Three Records Were Broken On The Budapest Office Market In Q3

Budapest modern speculatively built office stock reached 1.87 million sqm at the end of Q3 2007 as Q3 completions reached a record high of over 98,500 sqm,

CBRE sees the outlook for rest of 2007 remaining very positive, saying there is no doubt that 2007 will see record high activity on developers' and tenants' side as well. CBRE believes all year gross demand would to be up by 20% yr/yr.

All this space was completed as "A" category offices. Eight projects were realized in this quarter, out of which three exceed 15,000 sqm.

“In line with our expectations, big office projects are being delivered in the second half of the year. After the significant supply increase in Q3, we expect a similar amount of new office space to come to the market in Q4 as well," CBRE said, adding that demand seemed to keep pace with supply dynamics.

After H1 being the most successful first half ever, Q3 alone brought 107,700 sqm gross take-up. This figure does not only mean a record quarterly take-up but exceeds the previous high by some 20%.

CBRE also noted that the single biggest deal on the market (Hungarian Post leased 23,000 sqm) accounts for 20 % of all the transacted space in Q3.

While CBRE expects Q4 to show decrease in demand on q-o-q basis, it believes the figure is likely to be the second best in the year according to the pipeline the company is aware of.

Based on the unexpectedly high demand in Q3 CBRE revised its forecast for 2007 take-up upward to 300,000 sqm which will mean an increase of 20% on yr/yr basis in office demand.

Completion in Q3 was evenly dispersed in the Central and Non-Central submarkets across the most significant office hubs. (Váci Corridor, Outer Ring Road, North-, Central-, South-Buda, and Central-Pest as well saw office completion this quarter.)

“Geographical distribution of new office space to this extent is rather exceptional on the market. Take-up was traditionally the highest in the Non-Central area, accounting for 75% of all Budapest take-up together with the Central area," CBRE said.

Take-up was unusually strong in the periphery and relatively high in the CBD as well. Not only was gross demand high but so was net absorption.

The occupied office space was extended by some 78,000 sqm, which is 40% more than the absorption in Q1 and Q2 together.

“Due to very high net demand figure the aggressive completion level did not drive up vacancy significantly. All Budapest vacancy stands at 12.1%, which shows a mere 50-bp increase compared to Q2 and some 30-bp decrease compared to the same period last year," CBRE added.

Vacancy on a yr/yr basis has been on a downward trend for the third subsequent quarter already. CBRE expects the next quarter to be very similar to Q3 regarding demand and supply structure therefore it does not expect the vacancy to be up significantly by the end of the year.

Supply

In the third quarter of 2007 several big projects was handed over comprising 98,500 sqm altogether. Most of these projects were popular enough among tenants to sign pre-lease agreements. The newly completed buildings were the following:
Aréna Corner in the Non-Central market (24,200 sqm)
Studium, Váci 33 and Millenáris Office Building in the Central-market (35,000 sqm)
Szépvölgyi Business Park, Infopark and Graphisoft Park were expanded by 35,700 sqm in the Non-Central market 

Demand

Gross take-up reached a record 107,700 sqm in Q3, which is the highest registered level ever. It is 65% up compared to the previous quarter and almost twice as much as in same quarter 2006.

“This quarter new leases drove the market but pre-lets and renewals were also significant," CBRE said.

The deals completed can be split as follows:
60,300 sqm new deal or expansion (56%),
22,200 sqm renewal (21%), and
25,200 sqm pre-lease (23%).

The biggest deal was a pre-lease signed by The Hungarian Post (23,000 sqm in Gateway Business Centre). With this deal the office complex reached nearly 70% occupancy before its completion at the end of 2007.

In this quarter the newly completed projects proved to be the most popular among the tenants like Váci 33, Millenáris Office Building and Infopark "D". There were around 120 deals done in Q3, with a higher average deal size as in the previous quarter (828 sqm).

Twenty-one deals were signed for office space larger than 1,000 sqm. The Non-Central market had a share of 47% in the Q3 take-up, followed by Central market with 29%, Periphery with 15% and CBD with 9%."

Source: Portfolio Online Financial Journal