review REAL ESTATE P r i c e : HUF 2.9 9 0 Ι E UR 9
Property Hungary 2022
SEC T OR OV ER V IE W S DE TA ILING: A R C HI T EC T URE •C ON S T RUC T ION • HO T EL S • INDU S T RI A L A ND LOGI S T IC S• IN T ERIOR S • IN V E S T MEN T S • LOC AT ION • OF F ICE S • RE TA IL • SUS TA IN A BILI T Y
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B R U S S E L S - T H E H A G U E - L U X E M B O U R G - PA R I S - L I S B O N - D Ü S S E L D O R F - W A R S A W - B U D A P E S T - B U C H A R E S T - LO N D O N
CONTINUED DEVELOPMENT MARKET ADVANCES DESPITE CHALLENGES FROM COVID, COSTS AND CONFLICT
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CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 4
Sustainable Innovation: Logistics
Market Sentiment . . . . . . . . . . . . . . . . . . . . . 7
Real Estate Must be
Hotel at Work: Human Innovation
Prepared for Future Challenges . . . . . . . . . . . . 52
Program in CPI Office Buildings . . . . . . . . . . . . . . 17
Record low Vacancy,
OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . 14
& Logistics Boom Continues . . . . . . . . . . . . 54
Office Market Goes Through Fundamental Changes . . . . . . . . . . . . . . . . . . . . 16 Hotel at Work: Human Innovation Program in CPI Office Buildings . . . . . . . . . . . . . . 17 Arena Corner, Iconic Office Complex Budapest, Completely Renewed . . . . . . . . . . . . 24 Office Interiors Take Elevated Role in Staff Retention . . . . . . . . . . . . . . . . . . . . 26 Adding Value Through the Three ‘Rs’ – Refurbishing, Repositioning, Rebranding . . . . 28
Heavy Demand Mean Industrial RETAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Developers Retain Worries Over Retail Development . . . . . . . . . . . . . . . . . . . 62 HOTEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Hotel Pipeline Needs Reevaluating, but Developments Going Ahead . . . . . . . . . 68 INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . 72 Uncertainty Continues in the Investment Market . . . . . . . . . . . . . . . . . . . . 74 SUSTAINABILITY . . . . . . . . . . . . . . . . . . . . 80
Growing Diversity of Office Development Locations . . . . . . . . . . . . . . . 35
Sustainability now Central to all
Symbiosis, Style and Flexibility
Stages of Successful Projects . . . . . . . . . . 82
in the Office Market . . . . . . . . . . . . . . . . . . . . . . . . 36
CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . 89
CBRE Global Workplace Solutions
Under Pressure on Several Fronts,
Realizing Potential in Every Dimension . . . . . . 46
Construction Costs Continue to Rise . . . . . 90
INDUSTRIAL . . . . . . . . . . . . . . . . . . . . . . . . 48
ARCHITECTURE . . . . . . . . . . . . . . . . . . . . . 92
Despite Uncertain Times, Infogroup
City Architecture: Livability Must
Plans to Build on ‘Exceptional’ Year . . . . . . . . . 50
Accompany Commercial Success . . . . . . . . 93
R E A L E S TAT E R E V I E W 2 0 2 2
A B U D A P E S T B U S I N E S S J O U R N A L P U B L I C AT I O N
BBJ Editor-in-chief: Robin Marshall • Real Estate Editor: Gary J. Morrell • Sales: Bernadette Oláh, Erika Törsök • Layout: Zsolt Pataki • Cover photo: Aréna Business Campus A building, photo by György Palkó • Publisher: Business Publishing Services Kft. • Media representation: AMS Services Kft. • CEO: Balázs Román • Address: Madách Trade Center, 1075 Budapest, Madách Imre út 13-14. • Telephone: +36 (1) 398-0344 • Fax: +36 (1) 398-0345 • ISSN: 2416-0423
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INTRODUCTION In what could be seen as the start of a new era, developers and associated workers in all sectors of the property industry will have to operate in a rapidly changing environment when it comes to planning, financing, design, leasing, property management, and sourcing either investment or an exit strategy. From
a positive perspective, developers will need to deliver sustainable assets suited to building occupants and users with more imaginative designs to ensure they will be commercially successful and conform to more comprehensive ESG regulations. Preferably, they should also add value to the neighborhood. No building is an island but must rather coexist with its surroundings. Office developers and owners are some of the winners in the current environment. Despite the still developing hybrid working patterns, the office will
continue to play a significant role in working life. Even so, owners are faced with more complex tenant demands and expectations. Many planned projects are going forward despite a fall in the number of new speculative projects in response to uncertain market conditions on the demand side. Offices at the higher end of the market are providing ever more imaginative designs, including property management systems with amenities and services at almost any point of the day. The industrial and logistics market is the clear winner of the new period due to the increasing use of e-commerce and the growing need for quick and efficient delivery infrastructure and
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MARKET SENTIMENT Melinda Kovács Development & Leasing Manager ATENOR Hungary The structure of the workplace and the way the office layout is organized is under re-definition as we speak. It will, however, not necessarily be to the extent some were expecting over the past two years. The requirements we receive from potential tenants are still for “regular” offices as before, even if spaces have shifted to some extent from large work station areas in favor of collaboration spaces, activity-based and breakout areas. These spaces are designed to facilitate teamwork, brainstorming sessions, etc., while individual work may still partly be performed from home. Still, we do not see office requirements consisting of collaboration spaces only. There is good activity on the market and new occupiers are entering Hungary too; therefore, we expect demand in the office sector to pick up and come back closer to the prepandemic levels. We still see well-located, prime quality multi-phase office projects, where we can provide a campus environment with green surroundings and a wide range of services, as an excellent opportunity for future developments. As a confirmation of the above, ATENOR is moving forward with all of our projects as planned, with two buildings, RoseVille and Aréna Business Campus B, scheduled for handover this year.
