Departure of public tenants has a huge impact on Hungary's office market, vacancy will shot up

Valter Kalaus MRICS, Managing Partner of Newmark VLK Hungary, stressed that

the market is hugely affected by the outflow of public tenants, with hundreds of thousands of square meters becoming vacant.

He added that some of these properties could be repurposed, even by changing their function, but a significant proportion of them would require a lot of investment to remain competitive. Despite the increase in vacancy rates, experts say the situation is differentiated.

Gábor Angel, Wing's Deputy CEO for office projects, pointed out that

tenants who are open to modern demands are in a difficult position to find the right office location.

According to Valter Kalaus, tenants are still queuing up for the best areas.

According to Miklós Ecsődi, Director and Head of Occupier Services at Colliers, there is much more choice in today's office market compared to 2019. Pre-occupancy rates are between 45% and 55% for buildings that will be handed over in the near future. He believes that

the effects that are increasing vacancy could run their course in two to three years.

The evolution of rents and setup costs is also an important factor. Balázs Simonyi MRICS, Head Office Advisory at Eston, said:

Fitting-out costs have increased 2.5-3 times in the last five years, while rents have only increased by 30%.

This makes it difficult to recoup the cost of office refurbishment.

ESG considerations are becoming increasingly important in tenant expectations. Experts say it may be worthwhile to upgrade existing office buildings, even older ones, in this direction.

The issue of transport infrastructure was also raised in the context of public leases.

None of the three major public office developments has a metro station nearby, which can be a challenge for workers,

pointed out Pál Dános MASZ, MRICS, Associate Partner, KMPG.

Experts agreed that the market currently favours tenants, but that the situation could change. According to Balázs Simonyi, the trend is not expected to reverse for two to three years, but the rate of outflow of public tenants could have a significant impact on the market.

Cover photo: MARTON MONUS