Budapest Business Journal 2719

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BUSINESS JOURNAL BUDAPEST

VOL. 27. NUMBER 19

OCTOBER 18 – NOVEMBER 3, 2019

SPECIAL REPORT

Real Estate

SPECIAL REPORT

Development Booming Across all Sectors Fundamentals in the various commercial property sectors are regarded as positive, while supply has been relatively constrained in comparison with past cycles when market optimism resulted in oversupply.  12 NEWS

Economic Drivers Show Signs of Weakness Both industry and the construction sector produced relatively weak data in the last month of the summer.

Is it a sign that the Hungarian economy is beginning to lose momentum, or is it just a momentary ailment?  3 SOCIALITE

In Conversation With Miten

More People, More Branches

Often called mantra music superstars, Deva Premal and Miten held another of their sacred music gatherings in Budapest on October 6.

David Holzer caught up with Miten, who has just released an album called “Devotee”, on the morning of the concert. 36 ai157114927310_230×50.pdf 1 2019.10.15. 16:21:17

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In an exclusive interview, Gyula Fatér, CEO of OTP Bank Romania, talks about the plans for Hungary’s leading lender to grow market share in its southern neighbor.  6

News

2|1 BBJ

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Budapest Business Journal | October 18 – November 3, 2019

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL STAFF: Zsófia Czifra, Kester

Eddy, Bence Gaál, David Holzer, Éva Kaszap, Christian Keszthelyi, Gary J. Morrell, Robert Smyth, Zsófia Végh.

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BUSINESS AS USUAL IN WAKE OF ELECTION British politicians, broadly speaking, do not “do religion”, which quite possibly has something to do with a deep suspicion of religious statements on the part of the British public. Similarly, this publication does not “do politics”.

We do, of course, cover national elections, and report on the legislative and tax environment, because those have a direct impact on how all of us go about our legitimate business, but we have more than enough on our hands just covering all the business news, without me climbing onto a soapbox and unleashing my inner policy wonk/political nerd.

That said, there has, understandably, been a lot of talk about last week’s local elections, and questions about what it might all mean. Allow me, therefore to share not some political opinions, but rather a few observations.

The first, but perhaps not the most obvious point, is that the Fidesz remains a very strong party, something that may well have been overlooked in all the excitement about the Budapest mayoralty. Those of us who cast their ballots on Sunday (and, yes, I was one), were asked to do so three times: once for a mayor; once for a local councilor; and once for a party for the county lists. I’m not sure exactly what this last part aims to achieve, but it was absolutely dominated by Fidesz.

The second point is that the opposition parties found a winning strategy for this election by combining forces: wherever an opposition candidate stood a chance of winning, the official opposition parties backed that candidate rather than fielding their own people, although independents still stood in most towns and cities.

But that is not a strategy that is transferable to a national general election, unless a very serious attempt is made to build some kind of self-styled movement of national unity.

Even then it would be problematic, as parties would still

need to win 5% of the national vote to get into parliament.

But could you honestly imagine a platform so broad that it ran from the Socialists at one end of the spectrum to Jobbik at the other, while also taking in the Democratic Coalition, Dialogue for Hungary, LMP and Momentum?

The grand coalition succesfully served one very specific purpose, but it is likely to be a one-off.

Thirdly, there is Budapest itself. In many ways, the wonder is that Fidesz held the capital city for as long as it did (technically, István Tarlós, the now erstwhile Mayor of Budapest, was an independent, but he had the full backing of the governing party). A tiny handful of Viktor Orbán’s cabinet are Budapest-born. Fidesz is a party of the countryside; that is where its root and stem support still lies. Given the size of Budapest’s bright lights, it attracts a younger, markedly more cosmopolitan mix of people, much less prone to being small “c” conservatives than the typical Fideszata. That is far from unique for a capital: in the United Kingdom, London is held by an opposition mayor, not the ruling party, and the same is true of Ankara in Turkey.

The loss of Budapest will irritate and irk Fidesz, undoubtedly, but that does not mean it is the bellwether herald of some electoral swing. The next general election is not due until 2022, an age in political terms. Fidesz remains the strongest national force; the opposition parties are still, by comparison, fragmented and weak.

They certainly could build some momentum on the back of these results, and they, or at least some elements, could decide to work together for what they would see as the “greater good” of ejecting the government. They could, but I wouldn’t bet the house on it anytime soon.

Robin Marshall Editor-in-chief

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News///macroscope

Driving Force for Economy Showing Signs of Weakness: Will it Last?

ZSÓFIA CZIFRA

The latest figures from the construction sector revealed a weak end-of-summer performance. That followed a period where there was not a single month in the past more than a half year when the year-onyear expansion of the construction sector was below 20%.

However, the Central Statistical Office (KSH) data for August show that the volume of construction output, based on raw data, was a mere 5.9% higher in August this year than a year earlier. What is even more eye-catching is the 10.5% decrease the sector produced from the previous month.

The performance of the sector skyrocketed in March, when a massive 67.6% increase was registered in the construction output volume, and growth rates

between

20-40%

have characterized the sector in the past few years.

In light of the fact that the construction sector has been one of the main drives of the Hungarian economy, analysts understandably pose the question of whether this is only a temporary slowdown, or is it here to stay for a longer period of time?

Although a single month of bad performance hasn’t shattered the thriving tendencies, and the impetus might well return in the coming months, it is quite likely that the

Inflation in EU Member States (September 2019)

Portugal Cyprus

September 2018/September 2019, 12-month change in consumer prices

Romania Slovakia Hungary The Netherlands Czech Republic Poland Latvia Estonia Lithuania Great Britain* Slovenia Malta Bulgaria Sweden Austria EU 28 Luxemburg France Finland Germany Eurozone Croatia Ireland Belgium Denmark Italy Spain Greece

Both industry and the construction sector produced relatively weak data in the last month of the summer. Is this a sign that the Hungarian economy is beginning to lose momentum, or is it just a momentary ailment?

