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review REAL ESTATE Price: HUF 990

Property Hungary 2018

A R C H I T E C T U R E / U R B A N D E V E L O P M E N T • F I N A N C E • H O T E L • I N D U S T R I A L • I N T E R I O R F I T- O U T • IN V E S T M E N T • O F F I C E O V E R V IE W • O F F I C E T R E ND S A ND T EC HN O L O GIE S • R E TA IL • S U S TA IN A B IL I T Y

B publication

GROWING ON ALL FRONTS BUDAPEST CATCHING UP REGIONAL PEERS


REAL ESTATE review

CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 4

Focusing on Well-being:

Positive Sentiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

HIP Office Buildings By CPI . . . . . . . . . . . . . . . . . . . 43

INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . 14

Skanska creates the offices of the future . . . . . . 44

Strong sentiment Chasing Good Targets . . . . . . . 16

Success Story Continues . . . . . . . . . . . . . . . . . . . . . 47

Lawmakers Helping Families

RETAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Make a Home. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Retail Development Finally Taking Off . . . . . . . . . 56

The Changing Legal Background of

Creating Social and Work hubs for

Short-Term Leases in Hungary . . . . . . . . . . . . . . . 21

the Next Generation . . . . . . . . . . . . . . . . . . . . . . . . . . 59

HIPA: Matching Investors

INDUSTRIAL . . . . . . . . . . . . . . . . . . . . . . . . . 62

with Property and Location . . . . . . . . . . . . . . . . . . 22

Industrial development needed to

FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

meet rising demand . . . . . . . . . . . . . . . . . . . . . . . . . 64

Lenders Providing Finance on More

HOTELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Favorable Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Huge Potential In Hungary’s Hotel Market . . . . . 72

OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

SUSTAINABILITY . . . . . . . . . . . . . . . . . . . . . 76

Speculative Office Building Boom . . . . . . . . . . . . . 32

Sustainability Increasingly the Market Norm . . 78

The focus for TriGranit in the region in 2018 . . . 34

INTERIOR / FIT OUT . . . . . . . . . . . . . . . . . . . 82

Buildings & Beyond:

Growing Interest in Interior Issues . . . . . . . . . . . . 84

Horizon Development Impacts More Than

ARCHITECTURE / URBAN DEVELOPMENT . . . 90

Just the Property Business . . . . . . . . . . . . . . . . . . . 36

Sustainability and Interconnectivity

S IMMO Succedding Along Váci út . . . . . . . . . . . . 38

Now Part of Urban Development . . . . . . . . . . . . . 92

IMMOFINANZ

Giving Budapest a new,

Hungary awarded best Asset Management

Sustainable Cityscape . . . . . . . . . . . . . . . . . . . . . . . 95

Company of the Year 2017 . . . . . . . . . . . . . . . . . . . 40

Towards the Future: The Development of

Balance Hall “Powered by you” . . . . . . . . . . . . . . 42

BudaPart, the new District of South Buda . . . . . 97

R E A L E S TAT E R E V I E W 2018

A B U DA PEST B U S I N ES S J O U R N A L P U B L I CAT I O N

BBJ Editor-in-chief: Robin Marshall • Real Estate Editor: Gary J. Morrell • Copy Editor/Proofreader: Robin Marshall, Sales: Bernadette Oláh, Csilla Lengyel • Layout: Zsolt Pataki • Publisher: Business Publishing Services Kft. Media representation: AMS Services Kft. • CEO: Balázs Román • Address: Madách Trade Center, 1075 Budapest, Madách Imre út 13-14., Building A, 8th floor • Telephone: +36 (1) 398-0344 • Fax: +36 (1) 398-0345 • ISSN: 2416-0423

