is considered to benefit the developer, companies that relocate to the project and the surrounding population. Transportation links are now a key requirement from tenants. A prime example of this approach is Agora, by the regional developer HB Continued on page 20 ► ► ►

INVESTING IN HUNGARY INSIDE VIEW

SERVING THE INVESTMENT…

MÁRTA SIKLÓS Tax Advisor, Partner LeitnerLeitner

LeitnerLeitner primarily focuses on national and international tax advisory, accounting and payroll, statutory and merger audit, and financial advisory services such as M&A and DD assistance to Hungarian subsidiaries and branches of international companies. Thus we are the first to meet the intension of a business foundation or the launch of foreign companies in Hungary. Our recent experiences truly reflect a notable growth in starting or expanding business in the country. Many contact us with an interest in new investments, mergers and acquisitions; they ask us to support them in the due diligence of their targets, their accounting and tax integration and also to help maximize the tax incentives available for their business. We expect growing interest regarding the introduction of corporate group taxation in Hungary, as the potential offset of losses and profits, the share of tax allowance advantages together with simplification of transfer pricing documentation amongst the domestic members of a corporate group provides additional value

and competitiveness for the group. However, the decision about entering into a corporate tax group requires careful planning and preparation, which is worth starting immediately after the adoption of the new law. According to the plans, the adoption of group taxation for 2019 should be announced by January 15, 2019. Another noticeable investment tendency among companies already operating in Hungary is the increasing number of firms that plan for the long-term and intend to create the safe and proper conditions for stable operations here. They pay more attention to transfer pricing, for example, requiring the revision, actualization, and renewal of their transfer pricing documentations – which is also in line with the increasing new requirements on this field. They are also interested in a health check of their general taxation practice or of a specific tax type, that provides perfect safety and preparation for extending digital and immediate tax audits. LeitnerLeitner has formerly concentrated on these fields as a specialist; however, the actual advanced level of digitalization brings into life new market requests and client needs. To look into another area: today it is surely not enough to simply record the accounting bills and invoices only; this should be combined with additional support services providing an advanced solution to the everyday problems of clients. Automatic data transfers and processing make it possible to complete the core accounting tasks quicker and to use the remaining time to analyze data and help decision making by the client. We could also mention IFSR-based bookkeeping, and accounting

in EUR or USD as general expectations from a modern and professional accounting company such as LeitnerLeitner. Beyond the statutory audit defined by law, the need is increasing for special financial advisory services too, such as the audit of corporate transformations (mergers, de-mergers) and consolidations. We also regularly step in as coordinating body for complex M&A transactions. In order to meet the expectations of our clients, LeitnerLeitner continuously invests in new solutions and in the knowledge development of our colleagues; we participate in many seminars and training events, either as participants or lecturers, domestic and abroad. We also look at our regularly updated blogs in three different languages, English, Hungarian and German, as an investment that reflects our dedication to raising the business and taxation cultures. As is suggested by the title of our blog – ”Surprisingly Simple About Taxation” – we take on the role of an interpreter between entrepreneurs and the extensive tax legislation. Finally, I would like to mention our latest investment: the opening of our new office in Kecskemét. By this step, we can bring the already accustomed high quality professional services and proactivity closer to our clients in the south and southeast of Hungary. Even though, nowadays one could solve deals without personal connections, we believe that really strong trust can only be based on personal connections. And this is one of our investments too.

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Arena Campus by Atenor.

Continued from page 18 ► ► ► Reavis, which will ultimately consist of around 136,000 sqm of office, retail and service space; the long-term, multi-phased project is scheduled to be completed in 2023. As with most current Budapest office projects, Agora is located at a prominent public and private transportation junction on a three hectare site with direct access to the Árpád hid metro station. HB Reavis stress the role of the public squares and services that can be utilized by local residents and is, therefore, integrating the project into its surroundings. Raiffeisen Bank has already agreed a significant letting at the complex for its Budapest headquarters of around 1,300 staff at the 34,000 sqm Agora

Tower, the first building scheduled to be completed at the complex next year. The deal represents a significant prelease for the speculative development.

to the city center and the airport. WING has subsequently begun preparations for the construction of its twin-phased, 40,000 sqm Liberty Office Building on an adjacent site.

DEVELOPMENT PORTFOLIO Another European developer, Atenor has a development portfolio of 200,000 sqm including six buildings totaling 130,000 sqm at Váci Greens and four buildings totaling 70,000 sqm. This represents an investment of EUR 385 million according to Nikolett Püschl, development and leasing manager at Atenor Hungary.

The company has projects in the office, retail, logistics, hotel and residential sectors, and this year Wing says it has developed 165,000 sqm of space with an investment of EUR 256 million. Total investment by Wing in the Budapest market is around EUR 1.28 billion for a cumulative 990,000 sqm.

Wing has completed the 58,000 sqm Magyar Telekom Group headquarters, located in District IX, adjacent to the Groupama Ferencváros Stadium. The building is located on a three hectare site at a major transport intersection providing direct metro and road access

Retail market conditions are now finally regarded as appropriate for the delivery of new Budapest shopping centers that would freshen the market after around ten years with no fresh builds. The next planned retail delivery will be the 53,000 sqm Etele Plaza by Futureal, due for completion in late 2020.

INVESTING IN HUNGARY

ZERO VACANCY The mall is said to be letting successfully, which should hardly come as a surprise; vacancy rates in leading shopping centers are close to zero and on-line retail is having a limited impact on demand. Meanwhile, center owners are renovating and redeveloping existing malls. Futureal is also constructing the first 25,000 sqm phase of the Budapest ONE business park at the two hectare site in south Buda at a major railway, metro, tram and road intersection. “We regard the development as an urban redevelopment project along the lines of Corvin Promenade project, although with the changes necessary to meet the changed requirements of tenants over the last decade,” commented Tibor Tatár, CEO of Futureal, at the Property Forum 2018 conference. The Futureal Group portfolio has been involved in more than 90 real estate projects with a total value of EUR 3 billion and more than 2 million sqm of development space.

“We regard the development as an urban redevelopment project along the lines of Corvin Promenade project, although with the changes necessary to meet the changed requirements of tenants over the last decade.” The current industrial vacancy rate stands at 3.5% according to Cushman & Wakefield. Around 95,000 sqm is expected to be completed in 2019 in the greater Budapest area according to CBRE. Prologis, for example, has commenced construction of a 10,600 sqm speculative facility at Prologis Park Budapest-Harbor. The logistics park operator and developer currently has 374,000 sqm of space in six parks in the Budapest area. A shortage of skilled labor has been seen as a barrier to growth in all sectors of the real estate and related industries, with a perceived need for training or the

creation of conditions that would attract Hungarians working abroad in the EU back home. The construction market is suffering from a shortage of 40,000 skilled workers according to Barna Harangi, head of project management & building construction at CBRE. “Besides the increasing cost of labor and material, the most serious consequence the market is facing are the immense delays in deliveries. However, large-scale developers encounter this challenge to a lesser extent simply because their project schedules are more predictable and their projects are more tempting to workers,” he concluded.

Agora Budapest by HB Reavis.

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HOW HUNGARY FITS INTO THE CEE REAL ESTATE INVESTMENT PICTURE Commercial real estate acts as a vehicle for both incoming international investment and investment from Hungarian investment funds. The former to some extent looks at Central Europe as a unified investment destination, making investment decisions based market on market fundamentals and the supply of investment grade product in the various countries. However, some investors have preferences for particular countries in which they continue to conduct business. By Gary J.Morrell “We are in discussions with a number of new players and others that have been less active over the past ten years,” confirms Adrián Limp, head of valuation and advisory at Cushman & Wakefield Hungary. “Shortage of product is a challenge, of course, but I would not say it is deterring internationals. They are ready to acquire and are happy that liquidity is strong in

the [Hungarian] market. Certainly the investment volume is determined by the availability of investment grade product versus capital to invest. The latter is highly available currently, both in terms of domestic and international funds,” Limp adds. JLL forecasts that incoming CEE regional investment volume will reach or exceed EUR 12 billion for the year. The annual investment volume for Hungary alone is expected to reach EUR

1.7 bln-1.8 bln. The Polish investment market remains the dominant one in the region, and it is expected that it could reach an all-time record of EUR 5.5 bln for the year in 2018. From the perspective of supply of investment grade product, Poland benefits from the size of the country and the fact that it has several large regional cities with established development markets. Griffin Real Estate, for example, has acquired the M1 retail portfolio consisting of 28 assets across Poland for EUR 1 bln. In contrast to Poland, Czech Republic and Romania, in Hungary major deals outside of the capital are rare. Several large assets are in due diligence or under marketing with closing expected this year in Hungary. However, a limited supply of investment grade product is continuing to act as a brake on investment activity, notably the sort of big ticket items that would attract leading institutional investors. “Poland still has high investment volume whilst other markets are showing lower levels of activity, which

Mill Park by Skanska.