*Data from August 2019

dynamic growth rate of 30-40% is now a thing of the past, analysts say.

Golden Days

According to business portal portfolio. hu, the more than 10% month-on-month decrease is not too dramatic regarding the fact that, one month earlier, the sector was able to produce a monthly growth of 9.6%.

It was not only the construction sector in the doldrums; Hungarian industry also performed below expectations in August.

But such data could indicate that the recent golden days of Hungary’s construction sector might be nearing the end. Based on this, it could also happen that the sector will not contribute to this year’s GDP growth as strongly as it has before.

According to KSH data, the volume of output of the two main groups of construction developed inversely: in the

to both the seasonally and working-day adjusted index, was below the previous month’s level by 1.2%.

Slowing Markedly

In its detailed second reading, KSH said that year-on-year output of Hungary’s automotive sector, a major engine of industrial growth, edged up 2% in August, slowing markedly from the previous month.

In the period of January-August, industrial output rose 5.6% year-on-year compared to the first eight months of 2018.

The volume of export sales (representing 63% of all sales) went up by 6.2%, while domestic sales grew by 6.4%.

Both construction sector and industrial data indicates that the Hungarian economy lost momentum at the end of the summer, therefore all eyes are now on the macroeconomic data of the next few months, and these figures will have to contend with the ongoing effects of the U.S.-China trade war, Brexit and the weakening German economy, according to portfolio.hu.

However, domestic demand is still strong, the retail sector keeps expanding due to the rising wages, and both can help buttress the Hungarian economy. On the production side, however, there are some worrying signs, the site concludes.

In the meantime, the International Monetary Fund has released its latest World Economic Outlook, in which it has raised its projection for Hungary’s GDP growth this year

to

4.6%,

Source:

construction of buildings it grew by 14.1%, while in civil engineering works is lessened by 3.5%. In the construction of buildings, the increase was due to residential, cultural and industrial buildings.

Based on the data of new contracts, analysts do not expect robust growth in the coming month. KSH data shows that the volume of new contracts increased by 3.2%; within this, the volume of new contracts concluded in the construction of buildings went down by 2.5%, while in the construction of civil engineering works the volume grew by 10.1% year-on-year.

The volume of the August monthend stock of contracts at construction enterprises decreased by 12.1% compared to the

August

2018

data. The stock of contracts volume increased by 49.8% for the construction of buildings and decreased by 25.6% for the construction of civil engineering works.

It was not only the construction sector in the doldrums; Hungarian industry also performed below expectations in August.

In August 2019, the volume of industrial output grew by 0.3% year-on-year. Based on working-day adjusted data, production rose by 2.7%. Industrial output, according

up from 3.6% in its April forecast. It also believes, however, that the country’s growth will slow to 3.3% in 2020. The IMF sees the unemployment rate dropping further to 3.5% in 2019, and to 3.4% in 2020.

The organization notes that the Hungarian government’s “Program for a More Competitive Hungary” and the central bank’s extensive agenda to improve competitiveness, especially of SMEs, rightly seek to boost potential output.

Numbers to Watch in the Coming Weeks KSH will publish data on Hungary’s labor market on October 29, when it examines the period between July and September. On the last day of October, a second estimate of retail trade of goods will be released by the statistical office. But before all of that, Moody’s Investors Service’s second review for this year is scheduled for October 25. Moody’s didn’t update Hungary’s sovereign rating in its first review in May.

4|1

News

WHO’S NEWS

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Budapest Business Journal | October 18 – November 3, 2019

Do you know someone on the move? /// Send information to news@bbj.hu

Türker Gürtekin

General Manager at Otokoc Hungary Otokoc Otomotiv, the owner of the Budget and Budget Fleet Solutions licenses in Hungary, has appointed Türker Gürtekin the managing director of Otokoc Hungary.

Turkish-based Otokoc Otomotiv, one of the Koc Holding companies, owns licenses of the Budget Rent-A-Car brands in nine countries including Hungary, Greece and Turkey.

Gürtekin has almost 20 years’ experience in the automotive industry.

Previously, he provided leadership and management at Koç Fiat Kredi

DAF Hungary Managing Director

Finansman A.Ş., Istanbul, and was responsible for the day-to-day running of various departments. In addition, he was responsible for the financial performance, the customer-centric environment and for developing and operating business processes.

Before the current appointment, he directed the business development function for Tofaş Türk Otomobil Fabrikasi A.Ş. in Istanbul, a post he held for the past two-and-a-half years.

Gürtekin holds a Bachelor of Science degree from the Istanbul Technical University in mechanical engineering, and an MBA from Boğaziçi University in business administration.

“I am honored to have been elected as Otokoc Hungary’s new general manager,” notes Gürtekin. “It is a privilege to be a part of an organization that delivers high-quality car rental services and innovative, personalized solutions for our clients. My career to date has afforded me valuable insight into identifying what is required to enable a company to grow and remain successful.[…] We have solid foundations in place, and I look forward to leading the company to build upon these to take our Hungarian business to new heights.”

Gürtekin succeeds former managing director Hasan Kurt, who has left after more than four years to find new challenges in different segments of the Hungarian market.

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MAGYAR LAPKIADÓK EGYESÜLETE

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Péter Szentpáli-Gavallér Szentpáli-Gavallér worked at several large financial institutions in Hungary before moving to Australia during the 2009 financial crisis. He studied business in Melbourne before working as a consultant at BMW Australia. Later on, as a regional head, he received the “Seller of the Year” award in multiple categories with his team.

Soon after, Szentpáli-Gavallér was approached by the PACCAR Group, and in 2017, became national finance sales manager at PACCAR Financial Australia. In one year, he more than doubled the turnover of the business, closing a record year.

“This spring, the American center of PACCAR approached me with an offer of appointing me the managing director of DAF Hungary and Hungarotruck,” SzentpáliGavellér said. “This was an attractive opportunity to move back to Hungary with my family, while utilizing my experience gained abroad, so I accepted it gladly.”

