- What do you think we can expect this year?

- It depends entirely on which submarket and asset classes you look at. Although interest rates are not going up any further, they will not go down significantly any time soon. As a result, there will be few transactions with significant discounts in the commercial investment market, and that only towards the end of the year. Three types of property can be distinguished for office leasing. The first group includes those that are in demand and are achieving rental growth (around 5-10% of the market). The second group is characterised by high occupancy (80%+) and a good tenant base, and is able to retain tenants, achieving contract renewals at a 20% discount. This type accounts for around 60% of the market. Finally, there are properties that are no longer accepted by the market as office property; they cannot find new tenants and therefore need to be converted (around 30%-35% of the market).

- Will the market be reshuffled? And if so, who will be the winners on the landlord side?

- The secret lies in the existing financing. Anyone who has to apply for refinancing in 2024 will face a serious problem. Interest rates will be 2-3 times more expensive than within the existing financing, the loan-to-value ratio will be 20-30% lower, and on top there will be a ESG Credit check in place. Knowing that 90% of office buildings in Budapest are not ESG compliant or managed in a non-ESG compliant way you can imagine what’s in front of us. From this perspective, the winners will be those with sufficient equity to buy cheaply and those which are able to offer an ESG-compliant product.

- What is the situation on the market for serviced office space? Will the share of flexible services continue to grow?

- Demand for modern office space, combined with flexible space, to meet the requirements of hybrid working, remains strong. In Budapest, the segment covers 2-3% of the market, with demand expected to grow to around 10% in the medium term. Two factors contribute to this: the region will become more attractive for service providers to locate in the medium term, and Budapest is a leading city by European standards, both in terms of work and other aspects of life. The mix is ideal, with no monolithic business districts (except for the Váci út corridor), optimal public transport and a very favourable cost of living by international standards.

- How do you see the neighbouring countries? How do we relate to Prague, Warsaw and Bratislava?

- From a macroeconomic point of view, Hungary does not compare well with other countries. We have the highest inflation, the highest interest rates and the highest corruption. This inevitably leads to a bad overall picture. On the other hand, cheap wages and progressive municipal and subsidy policies, as well as a liberal interpretation of environmental requirements, are attractive. But the country cannot benefit from special effects such as Poland, which is booming. Immediately after the outbreak of the war, a whole new service sector of Ukrainians emerged thanks to linguistic affinity, from taxi drivers to cleaners and hairdressers. This was gradually complemented by the establishment of smaller businesses and service providers, and now we are seeing the emergence of serious industries, including IT. At least 20% of hiring performance can be attributed to this specific factor. Since the change of government, the mood in Poland has been optimistic, leading to further demand. However, the market is highly segmented. About 30% of existing office buildings are being converted or demolished because they are no longer suitable due to their quality. Cities such as Lodz, Poznan and Katowice report vacancy rates of over 20%. Markets such as Wroclaw - but I could also mention the Czech capital, Prague - are stable. Supply and demand are in balance and the fact that no new office space is being created, means that vacancies are being compensated in a more or less healthy way.

- What can we expect in the longer term?

- In the longer term, the crisis is the best thing that could happen to the real estate market, although it is happening at the worst possible time. Unfortunately, high interest rates are leading to a slowdown in the spread of ESG-compliant property management. This is because investment in ESG measures is seen as a cost and a necessary evil rather than a worthwhile investment. However, this will change dramatically in the next 5 years as investors demand ESG quality. Properties that do not meet these requirements will be priced out of the market and become virtually worthless. By contrast, Budapest as a location has all the prerequisites for positive transformation, as we have seen in Nice, Paris or Copenhagen. If we can banish car traffic from the city, sustainably renovate the building stock, and ensure cleanliness and well-maintained green spaces by tidying up the neighbourhoods, the city has the potential to overtake Vienna in terms of attractiveness.

 

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