Continued on page 24 ► ► ►

INVESTING IN HUNGARY INSIDE VIEW

BALANCE HALL ON VÁCI CORRIDOR pavilions” with Wi-Fi and bicycle parking racks make the life of the workers easier.

What are tenants’ requirements from offices? And how can a building be conscious? Could you imagine working in an office building that makes the life of its users easier, and on top of that also responds to environmental changes? The question is whether we, as property developers, respond to tenant requirements, or we create new requirements by developing new offices and exploiting the possibilities that new technologies have to offer. In 2015, CPI Hungary started a scheme of three phases: the refurbishment of Balance Office Park on Váci Corridor. We aim to create a human-oriented campus environment, which is an integral part of the high quality services we provide to our tenants.

The first phase was finished in 2016 with the handing over of the Balance Building where screening, preventive healthcare and recreational services are provided to the workers by the introduction of the Human Innovation Program. The Balance Loft brand was established in the second phase, where the services were extended by a farmers’ market, café, restaurant and a conference hall. Furthermore, external “meeting

BALANCE HALL, THE “CONSCIOUS BUILDING” But what is a Conscious Building, why is it conscious, and how does it relate to what we have discussed, the “campus” environment of an office park? The Balance Hall building is the latest, third dimension of our office park, CPI Hungary’s own development, with 16,000 sqm of floor space, scheduled to be handed over in the fall of 2019. Thanks to its state-of-the-art background functions, designed for long-term use, the building operates as an ecological organization. Due to its sensitive structure and installed smart systems, it is able to respond to external environmental changes as well as to internal requirements. Broadening the spectrum of human-orientation, software and high-tech contents developed by our own experts are serving the complex, providing many novelties from MEP aspects, such as the fact that our tenants are able to conclude energy conservation. Imagine that a worker jumps on a piece of fitness equipment for some recreation and, thanks to the smart system, he or she does not only save electricity but also generates power to charge his or her mobile phone while being refreshed from working out. By doing so, workers actively contribute to the environment, resulting in a more aware, caring and conscious behaviour, which is the icing on the cake of these complex, synergetic services. Could your workplace of the near future be such a place?

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Visionary by Skanska, purchased by CA Immo.

Continued from page 22 ► ► ► is predominantly driven by a lack of product,” says Kevin Turpin, head of CEE research at JLL. MORE COMPETITIVE This shortage of investment grade product is still not deterring international investors from visiting Hungary, although the market has become more competitive in the view of many consultants. “It has made it more difficult for those already present to increase their exposure, whilst those who are yet to enter have struggled to react in time when a suitable product does become available due to fierce competition from local investors,” says Ben Barclay, senior investment consultant at CBRE Hungary. For the full year, consultants expect circa EUR 2-2.5 bln in investment

volume for Czech Republic, the other dominant CEE market with Poland over the last few years. This would be down on the previous year, due again to a limited supply of investmentgrade product. The emerging Romanian market is expected to reach the EUR 1 bln threshold: sentiment is seen to be improving as financing terms and conditions are getting closer to those in the core Central European markets. Across the region, Skanska Property pursues a common development and sale policy. In Budapest, the company has sold the 36,000 sqm Mill Park to the Hungarian fund, Erste Asset Management, for a reported EUR 100 million. In Prague, the developer has disposed of its Visionary office center to CA Immo for EUR 68 mln and, in Bucharest, Campus 6 phase one to the same buyer for EUR 53 mln.

Limp, of Cushman & Wakefield, estimates that a newly delivered, fully leased class “A” office center would attract at least a dozen serious bidders. Despite the solid fundamentals of the Hungarian market, assets are still priced with a significant discount compared to Poland and Czech Republic, where financing is cheaper. The gap is not expected to close completely, but some prime transactions in the pipeline should help reduce it. The gap is around 100 basis points for office and retail, and 150 basis points or more for logistics according to Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary. RETAIL FAVORED Retail now rivals office as the most favored type of real estate investment across CEE. However, the retail sector, along with industrial, suffers from

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a low critical mass of investment product in comparison to the office sectors. Further, owners of retail and industrial centers tend to hold on their assets, often undertaking redevelopment and extensions.

“Shortage of product is a challenge, of course, but I would not say it is deterring internationals. They are ready to acquire and are happy that liquidity is strong in the [Hungarian] market. Certainly the investment volume is determined by the availability of investment grade product versus capital to invest. The latter is highly available currently, both in terms of domestic and international funds.”

“Despite the negative story around retail at a European and global level, the market in Budapest has continued to thrive as investors understand the attractive pricing and strong market fundamentals,” says Barclay of CBRE Hungary. “This has been highlighted by NEPI Rockcastle increasing their exposure to the market with the acquisition of Mammut shopping center, which represented a landmark retail deal for the market. To date, this represents the largest single transaction for 2018,” he adds. NEPI Rockcastle is a South Africanbased investor/developer with interests across both CEE and South East Europe. It had already purchased the 66,000 sqm Arena Plaza (since renamed the Arena Mall) for a reported EUR 275 million in September 2017 and is now the largest owner of shopping centers in Budapest and in Romania.

for multiple reasons. For a start, the due diligence typically involves the analysis of a much greater number of tenants, often exceeding 100 or 150, both from a legal as well as operational and market perspective. The scope is extended by detailed performance analysis including turnover, footfall and catchment area, as well as leasing income, among other factors, according to the Warsaw-based Agata Sekula, head of retail investment CEE at JLL.

A retail investment deal is far more complex than an office transaction

For Hungary, CBRE anticipates 2019 volume will remain robust, with

continued demand for investment grade commercial property and the occupational markets benefitting from strong fundamentals. It is likely the market will see a higher number of transactions, at a slightly lower lot size, as the majority of the large scale transactions in the Budapest market were completed in the past 24 months. “Prognostics for 2019 are difficult as the official pipeline is limited but several off market discussions are on-going so I would give EUR 1.5 bln-1.7 bln as my estimate,” concludes Perez-Ellischewitz.

CEE SECTOR YIELD SPREAD END Q2 2018 Industrial

10.00

6.25 4.75

6.00

Source: Colliers International

8.50

7.75

8.00 6.00

Retail TSC

6.50

6.00 5.00

5.00

6.50 5.25

7.25

7.25

8.25 7.00

6.00

4.00 2.00 0.00 Prague

Budapest

Warsaw

Bratislava

10.00

Bucharest

7.25

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TÖRLEY CREATING A SPARKLE IN SOUTH-BUDA A survivor of financial crises, two world wars, errant American bombs, ransacking by “liberating” Soviet soldiers and forced nationalization, Törley has been producing sparkling Magyar wine for 136 years.

Left, György Kovács, chairman of the Törley board. Near left, Caroline Gilby, a U.K. wine consultant and specialist in the Central and Eastern European region. Photo by David J.W. Bailey.

By Kester Eddy Nestled on the river Danube’s western bank, and a long tram ride to the south of Budapest, the seemingly hum-drum suburb of Budafok is more passed by than visited: such action is all the more understandable on a damp, uninviting, grey November day. Yet the keen eye may spot clues as to why this district, home to 60,000 souls, is also the location of one of Hungary’s most interesting and venerable companies, and one of its least recognized foreign investment success stories. Signposted, but tucked away, 100 meters behind the main street, are the cellars of Törley Pezsgőmanufaktúra, the historical home of Hungary’s most famous producer of sparkling wine, or pezsgő in the local vernacular. Founded in 1882 by József Törley, a larger-than-life Hungarian

entrepreneur [see historical sidebar], the company was languishing in debt in 1992 after four decades as part of the Communist-era Hungarovin complex. It was spotted, and snapped up in Hungary’s great privatization sale by Henkell & Co, based in Wiesbaden, Germany, and itself a revered veteran maker of sekt, the German word for bubbly. Since then, bar odd low points caused by the various economic downturns, Törley has largely been on an upward trajectory: the company today claims 70% by value of the domestic sparkling wine market (and around 60% by volume). Revenues in 2017 came close to HUF 19 billion (EUR 60 million) – and are on course for another 4% rise this year. WORLDWIDE SPARKLING “The sparkling wine market is growing by 2-4% by volume in Hungary, which is not so dramatic, but, in value terms, it is increasing dramatically. Worldwide, let’s say it’s also sparkling recently.

