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05.10.2012

Bank Austria Real Estate Country Facts:
Hungarian real estate market still in depths, but prospects of recovery emerging

  • Eurozone crisis and Hungarian recession lead to setback for real estate investments by two-thirds to less than EUR 100 million
  • Office market revolves around Budapest: vacancy rate currently very high at 21 percent – yet subdued new construction activity offers potential for recovery and thus a good chance for counter-cyclical investment
  • Falling purchasing power puts pressure on retail sales; investors still cautious here too – market offers good chances when economy recovers
  • Housing market: buyers and developers wait for economy to recover, low purchase prices imply good opportunity for investments
  • Bank Austria rates Hungary as a market with potential and still accompanies developers and investors to Hungary

The eurozone crisis has significantly weakened the risk appetite of commercial real estate investors. In Hungary, combined with an economic climate that is not altogether rosy – Hungary currently finds itself in recession – this means the country is not being targeted by investors at present. The entire volume of CEE investment in commercial property has halved in the first six months of this year to roughly EUR 2.4 billion compared to the first six months of the previous year. In Hungary the volume of investment in commercial property fell in the first six months of 2012 to less than EUR 100 million, which means it is a good two thirds lower than it was in the first two quarters of 2011. This means the market share of CEE real estate transactions has fallen from 5.5% in 2011 to approximately 4%. Reinhard Madlencnik, Head of Real Estate Bank Austria, on the current situation on the Hungarian real estate market: "We believe that the commercial real estate market in Hungary will become much more attractive for international investors again once the eurozone crisis quietens down and negotiations with the International Monetary Fund are completed. At present we see great opportunities on the Hungarian market for counter-cyclical investment, which is why Bank Austria continues to finance promising projects. As part of UniCredit and given our outstanding network throughout CEE we are able to support Austrian and international developers and investors with their operations in Hungary in order to exploit the market opportunities offered."
"One positive aspect of the Hungarian real estate market is its relative transparency", added Karla Schestauber, real estate analyst at Bank Austria, who went on to explain: "In the Transparency Index Hungary is in 26th place behind Poland, Italy, Austria and the Czech Republic, and is thereby the third best CEE country in this respect."

Office market: high vacancy rates; yet low construction activity offers potential for recovery
The Budapest office market is by far the most important office location in Hungary. "Between 2000 and 2010 there was a veritable boom in the construction of modern office space in Budapest with three-fold growth in the volume of office space available", said Madlencnik about the Budapest office market. There is currently 3.2 million square metres of modern office space available in Budapest. Breaking down to 1.79 square metres per inhabitant, Budapest is ranked above the average, just above Warsaw and Prague, but before Sofia, Bucharest and Moscow. By contrast, Vienna is ranked four places higher up with a figure of 5.99 square metres per inhabitant. This means there is a very significant gap to Western European cities such as Zurich, which heads the ranking with a figure of 27.5 square metres per inhabitant. In spite of this, vacancy rates in Budapest are high: "New construction in 2011 was reduced to just under 90,000 square metres, and in 2012 we expect another significant decline in new office space to 20,000 square metres. This provides an opportunity to lower the high vacancy rates", said Karla Schestauber, analysing the situation. A high level of occupancy should also help to stabilise rentals again. "In the summer of this year, Hungary entered into negotiations once more with the International Monetary Fund about a standby loan facility. The markets reacted well to this news. When these negotiations are brought to a successful conclusion this should make the Hungarian office market attractive again for international investors", explained Madlencnik.

Retail must hold its ground
Retail trade is going through a difficult patch just now as well: The recession and the weak labour market combined with falling purchasing power are putting pressure on retail sales. Annual purchasing power last year in Hungary came in at an average of EUR 5,581 per capita – a figure that conceals massive regional differences – which is almost EUR 10,000 less than the EU-27 average. Budapest is very well supplied with almost 1 million square metres of shopping centre space and 170,000 square metres of DIY floor space. "Many new shopping centre projects in Hungary have fallen victim to the financial crisis, and have either been temporarily stopped or postponed. Alongside falling sales, the tighter building laws for commercial property with more than 300 square metres – the so-called "shopping plaza stop" – have resulted in some retail chains leaving the Hungarian market", explained Schestauber, adding that "others are using this opportunity to obtain space in good areas at low rents, since rentals in Budapest have fallen by between 10 and 30 percent since the financial crisis erupted." Prime yields are currently sitting at a good 7 percent. Reinhard Madlencnik on the future of the shopping centre market: "The prospects are a mixed bag: the high saturation of commercial space in Budapest will result in a consolidation of the market, where properties in good locations with an attractive mix of tenants and professional management will come out on top. However, the anticipated economic recovery will bring some relief and start to attract more real estate investors again."

Housing market at a standstill
The Hungarian housing market is currently at a historical low: with 12,700 newly completed homes in 2011 this was not only 40 percent less than in 2010 but also lower than between the two World Wars. And this is a trend that continued throughout the first six months of 2012. The number of newly built homes shrank by 50 percent compared to the same period in the previous year to roughly 4,500 homes. In Budapest the decline in housing completions was even more pronounced: for the first time in 10 years the number of homes completed fell below 3,200, which is therefore 70 percent less than the last two years. "The lack of movement on the Hungarian housing market just now can be attributed to various factors. The end to foreign currency financing in particular has negatively influenced house-buying. Forint loans with their high interest rates are not appealing for many consumers, said Schestauber, explaining the background to this development. In line with the low demand we have seen a fall in home prices as well, although this negative trend does at least seem to have slowed. In this context too the market has counter-cyclical potential.

 Real Estate Country Facts

Enquiries: Bank Austria Press Office Austria
Julia Wegenstein, Tel. +43 (0) 50505 - 52854
E-Mail: julia.wegenstein@unicreditgroup.at

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