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INTRODUCTION Hungary continues its rise from the financial crisis, despite constraints imposed by limited investment grade product, and rising labor and building costs. Hungary is once more being seen as an attractive investment and development destination, with investors seeking to source product that is of a similar quality and specification to that found in Western Europe. The demand and supply fundamentals across the different market sectors are positive, as Hungary provides a significant yield premium on Poland and Czech Republic for similar standard product. Local capital constitutes a significant proportion of investment transaction volume, providing security and liquidity for these markets. The cranes visible in the Budapest skyline reflect the strong office pipeline, half of which is already pre-let. The handful of dominant developers in Hungary are producing highly specified and sustainable office projects in, for example, classical turn-of-the-century buildings and in locations overlooking the Danube. Developers have undertaken cautious, phased projects and vacancy is now the lowest on record. Retail pipeline in Budapest remains very low, and the time is now regarded as appropriate for the delivery of new Budapest shopping centers that would freshen up the market. At the same time, owners of earlier generation shopping malls are redeveloping and extending their offering. The industrial market is recording high demand for what is a limited supply of product. The major developers are now looking to the speculative option in addition to built-to-suit, which has been the norm for a number of years. One obstacle to further growth is that a functioning industrial market has not developed outside the capital. Tourism visits are on the up, and some interesting boutique hotels are being developed in the historical center in both the mid- and upperlevels of the market. Developers are looking to redevelop listed buildings, giving these historical structures a use-value while at the same time preserving the classic feel of the city. Against this backdrop of positive economic indicators and market fundamentals, the question remains: “What could go wrong?� Growth in the investment markets requires a continuous supply of investment grade product to meet demand. However, from the other perspective, developers need to undertake development strategies in line with market conditions, with a background of rising labor and development costs. In general, the markets are regarded as being in a favorable position to meet a future economic downturn.

Gary J. Morrell Real Estate Editor

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INVESTMENT


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STRONG SENTIMENT CHASING GOOD TARGETS Investor sentiment towards Hungary is continuing to improve as investment volumes for the country reached around EUR 1.7 billion in 2017 according to CBRE. JLL traced EUR 1.84 bln of investment last year. The office, retail, industrial and hotel sectors are all recording positive demand, supply and vacancy fundamentals, and at the same time the economic fundamentals for Hungary are also improving. By Gary J. Morrell With regard to inward investment, Hungary is in a favorable position in that it is less expensive than Poland and Czech Republic and the risks associated with investing in Hungary are no higher. Therefore, Hungary offers a premium on these markets and the combination of the market and economic factors are currently making Hungary a very attractive investment destination. At the same time, international sentiment is becoming more favorable towards Hungary; the role played by domestic capital increased to around 40% in 2017, bringing more security and liquidity to the investment market. The challenge for Hungary, as was also the case last year, is the limited supply of investment grade product to meet the rising demand from investors. “The yield gap between Hungary and Czech Republic remains at around 100 basis points for every asset class; whether this is fair or not is not very interesting, what is interesting is that if you believe that the risks are the same as with Czech Republic and Poland, as many investors do, then you still get a 1% extra return on investment,” comments Lóránt Kibédi Varga, managing director of CBRE Hungary.

“This makes Hungary very attractive for investors. With regard to the lack of available investment product, we said the same thing last year but still EUR 1.6 bln-1.7 bln was transacted and we feel that circa EUR 1.5 bln will be invested in 2018,” Varga says. The most notable investment deal at the top of the market is seen as the purchase by the Germany-based asset manager, Corpus Sireo of the 14,500 sqm Eiffel Palace for circa EUR 54 million from the National Bank of Hungary, at a reported yield of 5.25-5.4%. The classic turn-of-thecentury building was redeveloped into a landmark office building by the Hungarian developer, Horizon Development. More recently, GalCap Europe, a Viennabased international investor and asset manager, has acquired the 17,000 sqm Central Udvar office complex, located in the historic center of Budapest, from Goldman Sachs, which itself had only acquired the property in 2017. OFF-MARKET DEAL This is the second acquisition by GalCap in Budapest after the purchase of the Merkur Palota from Galeon Capital. The purchase was made on behalf of a separate account

for a German pension scheme, administered by Institutional Investment Partners. The transaction was an off-market deal, and CBRE advised GalCap Europe. The 17,000 sqm Central Udvar is located in District VII and provides 13,000 sqm of office space in three buildings. UNICEF is the largest occupier in the classic renovated building. “Central Udvar perfectly fits our strategy of high-quality assets in the most central locations. We will further expand our investment activities in Budapest, Warsaw, Prague and Vienna this year. The dynamics in these markets remain exceptional, underpinned by strong fundamentals,” says Marco Kohla, managing director of GalCap Europe. The company was founded in 2015 as a specialized investment and asset


