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Office Market Snapshot Q1 2023
In 2023, despite economic uncertainty, partly as a result of the Russian-Ukrainian conflict, high inflation, financial costs, and decreasing demand, the GDP is expected to expand, albeit at a low rate. According to Colliers, the expectation is for the GDP to grow by 0.5-1.5% this year, but in 2024 and 2025, predicted GDP growth will be around 3-4% on an annual average. The unemployment rate was 4% at the end of February and is expected to slightly increase this year, reaching 4.1% on an annual average. For Hungary, parallel to the economic recovery next year, a 3.8% annual rate is forecasted, but in Budapest, the rate can be more than one percentage point lower than the national average.
(Q1 2022, Q1 2023)
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The restrained performance of economic dynamics was also reflected in demand activity. TLA (total leasing activity) decreased both annually (-5%) and quarterly (-21%). The distribution of demand is basically the same compared to the same period of the previous year; renewal deals had the largest share with 56%, then new contracts with 39%.
After the last quarter of 2021, partly because of stock correction and new completions, net absorption turned to a negative range in Q1 2023 (-19,160 sqm). Tenants put a greater focus on buildings that are sustainable and energy-efficient. This trend appeared at CBD, Central and North Buda, where demand remained stable, the occupied area increased, and vacancy decreased on a quarterly basis.
The total market vacancy rate continued to grow, reaching 12.2%, which is an increase of 0.9 pp on a quarterly and 2.4 pp on an annual basis, respectively. The speculative vacancy rate was 15% at the end of the quarter (+1.2 pp qoq and +3.3 pp on yoy).
The total speculative office pipeline until Q2 2024 accounts for 220,000 sqm, out of which 109,000 sqm of office space is expected to be handed over by the end of 2023.
Two office buildings were added to the portfolio of category A office buildings, totaling 26,054 square meters; the newly built Corvin Innovation Campus Phase 1 (Central Pest) and the renovated BIF Tower (Non Central Pest).
Higher construction and financing costs, parallel with increasing inflation, are reflected in rents. The average rent on the market for cat. A was 16 EUR/sqm, for cat. B 12 EUR/sqm, which practically means stagnation compared to the previous quarter, but an annual increase of 7.5% and 3.3% respectively. The prime headline rent reached the level of 25 EUR/sqm, while the new build average rent stood at the level of 19 EUR/ sqm at the end of the quarter (+4.2% and +8.6% yoy).