PwC Hungary Appoints Service Line Head, Partners

20-21 NOVEMBER 2019

ONE TICKET = ONE TREE

Péter Szentpáli-Gavallér has been appointed managing director of DAF Hungary and Hungarotruck, replacing Dávid Kiss, who held the position from July 1, 2016. He carries on as sales director of PACCAR Parts Europe.

2019. 10. 10. 12:59:54

PwC Hungary has appointed László Deák as service line leader of its tax and legal services practice, taking over the position from Tamás Lőcsei, who continues to focus on his leadership roles as country managing partner and CEE innovation leader; Gergely Juhász and Enikő Könczöl have also become partners.

László Deák is the service line leader of PwC Hungary’s tax and legal services practice. He has hitherto been primarily responsible for leading the indirect tax team, and also has extensive experience in the field of VAT, customs and excise, and environmental product charges.

Deák has also provided business and tax advice in connection with sports. He is a member of the Hungarian Association of International Companies, a board member of the Hungarian Customs Association, and a member of the supervisory board of the Hungarian Ice Hockey Federation.

Deák has a master’s degree in economics. He has been with PwC for nearly two decades, and previously worked for 16 years in various positions at Hungary’s Customs and Finance Guard.

Gergely Juhász, in his new role as a partner in PwC Hungary’s Tax and Legal

Services practice, will continue to lead the firm’s international tax services and real estate tax teams.

Juhász will also be responsible for tax services provided to high net worth individuals in connection with wealth management, leading an expert team that assists family-owned businesses and trusts funds with tax, legal, and family office services.

Juhász joined PwC in 2007, and is a member of PwC’s European Union direct tax group and real estate tax network, as well as a regular tutor at international tax academy sessions. He holds a master’s degree in finance from Corvinus University of Budapest, where he is also a regular guest lecturer.

Enikő Könczöl will continue her work in the assurance service line as a partner focusing on clients in the financial services sector. In her new role, she will be responsible for a portfolio of banking and insurance clients, and will also lead the capital markets and accounting advisory services group.

Könczöl joined PwC’s CEE International Financial Reporting Standards accounting advisory group almost 10 years ago, and provides IFRS accounting advice for banking and insurance clients across the CEE region.

She has been with PwC for 19 years, two of which she spent at PwC’s London office. She has a master’s degree in

László Deák economics and a post-graduate actuarial qualification. She is also a Chartered Certified Accountant and a certified Hungarian statutory auditor.

Hungarian to Lead Mastercard Europe Product Development, Innovation Hungarian Milán Gauder has been appointed head of Mastercard Europe’s product development and innovation unit.

Gauder is now responsible for the card company’s products in 56 countries on the continent, tasked with card innovation and developments related to immediate payments. These include innovation in traditional credit, debit, corporate and premium cards, including developments regarding instant payments, Mastercard’s installment payment service, transfers between cards and bank accounts, and the latest digital solutions such as mobile payments, the newly launched Apple Pay, and bank mobile wallets.

“The greatest challenge for us is how Mastercard can open new frontiers in Europe, as it did previously with the

1

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Budapest Business Journal | October 18 – November 3, 2019

introduction of chip cards and one-touch payment, and now does by spreading mobile NFC,” says Gauder. “We would also like to support the explosive development of e-commerce by making faster, more convenient, and safer digital payment accessible,” he adds.

Gauder started working at Mastercard in 2005, becoming country general manager for Hungary in 2008. The introduction of one-touch payment took place under his guidance, and the first Mastercard Lounge premium client waiting room also opened at Budapest’s Ferenc Liszt International Airport under his tenure.

Two years later, Gauder became cluster manager for Central and Eastern Europe.

He was appointed executive VP of global products and solutions for the Middle East

Artúr Tamási and enforcement procedures, as well as domestic and international arbitration cases. He is also an expert on corporate investigations and victim representation in white-collar crime proceedings.

“We are pleased to welcome a professionally experienced counsel on board as a key pillar of our team,” said Hegymegi-Barakonyi, managing partner at Baker McKenzie Budapest. “Artúr, as a co-head of the dispute resolution group and as a recognized legal expert, will further strengthen our practice in civil and public litigation, arbitration and alternative dispute resolution.”

Milán Gauder and Africa, before acting as head of the Mastercard Services operation in Europe, covering advisors, loyalty solutions, and safety and security.

Dell Technologies Hungary Picks CEO American multinational IT corporation Dell Technologies has appointed Zsolt Rakoncza as CEO of Dell Technologies Hungary.

Co-head of Dispute Resolution at Baker McKenzie Hungary Artúr Tamási has joined the dispute resolution team of Baker McKenzie Budapest as counsel, co-heading the team together with partner Zoltán HegymegiBarakonyi.

Tamási has more than 18 years of experience in the field of dispute resolution and general commercial law gained at prestigious international law firms. His professional expertise covers Hungarian commercial and administrative litigation, coordination of foreign court

Zsolt Rakoncza

Rakoncza has spent the past 17 years successfully filling leadership and senior sales positions at IT and telecom companies including Fortinet, Huawei, Symantec, Microsoft, and Telenor.

At Dell Technologies Hungary, the CEO will be responsible for all the company’s activities, as well as for relations with customers, distributors and partners.

“It’s a wonderful opportunity for me, in a period that holds an extraordinary degree of excitement in the sphere of technology, to be able to join the team at Dell Technologies,” said Rakoncza. “I’ve worked in IT for my entire career, and so have continuously endeavored to support Hungarian organizations in accelerating their digital transformation and in exploiting their most valuable resource, the value that lies in their data.”

Experienced Attorneys Join Kapolyi Law Firm The Kapolyi Law Firm has announced the recruitment of two attorneys bringing decades of experience aboard. In addition, the firm is marking its 20th anniversary with a rebranding.