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Nokia Skypark.

manager for Austria and the CEE region. The company sees itself as acting as a local partner in Central Europe for pension funds and insurance companies from the German-speaking countries, as well as American and U.K.-based private equity funds. The investment strategy of GalCap is to initially target the Austrian, Polish, Czech, Slovak and Hungarian markets. The leading CEE investment destinations continue to be Poland and Czech Republic: Poland recorded a 39% share of the total investment volume for 2017, followed by Czech Republic with 27% according to JLL. Hungary recorded 14% of the total investment volume. Investments into the region reached a total of almost EUR 13 bln for 2017 according to JLL, setting a record for transaction volume for the second year running. “With a solid pipeline of

transactions set for 2018, we expect another strong year. Our forecasts for the full year suggests CEE regional volumes will reach in excess of circa EUR 12 bln,” JLL says. INCREASINGLY ACTIVE Local funds have become increasingly active in Hungary, providing more security and liquidity for the market. In a recent office transaction, the Hungarian investor, Diófa Asset Management has purchased the 14,000 sqm Infopark A from CA Immo. Atenor has just completed the sale of Váci Greens D to a private Hungarian investor; this means that three of the four completed phases of the project have been purchased by locals, and the fourth by Slovakia’s ZFP Investments. “With regard to the investment market, this is really a dream for developers as

the market and economy are so strong and all characteristics of the market tell us that we should go ahead and build because the investors are there,” comments Zoltán Borbély, country manager at Atenor Hungary. “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 developments and this gives us a lot of confidence for our future projects. The time to sell is now and we could have sold the entire Váci Greens to one institutional investor,” Borbély adds. OTP Bank managed funds have purchased the 27,000 sqm West End Business Center,

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HIPA: MATCHING INVESTORS WITH PROPERTY AND LOCATION Róbert Ésik, the President of the Hungarian Investment Promotion Agency (HIPA), talks to Real Estate Review about how the organization can help investors with their property needs, among the many other services it provides. Real Estate Review: What real estate-related services do you offer investors? Róbert Ésik: As part of its investment promotion activities, HIPA supports investors in their location search and evaluation activities. We operate an internal database of industrial parks, investment sites, and industrial halls in Hungary. The database lists nearly 1,150 green- and brownfield sites, industrial parks and offices throughout Hungary; it simplifies the task of matching investors’ needs to potential locations. Searchable by size, location, available infrastructure and incentives, the database is an excellent starting point for any prospective investor. In addition to promoting foreign direct investment, we aim to link potential financial and strategic investors with Hungarian projects and businesses, handling a continuously growing online database on certified projects awaiting capital injection. In the framework of its M&A advisory activities, HIPA also introduces investment opportunities in real estate development projects of high feasibility potential, audited by the agency for a concentrated target audience from the sector and the investor community. These projects include numerous officeand hotel developments and luxury residential complexes.

RER: How did the real estate market perform in 2017? RÉ: 2017 was a successful year for the Hungarian real estate market: all three main segments (offices, hotels, and industrial parks) performed well, which is

“2017 was a successful year for the Hungarian real estate market: all three main segments (offices, hotels, and industrial parks) performed well, which is promising for the upcoming period. “ promising for the upcoming period. These results are based – among other things – on the 96 investment projects successfully negotiated by HIPA in 2017, representing a 35% increase in the number of positive projects compared to 2016. These projects may create as many as 17,021 new jobs and generate inward flows of foreign direct investment of EUR 3.5 billion.

So, the performance of the Hungarian office market was beyond expectations in 2017. In Budapest, there are 24 ongoing office developments, but taking projects into account that are now in the early phase, this number will increase to 36 by 2020. The vacancy rate decreased to a record low of 7.5%, while attainable returns continue to exceed the average returns attainable in both the EU and the region. Plans for 2018 include the delivery of an additional 281,000 square meters of office properties. Significant growth was also experienced in the industrial and logistics property market last year, both in the Greater Budapest Area and in the countryside, since several large volume projects were delivered. Nonetheless, the vacancy rate continued to fall in Budapest and was at the 4% level, representing another record, by the end of 2017. RER: How do you think these trends might change in the years ahead? RÉ: I think the Hungarian property market will continue to attract interest from foreign and local investors, due to the strong occupational markets, improved lease terms, attractive pricing and leasing financing conditions. The Hungarian market is not overpriced and, due to the favorable value for