Ottó Vörös Country Manager Finance and Support Immofinanz Hungary Expectations and trends have certainly changed during the last two years. Consumers are looking for an affordable, safe and convenient product, and employees want to work in a peoplecentered office with flexible solutions. All this should be in a sustainable environment where you can charge your electric car while working in an office building that relies on green energy and is full of eco-friendly solutions. In any case, we need to keep up with changes and consumer expectations to stay competitive. For example, we already have the second multifunctional and flexible myconference room in our local office portfolio due to changed work habits: this is primarily a conference room with state-of-the-art audio-visual and media technology but can also be converted into meeting rooms and offices that tenants can easily rent. We are optimistic that demand will continue to drive the market. The last two years have accelerated different trends, reshaping the market rather than taking something away from it. Today, offices are increasingly becoming a platform for collaboration, innovation, social and business relations in a pleasant atmosphere conducive to creativity. Flexible products are needed to respond to demands: we are opening our second mycowork office space in Budapest at myhive Atrium Park. There was a demand for it, and we took action. This flexible office concept makes it possible to rent even a single desk for a short period, all using the full-service portfolio and well-being infrastructure of a premium office building.
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Budapest ONE business park by Futureal.
OFFICE MARKET GOES THROUGH FUNDAMENTAL CHANGES Although there is little risk of oversupply in the Budapest office market with restrained delivery in recent years, a reconsideration of working habits and time spent in the office raises questions as to the amount of demand there will be to meet supply from existing and scheduled development projects in the post-COVID environment.
By Gary J. Morrell This uncertainty means substantial preleases are now required before the construction of a project can be undertaken. At the same time, developers and owners are having to redesign offices to meet changing specifications driven by tenant demand and sustainability regulations. “The office as a place of work will change: lounge-type interiors will prevail, there will be even more space for collaborative work, and the number of mixed office buildings will rise (normal plus serviced offices under the same roof),” comments Valter Kalaus, managing director of Newmark VLK Hungary. Continued on page 18 ► ► ►
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OFFICE INTERIORS TAKE ELEVATED ROLE IN STAFF RETENTION Whether we are talking about the general office environment, the internal atmosphere and layout, or staff well-being, which impacts employee retention and hygiene, the interior design of any modern office has a lot to take into consideration. Photo by dotshock / Shutterstock.com
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By Gary J. Morrell In reaction to tenant concerns and safety regulations related to COVID, office interiors have been integrated into the concept, design, leasing, and property management (PM) and facility management (FM) strategies of office projects. With developers striving to deliver ever more highly-specified and sustainable
office complexes, interior and exterior design have essentially become part of the same process. Emphasis is placed on communal areas, collaborative spaces and meeting rooms. All these processes have fundamentally changed the look and style of offices. Owners and developers have been forced by employee-led tenant expectations to rapidly respond to the changes
and challenges of the post-pandemic environment. Questions about the viability of office development remain whether tenants will be willing or able to pay the higher rents resulting from the increasingly sophisticated demands. Tenants appear to be settling on their office operations on hybrid work methods and will likely utilize this in the longer term. In central offices,
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GROWING DIVERSITY OF OFFICE DEVELOPMENT LOCATIONS By Gary J. Morrell The Budapest office market is increasingly diversified. New business locations and districts have emerged as developers look to source suitably-sized, well-located development plots that provide visibility. One of the assessments must be the potential of an area of the city to be an emerging office hub if suitable sites cannot be located in the recognized business districts. Somewhat unusually, the city lacks a central business district (CBD) due to the lack of large, well-located plots in addition to the complex planning process in the historical center of Budapest, where the protection of listed buildings is a priority. Therefore, development activity is essentially scattered across Budapest with largescale hubs such as Agora Budapest by HB Reavis, Budapest One by Futureal, and BudaPart by Property Market. The largest sub-markets for new offices are South Buda with 157,000 sqm of space due to be delivered by 2024, Central Pest with 151,000 sqm,
CBD Central Buda Central Pest North Buda South Buda Non-central Pest Váci út corridor Periphery
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followed by the Váci Corridor with 113,000 sqm, according to Cushman & Wakefield. Nearly half of the pipeline
Somewhat unusually, the city lacks a central business district (CBD) due to the lack of large, well-located plots in addition to the complex planning process in the historical center of Budapest, where the protection of listed buildings is a priority.
