– Gamma Properties is a relatively new company, would you please introduce it?

- I founded the company along with a former colleague in 2014. To get started, we took over IVG Hungary Ltd’s job as property developer and asset manager. (After IVG’s German owner went bankrupt, Hungarian activities have ceased.) We have had a portfolio of four office buildings and one hotel in the early phase. This has been expanded considerably by now: we do property and asset management for several buildings and manage the leasing procedure of luxury homes as well. Basically we do asset management, this is our core business. Property management is a smaller part of our business, and we also do consultancy for other property (e.g. due diligence) deals. However we do not plan to work as leasing and sales agent. These are responsible activities with demanding expertise, but it is inconsistent with our asset management work.

- You entered the market almost the best time. Did they know that recovery is coming?

- Neither me nor other experts knew in 2014 that recovery is just about to arrive. IVG's withdrawal was given as an option, but to get started we also needed a big dose of courage. We were lucky that the recovery has arrived, and we can make profit.

– Some experts say that gap between us and surrounding countries is getting smaller, so the growth is to be out of breath within one to two years. What do you think about this?

– One possible reason for investors' focus turned back to Hungary is that the formerly preferred Poland’s yield expectation has declined. It’s at a deep level, only a very few people want to invest there. Eastern Europe countries roughly move together, but the app. 100-basis-point difference and typically lower renting fees in Hungary attract foreign investors. I'm not sure that we reach polish yield levels in the foreseeable future, but I think we approach it in the coming years.

– There will be over 200 thousand sqm of new office at Váci road, and there are significant developments in South Buda too. Not to forget new headquarters building of Telekom clearing old buildings. These are 350-400 thousand sqm increase on the supply side. Is this not too much?

– I'm optimistic in this topic as well. Five years ago we have registered 24-25% vacancy rate. This was the lowest point of the Budapest office market. Now we are around 10 percent, quality office space is infrequent. There is not much reserve at this level, as a single-digit ratio means that practically there is no quality office supply in the market. If all the offices you summarized arrived on the market at the same time, it would represent a total market supply growth of 10%. If no new tenant occurs, vacancy jumps to 20%.  But we haven’t calculated pre-lease contracts, new demands appearing in the meantime. Emptied houses cannot be brought back to the market immediately. Depending on conditions and financial possibilities owner may choose simple facade renovation and perhaps some aesthetic facelift like social rooms, corridors, lobby refresh (not affecting mechanical engineering) but also a complete and extensive refurbishment. Even the simplest step takes time, market re-entering date may vary. (However, these offices become empty at different times)

– What about rental fees?

– Office rental fees have to be risen, it is practically inevitable. Not only because Hungary has a gap compared to the region, but because developers cannot find a contractor who would sign for a job for the “old” prices. Anyone who wants to move to a new office, has to accept that there is no any new A-class house for 12 €. I’ve just heard an estimation that an additional 20% cost increase is coming, and it will be built into the rental charges. Another important trend is decline in yield expectations. If investor ’appetite’ does not change within two years, even a 100 basis point reduction cannot be excluded.

– Increase of new house rent will raise old buildings’ fees too?

– Offices built in the ’90s only retain their competitive edge if they will be refurbished. A serious restructuring – affecting mechanical engineering but without fit-out – costs 300-400 Euros/square meter (roughly estimated). Those who do not want or cannot take these costs, leave the market, which reduces supply. Those who can make it, get their costs. If you have some unique architectural hype (like a trendy common space) success is guaranteed.

– When I look at your profile, actually you are like big advisers; only difference is that Gamma is smaller.

– Thank you, it's flattering for us, but we know that there are many areas we cannot and do not intend to cover. The competitive advantage of ours is based on small size flexibility and owner’s approach. This is very important part of our culture, what we have learned in the IVG period. We know and understand both the German/Austrian and Anglo-Saxon real estate ’line’, we are ready willing and able to work with both. We recommend Gamma primarily for foreign investors who only have a small portfolio in Budapest. This is a size not worth to set up an own management, so we can make it for them. The company was founded just two years ago, but the accumulated market knowledge covers several decades, and we have very positive feedbacks from the market.

– A property management has no limits, but you can only have a few clients in asset management.

–- I completely agree. I see relatively few, but closely cooperating partners for us is the five-year horizon, precisely because of our owner’s approach. Otherwise we would have some conflicts of interests. However, we have knowledge and capacity to significantly expand or existing customers’ number in property management.