CBRE Hungary real estate COVID report
The real estate investment market started with a strong first quarter, and due to a couple of dragging transactions, the April-May period was not uneventful either. By the end of May, the value of the total turnover in Hungary will reach 450 million euros, to which a serious downtown office transaction also contributed, in addition to logistics and hotel sales. In the retail real estate sector, CBRE has not registered a closed transaction this year.
In the first half of 2019, real estate investment turnover reached 570 million euros, from which the market is expected to lag behind this year. “The most common investor behavior right now is wait and see. - explained Gábor Borbély, Head of Business Development and Research, CBRE Hungary. “The transactions that started months ago are closing now, in which there are several of them where negotiations have been suspended until the market is less uncertain. We expect the negotiations to pick up in the second half of the year, which means the end of the year is expected to bring a busy period.”
Economic background
Compared to 2019, economic growth in Hungary slowed in the first quarter (2.2%) but was still the strongest among the Visegrád countries and was outstanding compared to the EU average of 3.8%. These data support the fact that the pandemic situation left the Hungarian economy in a much better state than the 2009 world crisis did. In the Central European region, including Hungary, we can expect a much milder recession than in Western or Southern Europe. Forecasts show a large variance, but consumption, which is the internal engine of the economy, can find itself here most quickly.
Retail market
Restrictions imposed due to the epidemic situation were looser at home than in most European countries, leaving deep traces in the tenant market. Although the different sectors were affected by the regulations in different ways, it can be said that the retail sector was hit the hardest in Hungary as well. In March and April, rents understandably slowed down a lot, but from May onwards, there is already a recovery. Retail chains are now focusing on reopening their stores and monitoring traffic data. Once it is clear exactly how much damage has been caused by the drop in retail sales due to the curfew, a renegotiation of tenant terms with landlords is expected to begin. There was no moratorium on rent payments in Hungary, yet it can be seen that the owners are trying to help their tenants with various solutions. However, this is always based on mutual agreement for long-term cooperation.
Office Market
The office market came as no surprise in the first quarter, with demand in line with the average of recent years. Tenants are in a waiting position here as well, so rents in the first half of 2020 will be lower than last year. Currently, few new transactions are launched, extensions dominate, and this is likely to be the case until the fall. It can be said that tenants are disciplined in paying rents and it is not typical to refuse to pay rents. However, more people are consulting with the owners than they did a month ago. Several tenants are requesting a temporary reduction or rescheduling of rents, not only from the restaurant and retail sector, but also from classic office tenants.
Building industry
Due to the fact that there was no strict closure in Hungary, the Hungarian construction industry was also less affected by epidemiological restrictions compared to other European countries. Although construction work has slowed down due to temporary material or labor shortages, ongoing developments have continued, but the impact of the restrictions varies from sector to sector. While rescheduling or postponing projects is typical in retail, there has been no downtime in office design projects, although delays can be expected in implementation. Most of the houses scheduled for 2020 and 2021 are progressing according to plan, but several of the projects planned for 2022 will start late, so its expected handover has shifted to 2023. Based on the office space handed over and under construction, we expect a new supply of 241,000 square meters this year, which will drop to 179,000 square meters in 2021. Of the sectors, industrial real estate was the least affected, with all construction progressing as planned.