under construction has already secured prelease commitments. “Finding a suitable location at an acceptable price is always the starting point of a good development. This has not changed over the decades, but some Hungarian regulations and legislation questions undoubtedly cause some market distortion,” said Tamás Ádány, business development director at Horizon Development. Office development is now being undertaken in urban locations Continued on page 38 ► ► ►
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RECORD LOW VACANCY AND HEAVY DEMAND MEAN INDUSTRIAL AND LOGISTICS BOOM CONTINUES The boom in the industrial and logistics sector looks set to continue unabated, as demand remains high and vacancy stands at a record low. As elsewhere in Central Europe, the logistics market in Hungary is seen by analysts as the field in the most favorable position for the post-coronavirus period.
CTPark Budapest West.
By Gary J. Morrell Regarding development strategies, in the current climate of high demand and low vacancy, developers are constructing built-to-suit (BTS) facilities with an additional speculative element, with an eye on excess demand
compared to the pipeline. In what is a landlords’ market, companies looking to secure space have to plan far ahead. Established Central and Eastern European regional industrial developers and park operators such as Prologis, CTP and VGP are active in
the market alongside national players like Infogroup, the National Industrial Park Operator and Developer (NIPÜF), and Wing. They have been joined by HelloParks (a relatively new part of the Futureal Group) and ConvergenCE in this increasingly active and attractive market sector.
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DEVELOPERS RETAIN WORRIES OVER RETAIL DEVELOPMENT
Etele Plaza, new Budapest shopping center.
Retail development in Hungary has been very subdued in recent years as developers have faced concerns over the level of consumer spending following the 2008-2009 financial crisis and stringent planning regulations limiting shopping center development. Subsequent to that has been COVID and the further rise of online retail and its impact on demand and footfall in bricks and mortar retail.
By Gary J. Morrell As a result, there had been no significant shopping center delivery for many years, despite some projects planned by leading international retail developers such as ECE and Echo Investment. Therefore, the opening in 2021 of the 55,000 sqm Etele Plaza by the experienced Hungarian retail developer Futureal, after several postponements to the EUR 300 million project, was seen as a milestone in the Budapest
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HOTEL PIPELINE NEEDS REEVALUATING, BUT DEVELOPMENTS GOING AHEAD Developers, investors and hotel operators had seen strong potential for hotel development against the background of ever-rising tourism figures with occupancy rates above 80% in recent years. However, the hospitality sector was one of the most severely hit by the coronavirus, and now there are also concerns about the impact the war in Ukraine may have on tourism and international travel in Central and Eastern Europe.
Drechsler building hotel redevelopment.
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UNCERTAINTY CONTINUES IN THE INVESTMENT MARKET Hungary is expected to attract more international investors in the longer term, particularly in the office and industrial sectors; however, national and Central and Eastern European players will likely remain dominant in the Hungarian investment market.
Szervita Square in central Budapest, sold to Union investment.
By Gary J. Morrell Central and Eastern European has continued to be seen as an attractive investment destination as it offers existing buildings in addition to a pipeline of asset-grade products to meet investor demand. However, with the war in Ukraine, many international investors are adopting a “wait-and-
see” policy with regard to the region, instead concentrating on the core Western European countries. That said, with a substantial amount of international capital thought to be looking for a home, these investors would undoubtedly consider investing if the right asset or platform were available, particularly in the office
and industrial sectors, and the international situation improves. Poland continues to dominate CEE investment in terms of volume, with the lowest yields in the region along with the Czech Republic. However, differing yield profiles concerning country and sector are available to investors if the right product can
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SUSTAINABILITY CENTRAL TO SUCCESSFUL PROJECTS Photo by Fahroni / Shutterstock.com
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Accreditation from an independent, third-party sustainability organization such as the U.K.-based BREEAM and the U.S.-based LEED and WELL are now the norm for the entire cycle of a development project from conception to design to leasing to property management and, finally, an exit strategy. That is especially so for the office markets but also increasingly in logistics and other sectors.
