The office sector continued to dominate activity, followed by industrial; while properties in the latter sector are highly sought after, the lack of available investment-grade assets is a limitation.

The office was thus the driver of the investment market in 2021 with 82% of investment activity (for a total of 1 billion euros), compared to 9% for the industrial sector. Retail has been the big loser in investment since 2019.

CBRE estimates that current prime office yields for Hungary are at 5.25% and stable, 5.75% and compressing rapidly for the industry, with shopping center yields at 6.25% and under pressure. A large yield gap between Hungary and the Czech Republic and Poland remains.

“The difference between Hungary and the Czech Republic and Poland is relatively stable at 100-150 basis points; the yield gap with Czech is larger and there has been no change throughout the pandemic,” commented Gábor Borbély, Head of Business Development and Research at CBRE Hungary.

Domestic investors are expected to continue to dominate activity despite growing interest in Hungarian international money markets. Of the €1.17 billion in investment activity recorded for 2021, 70% was carried out by local players. Among cross-border investors active in Hungary, 24% came from the Czech Republic, 23% from Austria, 22% from Germany and 14% from the United Kingdom.

Fashionable

Large office occupants delay their decisions. Demand in the Budapest office market fell by 42% for 2021 compared to 2019, as was the trend in major European capitals. Although there were only 50,000 m² of deliveries for 2021, there are currently 512,000 m² under construction, including 226,000 m² in pre-launch, and an additional 435,000 m² planned. According to Anikó Kovács, head of office advisory and transaction services at CBRE Hungary, transactions take much longer and there are delays in completions.

The industrial sector is experiencing a boom in the Greater Budapest region and the regional industrial and logistics hubs. Industrial demand in Hungary increased by 114% in 2019-2021, while developer-led completions for the last year reached 340,000 m² in Greater Budapest, representing a 165% increase compared to 2020 .

In a significant development for the industrial market, Hungary is seeing growth in regions outside of Budapest. However, 57% of completions were in central Hungary in 2021 and 49% of the pipeline is under construction. Western Hungary has a pipeline of 373,000 m² and Eastern Hungary 190,000 m².

In the absence of any mall pipeline, landlords are undertaking renovations. Around 25% of shopping center stock is over 10 years old, of which 13% is over 20 years old; new stock only contributes 6%, according to Erika Garbutt-Pál, head of retail advisory and transaction services at CBRE Hungary.

Online penetration in Hungarian retail is expected to continue growing, rising from 10% in 2021 to a forecast of 14% in 2025, according to Euromonitor. Meanwhile, turnover at shopping centers in Budapest is down 25% from 2019 levels, although there has been a 20% recovery in footfall and turnover towards the end of 2021 compared to 2019.

Péter Virovácz, senior economist at ING Hungary, sees the hot topics of the year as inflation, monetary and fiscal consolidation, general elections and politics, the rule of law debate and EU funds , as well as wages and labor shortages. Economies must also take into account the green transition and climate action.

This article first appeared in the print issue of the Budapest Business Journal on February 11, 2022.