Balázs Ferenczy has nearly 30 years’ experience as a lawyer. He started his professional career as a junior legal counsel at the Hungarian Credit Bank in 1992. After that, he worked as a single in-house counsel of Crédit Lyonnais Bank Magyarország from 1996.

In 1998, Gide Loyrette Nouel, a Parisbased international law firm, invited Ferenczy to lead its Banking and Finance practice in Hungary as a local partner, where he stayed until 2010.

From 2010 to 2013, Ferenczy worked for his own law firm, and from November 2013 until January 2019 he was legal director of the Cellum Group, a leading secure mobile payment technical service provider in Hungary.

Mátyás Rada formerly worked in the real estate practice group of DLA Piper as an associate attorney. Earlier, from 2012 to 2016, he was a legal desk officer at the Hungarian Ministry of Foreign Affairs and Trade. In 2016, he served as a consul and Hungarian community diplomat at the Consulate General of Hungary in Chicago.

He has been working for the real estate and corporate practice groups of the Kapolyi Law Firm since June.

Additionally, the law firm, which is celebrating its 20th anniversary this year,

News | 5

has undergone what it bills as a unique and cutting- edge rebranding, renewing not only its logo and its brand image but its website and office as well, with the stated

Balázs Ferenczy purpose of reinforcing and emphasizing its leading position in the domestic financial legal market, the press release says.

“As a leading law firm in Hungary, we need to keep up with the market and the ongoing changes that characterize

Mátyás Rada the business and economic environment,” said József Kapolyi, managing partner of the law firm. “We would like the changes and the modernity to be reflected not only in our approach and in this year’s expansion with six people, but also in our appearance, therefore we considered it important to renew our brand image,” he added.

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Business

New People, new Branches: A Focus on Customers’ Real Needs

Eastern European economies are particularly sensitive to any negative development in the world economy.

According to a recent survey, morale among investors in the eurozone dropped in October to its lowest level in more than six years. But Gyula Fatér, CEO of OTP Bank Romania is not giving in to despair. On the contrary, the head of the Romanian unit of Hungary’s largest lender envisages aggressive plans to grow market share.

He talked exclusively to the Budapest Business Journal in his Bucharest office.

BALÁZS BARABÁS

BBJ: From time to time there is news in the Hungarian media that the Romanian economy is doing so well that it will soon catch up the Hungarian economy. What is your take on this?

Gyula Fatér: It is quite complicated to compare, so I wouldn’t really focus on that. Let us just elaborate on the current situation in Romania. What we see is that there are a lot of opportunities here.

In the previous years there was a quite an impressive growth in terms of GDP.

they need financial advice to deal with a complex life situation. Of course, we have a very modern internet and mobile banking system, OTPdirekt, a system serving our customers online. But, beyond that, instead of closing branches, laying off people and forcing our customers to stay away from our office, we do the opposite. We hire new people, we want to be there for our customers, we are even prepared to open new branches.

So we believe that, contrary to what is happening, we should focus on our customers’ real needs and maintain a personal relationship.

BBJ: Not so long ago Romanian banks were struggling with bad loans, mainly contracted in the financial crisis. What is the situation now?

GyF: The pressure is much lower than it was before. Fortunately, fewer and fewer customers are still struggling with this situation, so there are fewer and fewer resources needed from the banks. We have plans in place for dealing with this issue more actively, though. The issue is rather how to manage this in a proper

Gyula Fatér, CEO of OTP Bank Romania However, most countries in Europe are facing at least a slowdown, and we expect it will also have an impact on Romania.

However, the overall expectation is still that, even if the growth rate will be lower than in the previous year, it will remain healthy, and we can rely on this, improving our capacities in this country.

We want to invest more in Romania, we want to extend our capacities, so we are quite positive. We think, that Romania has some of the biggest, if not the biggest, potential in this region, so this is why we see the opportunity here and we are strengthening our foothold.

say that we are in a transition which is very much focusing on improving the customer experience.

BBJ: There is GDP growth, but there are also other factors: a growing deficit and very intense internal consumption which, analysts say, is overheating the economy.

GyF: There are always uncertainties; we cannot ignore this. However, we are targeting certain segments that we believe are more resilient to these changes. Also, we want to have a more balanced growth in terms of products.

In the recent past, we have pretty much focused on loans. We have a very aggressive plan that seeks to double in five years our market share in terms of assets, which means also the loan unit.

At the same time, we are putting more emphasis on managing our customers’ whole wallet: current account, main banking relationship, so the entire relationship should be renewed. I can

“Our expectation is that there will be a slowdown, definitely, but not a crisis.”

BBJ: There has been some bank consolidation recently in Romania, but there are still many lenders on the market. Why do you think customers would choose OTP? GyF: What we see is that, even this year, we have been able to grow our market share in terms of the SMEs and mortgage lending. Why do SMEs

turn to us? We are a universal bank with a very solid background. OTP, as a dominant regional banking group, has 18.5 million customers in 11 countries. We have the know-how to approach them, and on the top of that, as I mentioned, we are working on a new method of customer experience. I think that pushing digitalization to the extreme probably does not meet most of customers’ expectations. People still need that personal relationship they can get in the branch network, especially when

“We think, that Romania has some of the biggest, if not the biggest, potential in this region, so this is why we see the opportunity here and we are strengthening our foothold.” way. Some are choosing to sell the nonperforming loans as soon as possible, while we prefer to manage that, if we can; we prefer to make an agreement with the customer.

BBJ: That is a positive development, but there are several other challenges, the U.S.-China trade war, Brexit and other strong factors, which could create significant problems. What do you expect, how will they impact our markets in the region?

GyF: As I said earlier, we can see the [coming] European economic slowdown, and I include everything in the causes of that. What we must see is that Europe is not slowing down because there is something wrong with its economies, but all those factors that you mentioned are having an impact.

