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Hungary: complete crash of investment property market

Although the year 2008 brought records to both supply and demand on the Hungarian property market, the tightening of the crisis shows that the Hungarian investment property market crashed already last year – which means that developers now insist on a high rate of preliminary leasing agreements well before a project starts. Only Class A investments in top locations stand a chance – and the central and most important markets of the region are still on track, declares CB Richard Ellis Budapest.


In 2008, demand for modern offices beat all records; the level of new leasings amounted to 330,000 square metres – a 33% increase compared to 2007, and a 33 % increase compared to 2006. Moreover, 35% of all transactions were done in the last quarter of the year. The biggest was an agreement between TriGránit and K&H Bank, which will move into their new headquarters in Budapest’s district Ferencváros. Already in 2008, leasing agreement constituted a considerable part of the business volume – already 28% of the office space which will be completed this year was leased on this basis. 


Investors play it safe

Such a high proportion of preliminary agreement has never before been closed on the Hungarian property market – and in 2009, another 270,000 square metres of office space will be completed (all projects will be completed on schedule).


At the same time, however, investors reacted promptly to the severe economic crisis in Hungary: in 2010, a mere 130,000 square metres will be completed, which means that the construction of approx. 300,000 square metres, which were initially planned, will be postponed.


According to the CEO of the Hungarian office of CB Richard Ellis, Adrienne Konthur, developers now consider the launch of new project very carefully: already the precarious market conditions make it necessary for them to have a relatively high number of preliminary leasing agreements. In Hungary, there is now an increase of so-called “built-to-suit agreements” – until now a rarity in the country. While the construction of individual objects requires much more detailed planning than before, it will help to avoid imbalances in the supply.


Investment market crashed

In Hungary, investments in the field of the commercial property market amounted to 410 million euro in 2008. After a tremendous year 2007, the market was expected to slow down; however, an setback of 80% practically brought the market segment to a standstill. Investment activities did not develop in this direction exclusively in Hungary, which is especially crisis-ridden: Slowakia, too, had to go through an 80% decline, the Czech Republic experienced a 60% setback – while lesser developed markets of the regions, such as Croatia, did not see any transactions at all in the second half of 2008. 


Despite the bad business climate, investors were looking into the best developed markets to find remedies. Tim O’Sullivan, leading investment consultant of CBRE’s Budapest office, says, “We firmly believe that in spite of the menacing environment, there are still many possibilities on the market.” Investors are no longer looking for high-risk objects such as logistics realties, second-rate office blocks or provincial retail objects: in 2009, mainly investors with considerable self-financing powers will be active. While until now, a project could be financed to 80% with credits, this rate now sank to 50%. 


However, CB Richard Ellis thinks it possible that some property owners will be forced to sale objects over the course of the year – for investors, though, only A categories in top locations will be of interest.

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