There are some white flags [weak spots], but sparkling wine consumption is increasing by around 2% annually,” György Kovács, chairman of the Törley board, told the Budapest Business Journal in an interview. “We want to stay and surf this wave, because the entire company is oriented towards quality, towards higher position products, and everything that has been happening recently in the Hungarian and world markets is very positive,” he added. As an indicator of the trend towards high-end products, Kovács points to flagship brands such as Hungaria, which saw sales increase by 16% last year. Törley and Francois – brands also produced by the traditional method (méthode traditionnelle - see box for explanation of different production methods) have surged between 20-25%. Continued on page 28 ► ► ►

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SCREENING OF FOREIGN DIRECT INVESTMENTS TO HUNGARY

JÁNOS TÓTH Partner Wolf Theiss Faludi Erős Attorneys-at Law

Earlier in October, the Hungarian Parliament adopted a new act setting out rules to enable the screening of foreign acquisitions of certain Hungarian companies engaged in providing strategic services (such as finance and telecoms) or otherwise handling critical infrastructure or technologies by investors having their background outside the EU. The key justification for this new act is that some of these acquisitions by non-EU investors could be detrimental to national security or public policy in Hungary and that, until now, there has been limited and unsophisticated mechanism available for the Hungarian government to screen and potentially prohibit acquisitions by foreign investors in such strategic companies. The new act, however, now makes the acquisition of a stake in excess of 25% in Hungarian companies (10% in the respect of publicly listed Hungarian companies), or the acquiring of de facto control by other means over the relevant Hungarian entities operating in the selected strategic businesses, subject to the prior review and approval by the Hungarian Minister of Interior. The heated discussions around this topic result from a series of

recent takeovers of leading European technology companies by statecontrolled foreign investors. Far Eastern investors, in particular, have been actively pursuing European companies that develop technologies or maintain infrastructures that are viewed as essential to critical functions in the European economy. Unlike the United States or China, which pursue aggressive trade policies and where FDI transactions have long been subject to certain screening and restrictions, the EU currently does not have any legislation in place on the review of foreign investments. Instead, about half of the EU’s Member States, such as Germany or Poland, have their own national screening mechanisms, which vary widely but generally can lead to the modification or prohibition of certain investments on grounds of public policy and national security. The Hungarian legislator’s recent move has apparently preceded a very similar proposal by the European Commission from last year for a regulation establishing a framework for screening FDI in the European Union. Earlier this summer, the European Union member states eventually agreed to allow the Commission’s proposal on an EU-level regime of FDI scrutiny to proceed to negotiations within the European Parliament. They wanted wider powers for the Commission in this field in the desire to create a regulatory framework for welldesigned and uniform investment review mechanisms for the EU to protect strategic companies, rather than allowing scarce restrictions on FDI to become politically uncoordinated at national level. Interestingly, the Hungarian government, which has benefited from Chinese and Middle Eastern investments over the past years, expressed doubts and skepticism

about tougher screening at that time. Now, heading to the campaign phase of the upcoming European Parliamentary elections, the prospect of any EU Regulation, which would result from negotiations among representatives of the Commission, the Parliament and the EU states, gaining force by next year is becoming more unrealistic. As mentioned, no such screening regime has existed until now in Hungary either, except for certain sectorial reviews available in selected regulated industries, such as energy or banking, in which the acquisition of certain controlling stakes has long been subject to prior approval of the competent national regulator. The new act requires the seeking of prior consent by the relevant investor from the competent Hungarian minister for the closing of its proposed acquisition in Hungary. The rendering of the ministerial decision on whether to restrict a given investment carries a reasonably wide amount of discretion, as it is dependent on essential public policy concerns only and could in a worst case scenario be delayed by as long as 90 days. Although a decision on prohibiting an acquisition remains subject to judicial appeal to the administrative high court in Hungary, such a court is not allowed to overturn the ministerial prohibition; it can only refer the case back to the minister for reconsideration, and then solely on the grounds of procedural mistakes. The new Hungarian act becomes effective as from January 1, 2019. It is to be seen, however, how the proposal will find its final form against any instrument from the new European Parliament in the same subject matter.

www.wolftheiss.com

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Continued from page 26 ► ► ► “This shows us very clearly that the consumers, OK, they are drinking a little bit more sparkling wine, but, most importantly, they want higher quality,” he said. RAPID CHANGE To achieve this, the company has worked on all aspects of the business; from vineyards to deliveries, and especially on advertising and marketing, activities which have been going through rapid changes in the past decade. “Ten years ago, we Hungarians were first place in the world concerning the

time we spent on TV, so [advertising was on] television, some billboards, some PR, some print and that’s it,” Kovács says. But with the appearance of YouTube, the marketing department began producing some very simple videos enlightening the public on the most basic elements of sparkling wine. “I couldn’t imagine it; these were, for me, were some very simple films, like how to open a sparkling wine bottle. They put this on the internet and – unbelievable!” Kovács beams: “30,000, then 50,000 hits! How you have to pull the cork – just simple things!”

Equally, of course, the age of social media has a very definite downside. “I tell my colleagues: 20 years ago, if I bought something in a supermarket and the quality was not good, I wrote a letter, sent it to the company, and yes, [later] I received an answer. But today? I go to the internet and share all my complaints with the company, and 10,000 people! Social media is here and we have to use it to communicate directly to the consumers ourselves,” he underlines. LONG-TERM RENEWAL Naturally, the takeover by Henkell & Co. has been accompanied by the transfer of significant technology and know-how, not least the construction on the outskirts of Budafok of a

BRIEF EXPLANATION OF PRODUCTION METHODS FOR SPARKLING WINES Törley lays claim to being the only company in Hungary that produces sparkling wines by four different methods. Méthode Traditionnelle: uses the same steps as classical Champagne production in France. Sugar and yeast are added to base wine and the bottle laid down for carefully controlled secondary fermentation to develop over 24-36 months. The sediment is removed in a process known as disgorging, through freezing the neck of the bottle and allowing the pressure to eject the frozen cork. The contents are adjusted up with so-called

“expedition liquer” to set the required sugar level, and a classical cork, with steel wire reinforcement, then fitted. After a little rest, all is ready for sale. This is the most labor-intensive, bottle-fermented method, suitable for the highest quality wines. Méthode Transvasée: sometimes referred to as the transfer method. Similar to the Méthode Traditionnelle, meaning the secondary fermentation takes place in the bottle, but it is aged for a shorter period. The process is also more mechanized, with the sediment removed using a mechanical filtration process.

Méthode Charmat: utilizes tank fermentation, for faster, mass production, said to result a more fruity and fresh sparkling wine, full of the primary grape aromas. Méthode Rurale: also known as the Asti process, was developed by Italians using grape juice (must) instead of base wine, meaning this is the only sparkling wine produced via one fermentation. Asti sparkling wines also have a lower alcohol content than those using a still wine base (typically 7-9% of alcohol versus 11-12% for the latter). This makes Asti sparkling wines very popular with female drinkers.