There are the uncertainties of [the] post-Brexit [situation], the U.S.-China trade war, but also some measures taken by the United States against European products. We can summarize all those as [contributors to] the European economic slowdown. Hopefully it will be managed but, frankly, we cannot really control them. Our expectation is that there will be a slowdown, definitely, but not a crisis.

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Budapest Business Journal | October 18 – November 3, 2019

Business | 7

Ride-sharing app Oszkár Navigating Hungary’s pot Holes non-Hungarians to say and all the domains with “Oscar” in the name were taken.

Socialite writer David Holzer looks into a Hungarian ride sharing app that seems destined to pilot it way to success, one shared journey at a time.

DAVID HOLZER

It was my partner’s daughter who turned me on to the fantastic Oszkár ridesharing app. The three of us had arrived at Budapest airport and were faced with a grueling journey back to Szeged that would involve a bus, a two-hour train ride and another taxi at the other end.

Oszkár, she said, would pick us up in the carpark of the Ibis Styles hotel at Budapest airport and drop us at our respective doors.

After this had happened exactly as she said, with a comfortable drive of only 90 minutes in between, I became an instant fan and decided to reach out, as they say, to Oszkár and find out more about the company.

Attila Prácser, Oszkár managing director and co-founder of the company with Máté Gyürüs answered my questions.

BBJ: When and why did you start Oszkár?

Attila Prácser: We designed it in 2007 and it went live in November of that year.

We were both at Budapest University of Technology and Economics in the faculty of transportation engineering. Thanks to an angel investment in 2014, we were able to work on Oszkár full time and it became profitable at that time. In the beginning, we both did everything, from planning and programming to customer service and marketing. After a while, Máté specialized in tech and became CTO and I did the rest.

Now we have a dedicated marketing and customer service team of six people plus four others who handle customer service outside of normal working hours.

BBJ: Could you give us a brief biography of Máté and yourself?

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AP: We both came from Szombathely (222 km southwest of Budapest). After uni, Máté worked for Vatera, the market leading consumer-to-consumer auction platform in Hungary. In the beginning he was junior and then senior back-end developer. Later he became the head of development there.

As for me, after university I went to London for six months then worked for a mid-sized software developer company, called VisionSoftware. I followed the same route as Máté.

BBJ: What exactly does Oszkár offer now?

AP: The aim is to provide travel mates for drivers on the road who want to reduce their costs or to have a pleasant trip.

For passengers, it’s about finding a less expensive, faster and more flexible way of travelling. Our platform – Android, iOS and web applications – provides a way for drivers and passengers to find each other.

Passengers have the driver’s telephone number and we also provide a number for customer service so it’s straightforward to avoid any confusion.

BBJ: How many people use Oszkár daily, monthly and yearly?

AP: More than 10,000 drivers and 60,000 passengers carpool with Oszkár every month. Around half of our [total] community of 750,000 people uses Oszkár at least once a year. Daily usage is not such an important figure for us as there are big

BBJ: Did the situation with Uber in Hungary affect Oszkár in any way?

(Uber left the Hungarian market in 2016 when the government decided to tighten the regulatory environment related to personal transport. The fact that taxi drivers had regularly protested against Uber and similar service providers was probably not unconnected.)

AP: In the beginning, when Uber entered the Hungarian market, it called itself “telekocsi” which means “car-pooling” or “ride-sharing” and is exactly how we describe Oszkár. So it was hard for us to distinguish our service from Uber. When the taxi drivers started protesting, it became crucial to differentiate ourselves.

Máté Gyürüs (left) and Attila Prácser. Fortunately, we survived because our concept is completely different. Oszkár, and other carpooling services, only ask differences between normal weekdays and passengers to share costs. They don’t offer Fridays and the weekend. transportation services and expect their driving time to be compensated for.

BBJ: Do you have any connection to Oszkár Ride Sharing in Australia?

BBJ: How would you describe the AP: No, it’s just a coincidence that there’s ecosystem for young entrepreneurs a ride sharing service available in both and startups in Hungary? countries with a similar name. Actually, the AP: Oszkár is frequently called the biggest co-founder and CEO of Oscar Australia sharing economy startup in Hungary, got in touch with us around a half year although we hadn’t heard this expression ago when he discovered we existed. He when we started. After we received couldn’t understand why he had so many investment from our angel in 2014, we downloads of his app from Hungarians. Our stopped being a startup. For this reason, international brand name is Motar, which I wouldn’t say I’m the right person to stands for “More Than a Ride”. The names comment. But I am always happy to read are different because Oszkár is hard for success stories about Hungarian startups.

Benefits of Carpooling in Hungary Hungary has one of the lowest rates of car ownership in Europe, which makes many Hungarians dependent on trains and buses. This is good news when it comes to the environmental impact of motor transport. But that’s not a great consolation when you want to travel on your own terms as much as possible.

Motor travel is not going away any time soon. So carpooling apps like Oszkar that genuinely benefit both drivers and passengers equally have

to be a sensible option. By allowing drivers to set the cost of travelling with them, Oszkár is presumably able to avoid the criticisms aimed at companies in the sharing economy that appear to encourage unregulated and unfair practices.

Personally, apart from all the other benefits, I’m glad of the opportunity to support Hungarian entrepreneurship. And, yes, the supremely easy to use app has an English language option.

8|2

Business

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Budapest Business Journal | October 18 – November 3, 2019

The Corporate Finance Column

Dividend Policy in Public and Private Companies Les Nemethy and Sergey Glekov look into dividend policies for private companies, particularly SMEs. Dividend is usually discussed in the context of public companies. Like share buybacks, it is a way of pushing cash back to shareholders.

Companies like Amazon have gone on to accumulate tens of billions of dollars in cash without paying a single dividend or doing a single share buyback, creating considerable controversy. (As of December 31, 2018, Amazon reported USD 31.75 billion as cash and equivalents, but no dividend history.) A pool of cash or highly liquid assets within a company typically reduces return on equity to shareholders.

