News Article Budapest consultancy Hungary interview investment Knight Frank
by Ákos Budai | Interview

A new player has entered the advisory market in Hungary and it intends to become a dominant player on the country’s dynamically growing investment market. Chris Bell, Knight Frank’s Managing Director for Europe talked to Property Forum in Budapest about the new office, promising business lines and the effects of new technologies.

How many people are you starting with in Budapest?
We’re starting with 6 people and we’re specialising in occupier services and commercial leasing. We will branch into capital markets and valuations so we’ll be recruiting. We tend to start an office organically with a core group of people then expand into other service lines according to our 3-year business plan. We’re hoping to have 15-20 people in 3 years.
Why did you choose this moment to enter the Hungarian market?
The timing is probably 20 years later than we wanted. We opened our Polish and Czech offices in the mid-1990s and since then I spent a lot of time coming to Hungary. I spent a lot of time meeting various organisations and people and not being very impressed. Having a Hungarian office as part of our CEE platform has always been part of our strategy but we simply couldn’t find the right people up until now. We would love to have been here 15-20 years ago and the perfect timing for this cycle would have been 2012-2013. We’re a little late than we wanted but we’re going to be here for the long term, so it doesn’t really matter.
Chris Bell at Knight Frank's opening party in Budapest


Where do you think we are in the current property cycle?
I’m pretty optimistic actually. I think the cycle’s got plenty to go. There’s a general view that the UK is getting towards the end of the cycle with anything between 0 and 24 months left. As we’re heading eastward there’s more to go, even in some Western European markets, rental growth is just starting. Economic growth is underpinning market growth and banks are a lot more cautious about financing them they were before the last crisis. I’ve seen a few crises and I can tell you that when bankers say that it's not like the last time, you know that there's a crash coming. Luckily they are not saying that yet this time.
In your opinion, what are the top three emerging investment destinations in Europe right now?
I think Spain, Poland and Hungary are good markets if you can find product. These would be my three picks in Europe for added value. If you want good and steady income, possibly Germany and the UK, but I don’t think we’re going to see much growth there.
Which business lines do you expect to show the biggest growth in Hungary?
I think the capital markets business line is the one that’s really going to take off. Last year we had a record high level of investment activity in CEE and I think that this growth will continue. There’s a massive weight of money in the world looking at property. Private equity funds alone have £280 billion to invest and they’re finding it very hard to place it in the UK. They’re moving increasingly into Western Europe, but the pricing is getting a bit too high in Germany and France, so, naturally, they’re looking at Eastern Europe as well. I think investment volumes will go up in CEE because it is an attractive, growing market that still offers higher yields.
Is that enough for most investors? Aren’t they concerned about political risk?
I don’t think money is too moral in that regard. I don’t see that as an issue for them. Based on their complaints I think that the biggest problem they’ve got is finding product.
What type of assets are investors looking at in CEE right now?
Investors would love to invest more in industrial. It’s a fascinating market with a lot of potential. I think we’ll also see growth in offices as low vacancy rates will result in rental growth. Around the edges, we’ll also see investors looking at residential and student accommodation. The hotel market can also be interesting here. I was surprised to see how relatively ‘under-hoteled’ Budapest is given that it’s growing as a tourist and business destination.
Do you expect major shifts in the popularity of the main asset classes in the coming period?
As we have seen in Western Europe, I think we can expect a shift away from retail towards logistics as a result of online shopping. It’s going to be interesting to see what happens in the retail sector. Some of the out-of-town retail parks will struggle and we might see some buildings and land used for alternative purposes such as distribution or housing. Shopping centres will – if they not already are – have to become destinations that provide an experience. I personally expect that the high street will flourish and come back in a big way. I think convenience will become a massive part of the high street with the likes of Apple or Microsoft having flagship stores.
You’ve held your current position for almost 20 years. What is the biggest change you have witnessed in the business during this time?
The way business is done hasn’t fundamentally changed. What changed are the skill levels and expectations, particularly on the client side. As property has become more accepted as an investment product, the analysis of the asset has become more important and quite rightly the demands of the investors have become more important. So as the volumes of the business have substantially risen, the level of expertise that we’re obliged to give to our clients has also raised. Besides its volume, the geography of property investment has also substantially changed. It’s bizarre to imagine that when I started my job there were no pan-European funds and 20 years later we’ve got a huge amount of cross-border transactions on the continent. For that to happen, of course, transparency has had to improve.
Are investors concerned about transparency in this region?
Investors are quite binary, there’s no middle ground. If they’re not comfortable, they don’t invest, so I don’t think that transparency is a major issue here. Investors get concerned when governments decide to change laws quickly without previously flagging the issue. Luckily this hasn’t happened in the region to the extent that it scared investors off.
Technology is rapidly changing the world of real estate. How do you see it impacting your business?
I see technology as the skeleton of the business but the heart and the soul are still the people. I fundamentally think that businesses like ours enjoy interacting with people and that will stay the case. Having said that, technology plays an increasingly important part in our day-to-day work and, of course, in how we transact. But if you’re buying or selling assets worth tens of millions of pounds, I think you want people there that you trust. At this stage of the technical evolution, it’s very difficult to put that trust in the hands of machines.
Which business line is the most affected by technology?
Technology poses the biggest threat to our residential business as the rental market and to a degree the sales market is increasingly digitised. However, I still believe that if you’ve got a personal asset such as your home, you’re going to want to speak to somebody before you sell it and I would suggest you’re pretty foolish if you don’t. I think that above a certain price point technology will only be a facilitator but it won’t replace people.
Are you investing in technology? Which areas or processes are in dire need of innovation?
We’re definitely investing in technology. We’re trying to get some of the underlying processes of our business, particularly on the residential leasing side, more streamlined. There are a lot of compliance and legal layers that need to be put in place. This involves an awful lot of people and if we can remove some of that cost, we will.