By Gary J. Morrell “With the perceived growing need for third-party sustainability accountability, commercial property accreditation systems are already designed for various project types, not only the ‘classical’ office, retail and industrial sectors,” comments Zsombor Barta, the president of the Hungarian Green Building Council (HuGBC). This sustainability accountability has further developed to include issues such as ESG (Environmental, Social, and Corporate Governance) and
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UNDER PRESSURE ON SEVERAL FRONTS, CONSTRUCTION COSTS CONTINUE TO RISE Despite the number of cranes around the city, providing evidence that construction work is ongoing at numerous office, hotel and residential development projects, rising construction costs and the scarcity and cost of labor and raw materials are seen as significant concerns for the development process and, therefore, market growth. Gábor Borbély, head of business development and research at CBRE Hungary, estimates that construction costs could rise by as much as 1520% in the last year due to the cost and availability of labor and raw materials. This puts pressure on developers and even questions the viability of some projects.
File photo shows the construction of the roof of the Pannon Park structure at Budapest Zoo. Photo by T.W. van Urk / Shutterstock.com
By Gary J. Morrell At the same time, the real estate and construction industries face challenges due to regulations requiring the use of sustainable building materials and the perceived need for a more circular economy when it comes to construction materials. Regarding the labor force, many construction workers are taking
advantage of the considerably higher salaries they can earn in Northern Europe. Developers are reporting that projects are going ahead as scheduled. However, there are some delays in the permitting process and the delivery of materials from abroad due to supply chain issues. That was already a problem given COVID; the war in Ukraine has only made matters worse.
Construction activity had been picking up as the economy continued to grow on the back of COVID restrictions being relaxed. The Hungarian Central Statistical Office (KSH) recorded a 7.7% year-on-year increase in construction activity in the first half of 2021 over the same period in 2020. The volume of commercial developments under construction in Hungary increased to 1.7 million sqm, according to CBRE. UNSUSTAINABLE VOLATILITY “Material prices have clearly reached unsustainable volatility and acceleration of cost, driven by global and local prices, risking the ability of contractors to fulfill their obligations according to original terms. Labor costs increased 10-15% in the first half of 2021,” says the consultancy.
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CITY ARCHITECTURE: LIVABILITY MUST ACCOMPANY COMMERCIAL SUCCESS As a classic Central European city, a business and administrative center, a tourist destination, and home to 1.7 million residents, the property development process in Budapest must address issues such as the look and feel of the city, the development of architecturally accomplished buildings, preserving the built heritage, environmental concerns, and public and private transportation. By Gary J. Morrell The expectation for office developments is that they should be in an urban area with immediate access to amenities and public transportation links and provide a reciprocal benefit to the surrounding area. According to analysts, it is also seen as highly important to evaluate a project on the community level and not just as a stand-alone commercial project. Hotel development is expected to contribute to the redevelopment and maintenance of the city infrastructure while at the same time giving a commercial value. On the outskirts, logistics and light industrial projects should integrate into the suburban feel of the city.
infrastructure while at the same time giving a commercial value and enabling the renovation and preservation of listed buildings, therefore enhancing and preserving the Fin de Siècle look of the city. In one significant such project, QPR Properties is redeveloping the Drechsler Palace on Andrássy út in conjunction with DVM into the first W Hotel in Hungary. The listed building, at one time the home of the Hungarian State Ballet Institute, is a heritage building by the architects Ödön Lechner and Gyula Pártos in a French Renaissance and
Neo-Gothic style and is in a UNESCO world heritage listed area. Another hotel redevelopment of a listed building on the same avenue sees the Continental Group, in conjunction with Market Építő, renovating the classic A52 building at Oktogon, according to a design by Archikon. INTEGRATION EXPECTED Business complexes are now expected to integrate into their surroundings by offering services, public squares, and green areas that provide a mutual benefit
“There are already positive examples about masterplan level certifications (BREEAM Communities standard) for larger scaled urban development projects (for example, Liget Budapest or Agora Budapest), where it is not the building level sustainability accreditation that is within the focus, but the whole project’s sustainable integration into an existing urban network is analyzed, and a wide range of stakeholders are consulted,” explains Zsombor Barta, president of the Green Building Council (HuGBC). Hotel developments have contributed to the redevelopment of the city
Drechsler Palace in Budapest is a listed building.
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