In the context of privately held companies, and particularly small- and medium-sized enterprises, there are usually fewer shareholders, and there is nowhere near the same level of public scrutiny. Hence, there is considerably less written on the subject. Nevertheless, it is an important issue, which this article proposes to also address.

Dividend policy is the policy a company uses to structure its dividend payout to ordinary shareholders, according to the definition by Investopedia.com. In most jurisdictions, dividends may only be paid from accumulated earnings. Hence if there are no accumulated earnings, it would actually be illegal for a board to declare dividends, and in the case of a subsequent bankruptcy, the board could be held liable for defrauding employees, creditors, suppliers, etc.

Once this hurdle is crossed, there are three types of dividend policies described in the literature. These definitions are, again, from Investopedia.com:

Stable: a dividend that is stable in absolute terms, irrespective of the earnings of the company (subject to the limitation or retained earnings). Whereas earnings are up and down, dividend growth is planned to correspond to the long-term earnings growth of the company. Most investors, generally, appreciate a stable dividend policy, thanks to its predictability.

Constant: a dividend that is constant as a percentage of earnings (e.g. 50% of earnings). Hence dividends under a constant dividend policy are up and down period by period, as earnings fluctuate, compared to a stable dividend policy.

Residual: the company pays out whatever cash it doesn’t need after paying debt obligations, capital expenditures and funding working capital. This makes sense from the company perspective, as raising debt to pay dividends may not be in a company’s best interest.

In the context of SMEs, it would be more difficult to justify the “stable” policy, as they are more fragile than public corporations, earnings are typically more volatile, as argued in the Financial System Inquiry Final Report into Australia’s financial system in December 2014.

One might say that neither of the three approaches necessarily takes into account the need to generate liquidity to help the company weather a recession or depression.

One might argue that high-tech, biotech or internet companies, or companies operating in volatile sectors where ample cash reserves

are needed for rainy days, should be more conservative in their dividend policies, a case made in “Winning Investors Over: Surprising Truths about Honesty, Earnings Guidance, and Other Ways to Boost Your Stock Price” by Baruch Lev. A dividend policy often helps to create financial discipline, as company management must manage resources carefully to both look after the needs of the company, as well as to provide a “harvest” to shareholders. Missing a dividend may well raise questions, leading to possible accusations of mismanagement, whether justified or not.

Even if a company does not have an explicit dividend policy, its history of declared dividends provides an implicit dividend policy to investors.

Whereas private individuals who own publicly listed shares typically own a diversified portfolio of shares, owners of private companies often have “all their eggs in one basket”. Hence for these shareholders, a dividend policy may be the starting point for a private individual shareholder to begin a process of investing dividends into a more diversified portfolio.

Questions of Control

Many owners of private businesses hesitate to do so because they feel reassured by the fact that they can better control a company under their surveillance; they have zero control over a large publicly listed company. But in most instances this is a false sense of security, as a large public company generally has a much lower level of risk than a smaller privately owned company.

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A private company is typically a “high risk high return” type of investment, from an individual shareholder point of view, probably warranting diversification into lower risk equities and assets.

Where a company does not have a pool of cash or liquid assets, or where the goal is to achieve a diversified portfolio more quickly, this objective might be accomplished by an owner selling a minority interest in the company, to immediately redeploy a substantial amount of cash into a diversified portfolio.

Of course, where a company is in high growth phase, or has enormously highreturn investment opportunities, paying out zero dividend may be fully justified.

Where there are no investment opportunities and the company is a “cash cow”, it may make sense to have an extremely high dividend payout ratio.

In conclusion, whether for private or public companies, devising a dividend policy requires good judgment in balancing various factors, and creating consensus among shareholders.

Les Nemethy is CEO of EuroPhoenix (www.europhoenix. com), a Central European corporate finance firm, author of Business Exit Planning (www. businessexitplanningbook.com) and a former president of the American Chamber of Commerce in Hungary.

2

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Croatia vs Hernadi Dispute Brings all Sides Into Disrepute News towards the end of September that the European Court of Human Rights had ruled that a case brought by Zsolt Hernádi, the chairman-CEO of Hungarian energy company MOL against Croatia was “inadmissible” failed to create much media coverage.

KESTER EDDY

Hernádi had argued that Croatia, by issuing European Arrest Warrants (EAW) against him, had violated his freedom of movement. The ECHR ruled that he had failed to claim the same violation at the Croatian court in the first instance, and it was thus unable to hear the case.

(A rather fundamental, if expensive, legal mistake not unusual in the region, according to Jurij Toplak, a visiting professor at Fordham University School of Law in New York. “Attorneys in Eastern European democracies are not yet well versed in European law. If submissions at domestic courts are not well prepared, it is too late to claim a violation of human rights only later at the European court level,” he told the Budapest Business Journal.)

It is understandable that for hardpressed editors, the ECHR ruling appeared rather technical and of limited importance. But it is a reminder of a seemingly intractable corporate dispute that has dragged on for nearly a decade, to the detriment of all but the lawyers paid to argue the case.

At the turn of the Millennium, MOL was on a high. The Hungarian oil and gas company felt that having turned itself from a communist-era energy conglomerate into a lean, efficient operation, it was well placed to replicate the transformation with its peers across the region. MOL acquired Slovnaft, in Slovakia, in 2000, and bought a 25% stake in Croatia’s Ina in 2003, later expanding that to 47%.

But in the economic crisis of 2008-09, Ina was struggling to pay salaries and in deep financial trouble.

MOL stepped forward with a lifebelt loan, but at a price: MOL was to have management rights, despite holding only a minority stake.

According to MOL leadership, the reasons for Ina’s financial woes then became clearer. The Croatian company had been offering super sweet-deals to favored clients.

2nd district

2nd district

Business | 9

2nd district

44 sqm – 2 rooms, Vérhalom street

57 sqm – 2 rooms, tUlipán street

113 sqm – 3 rooms, aDy enDre street

On the Rózsadomb, near the diplomatic quar­ ter, this very sunny apartment, that needs reno­ vation, has separate rooms, 4 sqm of balcony and nice view over a quiet garden.

