Demand is expected to remain constant in an ever-changing office market
The Budapest office market faces potential challenges regarding demand and pre-rental, tenant specifications, staffing needs and work habits after the COVID-19 crisis. Despite the pandemic and the lockdown, developers generally report that their plans are continuing as a rebound in the economy and therefore the office market is expected.
The relatively small group of Hungarian and regional office developers operating in the Budapest market have generally pursued limited development policies and oversupply is not expected. In addition, changes to office design and project management will reflect changes in office use and occupant and rental needs.
Regarding the pipeline, 470,000 m² of surface are under construction, of which 160,000 m² could be delivered by the end of the year, according to Eston International. CBRE estimates that 180,000 m² should be delivered this year, with the remaining 290,000 m² currently scheduled for 2022. Part of this latter volume is however likely to decline, as some speculative projects have not obtained the required offtakes. Cushman & Wakefield expects 157,000 m² of new supplies to be delivered by the end of the year.
According to the Budapest Research Forum (made up of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary), the total modern office stock in Budapest now reaches almost four million m² of class “A” assets. . The overall vacancy rate has remained constant at 9%.
“First quarter statistics continue to reflect the uncertainty and economic slowdown caused by the COVID-19 pandemic. While quarterly demand remained somewhat weaker than in previous years, the gap narrowed as the number of transactions showed a recovery, ”the forum said.
The most important delivery so far this year is the 22,000 m² Univerzum by Wing, the tailor-made headquarters (BTS) of Evosoft Hungary, part of the Siemens group, in the south of Buda. The LEED “Gold” complex has been leased on a long-term basis. This follows a strategy developed by Wing to build highly specified BTS R&D complexes for technology companies such as Ericsson’s 21,000 m² head office. Both buildings have been sold to investors.
Cushman & Wakefield say 45% of the new supply for 2021-2022 is already pre-let, with demand for the first quarter of this year being dominated by net demand of 37,000 m2. The participation rate in the first quarter was close to the five-year pre-COVID average.
Blue-chip face rents have remained firm, but incentive programs are expected to rise further. The biggest transaction of the first quarter was a signing of 7,000 m² by Huawei in Agora Budapest. The most significant pre-lease was a 1,400 m² transaction at Green Court by Randstad.
Immofinanz has signed several leases and extensions for an amount of approximately 21,000 m². For example, most of the company’s office buildings in Budapest are currently fully leased, according to the owner and developer of the regional office.
“Myhive Haller Gardens has been chosen as the head office by several new tenants. Most (a pharmaceutical, a food packaging, an automobile manufacturer and a development company) chose the office building thanks to the visual design of the completely renovated building and the new myhive services tailored to the needs of the tenants ”, explains Viktor Nagy , Country manager of Immofinanz for operations in Hungary.
“We have seen an increasing demand for our modern and very flexible office concept, not only due to our latest refurbishment, but above all for our unique services. It allows existing or new tenants to decide on a monthly basis whether they want to increase or decrease the rented office space. In addition, the rental period is more flexible; they can rent a single desk or a single table for a day or a month, ”he explains.
“With these solutions, start-ups and freelancers can find the ideal office, while benefiting from all the services that only large companies have so far been able to benefit from in office buildings,” adds Nagy.
In the opinion of Valter Kalaus, Managing Director of Cresa Hungary, a more flexible approach will be needed on the part of owners and tenants, mainly in terms of duration and rental conditions.
“The post-pandemic recovery will take some time, and therefore, in the coming years, uncertainty will dominate. Tenants will impose shorter lease terms and we will see fewer pre-leases from SMEs. ”
New Work Offices, a supplier of flexible office spaces, now has seven units in Budapest representing 15,000 m² of space. Hubert Abt, CEO and Founder, sees a growing need for flexible office space and the growing influence of technology in today’s environment.
“Companies will have to adapt to remote work policies and adapt to more flexible work routines that will allow workers to choose their place of work,” he says.
Skanska argues that it is wrong to write off physical offices from a Central European perspective. “Skanska’s studies have shown that employees miss their desks and that face-to-face relationships with others are extremely important to them. Therefore, the offices will remain the main place of work, although in the future we will certainly spend a little less time there than before the pandemic ”, explains Arkadiusz Rudzki, executive vice president of leasing and sales of the company. Skanska business development business unit in EEC.
“In addition, employees appreciate the physical aspects of the office: ergonomics of the workplace, spaces for group meetings or equipment. Our survey shows that although 64% of office workers in CEECs enjoy good working conditions at home, up to 50% of respondents come to the office every day, ”says Rudzki
Tamás Ádány, Director of Business Development at Horizon Development, agrees. “The post-pandemic office environment will encourage not only the completion of new office projects, but also the renovation of existing office buildings. The way we see our offices and the way we work has changed, and this will be reflected in the role of our offices. New projects can lead and at the same time inspire these changes, ”he concludes.
This article first appeared in the print issue of the Budapest Business Journal on May 7, 2021.
Atrium of Balance Hall by CPI.