Property
Budapest ahead of record year, offices to grow on every corner - CBRE
The Budapest office market is becoming much more concentrated in three major areas, with districts 8 and 9 emerging as favourite office locations besides the established markets in district 11 and 13. In addition to the emerging new office hubs it is anticipated that the CBD will change character attracting more developers to refurbish old buildings into unique, luxurious office space. Currently many mixed-use projects are in the pipeline where office space will be combined with high-end retail, hotel, or prime residential, CBRE said.
Supply
According to the report, modern office stock did not increase substantially in Q1. Three projects comprising 10,500 sqm office space were completed. Despite the few developments completed in Q1, 2007 is expected to exceed the record completion level of 2000, with cc. 225,000 sqm of new developments in the one-year-pipeline, CBRE projected.
New developments remain focused on the Non-Central market; districts 8, 9, 11 and 13 especially will see a significant increase in stock. New developments are mostly category "A" while refurbishments are typically only in CBD or Central market locations.
Demand
Gross take-up reached 59,800 sqm in January-March, down 25% q/q, but up 70% on a yearly basis. As with the previous quarter this quarter demand had a very favourable composition, comprising: 39,000 sqm new deals or expansions (65%), 11,600 sqm pre-lease (20%), and 9,200 sqm renewals (15%).
Since pre-lease agreements don't bring physical occupation in the same period, the high proportion of deals of this kind resulted in a lower net absorption figure (23,500 sq m) in the first quarter. Q1 2007 was the best first quarter in terms of take-up ever recorded.
Some 110 lease transactions were signed in the first quarter, bringing the level of an average lease down to 592 sqm. Seventeen deals were signed for office space of larger than 1,000 sqm.
Vacancy
The overall vacancy level in Budapest has been falling, and reached a low in March 2007 at 12.01%. Vacancy levels decreased compared to the last period in all sub-markets bar Central market.
Vacancy levels seem to compress in each particular submarkets but in CBD. In Q3 2003 the overall Budapest vacancy was at around 20% and since then has dropped by 800 bps. Unlike in the other three submarkets, vacancy in Central Business District (CBD) has risen since that time, reaching the peak in early 2005.
Rents
Rental levels in Budapest did not change in the last quarter compared to the previous one. Slight rental change, namely increase, can be witnessed only in the prime category. Currently rents for "A" category office space are varying between EUR 12-14/sqm/month with service charges at EUR 3.00-3.50 /sqm/month. Rents for prime category offices in CBD have gone slightly up, reaching EUR 21-22 /sqm/month. Effective rents can be 10% lower for average "A" category office space, while rental incentives are not typical for prime category offices.
Outlook
CBRE projects that this year will bring a record completion level of 235,000 sqm office space, bringing the Budapest modern speculatively built office space above 2 million sqm in a years time.
Annual take-up has been steadily growing for five years, and demand in 2007 is expected to remain strong (or even to exceed the 2006 level). The biggest expected deal will be the transaction by the Hungarian Post, which is anticipated to be above 20,000 sqm.
Due to the strong BPO activity, and the relatively high proportion of pre-lease agreements in the previous quarter and Q1, vacancy levels are not expected to rise significantly despite an increase in development activity, CBRE concluded.
Supply
According to the report, modern office stock did not increase substantially in Q1. Three projects comprising 10,500 sqm office space were completed. Despite the few developments completed in Q1, 2007 is expected to exceed the record completion level of 2000, with cc. 225,000 sqm of new developments in the one-year-pipeline, CBRE projected.
New developments remain focused on the Non-Central market; districts 8, 9, 11 and 13 especially will see a significant increase in stock. New developments are mostly category "A" while refurbishments are typically only in CBD or Central market locations.
Demand
Gross take-up reached 59,800 sqm in January-March, down 25% q/q, but up 70% on a yearly basis. As with the previous quarter this quarter demand had a very favourable composition, comprising: 39,000 sqm new deals or expansions (65%), 11,600 sqm pre-lease (20%), and 9,200 sqm renewals (15%).
Since pre-lease agreements don't bring physical occupation in the same period, the high proportion of deals of this kind resulted in a lower net absorption figure (23,500 sq m) in the first quarter. Q1 2007 was the best first quarter in terms of take-up ever recorded.
Some 110 lease transactions were signed in the first quarter, bringing the level of an average lease down to 592 sqm. Seventeen deals were signed for office space of larger than 1,000 sqm.
Vacancy
The overall vacancy level in Budapest has been falling, and reached a low in March 2007 at 12.01%. Vacancy levels decreased compared to the last period in all sub-markets bar Central market.
Vacancy levels seem to compress in each particular submarkets but in CBD. In Q3 2003 the overall Budapest vacancy was at around 20% and since then has dropped by 800 bps. Unlike in the other three submarkets, vacancy in Central Business District (CBD) has risen since that time, reaching the peak in early 2005.
Rents
Rental levels in Budapest did not change in the last quarter compared to the previous one. Slight rental change, namely increase, can be witnessed only in the prime category. Currently rents for "A" category office space are varying between EUR 12-14/sqm/month with service charges at EUR 3.00-3.50 /sqm/month. Rents for prime category offices in CBD have gone slightly up, reaching EUR 21-22 /sqm/month. Effective rents can be 10% lower for average "A" category office space, while rental incentives are not typical for prime category offices.
Outlook
CBRE projects that this year will bring a record completion level of 235,000 sqm office space, bringing the Budapest modern speculatively built office space above 2 million sqm in a years time.
Annual take-up has been steadily growing for five years, and demand in 2007 is expected to remain strong (or even to exceed the 2006 level). The biggest expected deal will be the transaction by the Hungarian Post, which is anticipated to be above 20,000 sqm.
Due to the strong BPO activity, and the relatively high proportion of pre-lease agreements in the previous quarter and Q1, vacancy levels are not expected to rise significantly despite an increase in development activity, CBRE concluded.