REAL ESTATE review money ratio, more and more operators are raising the proportion of Hungarian properties in their portfolios. According to IFK (Association of Property Developers’ Roundtable in Hungary), Budapest is the largest office market after Warsaw: almost 350,000 square meters are being hired contractually on an annual basis either by new companies or companies which are already present and intend to expand. In the next three years, it is possible that 650,000 square meters of new office space will be built in Budapest. RER: How do FDI real estate requests breakdown? What are investors looking for? Are most requests still centered on Budapest, or are you seeing more investors considering other cities in Hungary? RÉ: Investors usually prefer areas with an increased industrial presence, however, since the expectations of the different sectors differ substantially from one another, HIPA prepares a customized offer for each inquiry. It is a clear trend that more and more investors consider

“According to IFK (Association of Property Developers’ Roundtable in Hungary), Budapest is the largest office market after Warsaw.” countryside locations for their new facilities, in the field of production as well as in the service industry. In addition to showcasing Budapest as a prestigious location in the international real estate market, HIPA aims to put attractive and emerging Hungarian Tier-2 cities in the international spotlight. In addition to foreign direct investors – who are already putting a strong emphasis on cities like Debrecen, Miskolc, Pécs and Szeged as a potential location for their expansions or

new sites – HIPA would like to draw the attention of real estate developers to these university cities, offering young, talented and agile workforce as well as developed infrastructure, which may make them as attractive for developers and a wide range of investors as the Hungarian capital. Beside the property developments of Budapest, the above mentioned four university cities introduced themselves at the world’s leading real estate event, MIPIM in Cannes. fDi Magazine’s bi-yearly “European Cities and Regions of the Future” awards were also presented at the exhibition. In addition to Budapest and the Central Hungary region that were selected in the latest edition, three other cities have been recommended for the focus of investors as new players: Debrecen, Kecskemét and Székesfehérvár. As can be concluded from these results, the Hungarian investment environment awaits new investors and re-investors alike with consistently high service standards.

Presenting Hungary to the international markets at MIPIM.

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FINANCE


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LENDERS PROVIDING FINANCE ON MORE FAVORABLE TERMS As sentiment towards the Hungarian development and investment markets is increasingly positive and the markets are recording better indicators, banks are increasingly prepared to provide debt finance on more favorable terms as the number of completitions is intensifying.

Budapest Airport ibis Styles Hotel, financed with an EXIM Bank loan.


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Left: Péter Számely, head of CEE & SEE at Hypo Noe Gruppe Bank. Right: Mike Edwards, head of capital markets at Cushman & Wakefield Hungary

By Gary J. Morrell This provides the possibility for more development activity and increased liquidity in the investment markets. Debt finance for Hungary, however, is more expensive than Poland and Czech Republic, reflecting the different perception of the markets. In general, developers and lenders are regarded as more cautious and realistic regarding financing than was the case in the precrisis area. “Hungary has returned to the radar screen of most investors and the political

risk has been absorbed or people have become used to the situation,” comments Péter Számely, head of CEE & SEE at Hypo Noe Gruppe Bank. “I would say that there is a positive attitude towards Hungary and there are strong economic fundamentals that gives room for further yield compression,” he adds. According to Számely, the bank is looking to lend on office, retail and logistics projects, although other asset classes such as hotel are also being considered. “There is strong competition in the lending market as banks have returned to the market, they have cleaned their books and confidence

“Where Hungary is very strong at the moment is that there are not too many developers. There are five or six, and this number of developers is in a positon to self-regulate the stock and supply and match this to the market. This puts the market in a very healthy and strong place, which is a very different to where Hungary was in 2008, where the banks would throw money at developers. This is not the situation now because there is a much more limited field of developers.”