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JÓZSEF TÖRLEY AND THE 19TH CENTURY STARTUP Born in 1858 to a farming family in Csantavér, a small town now in Serbia, where it is called Čantavir, József Törley studied in Graz, Austria before moving to France. He initially worked as a clerk and interpreter at a Champagne winery, but his natural inquisitiveness and entrepreneurial nature soon led him to not only learn the techniques to make Champagne, but he quickly went on to found a company to make the bubbly in Reims, at the heart of the industry. But it was on a trip back to Hungary that he recognized first the limestone quarries in Budafok as ideal for the fermentation of sparkling wines and second that the vineyards around Etyek, 25 kilometers southwest of Budapest, to be very similar in terms of climate and soil to those in the Champagne region of France. Before long, at the tender age of 24, he had sold his operation in Reims to try his hand at replicating the sparkling wine business back in Hungary, not forgetting to bring with him a master winemaker by the name of Cesar François (whose name lives on as the François brand today). “We’d call Törley a startup [entrepreneur] today,” says György Kovács, chairman of the current Törley corporation. “He wasn’t the first to begin making sparkling wine in Hungary, but he was always curious. And, he understood it was not enough [merely] to make an excellent wine: he knew, intuitively, the need for marketing, even though I don’t think the word had been invented then. He knew he had to build a brand.” To boost sales and spread the name, Törley also knew he had to win over

high income groups, those who could afford his products. To achieve this he created a kind of 19th century mystery shopper: he hired men who would visit well-to-do restaurants and places of entertainment to check if the waiters recommended his champagnes, as he termed them; there was no legal ruling against using the French name at the time. These same hirelings would next shout out loudly to waiters that they wanted some finest Törley pezsgő – and to be quick about it – planting the idea into other diners’ minds. Törley also worked hard on poster design, sponsoring artists to create images in an art nouveau style of sophisticates imbibing his bubblies. Always in the news, not only was he one of the first to hold a driving license in Hungary, he caused the first recorded road accident, hitting a road sweeper, though fortunately not too serious. He was also a pioneer in using branded motor lorries for deliveries, another head turner at the time. Backed by high-quality products and such marketing savvy – and aided by the general economic development in the peaceful decades after the political compromise with Austria – business thrived and the Törley name soon became a leading brand on the domestic market. By the turn of the century, annual sales had hit one million bottles. And with a touch of showmanship perhaps, Törley somewhat immodestly proclaimed: “My due diligence and strong determination have led to the creation of a sparkling wine superior to those for which Champagne is famous.” Törley was also a pioneer in what today is termed corporate

social responsibility, establishing foundations to support talented children and orphans, and implementing a school-milk program in Budafok. He died, aged 49, from untreated appendicitis in Ostend, Belgium, while on holiday in 1907, just after the grand celebrations for the 25th anniversary of the founding of his company. Leadership was then passed on to his brother.

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massive fermentation hall hosting 22 steel tanks made redundant from consolidation of plants in Germany. There is also a long-term renewal program of Törley’s vineyards, with the replanting of between 20-30 hectares of vines each year. But the Wiesbaden parent allows considerable freedom to its subsidiaries to develop as they see fit; a “local hero” approach, as Kovács puts it. So, while Törley and other Henkell subsidiaries engage in the

mutual promotion of the Henkell Group’s products, the Budafok company is responsible for the promotion of its own brands abroad in places like Canada. Henkell declines to reveal investment numbers, however. When asked to comment on the business climate of Hungary, Vanessa Lehmann, International Marketing and PR manager said the company had gained “great market insights and experience” in the business environment over the last

25 years. Henkell had invested to develop its vineyards, production technology, IT infrastructure, and in employees. “We are convinced that these investments contribute to the company’s success, therefore we will continue on this path in future years,” she said. Independent assessors certainly recognize the advances made since 1992. Caroline Gilby, a U.K. wine consultant who has taken a special interest in the Central and Eastern European region since the fall of

EXPORTS: MAGYAR BUBBLY FILLING GLASSES FROM CANADA TO VIETNAM In what is a fiercely competitive sector, exports make up a significant proportion of Törley’s sales: every year, some seven million bottles of sparkling wine, almost one third of the 22-24 million total annual production – head out of the country.

Indeed, not only was the Törley name allowed to live on – but innovation in marketing still flourished in the cellars: the Hungaria and BB labels were created during some of the politically darkest hours of the mid1950s, two brands which remain key to the company’s offerings to this day.

Perhaps surprisingly, this is in part a consequence of Communistera policy, and the need for hard currency revenues.

One market first tested in the late 1980s was Quebec, Canada. Today – somewhat ironically, given its majority French-speaking population – Hungaria Grande Cuvée Brut, fermented in the cellars of Budafok, is the province’s market leader in sparkling wine.

“The [then government] realized that wine, and sparkling wine, was an export opportunity. Everything that was good for export got state support. This was why the company could grow in the Socialist times, and, most importantly, they kept the brand!” says chairman György Kovács.

Törley products – including its still wines - are popular in Scandinavia and the Baltics. “We are market leaders in Estonia, where [we sell] a little bit more Törley per capita than in Hungary! Of course we are very

proud of this,” says Kovács. Meanwhile, in Vietnam, local entrepreneurs who studied – and presumably imbibed – in Hungary have created a niche market in Törley’s red pezsgő (red being a lucky color in the east Asian country, where white is associated with mourning). “To be there, with our sparkling wines and speaking Hungarian with the Vietnamese, is amazing,” Kovács smiles. But mention Asia, and all eyes turn to the big one: China. “Yes, everybody asks about China. China is very important, no doubt. [But] to build a brand is very tough there. We export 20-30 containers in a year. It could be more,” says Kovács. “We are working on it.”

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the Berlin Wall, says Törley has progressed across the board with its sparkling wine portfolio. “The more entry-level wines do their job of being enjoyable and sound examples of their style. But I think it’s the traditional method wines that have really improved: better complexity, finesse and integration,” she told the BBJ. None of this is by chance. In Gilby’s view, this success is based on “better understanding of the vineyards and raw material, especially with vineyards in Etyek and the limestone bedrock there that delivers the grapes of the right style.”

But, she underscores, achieving proper recognition in the highly competitive international market for sparkling wines is a tough ask for a producer in a country such as Hungary. “It’s always going to be hard for a sparkling wine from a relatively unknown country to compete against established regions that bring with them a certain reassurance about quality perception, which may or may not be justified in reality,” Gilby argues. “A lesser-known sparkler is going to have to work much harder to demonstrate why it deserves a place in any export market, through overdelivering on quality, combined with a strong value proposition.”

BALTIC BUBBLIES: HUNGARIAN DIASPORA PROMOTES TÖRLEY IN BALTICS On the hypermarket shelves of Prisma, one of the largest retail chains in Estonia, five Törley sparkling wines battle for the attention of customers. Competition is tough: the remaining 32 labels include aggressively priced Henkell Sekt (from Törley’s German owner) and – somewhat incongruously – Blue Nun 22K (also German, at EUR 8.99) which rubs shoulders, as it were, with Nudist Rabarbra (a local fermentation, fetching EUR 12.99). But in spite of Estonian willingness to pay a premium for a spot of naked flesh – if only on a label – the more modest Hungarian champers wins out in this northern Baltic state, according to Törley’s chairman György Kovács. Budafokian success in Estonia – and across the Baltics in general – is largely down to the efforts of one man - a certain János Csonka.

“Originally from Ukraine, János is an [ethnic] Hungarian guy, who studied in Moscow, if I’ve got it right, and after university, was placed in Estonia,” says Kovács. With the collapse of the Soviet Union, Csonka founded a trading company, focusing on Hungarian products, of which Törley proved the most successful. The story, says Kovács, is a case study as to why “it’s very important to have a local person who is very committed to the brand”. Estonians took to Magyar sparklers for a mix of reasons, according to Priit Pallum, a former ambassador from Tallinn to Hungary. “Latvian-made Sovetskoje Shampanskoje – “Soviet Champagne” – was becoming ideologically unpopular, and some of it originated from dubious Moldovan base wines, of questionable quality,” Pallum told the BBJ.

VISITS TO THE TÖRLEY MUSEUM AND CELLARS Individual and group visits to the Törley museum and cellars in Budafok, with English- and German-speaking guides, can be arranged with a few days’ notice. Program packages for 2019, which include a tasting of various sparkling wines, are currently being drawn up. Visits typically take a little over two hours. Warm clothing is advisable. See: torleymuzeum.hu/en/ visiting-in-groups

The Magyar pezsgő not only lacked the negative ideological associations prompted by Sovetskoje, but felt more like a family product, with Estonians viewing Hungarians “almost as brothers” from their common Finno-Ugric linguistic connections, he argues. In addition, Törley sticks out as a good quality/price ratio brand to the average price-sensitive Estonian when viewing a shelf stacked with French Champagne, plus a variety of Italian, German and other sparkling wines. As Pallum puts it: “For an average guy, it is really the cheapest drinkable fizzy stuff.” Stop Press: As this edition of Investing in Hungary went to press, Terje Sahk, AS Prisma Peremaret Category Manager, confirmed that Törley Charmant Doux 11% and Muscateller Doux 11% are the second and third best-selling sparkling wines in the company’s stores across Estonia. First is Martini Asti, and fourth spot goes to the aforementioned saucy Nudist Rabarbara – although she is also a bit of a cheat: she’s a sparkler made from rhubarb.

