- What is your opinion about the Hungarian real estate market in 2014? Do you agree with some market analysts’ opinion, that the market is moved ahead a little bit?
- This opinion is announced year by year in January, but since 2008 the players of the market are only hoping for that. Now, in May 2014 maybe there is some real meaning behind this slight optimism, but still needs to be careful. In the last few years, - apart of some exceptions – nothing happened, so cannot speak about a truly existing investment market. We lost dynamism, and it has very strong effect on the service sector too, with only some ten thousand square meters new offices on the market per year, being not really relevant. Consequently everyone wants to take part in the same business, which causes not only a strong competition in prices, but impacts negatively the market standards as well. Though now I have information about some important transactions, which could have a strong (positive) effect on the real estate investment market.
- The crisis has also good aspects…
- If you mean, that all businesses has cycles, which is normally including crisis too, and this is good for the market, as it has a self-cleaning effect and natural selection, and the participants will be more careful, so if you mean that, I agree. However in Hungary we have this recession for 6 years now, which is simply a too long of a period. In this case the market consumes itself and generates an enormous price competition, which finally is not serving the market interest.
- Let’s check the retail segment first. If we can believe in statistics, the turnovers figures are rather positive.
- In the last 12-15 months the retail turnovers were increased by 2% on the annual base, and as the market is determined by demand, this is a good sign. If it is easier to pay the rental fees, the tenants are more capable to grow, which has a good effect on the market. I assume a slow increase in this field.
- How about office spaces?
- The vacancy rate is still high, slightly below 20%, and if monitoring only this figure there is no real reason and demand for further developments in Budapest. But if a tenant would look for 10,000 square meters in a downtown location, then they would face difficulties to find a large variety of existing supply even if, theoretically, almost every 5th square meter is empty. It’s also true that the vacancy rate is different on the different submarkets, for instance only 12-13% of offices space is vacant in South-Buda. Important to note that the very first modern buildings were built 20 years ago, which created the western style real estate market and facility-, property and asset management segment in Budapest. These buildings have reached their next lifecycle-period. Depending on their maintenance, and mid-period investments they now belong to rather B class offices with a significantly higher vacancy rate. In category A – with price compromise – the occupancy rate could be better defended.
- So after these facts, where would you invest? South Buda, downtown, or Váci Road area?
- Let’s start with the last one. If there is no significant demand on the market, we have to invest on speculative way, and the Váci Road area is still a dynamic location from this point of view. There are more buildings, which are built without any prelease contract. From Duna Pláza towards to downtown it could work. Investment in South Buda and downtown area could be successful too, as it has the lowest vacancy rate. The investment doesn’t need to be green-field after all, we can think more brown-field – there are many opportunities regarding old buildings. I know some very good downtown locations in a very bad condition: the owner is just waiting for the first prelease contract to start the reconstruction. The history of the Eiffel Palace is a good example that it can be successful if we freshly reposition an existing building. There are a lot of B category buildings, with absolutely prime location, but in very bad conditions not able to keep their position. I see opportunities in built to suit concept, when the entire building is built or renovated according to tenants’ wish. However this could be a risk, after the tenant leaves. It happened to some buildings in outside of Váci Road.
- You know the Romanian and Czech market very well as you are responsible for these countries too. irodakereso.info also got some information about these markets: they have better results, as investors find them more transparent and predictable than the local Real Estate market. What is your opinion?
- Romania is in quite a speculative category, so you have to think it twice very carefully where and what to invest. Until 2008 it was a very fast growing market, sometimes they made business on yields lower than 6%. Bucharest was very popular in business; the price of 3 stars hotels was the same like 5 stars hotels prices in Hungary, and all hotels were fully booked. This bubble has been burst, so today only the liquid – core market – is really interesting. The A category offices rent level is 14-16 €/month/square meter. Comparison: it is 18-20 € in Warsaw, 16-18 € in Prague, and 10-12 € in Budapest. The Czech market is dominated by a higher price, lower risk, and better liquidity.
- Shall we speak about typical French approaching on the real estate / asset management market, or BNP Paribas Real Estate is more global without any French characters.
- The owner BNP Paribas Group has 184 employees in 74 countries; they work and think by „the bank for a changing world” philosophy, as they always pay attention to local needs. BNP Paribas Real Estate group is also an international company, with global thinking and local acting for a higher level and wider range of costumers’ satisfaction.
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