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OFFICE


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SPECULATIVE OFFICE BUILDING BOOM Office development activity is accelerating with vacancy in the Budapest market currently standing at a record low of 7.5%. In this landlord-dominated environment, more developers are opting for speculative projects against a background of high demand enabling them to successfully construct, lease and sell projects onto investors. By Gary J. Morrell Development is clearly taking off as more than 400,000 sqm of office space is under construction and due to be delivered in the next two years; 50% of this is pre-leased according to estimates, which has given developers the confidence to go ahead with projects. The Váci Corridor remains the most popular development area, followed by South Buda. Further, District IX is attracting office development. A lack of suitable development sites in the historic center of the city is limiting growth of the CBD. “After an active 2017, 2018 is looking like an even more prosperous year on the office market. At present 465,000 sqm GLA of new office space is under construction in Budapest, more than 50% of this due to be handed over by the end of 2018,” comments Árpád Török, CEO of TriGranit. In the latest completion by the regional developer Atenor, it has officially handed over the 14,000 sqm Váci Greens D, the first component of phase II of the office project that will consist of 130,000 sqm of space in six buildings upon completion. “The office market in Hungary is extremely strong and this is shown by the fact that we have zero space available at Váci Greens.

We have four completed buildings at the complex and the last phase has just been handed over; the completed building is leased out and I have never seen such a strong market as this in my career. As a developer we have to run and we have to build, because demand is high on the market,” comments Zoltán Borbély, country manager at Atenor Hungary ARCHITECTURAL DIVERSITY The BREEAM “Excellent” accredited building was designed by the Hungarian architects Vikár & Lukács Építészstúdió Kft.; Atenor has a policy of employing different architects on each phase of a project in an attempt to introduce diversity into its developments. Buildings E and F will complete the second phase of Váci Greens with a further 45,000 sqm of office space. Construction of Building E is due to start this spring, with a proposed completion date of the second half of 2019, while development of Building F is planned for the first quarter of 2020, with delivery in 2021. The undertaking of such a large-scale project was generally regarded as a brave decision ten years ago in a market that was going through a downturn with very little development. “The stoneContinued on page 46 ► ► ►


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GTC White House, Váci út, District XIII.

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RETAIL


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RETAIL DEVELOPMENT FINALLY TAKING OFF Although consumer demand in Hungary is continuing to grow, shopping center pipeline in its most populous city, Budapest, remains very low and the next delivery is not scheduled until late 2019, with the capital now having one of the lowest shopping center provisions in Europe. The city has not seen any shopping center deliveries in recent years as projects have been put on hold due to concerns over economic issues and, consequently, consumer demand. However, market conditions are now regarded as appropriate for the delivery of new malls that would freshen the market. One positive aspect is that there is significant development activity in prime high street retail in central Budapest. Further, owners of earlier generation shopping centers are announcing plans to redevelop and extend their malls. According to CBRE, retail spending for 2017 grew by 4.8% year-on-year as 14 new international retailers entered the

market, a number which is expected to increase this year with major brands showing an interest in the country. “Retailers are still challenged by the obstacle of high VAT rates and the escalating cost of qualified labor when it comes to expansion into Hungary. Having said this, we still expect to see a significant jump in new openings in 2018 as demand fundamentals remain solid,” the consultancy says. The only recent large format retail delivery is a new 35,000 sqm IKEA store in the southern outskirts of Budapest. This is the third IKEA store in the city and one of the largest in the CEE region.

“Retailers are still challenged by the obstacle of high VAT rates and the escalating cost of qualified labor when it comes to expansion into Hungary. Having said this, we still expect to see a significant jump in new openings in 2018 as demand fundamentals remain solid.”


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Mammut Shopping Center, opened in 1998 and due for renovation.

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INDUSTRIAL


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INDUSTRIAL DEVELOPMENT NEEDED TO MEET RISING DEMAND The Hungarian industrial and logistics market is recording high demand from automotive, retail and e-commerce companies for what is a limited supply of well-located, quality, contiguous space. The end result is that tenants have to plan far in advance in order to source space with vacancy standing at 4% against a Central European average of 5%. By Gary J. Morrell Annual take-up for 2017 reached a record 618,000 sqm, although the speculative development option has been slow to take off as the major developers and logistics park operators (Prologis, CTP, Logicor, Wing, BILK and Goodman), who own the majority of space available in Hungary, have generally opted for the built-to-suit (BTS) option. Another obstacle to market growth is that, in contrast to Poland, Czech Republic and Slovakia, a functioning industrial market has not thus far developed outside the capital in Hungary. One problem with development is a shortage of labor and the rising price of construction materials that has made development more expensive and resulted in construction periods of as long as eight-to-ten months, according to some estimates. “Currently more than 110,000 sqm is being developed, which is a positive