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AUTOMOTIVE INVESTMENTS STILL FUEL LOCAL INDUSTRY The Hungarian automotive industry has been one of the main drivers of the national economy. That fact should hardly come as a surprise; international giants have been busy opening and expanding bases in the country in recent years. Hungary has a lot to offer for automotive companies already present or those planning to set up in here. The Budapest Business Journal discusses the market with the head of automotive parts manufacturer Dana Hungary. By Christian Keszthelyi The automotive industry accounts for more than one-quarter of the output of the local manufacturing sector. When its production volume hiccupped in September, performing a decline of 9.5%, the whole economy felt the stall, according to a detailed reading of data released by the Central Statistical Office (KSH).

was the main engine of foreign direct investment during 2017. The past years have seen significant entries to – and expansions in – the market. The good news is that the industry seems to be becoming so diversified that a healthy synergy has started to appear. Although, at the time of going to print, HIPA has not talked about this year’s figures yet, it seems 2018 holds many promises for the sector.

Just in the second half of the year, numerous automotive FDI activities were recorded. Just to mention a few: Austrian automotive industry company AVL announced it would build a HUF 12.5 bln R&D base in Érd (20 km southwest of central Budapest); Indian-owned, U.K.-based giant Jaguar Land Rover confirmed plans to open a technical engineering office in the Hungarian capital; Japanese-owned supplier NIDEC GPM Hungary

In its second reading of the September data, KSH confirmed that industrial output slipped 0.6% year-on-year, which the statistics office said was due to an additional working day in the base period. Adjusted for the number of workdays, the output increased by 2.2%, according to KSH. Nevertheless, as compared to the previous month, output declined a seasonally- and workday adjusted 2.1%. Even though the government has been taking steps to ensure the economy “stands on more than one leg”, as the Hungarians say, the country’s dependence on the automotive sector appears to linger on. According to figures from the Hungarian Investment Promotion Agency the automotive industry

Audi celebrated 25 years in Hungary in 2018.

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Wassen says. He also mentions that, thanks to the increasing number of automotive suppliers entering the market, a synergy is being established step by step, which companies can leverage in the country when planning to add a new investment to their portfolio. “The available infrastructure and the government incentive programs also play a crucial role,” Wassen says, adding that Hungary’s strong focus on Industry 4.0 — the present trend of automation and data exchange emerging in manufacturing, seen as the fourth industrial revolution — puts the country on the map of future investors.

inaugurated a HUF 15 bln expansion, the government signed a strategic partnership with U.S.-owned supplier BorgWarner; the government agreed with German BMW on an investment grant for its EUR 1 bln plant; RehauAutomotive laid the cornerstone of a HUF 40 bln bumper plant; and Spinto Hungaria inaugurated a HUF 6 bln plant at its base. FOUR MAJOR PILLARS FOR FDI When the conversation turns to what attracts FDI to Hungary, quality

labor force and favorable economic circumstances are often cited. However, it appears there are more merits the country can offer. Charles Wassen, general manager/country operations lead of Dana Hungary Ltd., mentions four major pillars in discussing the sector with the BBJ. “There are really talented people available in Hungary who are eager to learn fast, are more and more flexible and have the technical skills and a good base technical knowledge,”

This solid base is very well complemented by a progressive economy, it appears. “The step by step tax reduction of the employerrelated taxes certainly helps to create a positive environment,” the GM says, adding that the reduction of corporate tax makes the country more attractive with high certainty. However, the Dana leader also identifies a threat, which is definitely putting a burden on the industry. “Due to the constantly increasing labor shortage problems, demand for increasing wages take place more aggressively than companies

AUDI SEES 25 SUCCESSFUL YEARS A quarter of a century ago, AUDI AG established its first foreign production site Audi Hungaria, drawn by the country’s ideal geographical location, highly-skilled workforce, good logistics relations, favorable economic framework, and the investor-friendly economic policy. “Through the years the company has expanded its activity and today it is one of the largest engine and one of the

most modern vehicle factories in the world, as well as one of the biggest tooling factories in Europe,” Audi Hungaria tells the Budapest Business Journal. R&D has also become an increasingly prominent field at Audi Hungaria. Being one of the largest employers, Audi Hungaria currently offers jobs to more than 12,900 people in the country. “Since its establishment, the company has invested more

than EUR 9 billion, which makes it the largest foreign investor, the biggest production company and one of the largest exporters in Hungary,” Audi Hungaria says. The company also bagged the 2018 HIPA Investor of the Year award. At the same time, Audi Hungaria has increased investments this year, production of e-engines and the new Q3 have also commenced, followed by a new Q model.

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willing to work in the European Union, which is a risk for the local market. Wassen emphasizes that education must become a special focus in the future as companies will be increasing requirements from their future employees. “Education, dual education, training and further very strong engagement process of the employees. That remains the major challenge,” he notes.

were forecasting, which is a negative effect to be taken into consideration,” Wassen says.

who is well-educated and speaks foreign languages can find a job,” Wassen says.

Nevertheless, Hungary’s reputation is still high and trust towards the country’s growing market with new investments is visible, especially in the automotive industry. “The challenge is further on, to reach that Hungary is seen as a ‘best cost’ country versus the former strategy to be the low-cost country. This is extremely important as in today’s labor market anybody

In recent years, the workforce in the Hungarian market overall has seen improvement. The country boasts a high level of talented and engaged professionals, and their work experience has become more varied. The Dana GM notes that this progression is positive. However, he warns that these talents, being able to speak languages, are very much

As mentioned earlier, Industry 4.0 is seen to bring disruptive changes in the market. “Investment in high-level technical developments (such as automation or robots) is essential to reach better productivity in all industrial areas. The future investments have to focus on these elements via disruptive technology,” the director says. But he also notes that Hungary’s tightening jobs market (something increasingly being seen across the region) poses difficulties for the sector. “I believe these trends will impact everything,” he adds. “I am proud of the fact that our company, Dana Incorporated, with a more than EUR 50 million investment in gear manufacturing technology to implement a new European gear making facility in Hungary with high added value activities and automation, can contribute significantly to all of these,” he concludes.

MERCEDES-BENZ SETTING UP SECOND PLANT Daimler’s Hungarian subsidiary Mercedes-Benz Manufacturing Hungary Kft. has become one of the most important players in the Hungarian automotive market. The factory in Kecskemét has not only been a very important engine of the local economy, but has been a crucial vehicle for growth in the region too. The company employs a workforce of approaching 4,000 in the country, and as a business

Mercedes-Benz paid a total of EUR 23 million in taxes and contributions in 2017 to the Hungarian state and the local government of Kecskemét. The company’s most recent investment announcements include EUR 580 mln in a chassis unit and a EUR 1 bln plant expansion, the latter meaning that the German manufacturer will open its second factory in the country.

The new 382,000 sqm factory is foreseen to raise the workforce by 2,500. It will include a press shop, a so-called body-in-white shop (the stage at which a car body’s sheet metal components are welded together, prior to painting and moving parts being added), a paint shop and an assembly area. The company expects to launch production from this second factory in 2020.

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H2 ANNOUNCEMENTS HERALD STRONG FDI ACTIVITY The figures have shown a growing trend in terms of foreign direct investment into Hungary over the past few years, and although this year’s figures will not be published until 2019, a number of eye-catching openings and announcements in the second half of the year offer suggest 2018 will have continued the upward path. Considering figures published this year, 2017 was a truly busy one in terms of FDI. HIPA said in the beginning of November that through 96 projects a total of EUR 3.5 billion investments were attracted to the country, creating 17,000 jobs. In the past less than half a decade, HIPA helped EUR 12 bln investment take place in Hungary, creating 65,000 work places.

