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REAL ESTATE review
INTRODUCTION Fundamentals at the turn of the year remained strong in the office, industrial, retail and hotel sectors with rental growth, record low vacancy, consistently strong demand, a high proportion of preleases, record tourism visits, high room occupancy rates and strong projected demand. Further, ever more highly specified and sustainable assets were being delivered in response to more sophisticated demands from tenants, staff, customers and guests. In order to successfully build, lease, and sell assets, developers need to deliver product that is sustainable from an interior and locational perspective and in the provision of amenities. Development finance was more readily available and in more mature and sustainable markets, developers were pursuing more prudent development strategies in line with better researched knowledge of market conditions. Further, the expectation is that developments need to contribute to the wider city and environment. In this way market forces can be seen to be operating in parallel to meeting wider environmental concerns. However, skilled labor was becoming scarcer, development costs increasing and well-located development plots more difficult to source. Investors have seen Hungary as an increasingly attractive place to invest as high yielding property investments are more difficult to source worldwide and, indeed, even elsewhere in Central Europe. The investment markets have been very liquid as demand for assets far outweighs supply; owners have the option of holding onto their products and are able to exit at a time of their choosing with multiple bids from a wider diversity of both international and domestic investors.
In response to investor demand, developers have been delivering higher quality assets that meet the requirements of high-end investors. Local capital now constitutes a significant proportion of investment transaction volume, with the majority of acquisitions undertaken by domestic capital. This provides perceived security and liquidity for these markets and makes them less reliant on a positive attitude from foreign investors. The flip side of that is that this makes sourcing product more difficult for international investors as local players are able to exploit long-term relationships with developers and conclude a transaction at an earlier stage in the development process. When consultants presented their increasingly positive market indicators and predictions one question put was what can go wrong? The main potential cloud on the horizon was a wider economic downturn. No commentators predicted a worldwide health emergency, lockdown, travel ban, fiscal deficits and a looming economic crisis. Analysts expect a possible recovery in the investment market next year, although developers will have to adapt their assets to meet the changing circumstances (especially with regard to social distancing) and other sectors are under a more fundamental threat. When the emergency is over, people will still need offices to work in, will need to shop, have packages delivered and require somewhere to stay in their leisure time, so the real estate industries will survive in some form or another, and continue to be a valuable investment asset. Gary J. Morrell Real Estate Editor Budapest Business Journal