aspect, however it has no real effect on the market as the demand for new properties towers above supply, and a large part of the new development is pre-leased,” comments Gábor HalászCsatári, head of industrial at Cushman & Wakefield Hungary. “As for the stable demand and tenant activity, there is a huge need for speculative developments. Expectedly, after the beginning of the first speculative development, others are going to start; nonetheless building costs are still causing delays on the market. In the short run, we expect a slow rise in rents, also ‘B’ and ‘C’ category stock is expected to be oversubscribed until there is new development to meet the demand,” Halász-Csatári adds. PIPELINE ESTIMATES Colliers International estimates the 2018 Hungary pipeline at 130,000 sqm, but also notes that 90% of this is preleased or BTS. With regard to demand, the company estimates that there are

currently only three logistics parks that have spaces of more than 5,000 sqm available. Vacancy rates are similarly low for developers across Hungary and the Central European region. Prologis recorded a CEE occupancy of 97.4% for 2017 as it leased 1.6 million sqm from an operating CEE portfolio of 4.4 million sqm. Another leading CEE logistics park developer and operator, CTP, increased its CEE portfolio by approximately 680,000 sqm and reached a total stock of 4.5 million sqm as occupancy of its portfolio stood at 97.7%.


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Login Business Park, Újpest, District IV.

“Prime rents are now close to levels that make speculative development feasible, yet the cost of construction and related services remains a limiting factor.”

The Budapest Research Forum (consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL, and Robertson Hungary) traced 2.04 million sqm of modern industrial space in the Budapest area, as of the turn of the year. Around 90% of that stock is located in logistics parks and the remainder in city logistics facilities. Vacancy has plummeted from a high of 23% in 2013 to an all-time low of 4%. Prime rents are estimated at EUR 4 per sqm per month for BTS space and EUR 3.75/sqm/mth for

existing space. “Prime rents are now close to levels that make speculative development feasible, yet the cost of construction and related services remains a limiting factor,” says Cushman & Wakefield. In the largest recent transaction, the international industrial park operator and developer Goodman, has undertaken construction of a new logistics center for Auchan Retail Hungary at the Üllő Airport Logistics Center. The logistics park is owned and operated by Goodman, who will also manage the new facility.

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HOTELS


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HUGE POTENTIAL IN HUNGARY’S HOTEL MARKET Tourism visits for Hungary and Budapest are continuing to rise and developers, investors and hotel operators all see potential in the market. Guest nights for Hungary in 2017 increased by close to 7% year-on-year and the growth rate for Budapest hotels was 7.3% according to CBRE. Occupancy rates for Budapest hotels rose to 78.8%, which puts the city just ahead of regional rival Prague at 78.6%. By Gary J. Morrell CBRE estimates that around 1,900 rooms in 17 hotels were under construction as of the beginning of 2018. The overall confirmed pipeline comprises around 3,600 rooms across Hungary, out of which 3,100 are in Budapest. Delivery dates tend to slip in the hotel market due to complications in the planning and construction process. “A new national tourism strategy outlines the commitment of the

government to develop the sector as a key driver of sustainable economic growth and the main goal is to focus on high quality services and experiences to attract more international visitors with a higher spending profile,” says CBRE. Pipeline luxury hotel projects include three projects announced by Marriott International: the Luxury Grand Hotel at the Matild Palace, which is already under construction and is due to deliver in 2020; the W Hotel Budapest at the Dreschler Luxury Grand Hotel, at the former Matild Palace.

Palace (the former Ballet Institute) on Andrássy út, scheduled to be handed over by late 2022; and the Renaissance Hotel Marriott in the CBD. In the next major Budapest opening at the top end of the market, the Hungary-based hotel developer, Mellow Mood is due to complete the 202 room Parisi Court Hotel at Párizsi udvar in the historic center of the city. The complex has been designed by Archikon and a franchise agreement has been concluded with Hyatt Hotels Corporation. The project has been at the planning and development stage for several years, reflecting the difficulties associated with the redevelopment of listed building in the historic center.


REAL ESTATE review

Sofitel Budapest Chain Bridge Hotel.

