Rents remained stable on the Budapest commercial property market in H1 2018, according to the last survey of the National Bank of Hungary (MNB) and RICS. The typical yield level decreased by roughly 25 basis points to 6% for prime offices and 7.5% for industrial/logistics properties. Respondents anticipate an increase in demand for investments in most market segments for H2 2018, particularly in the case of prime office and industrial/logistics properties.
The second survey managed by MNB and RICS for the first half of 2018 involved 34 experts. Among the respondents, financial institution employees engaged in property valuation or property financing (53 per cent) and experts offering consultancy (29 per cent) were in the majority. 76 per cent of respondents work for local companies while 18 per cent for internationally active companies.
Based on the responses, typical rents remained constant in most segments relative to the second H2 2017. According to the survey respondents, there was a decline in the level of rents in the category of the top 5 shopping malls. However, it should be noted that the responses in respect of this category showed higher volatility in the past as well. In addition, the typical rents of the good quality non-central offices and the mall-type retail parks moderately decreased, while in the case of small business units (city logistics) respondents reported a slight increase in rents. On the whole, the level of rents is above the level recorded in 2015 in all segments.
In the opinion of the real estate experts participating in the survey, a decrease could be observed in H1 2018 in the office and industrial/logistics segments, while in the retail segment respondents reported a steady yield level. Based on the responses, the present yield levels in the case of the top CBD offices and the top 5 shopping malls stand at 6%, while in the case of the prime out-of-town logistics centres at 7.5%. According to the respondents, a premium between the yields of a top CBD office and a provincial town secondary office transaction is typically 200 basis points, and the same premium was reported when comparing the yield of transactions involving a top 5 shopping mall in Budapest and a mall-type retail park in the countryside.
According to the majority of respondents, demand for commercial real estate investments will increase in most of the segments in H2 2018. The largest ratio of respondents, i.e. roughly 73 per cent, indicated an expected increase in demand in the case of the prime out-of-town logistics centres, while an increase in the demand was anticipated by the fewest respondents in the case of the mall-type retail parks and city logistics. In the case of the latter two segments, the majority of the respondents reported constant or decreasing demand.
As regards the appetite for real estate developments, the majority of respondents anticipate an increase in H2 2018 only in the case of the top CBD offices, the prime non-CBD offices and the prime out-of-town logistics centres, while most of the respondents expect no material change in the development appetite in the rest of the segments.
Looking ahead, as regards the demand for rentable commercial real estate area, the majority of respondents anticipated growth in the case of all office categories, the top 5 shopping malls and the prime out-of-town logistics centres, while most of the respondents expect no material change in the demand for the mall-type retail parks and big box retail space available for rent in the second half of 2018.
In cooperation between MNB and RICS, the Market Sentiment Survey, a questionnaire-based survey presenting the developments on the Budapest commercial property market, was restarted at the beginning of 2018. The common objective of the MNB and RICS is to enhance knowledge and awareness regarding commercial real estate market developments and increase the transparency of the market.
The Market Sentiment Survey monitors market processes and sentiment twice a year, and it uses calendar half-years as reference periods. The current questionnaire was completed in July-August 2018, in respect of the first half-year. The survey focuses on the Budapest commercial real estate market and asks respondents to provide data on the typical rents and yields of the various segments (offices, industrial-logistics, retail, hotels). Furthermore, in connection with the market expectations for the next half year of the experts on the subject, the survey also includes questions for identifying changing trends in investor and tenant demand and development activity.