Office Market Snapshot
Stock
4,344k sqm +4% yoy
Avg. Vacancy
Net Take-up
Completion
13.2%
75,378 sqm
13,458 sqm
+2.2 pp yoy
YTD: 174,628 sqm
YTD: 77,514 sqm
Q3 2023
DISTRIBUTION OF TRANSACTIONS (Q1-Q3 2022 & Q1-Q3 2023) Pre-lease
25 EUR/sqm/mth +4.2% yoy
New Build
19 EUR/sqm/mth +8.6% yoy
cat A
16 EUR/sqm/mth +2.5% yoy
Market summary
Concurrently with increasing vacancy rates, net absorption trend for the third quarter has fallen into negative territory (-12,866 square meters), resulting in a negative value for the
80%
Owner-occupied 1%
47% 35%
60% 4% 9%
40%
In 2023, the GDP is projected to decline by approximately 0.5-0.8% on an annual basis. However, in the following year, as inflation and interest rates decrease, a growth rate of around 3-4% is likely. By the end of the year, domestic inflation, which was at 12.2% in September, could decrease to single-digit figures. The positive turn in real interest rates by the end of the year may support a stronger EUR/HUF exchange rate in 2023 compared to 2022. Despite the economic slowdown, the unemployment rate in the tight labour market is expected to remain around 4% this year and next. In Budapest, the rate could be even lower, at around 2.5%.
Due to the high vacancy rate of new handovers in 2023 (55% rate in Q3) and the absence of larger new entrants, total market vacancy continued to grow, reaching 13.2%, which represents an increase of 0.6 percentage points on quarterly basis and 2.2 percentage points on annual basis. Speculative vacancy rate also increased, reaching 16.2% at the end of the quarter, showing a quarterly increase of 0.7 percentage points and a year-on-year increase of 2.9 percentage points.
Renewal
16%
Macro
In first three quarters of the year, there has been a noticeable increase in tenant activity in the market. Net takeup in Q1-Q3 2023, which measures the level of new demand, grew by 22% compared to the same period of 2022 and its share within total tenant demand (incl. renewal) increased to 52%. Increased activity is further supported by distribution of total tenant demand, where the proportion of new lease agreements approached 46% in the first three quarters of 2023, which is 18 percentage points higher compared to the same period of 2022.
Expansion
100%
Avg. Rent Prime
New
28%
46%
20% 12%
0%
Q1-Q3 2022
2%
Q1-Q3 2023
Source: Colliers, BRF
first nine months (-19,664 square meters). Tenants have shown stronger preference for buildings that are sustainable, energy-efficient, and meet ESG criteria. This supports the fact that, on average, buildings with green certifications have a speculative vacancy rate that is 2.7 percentage points lower than the market average. During the quarter, two office buildings were added to the portfolio of cat “A” office buildings, totalling in 13,458 square meters. These include newly built Homework (3,737 sqm) in Central Buda and Liberty South (9,721 sqm) in Non-Central Pest. Looking ahead, total speculative office pipeline until the end of 2024 amounts to 189,020 sqm, out of which 23,900 sqm (Bem Center) expected to be completed by the end of 2023. Higher financing costs and increasing inflation are reflected in rents on an annual basis. However, the tenant-driven market has led to stagnation in rents on a quarterly basis. Average rent for cat. “A” buildings was 16 EUR/sqm while for cat. “B” 12.5 EUR/sqm, which practically means an annual increase of 2.5% and 0.8% respectively. Prime headline rent is 25 EUR/sqm, while new headline rent stood at 19 EUR/ sqm at the end of the quarter (+4.2% and +8.6% yoy).
SUPPLY, DEMAND AND TOTAL MARKET VACANCY RATE (Q1 2018 – Q3 2023) Demand
sqm 220 000 200 000 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0
New supply
Total market vacancy rate
* Forecast 14% 13% 12% 11% 10% 9% 8% 7% 6% 5%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4* 2018 2019 2020 2021 2022 2023
4%
Source: Colliers, BRF
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Office Market Snapshot Q3 2023
Outlook
North Buda Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
347,086 8.5% 5,332 0 -5,311 14.5
Central Buda Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
426,576 7.3% 13,478 3,737 -6,210 15.7
South Buda Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
649,147 14.6% 8,354 0 1,148 13.5
Periphery Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
122,983 36.9% 1,048 0 -2,602 10.3
Váci Corridor Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
According to our expectations, demand for prime locations and modern, green, energyefficient, and ESG-compliant office buildings will remain stable, leading to higher vacancy rates in older office spaces. Additionally, there is a greater emphasis on employee needs in today’s business environment, prompting more companies to choose central, easily accessible locations with a wider range of services, rather than the outskirts or suburban areas. Overall, the office market will continue to be tenant-driven in 2023 and 2024, with flexibility in contracts remaining of fundamental importance. We do not anticipate a significant turnaround in vacancy rates, particularly in lower-grade properties and locations outside central submarkets, during the last quarter of 2023 and in 2024.
1,139,711 11.5% 14,891 0 -2,918 14.5
Central Business District (CBD) Stock 379,731 Vacancy (%) 12.1% Net Take-up (sqm) 13,448 Completion (sqm) 0 Net absorption (sqm) 2,432 Average rent (EUR/sqm) 19.4
About us Central Pest Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
Non-Central Pest Stock Vacancy (%) Net Take-up (sqm) Completion (sqm) Net absorption (sqm) Average rent (EUR/sqm)
KRISTÓF TÓTH Head of Research, Hungary Kristof.Toth@colliers.com
679,607 15.8% 5,541 0 2,698 14.4
MIKLÓS ECSŐDI Head of Occupier Services, Hungary Miklos.Ecsodi@colliers.com KATA MAZSAROFF Managing Director, Hungary Kata.Mazsaroff@colliers.com
599,785 14.6% 13,287 9,721 -2,103 11.9 Source: Colliers, BRF
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