FIRST FOR CEE In the mid-range market, Germany’s Deutche Hospitality, in conjunction with the B&L Group, has acquired construction permits for the 300-room Intercity Hotel Budapest, its first CEE Intercity Hotel, at the Keleti Railway Station, due to be completed in 2020. The company has the policy of developing the hotel brand at major train stations and airports. In a niche though important hotel development, Wing officially opened the first hotel at Ferenc Liszt International Airport on March 7, 2018. The 145-room ibis Styles Budapest Airport Hotel is seen as creating a landmark building that will raise the

“We have not only created a new hotel but carried out what is an important and much needed development project from the perspective of tourism in Hungary.”

profile of Ferenc Liszt, where operator Budapest Airport is developing the passenger, operational and logistics infrastructure. The three-star superior hotel is being operated, under a management contract concluded by Wing with Orbis, the Eastern European strategic partner of AccorHotels, under the ibis Styles brand. The hotel is aimed at tourists, business travelers and staff employed at airport industries connected to Ferenc Liszt. “We have not only created a new hotel but carried out what is an important and much needed development project from the perspective of tourism in Hungary,” said Noah Steinberg, chairman & CEO of WING at the opening.

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REAL ESTATE review Váci Greens.

SUSTAINABILITY INCREASINGLY THE MARKET NORM Green or sustainability accreditation is now a prerequisite for the successful leasing, development and possible sale of quality office projects in Budapest. The number of green certified office buildings and the total certified office area in the city has tripled over the last three years. By Gary J. Morrell Indeed, regional developers such as Skanska, Atenor, GTC, HB Reavis and CPI have common sustainable development policies across CEE and Western Europe. Further, Hungarian developers such as Wing, Futureal and Horizon Development

have standard sustainable development strategies that conform to international standards with regard to exterior and interior design, construction techniques specification and locational issues. On the demand side of the market, both international tenants and investors now

have common international sustainability requirements. In this sense, providing what the market requires and conforming to international environmental standards are now part of the same process. “From a quality and specification perspective, the Budapest market is the same as any of the Western European markets,” comments Gyula Ágházi, CEO of Gránit Pólus. “Multinational tenants set up the same requirements towards a building regardless of the country or the city. Without having the highest standard accreditations, you have no chance to remain on the short list of a potential international tenant looking for office space in Budapest. Both the employers and employees have become very self-conscious as to sustainability. Developers must respond very quickly to this requirement,” Ágházi adds. From the tenant perspective, companies have common international requirements when sourcing space and therefore have the same sustainability requirements whether looking in Hungary or, for example, Germany. Further, companies and developers are subject to the same international and environmental regulations.


REAL ESTATE review “Over the last few years sustainability and green buildings have moved to mainstream in the real estate industry,” says Árpád Török, CEO of TriGranit. “Nowadays, new office buildings are subject to strict technical requirements and solutions, and they are built and designed in a green way. In other words, each new office development is green nowadays. And this is already the reality. Due to EU regulation, buildings receiving occupation permits after the end of 2020 will be subject to much stricter technical regulations, and as an effect these buildings will tend to reach zero emission. BASIC REQUIREMENT “Sustainability is more and more important not only for employees, but also for the owners, who aim at sustainable property management. And this factor has become a basic requirement when choosing a new office space for the company. International companies have to lease office spaces that already have green certifications; the corporate sustainability responsibility agenda adopted in most international corporations simply obliges them this way,” Török explains. Under the certification system, the sustainability of a building is verified by an independent assessor using common international criteria. Conforming to sustainability requirements and making

“Over the last few years sustainability and green buildings have moved to mainstream in the real estate industry. Nowadays, new office buildings are subject to strict technical requirements and solutions, and they are built and designed in a green way. In other words, each new office development is green nowadays. And this is already the reality.” a profitable return on investment is now certainly seen as part of the same process. This, in theory, benefits developers and building owners who have resulting higher returns by attracting or maintaining tenants, while at the same time minimizing the wider environmental impact of buildings. From the tenant perspective, an improved working environment results in increased efficiency and an improved working environment for staff. “Sustainability accreditation involves locational elements, energy saving

concepts and building management systems that, for example, monitor energy usage and the provision of natural light,” says Pál Baross, director of the campus development office at the Central European University (CEU) and an experienced sustainability accreditor. “Sustainability elements are essentially utilized to raise the standard of new buildings and upgrade older buildings to meet the requirements for green building development and sustainable property management. Green elements need to be incorporated from the design stage and

Szervita Square.

