Avg. Rent cat A
After a 1.1% growth in the national economy in Q1 of 2024, with the decrease in inflation and interest rates, a GDP growth rate of around 2-3% is likely for the whole year. Domestic inflation, which decreased to 3.7% in July, is forecasted to reach 3.5-4.5% in 2024. Regarding the EUR/HUF exchange rate, it approached the 390 level in mid-July, primarily influenced by favourable international sentiment, the weakening dollar, and the increasingly likely September Fed rate cut. As a result of the still tight labour market, we see a decrease in the unemployment rate, reaching 4.3% at the end of May. In Budapest, the rate is even lower, around 2.3%. Improving economic performance can support demand in the office market. Therefore, in 2024, we anticipate non-governmental demand to exceed that of 2023.
Market summary
In Q2 2024, there was an annual increase of 20% in total tenant activity in the market, contributing to a 21% year-over-year increase in H1 2024. In H1, net take-up, which measures the level of new demand, grew by 7% compared to the same period in 2023 (105,860 vs. 99,250 sqm), and its share within the total tenant demand (including renewals) reached 44%. However, net take-up figures remain notably 41% lower (-73,000 sqm) than the levels observed in H1 2019, before the onset of the Covid pandemic. The 21% increase in total demand (238,370 sqm vs. 196,560 sqm) is 40% attributed to renewals (+16,680 sqm). Increased activity is further supported by the distribution of total tenant demand, where the proportion of new lease agreements was 33.5% in H1 2024.
Total market vacancy slightly increased in Q2, reaching 13.9%, which represents 1.3 percentage points increase on an annual basis. Speculative vacancy rate also increased, reaching 17.2% at the end of the quarter, showing a quarterly increase of 0.3 percentage points and a year-on-year increase of 1.7 percentage points, partly due to the fact that almost half (47%) of the office buildings delivered in the past year are still vacant.
Parallel with the increased tenant activity, net absorption for Q2, which represents change in the total occupied stock, was 34,247 sqm. Tenants have shown a stronger preference for buildings that are sustainable, energy-efficient, and meet ESG criteria. In these buildings, speculative vacancy rate is 2.1 percentage points lower than the market average at the end of Q2 2024.
Looking ahead, total speculative office pipeline until the end of 2025 amounts to 136,660 sqm, with South Buda and Váci Corridor having the largest shares of 40,800 and 38,200 sqm, respectively. This amount is close to half of the pre-Covid period in H2 2019.
During the second quarter, three speculative office buildings were handed over: Madarász Irodapark IV (14,600 sqm), BakerStreet 1 (16,640 sqm), and Liget Center Auditorium (3,200 sqm). There was vacancy only at Madarász Irodapark IV (44%), the other two office buildings are fully let.
Rents show stagnation in various categories. Prime headline rent is 25.4 EUR/sqm, while new headline rent stood at 19 EUR/sqm at the end of the quarter. Average rent for category “A” buildings was 16.7 EUR/sqm, while for category “B” it was 12.6 EUR/sqm.