This spacious, garden facing apartment has separate rooms, 7 sqm of balcony, private gas heating and it is located in a very nice, quiet and green area, near the Millenáris Park.

On the Rózsadomb, this very spacious, street facing apartment in good condition has private gas heating. It is situated within a period buil­ ding with elevator.

42.990.000 hUF

56.500.000 hUF

81.700.000 hUF

+36.1.336.1706

2nd district

+36.1.336.1706

2nd district

+36.1.336.1706

2nd district

89 sqm – 3 rooms, Völgy street

99 sqm – 4 rooms, csalán street

545 sqm – 7 rooms, pesthiDegkút

This luxury apartment has been renovated in 2019 by an interior designer. The property is situated within a completely renovated, 5 apart­ ments classical building.

Close to the Pasaréti Square, this sunny apart­ ment in good condition has large spaces and per­ fect layout. It is situated within a building with new insulation. Garage belongs to the property.

Close to French School, this panoramic, luxury detached house has 1376 sqm of lot, huge ter­ race, balcony, solar panel and private gas heating, beautiful garden, swimming pool and garage.

97.900.000 hUF

110.000.000 hUF

389.000.000 hUF

+36.70.376.4138

+36.70.376.4138

+36.1.376.6080

“We cut a lot of suppliers and sales contracts. A lot of people were hurt,” György Mosonyi, then chairman of the MOL supervisory board, told this correspondent in 2014.

Backlash

A backlash soon followed. Croatia said the deal on management rights was void because MOL had achieved this by bribing Ivo Sanader, the country’s prime minister at the time of the deal, to the tune of EUR 10 million. As a result, the Zagreb authorities asked Hungary for documents relating to the case and for the transfer of Hernádi to Croatia for questioning.

Hungary refused, instead conducting its own case into the affair, finding Hernádi innocent.

Croatia retaliated in 2013 by issuing an EAW against Hernádi, thus effectively preventing the MOL chairman from travelling abroad, a situation valid to this day.

The Croatian government has announced plans to buy MOL’s stake in Ina, though it has yet to reveal a concrete offer.

While each side battles for justice, this sorry tale puts both Croatia and Hungary in a bad light.

Both sides have sought to use legal chicanery to buttress their respective case.

Neither neighbor, it seems, trusts the judicial system of the other, despite both being members of the European Union. It damages MOL’s reputation, and thereby its share price, and it has impeded MOL’s investment plans for Ina, thus throttling economic developments in Croatia.

Seen from afar by investors, it is a dispute that brings all involved into disrepute: the sooner it is fixed, the better.

The Bottom Line is a monthly column written by Kester Eddy, a long-standing and well respected Budapest-based business and economic journalist, who has written for the Financial Times and many regional publications. The opinions expressed in the column are not necessarily those of the Budapest Business Journal. To comment on this column, or on anything else in the BBJ, email the editor at robin.marshall@bbj.hu

3rd district

3rd district

3rd district

33 sqm – 1 room, római-part

88 sqm – 3 rooms, csillaghegy

110 sqm – 3 rooms, római-part

In a luxury subdivision with swimming pool and wellness area, this renovated, sunny and quiet apartment benefits of a balcony and a parking space in the courtyard.

In a quiet side street, both sides of a new built semi­detached house for sale. Each property has terrace, 100 sqm of garden and parking space. Handover in February 2020.

Panoramic view over the Danube, this comple­ tely renovated apartment has separate rooms, a covered and an open terrace and it is situated in a luxury subdivision with swimming pool.

42.900.000 hUF

54.9-61.500.000 hUF

119.000.000 hUF

+36.70.669.5350

7th district

+36.70.669.5350

7th district

+36.70.669.5350

7th district

80 sqm – 2 rooms, Dembinszky street

80 sqm – 3 rooms, rejtő jenő street

93 sqm – 4 rooms, király street

This very bright, street facing apartment in good condition has separate rooms and spa­ cious dining room. It is situated in a nice period building, a few minutes’ walk from the City Park.

Next to the Magyar Theatre, this completely renovated, street facing, high floor apartment benefits of a fully fitted kitchen, separate rooms and air conditioning system.

This very spacious, street facing apartment has separate rooms, 3 bathrooms, kitchen and bal­ cony. It is situated within a period build with ele­ vator, close to the Erzsébet Circuit.

59.900.000 hUF

62.000.000 hUF

69.900.000 hUF

+36.1.351.0446

11th district

+36.1.351.0446

11th district

+36.1.351.0446

11th district

37 sqm – 1 room, Vincellér street

100 sqm – 4 rooms, bercsényi street

80 sqm – 3 rooms, eszék street

In a very nice, green street, this completely re­ novated, youngish apartment has a view over a lovely garden. Quiet and green area in the cen­ tre of the district.

This completely renovated, very spacious, street facing apartment is situated within a building with common terrace, in the heart of the district.

This refurbished, cosy apartment benefits of two, garden facing balconies and spacious rooms. It is located in the heart of the district, in a quiet street.

29.800.000 hUF

70.900.000 hUF

72.900.000 hUF

+36.70.511.4923

+36.70.511.4923

+36.70.511.4923

13th district

13th district

46 sqm – 2 rooms, VisegráDi street

72 sqm – 2 rooms, pannónia street

83 sqm – 3 rooms, szent istVán circUit

In the heart of the district, near WestEnd City Center shopping mall and Nyugati railway sta­ tion, this apartment benefits of 2 separate rooms. Ideal for investment.

Close to the Danube, this renovated, very bright, street facing, high floor apartment benefits of separate rooms and a fully fitted kitchen. It is situated within a Bauhaus style building.

Near Jászai Mari Square, this very bright, high floor apartment, facing over a pedestrian street, benefits of 2 separate rooms but it can be con­ verted to a 4 room property as well.

