Q1 2024
Avg. Rent
In 2024, with the decrease in inflation and interest rates, a GDP growth rate of around 2-3% is likely. Domestic inflation, which decreased to 3.6% in March, is forecasted to reach 4-5% in 2024. Regarding the EUR/HUF exchange rate, there is high uncertainty due to the inflow of EU funds, the evolution of the base interest rate levels in Hungary and internationally, and the situation in the Middle East war. Besides the economic slowdown, the unemployment rate has begun to grow, reaching 4.6% at the end of February. In Budapest, the rate could be even lower, around 2.5%. Improving economic performance can support the demand in the office market. Therefore, in 2024, we can anticipate non-governmental demand similar to or exceeding that of 2023. Nevertheless, it is still expected to fall short of the average levels observed in the years before 2020.
Market summary
In Q1 2024, there has been an annual increase in tenant activity in the market. Net take-up, which measures the level of new demand, grew by 25% compared to the same period of 2023 (42,270 vs. 33,859 sqm), and its share within the total tenant demand (including renewal) reached 45%. The 24% increase in total demand (94,976 vs. 76,664 sqm) is attributed mainly to renewal (+7,701 sqm) and expansion (+5,371 sqm). Increased activity is further supported by the distribution of total tenant demand, where the proportion of new lease agreements was 35% in Q1 2024. However, net takeup figures remain notably 18% lower (-9,197 sqm) than the levels observed in Q1 2019, before the onset of the Covid pandemic.
Due to the high vacancy rate of new speculative handovers (Millennium Gardens South Phase 2) and the absence of larger new entrants, the total market vacancy continued to grow, reaching 13.8%, which represents an increase of 0.4 percentage points on a quarterly basis and 1.6 percentage points on an annual basis. The speculative vacancy rate also increased, reaching 16.9% at the end of the quarter, showing a quarterly increase of 0.6 percentage points and a year-on-year increase of 1.9 percentage points.
The change in the total occupied stock for Q1, concurrent with increasing vacancy rates, was close to 0. Tenants have shown a
stronger preference for buildings that are sustainable, energyefficient, and meet ESG criteria. This supports the fact that, on average, buildings with green certifications have a speculative vacancy rate that is 2.2 percentage points lower, and greencertified buildings rent 11.5% higher than the market average at the end of Q1 2024.
Looking ahead, the total speculative office pipeline until the end of 2024 amounts to 141,740 sqm, with Central Pest having the largest share at 69,577 sqm, primarily due to the Dürer Park development, which contributes 50,377 sqm. This will not result in new vacant areas on the market, considering that the properties have already been leased to government tenants for a considerable period.
During the first quarter, one speculative office building, Millennium Gardens South Phase 2 (16,938 sqm), was added to the portfolio of “A”-rated office buildings.
The rents show stagnation in various categories. The prime headline rent is 25.4 EUR/sqm, while the new headline rent stood at 19 EUR/sqm at the end of the quarter. The average rent for category “A” buildings was 16.2 EUR/sqm, while for category “B” it was 12.5 EUR/sqm.
KATA MAZSAROFF Managing Director, Hungary Kata.Mazsaroff@colliers.com