Managing Director of AVL Hungary Dirk Janetzko announces a HUF 12.5 bln R&D center in Érd. Photo by Ministry of Foreign Affairs and Trade.

By Christian Keszthelyi The reasons for this are plenty. The economic landscape of the country is often praised by big companies that mention a pro-business investment environment and political continuity. Hungary has a very competitive labor market, sporting highly-qualified professionals, who speak foreign languages well (even if the language skills of the wider population are not so good, at least by European Union comparisons). Also, wages in the country are still lower than in other, more established EU members, which helps companies stay cost-effective.

Last, but definitely not least, the efforts of the Hungarian Investment Promotion Agency (HIPA), is a factor that cannot be ignored when looking at the FDI flowing into the local economy. The award-winning agency has done much to promote Hungary on foreign markets, and in negotiating with international giants, putting the tiny Central Eastern European country on their radar. Should a company decide to invest in Hungary, HIPA has earned a reputation for going the extra mile to help, including familiarizing investors with current regulations, describing the economic and business landscape, and in many cases aiding the company with government or EU funding.

STRONG AUTOMOTIVE SECTOR At the end of July news broke that German car manufacturer BMW was considering building a more than EUR 1 bln factory in Debrecen with a capacity for turning out 150,000 conventional and electric vehicles a year, and establishing more than 1,000 jobs. On September 21, Minister of Foreign Affairs and Trade Péter Szijjártó said after talks in Munich that the agreement had been reached, and on October 12 the contract was signed. The Hungarian government agreed to offer funding of HUF 12.3 bln (EUR 38.5 million). Bridgestone also made headlines with plans announced in September. The Japanese tire manufacturer is making a HUF 9.2 bln investment at its base in Tatabanya, which will create 100 new jobs. The government has offered a HUF 826 mln grant for expansion of production to 7.2 million units by 2020 and the building of a 10,000 sqm warehouse to raise

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Bosch is building a HUF 37 bln development center in Budapest. Photo: Károly Árvai/kormany.hu.

storage capacity from 180,000 to 600,000. Currently, the Tatabanya operations run with 1,200 people. At the end of October, German carmaker Daimler — which is currently building its second plant in Hungary through an investment of EUR 1 bln creating 2,500 jobs by 2020 — inaugurated its Mercedes Benz Academy training center. The investment of more than HUF 3 bln at the Mercedes’ base in Kecskemét (90 km southeast of Budapest) was supported with a HUF 622 mln state grant. The factory has played an important role in introducing dual training in the area, Christian Wolff, managing director of Mercedes-Benz Manufacturing Hungary Kft., said at the announcement. The factory last year turned out more than 190,000 compact Mercedes-Benz cars last year and employs 4,000 at the moment. Austrian automotive firm AVL announced at the end of November that it will build a research and

development center in Érd (just outside Budapest) through an investment of HUF 12.5 bln, supported by a government grant of HUF 3 bln. The project promises to create 350 jobs, including 250 jobs for engineers. The base will be the second in AVL’s network of R&D bases after the one in Graz, Austria. German engineering giant Bosch laid the cornerstone for a HUF 37 bln expansion of its Budapest development center in the beginning of June. The investment will add some 90,000 sqm extra area to the current facility by 2021. Local business head Daniel Korioth tagged the expansion as being of strategic importance, confirming Bosch’s commitment to Hungary. A 10,000 sqm test track will also be added to the facility creating new opportunities for the development of electric and self-driving vehicles. Minister of Foreign Affairs and Trade Péter Szijjártó noted at the announcement ceremony that Bosch has already invested HUF 130 bln in the preceding two years.

The center currently employs 2,500 engineers, center head Oliver Schatz said. Both in terms of production and development, Hungary is seen as being of key importance by Bosch, Klaus Peter Fouquet, president of Robert Bosch AG said. He added that more than 13,000 people are employed by Bosch in its nine units in Hungary, making it the biggest foreign employer in the country. This year has also market the 100th anniversary of the establishment of Bosch’s first Hungarian unit. MEDICAL FIRMS INJECT CASH TOO H2 2018 has seen two spectacular investment deals by medical firms. The Hungarian subsidiary of Sweden’s Nolato has completed a EUR 10 mln capacity expansion in Mosonmagyaróvár (162 km northwest of Budapest), creating 20 jobs in the center. The company added a 2,400 sqm production hall and also purchased equipment. Nolato says the expansion will enable it to better serve a new key customers, who has awarded the

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National Instruments laid the cornerstone of a HUF 5.44 bln electronics manufacturing plant and service center in Debrecen. Photo: Bernadett Fejér/Cabinet Office of the Prime Minister/MTI.

company a three-year contract to make plastic parts for insulin dispensers. The company in Hungary employs approximately 500 people, and two thirds of its revenue is generated by exports Israeli-owned drug maker Teva inaugurated a 1,500 sqm unit through an investment of HUF 5 bln at its base in Debrecen (231 km east of Budapest). The new plant will make the active ingredient caspofungin, a product that had been developed locally. At the ceremony, foreign minister Péter Szijjártó said Hungary is one of the world’s top 20 pharmaceutical exporters, within which Teva plays a significant part. BIG INVESTMENTS IN OTHER SECTORS North American-based multinational brewer Molson Coors announced it will invest EUR 12 mln in two phases raising the capacity of its Borsodi brewery in Bőcs (180 km northeast of the capital, near to Miskolc) to

2.5 million hectoliters from the current 1.8 million. Through the investment, the brewery will step up as the regional center supplying both the Czech and Croatian markets with canned international brands. The currently approximate 200 headcount is expected to grow by 10% as a result. India’s flexible plastic packaging manufacturer Flex Films also announced it will build a HUF 23 bln factory in Rétság (65 km due north of Budapest), with the help of HUF 2.8 bln state grant. The plant, which will be the second in Europe following the one in Poland, will create 170 jobs. Péter Szijjártó, Hungary’s minister of foreign affairs, said the country had won the investment in a fierce regional competition with the help of HIPA. The completed project will make India the ninth-biggest foreign investor in Hungary. South Korean conglomerate company Doosan announced it will open a battery copper foil plant in Tatabánya

(60 km east of Budapest) through an investment of HUF 32 bln, aided by a HUF 4.7 bln government grant. The factory will make Doosan the sole supplier in Europe of battery copper foil, a key component product for electric vehicle batteries. IT firm Evosoft Hungary, which is part of Siemens through evosoft GmbH, announced it is launching two projects through a HUF 5.2 bln investment, creating 125 jobs for highly-qualified IT professionals. A HUF 1.4 bln grant is being made toward the costs by the Hungarian government. H1 HIGHLIGHTS The projects and deals above were just from the second half of the year. But 2018 was built on solid foundations. There were also some notable highlights from H1. Medical investments got off to an early start in January when it was made public that Gemany-based B. Braun Medical would build a USD 118 mln (HUF 30.7 bln) intravenous

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wheels by 500,000 units and create at least 200 jobs. Arconic Inc. CEO Chip Blankenship said construction work will conclude next year, by which time the headcount at the plant will rise to 700. Arconic employs a total of more than 2,200 workers in Hungary at its bases in Székesfehérvár, Nemesvámos (128 km southwest of Budapest, near Veszprém) and Eger (139 km northeast of the capital). The company has invested USD 550 mln in Hungary since 1993, Blankenship noted.

Minister of Foreign Affairs and Trade Péter Szijjártó at the official announcement of Arconic-Köfém’s HUF 35 bln, 17,000 sqm production hall in Székesfehérvár. Photo: Zoltan Mathe/MTI .

kit factory at its base in Gyöngyös (78 km northeast of Budapest), creating 400 jobs. B. Braun Melsungen AG supervisory board chairman Ludwig Georg Braun said the company had invested almost HUF 60 bln in Hungary over the past 25 years, and employs 1,400 people, 100 of them development engineers. The government is awarding the company a HUF 6.1 bln grant. German-owned automotive industry supplier Continental said in February it will build a EUR 100 mln parts factory on 7,000 sqm in Debrecen, Hungary’s second city. The investment will create 450 jobs, and is being supported by a HUF 10.6 bln government grant. Continental board member Jose Avila said the company had picked Debrecen because of its excellent infrastructure and welltrained workforce. Construction started in Q3 2018 and production of mechatronic products, sensors and transmission control units is due to start in Q3 2020. Continental already employs close to 8,000 people in Hungary at six plants and a commercial center.