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The green spaces of the Magyar Telekom HQ by Wing.

GROWING INTEREST IN INTERIOR ISSUES With most companies now accepting that staff are both their largest cost and biggest contributor to success, the balance of power has moved towards employees as businesses realize they need to create a working environment that is conducive to the health and well-being of staff and minimizes the number of days in which they are absent through ill health.


REAL ESTATE review

The award-winning Dealogic office also boasts an urban-style green area.

“Sustainability reflects the commitment of the developer to create a high quality, modern building and work environment and it is becoming more and more of a pre-requisite than a competitive advantage.” By Gary J. Morrell Little wonder, therefore, that a further development of sustainability accreditation programs is related to interiors and the well-being of staff as they spend more time in their work environment. As a reflection of this, interior issues are now an integral part of the media coverage of office development and sustainability issues. From the development perspective, interior design and fit out is central to the design, construction, letting and property management of an office

development. Tenants and building owners are also becoming increasingly creative in their choice of interior designers. “Horizon Development projects have certainly been designed and developed with international standards in mind, meeting technical, aesthetic, functional and sustainability criteria identical to those in Western Europe or the United States,” comments Attila Kovács, managing partner at Horizon Development. “Horizon Development projects – whether office,

retail, residential or hotel – take a comprehensive approach to design. We aim at reaching overall visual harmony by creating synergies in the design of all areas: base building, exterior, interior, common areas and even tenant fit-out. Accreditations are no longer differentiators, but part of a basic set of requirements,” Kovács adds. According to BREEAM, the health and well-being category of its assessments “encourages the increased comfort, health and safety of building occupants, visitors and others within the vicinity.”

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Arena Business Campus by Atenor.

SUSTAINABILITY AND INTERCONNECTIVITY NOW PART OF URBAN DEVELOPMENT The development processes in the office, retail, hotel and industrial sectors are increasingly bringing in environmental issues relating to the look and feel of the city, its architecture, public and private transportation, access to amenities and proximity to residential areas.


REAL ESTATE review Eiffel Square in Budapest.

“If we are talking about new real estate developments, it would be highly important to evaluate the project also on the community level and not just as a stand-alone project. Sustainable buildings are smart buildings as well, and they are responding to the needs of the building’s users, but they are also interconnecting with their environment. Sustainability should make a city more livable; therefore, in an ideal case, it should have a huge effect also on the city’s appearance as well.” By Gary J. Morrell Sustainability accreditation organizations also take these issues into account when making their assessments, and developers and architects are incorporating urban development elements into the design of commercial projects, which at the same time also need to be developed and managed according to the needs of the market. From a positive perspective, office development is now being undertaken in urban locations that are more integrated into the wider city; developers have previously attempted to develop out-ofcity projects that require long commutes that have not worked in the Budapest market. The conventional wisdom is that

staff who often work flexible hours prefer to be in locations that are integrated into the city so they can utilize amenities and commute by public transport or bike. “We have achieved WELL, BREEAM ‘Outstanding’ and BREEAM ‘Communities’ on the first phase of the Agora Budapest project,” explains Jan Hübner, country manager at HB Reavis Hungary. “BREEAM ‘Communities’ relates to – and provides benefits for – residents living in the immediate area around the project and in the wider district,” he adds. Agora Budapest, a longterm, phased development project designed by the London-based Make architects and the Hungarian Finta Studio, is scheduled for completion in 2023. As confidence in the market

grows, developers are undertaking more ambitious, large-scale projects. MOST POPULAR AREAS The Váci Corridor in District XIII is currently still the most popular office development area, followed by South Buda. Further, District IX is attracting increasing office development. A lack of suitable development sites in the historic center of the city is limiting the development of the Central Business District. Substantial, well located plot sizes on a similar scale to that for Agora are difficult to find in Budapest, although a number of developers are looking to acquire them. In the current market, such big projects do not present a large development risk if a phased development strategy is undertaken in line with market conditions.

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