The local unit of U.S. measurement and automation company National Instruments laid the cornerstone of a HUF 5.44 bln (USD 21.5 mln) electronics manufacturing plant and service center in March, in Debrecen. The investment will create 210 workplaces, mostly for graduates and the government is providing a HUF 2.55 bln grant for the project. National Instruments Corporation president and CEO Alex Davern said NI Hungary will construct a fourth building at its, for 250 staff by the end of 2019, he added. NI Hungary employs almost 1,500 people. “During its 17-year presence in the city, Nationals Instruments has become a symbol of a modern, innovative and dynamically developing Debrecen,” said the city’s mayor László Papp. Also in March, automotive industry supplier Arconic-Köfém announced it is investing HUF 35 bln (USD 138.4 mln) in a 17,000 sqm production hall in Székesfehérvár, (64 km southwest of Budapest). The government is providing a HUF 8.3 bln tax break for the project. The investment will raise production of aluminum

Germany semiconductor manufacturer Infineon Technologies inaugurated a HUF 17 bln (USD 59.8 mln) expansion at its base in Cegléd (82 km southeast of Budapest) in June. The government supported the investment, which created 533 jobs, with a HUF 1.2 bln grant. Chairman of the board of Infineon Technologies Jochen Hanebeck said the semiconductors it makes play a key role in electric cars, self-driving vehicles, solar cells and wind turbines as well as data security. The Indian-owned SRF Group announced in the same month that it is investing HUF 18 bln (USD 63.3 mln) in establishing a packaging material plant in Jászfényszaru (72 km northeast of Budapest). The company is receiving a HUF 1.13 bln government grant for the project. SRF Group executive manager Asis Bharatram said the plant will be located at a 15 hectare base and have 100 employees. Production of packaging materials for the food industry is scheduled to start in 2019. Bharatram explained that he expects the construction of the Hungarian production facility to make SRF the world’s largest producer of packaging film and bring the company closer to its European clients, whom it will be able to serve more rapidly and efficiently as a result.

INVESTING IN HUNGARY

HUNGARY STILL AN ATTRACTIVE DESTINATION FOR SSCS Hungary – and especially its capital Budapest – has been attracting the attention of companies interested in setting up shared service centers for more than a decade now. The past few years have seen significant openings, and with careful development of the economic environment, the trend could easily continue in the future. The Budapest Business Journal discusses the sector with Nokia Solutions and Networks and ExxonMobil.

By Christian Keszthelyi Right before the arrival of the summer heat, Hungary’s Minister of Foreign Affairs and Trade Péter Szijjártó travelled to the United States at the end of May to meet local business leaders and discuss ties and further cooperation possibilities.

Following his meeting, the minister told Hungarian state news agency MTI that international Flavours + Fragrances (IFF) would be setting up an SSC in the capital, planning to employ 160 people. At the time, Szijjártó noted that SSCs already employed more than 46,000 people in Hungary.

During his stay in the States, Szijjártó also met the executives of ExxonMobil and signed a strategic cooperation agreement with the company on energy diversification. The world’s largest publicly traded international oil and gas company, ExxonMobil hopes to start extracting

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Nokia Skypark

gas from a field in the Black Sea with aims of delivering to Hungary under capacity contracts local companies have for 2022-2037. ExxonMobil operates an SSC in Hungary currently boasting 1,600 employees. Just as the summer passed U.S. car manufacturer Ford opened its regional SSC in the capital, the company proudly announced in the presence of Szijjártó. Ford’s biggest European administrative center, it will provide human resources services for Ford units across Europe, as well as the Middle East and Africa, the minister said at the opening. In addition, the center will cover pricing and production planning functions for the European markets too. With the latest opening, Ford raised the number of its bases in the country to three. Headcount tripled

in the past five years and is expected to reach 600 in the near future.

the sector, with a total of 110 SSCs operating in Hungary.

BUSY YEAR Thus, 2018 has indeed been another busy one in terms of SSC investments in the country, a worthy continuation to 2017, when National Instruments made 100 new hires at its SSC, British Petrol inaugurated an SSC in Szeged, Bosch set up HUF 1.6 billion SSC at its power tools plant in Hungary and Debrecen, Hungary’s second city some 230 km east of Budapest, laid the cornerstone of a HUF 10 bln office building with the express intention of drawing more SSC jobs.

Hungary has proved fertile soil for such projects for two decades. The growing number of SSCs is the “positive experience of the last 20 years”, Nokia Solutions and Networks tells the Budapest Business Journal.

During an annual gala organized by the Hungarian Investment Promotion Agency (HIPA) to recognize SSC excellence, Szijjártó said 2017 saw almost 2,500 new jobs created in

“The Budapest location has been building trust and now Nokia can see the quality Budapest can offer; on top of that, Budapest is an ideal location from many aspects and we work towards building diversity in functions. It is a success, as we are one of the most diverse Nokia sites globally,” the company says. According to Nokia, talented labor force and ideal time zone location makes it efficient and easy for them to provide a wide range of services

INVESTING IN HUNGARY

to many Nokia locations across the globe. These conditions allow the company to continuously expand and the reasonable cost structure makes this process beneficial. As a side note on labor force, Nokia acknowledges Hungary as a country having many well-educated professionals who speak multiple languages, to whom it can assign positions that are suitable for their skills and qualifications. WELL-EDUCATED ExxonMobil also acknowledges the local workforce pool. “The SSC sector has increased significantly since the ExxonMobil Business Support Center was founded in 2004 in Budapest. The high number of well-educated and available talents, who spoke foreign languages, the advantageous time zone to support effectively the EAME region’s operations, and cost-effectiveness were some of the main reasons to establish a regional center in Hungary,” Ágnes Zoller, communications manager at ExxonMobil tells the BBJ.

“We [ExxonMobil] started with a few hundred employees and through continuous expansion and job migrations, we now employ 1,600 colleagues. Through the years we have seen significant development in the type of activities we are doing, there are more and more high complexity and high added value jobs, with strong and exciting career possibilities in all areas. Our main functions are Controlling, IT and Customer Services. In certain areas, we are covering and supporting also global activities.”

ExxonMobil has exhibited spectacular growth in the country. “We started with a few hundred employees and through continuous expansion and job migrations, we now employ 1,600 colleagues. Through the years we have seen

significant development in the type of activities we are doing, there are more and more high complexity and high added value jobs, with strong and exciting career possibilities in all areas. Our main functions are Controlling, IT and Customer

Ford’s regional director Viktor Molnár (left) and Minister of Foreign Affairs and Trade Péter Szijjártó officially open the automaker’s European Business Service Center.

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Services. In certain areas, we are covering and supporting also global activities,” Zoller describes. Nokia praises the economic conditions of the country too, mentioning Hungarian Industry Promotion Agency (HIPA) for its hard work in attracting foreign direct investment. “The government and the Hungarian Industry Promotion Agency provide us an encouraging environment for all our ideas. We also highly appreciate the efforts of HIPA in mediating between governmental endeavor and industrial needs and providing constant support as they have given us clear ideas and views through their consultancy. We have a continuous and fruitful cooperation with them,” Nokia tells the BBJ. Apparently, ExxonMobil could not agree more. “More and more companies are choosing Hungary for their offices, which creates a vibrant business environment and community,” Zoller says, weighing up the advantages of the country.

“The American Chamber of Commerce, HIPA and HOA [the Hungarian Service and Outsourcing Association] are a big help in connecting the companies and providing support in case of need, also many years after the investment.” “The American Chamber of Commerce, HIPA and HOA [the Hungarian Service and Outsourcing Association] are a big help in connecting the companies and providing support in case of need, also many years after the investment,” she says. She does add that competition is tightening, however. BEST TALENTS “On the other hand the recruitment and employer branding strategies need to take into account the specifics of the sector, such as the increasing number

of companies and people working in them. Everyone wants to employ the best talents.” Nevertheless, Zoller insists ExxonMobil’s remains commitment to the country in the long-term. “We are expecting further growth also in the upcoming few years, with exciting opportunities.” Looking into the future, Nokia believes the good progress could be sustained by focusing on key points such as increasing the number of

Romke Noordhuis (left), country manager for ExxonMobil, and Minister of Foreign Affairs and Trade Péter Szijjártó sign a startegic partnership agreement on June 1, 2018.

INVESTING IN HUNGARY

Ford’s biggest European administrative center is now in Hungary.

university graduates who can later join the labor market, as well as maintaining a stable and predictable regulatory system. In terms of further investment, Nokia says it has no specific plans to disclose for now. However, it “remains committed to Hungary as an important location for Nokia. It is certain that Nokia plays a key role in the Hungarian economy as value-added services were settled in Budapest.” Nokia has been present in Hungary since 1998. Its headquarters in Budapest, Nokia Skypark, is home to one of the biggest IT and telecommunication R&D centers in the country. The company now employs 2,200 people and its local research center, Nokia Bell Labs performs fundamental research in the field of artificial intelligence and cognitive science, among other areas.

“Hungary plays an integral role in 5G research, but our R&D activity also focuses on further mobile technologies connecting to 3G and 4G networks. Furthermore, Nokia has the largest Finance shared service operation in

Hungary, a Global Procurement organization, a recruitment team responsible for European Nokia sites and a Marketing & Corporate Affairs hub, all high contributors to Nokia global success,” the company adds.

WHAT IS A SHARED SERVICE CENTER? A shared service center is a facility handling a wide range of operational activities for a company, such as (but not limited to) accounting, human resources, payroll, IT, legal, compliance, purchasing, and security. Often an SSC is located far from the headquarters or production facility of a company, handling global matters remotely. Usually, the costs of such a center are treated with utmost gravity, therefore SSCs tend to focus on cost-effectiveness in terms of headcount, wages and selection of economic environment. As such, the importance of Hungary – and especially the capital Budapest – has spiked in the past decade in the global market, as the country can offer a very well-qualified labor force with lower salary expectations as compared to neighboring European Union countries.

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SSC CASE STUDY: BT PRAISES LOCAL GOVERNMENT AND MARKET BT entered the Hungarian market in 1999 when it opened its BT CEE headquarters in the country. The Regional Operation Center (BT ROC) was established on two locations in 2007; Budapest and Debrecen. Today, BT ROC has grown to be the second largest SSC within BT, the largest BT employer on the Continent and one of the largest SSCs in the country. The Budapest Business Journal discusses the latest trends with Zoltán Szabó, general manager at BT ROC. By Christian Keszthelyi “The benefits of the Hungarian investment environment, great location and talented Hungarian workforce enable us to have onboard 2,500 colleagues in our offices nowadays. Our center provides services in 20 distinct languages in the fields of partner management, finance, business administration for BT’s subsidiaries and high value-

Zoltán Szabó

added technology functions such as network and service design. These functions cannot be fulfilled without our colleagues who have all the skills to provide world-class services for our clients from Hungary,” says Szabo.

more than ten large universities educating approximately 30,000 students for business and IT faculties, and has a supportive government bodies (Ministry of Foreign Affairs and Trade and HIPA), according to BT.

The two locations BT currently operates at carries numerous advantages. Budapest is in a central location, it is very close to the Ferenc Liszt International Airport, sports

Hungary’s second largest city Debrecen has its own airport and is accessible by direct flights from London, its university educates approximately 7,000 students in business and IT faculties and the local government and university are both supportive powers, BT adds. CHANGED FINANCIAL ENVIRONMENT BT acknowledges a clear government mission of making the country an even more attractive location for foreign direct investment. The recent years have also seen several changes to the economic and financial environment, such as the reduction of the Corporate Income Tax rate, new mobility allowances, special incentives for R&D projects available across the entire country including Budapest. “For SSCs, labor-related taxes pose more considerable significance than

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profit-based taxation, on one hand because of offering jobs for highly educated people. We welcome the aim of the government to create the most attractive tax environment and the continuous reduction of social contributions,” Szabó says. Hungary can offer competitive costs while the quality of services that companies can provide from here equals Western European levels. In Budapest, at least, high-quality offices are available at a reasonable price, which further boosts the attractiveness of the capital to countries in Europe or the CEE region, BT adds. HIGH EMPHASIS Still, as always, there is room for improvement in terms of education. “We as a company put a high emphasis on cooperation with educational institutes, not only in the higher education but on the secondary level too. We are working closely together with more than 20 educational institutes in order to develop business required skills,” says Szabo. “For instance, recently we signed a strategic cooperation agreement with the János Irinyi Educational Center of Kazincbarcika (135 km northwest of Debrecen). In the framework of the cooperation, BT colleagues will hold practical, professional and English language training for the students. Following a successful trial interview, the best students might be able to find a job at BT’s Debrecen office. In the framework of the cooperation, BT laptops were also donated to further improve the educational infrastructure,” he adds. BT has been a stable market player in Hungary for 11 years, and the company claims to consider the Hungarian center as a strategic part of the whole group. “We plan a long presence here in Hungary and I hope that we can further grow in the future,” Szabo says.

“Our center provides services in 20 distinct languages in the fields of partner management, finance, business administration for BT’s subsidiaries and high value-added technology functions such as network and service design. These functions cannot be fulfilled without our colleagues who have all the skills to provide world-class services for our clients from Hungary.”

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M7 REAL ESTATE PORTFOLIO PERFORMS WELL BEYOND EXPECTATIONS

Yields on industrial estates are on the decline in Hungary, but owners are holding onto their positions, according to M7. The Hungarian portfolio of M7 Real Estate, the pan-European real estate asset manager, has performed strongly in 2018. The portfolio has been actively managed with the result that more than HUF 4 billion of assets have been sold. Following these sales, the portfolio is currently valued at HUF 34 billion compared to a purchase price of HUF 24 billion. Yields in the Hungarian industrial real estate market have dropped considerably and investors have had to satisfy themselves with lower levels. The yields are at 6-7% on average; logistics/industrial assets perform at 7-9% and category “A” offices at around 6%. The yields are still better than bank account rates, M7, therefore, believes that there will be ongoing demand in this sector and that owners will maintain their real estate investments for the longer-term in Hungary.

M7’s Hungarian industrial portfolio predominantly contains undermanaged, value add real estate. The Londonheadquartered group typically purchases these less attractive properties at a yield of around 8-12% and then consolidates them into a larger portfolio with income levels and yields above the market averages.

One, with an area of 40,000 sqm GLA, comprising five units, was sold in less than six months. The other asset comprised a number of units and had an area of 7,500 sqm GLA. The tenant and M7 jointly refurbished the property and the tenant subsequently made an offer to acquire it.

“The real estate in our portfolio still has a lot of potential, be it development or long-term investment. We make a lot of effort to bring our assets to an acceptable yield level and to make them marketable, and I believe that we are able to offer attractive instruments to our investors in a strengthening market,” says Balázs Magyar, managing director of M7 in Hungary.

The HUF 4 billion of real estate sold by M7 represents more than 10% of the total portfolio. An average profit level of 15-25% was realized in less than one year.

100% OCCUPANCY Three assets have been sold by M7 in Hungary this year. In Budapest, M7 increased the tenant occupancy rate at its District XIII Innovations Park (with a leasable area of 4,160 sqm of GLA) by 20% to 100%, and then accepted an offer from a large international investor. Of the four assets owned by M7 in Eger, two have been sold.

M7 started its Hungarian operations in 2016 and currently manages a leasable area of approximately 210,000 sqm comprising 11 assets including the Atom Center shopping center in Paks, the Acélforma industrial hall in Dunaharaszti, and the Aerozone category “A” logistics center. The company operates as the asset manager for the Hungarian real estate belonging to the CEREF 1 real estate fund.

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NOTE: ALL AR TICLE S M ARK ED INSIDE VIE W ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPE S T BUSINE S S JOURNAL DOE S NOT TAK E RE SP ONSIBILIT Y

M7 Real Estate is one of the leading specialists in the pan-European, regional, multi-let real estate market

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M7’s Mission Our mission is to be the European regional property fund and asset management business most admired for its performance and people

M7 Real Estate Hungary Kft. Krisztina krt. 32., 2. em. Budapest 1013, Hungary Phone: +36 1 848 0671 Email: info-hu@m7re.eu Web: www.m7re.eu/hu