31.900.000 hUF

49.900.000 hUF

64.900.000 hUF

+36.70.414.7759

+36.70.414.7759

13th district

+36.70.414.7759

grUppo t.F.m. kFt. 1068 bUDapest, király U. 102. each agency independently owned and operated. • these offers are valid, till the apartments are sold. • these information do not constitute a contractual element.

10 | 2

Business

www.bbj.hu

Economy Profiles

Budapest Business Journal | October 18 – November 3, 2019

Hungary

47th / 141

Professionals With a ‘Very Particular set of Skills’ Global Competitiveness Index 4.0 2019 edition

Hungary ranks 47th of 141 countries in this year’s edition of the Global Competitiveness Index, recently published by the World Economic Forum. That is one position up from last year, which is good news.

But a more detailed look at the country profile shows several other areas where things are not so happy, especially related to the labor force.

Performance Overview 2019 Overall Score Best

SGP

Hungary

57.8.

Breaking down the skills and labor force categories further reveal even more dramatic realities.

Of 141 world countries, Hungary ranked 100th or worse in the following areas: extent of staff training (100); pay and productivity (112); labor tax rate (122); and ease of finding skilled employees (138).

These are directly impacting the country’s innovation capability, resulting in a significantly lower level than the Europe and North America average.

Working Abroad From Home

One important segment of the labor market affected by these shortages is information technology and communications. While all players agree that the labor shortage is significant in this area, it is hard to quantify exactly how many professionals are missing here. That is because the information technology itself expanded so fast, with new technologies and services

Enabling Environment FIN

High-income group average

Human Capital SGP

KOR

(33)

(4)

Europe and North America average

Innovation Ecosystem

Markets CHE

HKG

SGP

HKG

CHN

USA

DEU

90

90

81

80 70 60

65

81 69

64

56

52

50

59

61

63

58 47

40 30 20 10 0

Score

Rank /141

At first sight, being the 47th most competitive country out of 141 is a decent result, especially moving one position higher from the previous year. But from a regional perspective, we see a different picture.

Basically all the other countries are ahead of Hungary: the Baltic states, the Czech Republic, Slovenia, Poland, Slovakia. Lagging behind are Romania and Bulgaria, and also Croatia, which made with a huge leap forward of five positions compared to last year.

The study also presents a very detailed Performance Overview for each country, based on the indicators of 12 pillars, each compared to a Europe and North America average. Hungary performs very well looking at infrastructure and macroeconomic stability, but poorly in terms of skills, labor market and innovation capability.

This is also reflected in regional figures: on a scale of 100, all the Central and Eastern European countries scored above 60 in the labor market category, with

Previous edition

100

 BALÁZS BARABÁS

Key

Rank in 2018 edition: 48th / 140

























47th

63rd

27th

54th

43rd

70th

49th

91st

80th

66th

48th

83rd

41st

Overall

Institutions

Infrastructure

ICT adoption

Macroeconomic stability

Health

Skills

Product market

Labour market

Financial system

Market size

Business dynamism

Innovation capability

Selected contextual indicators emerging every day, that is hard to define specific sector, Dervenkár says. Looking processes and the profound changes in how Population millionsto as ITC labor 9.8 GDP (PPP) % world GDP ahead, it becomes clear that the market 0.23 what exactly we refer professionals work today. force, István Dervenkár, editor-in-chief of will increasingly require employees with Business processes adopted information 15,923.8 5-year average FDI inward flow % GDP -0.9 GDP per capita US$ technology news site bitport.hu says. complex knowledge, which includes technology at a pace that no one foresaw Digitalization has started basically engineering and IT (or IT engineering) or prepared for, and2.1 generated a demand 10-year average annualin GDP growthall % sectors of the economy, from agriculture skills, but, equally important, experience for skilled labor that had been insignificant to services, increasing the demand for IT in the area related to the employer not long ago. On the other hand, remote labor force with various levels of skills. company profile, Dervenkár concludes. work technologies have developed to a level Social and environmental performance According to data released by Hungary’s However, there are differences between where IT professionals can work for Western Central Statistical Office (KSH), about multinational companies and local SMEs, companies from their home in Hungary.

4.3 Global 0.7 Environmental footprint gha/capita Gender Gap This led to the absorption of Hungarian IT Index 0-1 (gender parity) professionals by Western companies on 15.6 Income Gini 0 (perfect equality) -100 (perfect inequality) 30.4 Renewable energy consumption share % are missing a local market which was already short of from the private sector and 20,000-21,000 skilled labor force, Strausz explains.

3.7 Unemployment rate % from the public sector.

There is also another development which But it is difficult to estimate how many complicates things further, Strausz adds. of these open positions are related closely The expansion of modern technologies to ITC, that is, that can be filled by trained is so immense, with new areas emerging, IT professionals only. One thing is clear: like cloud, data mining, and information the IT labor shortage measured by KSH security, that no one is able to be universally proficient in all them, which leads to specialization.

György Strausz IT professionals inevitably focus on niche areas to be able to oversee it safely. Which means that employers increasingly need to Strausz adds. Everyone is struggling, find specialized individuals for each area regardless of whether it is a large company, in their company, and this does not make an SME or the state administration. But the recruiting any easier, Strausz notes. chances of successfully finding staff are Good News for SMEs not the same.

There is research that sheds some light A multinational company has much wider on the specific demands on the IT labor technical opportunities to offer for someone István Dervenkár market, Dervenkár says. A study released looking to work remotely, from home, be it 270 | The Global Competitiveness Report 2019 in January this year by the Szent István a country resident of someone from abroad.

University shows that the most difficult Hungarian SMEs have narrow possibilities, positions to fill are those requiring an increased exponentially in the last fourthey are limited only to the Hungarian engineering degree. Finding the suitable five years, Dervenkár says. market to find the much needed employees.

There are two reasons why the technology candidate can take as much as eight-to-10 And that is before we even mention salary months on the Hungarian market, while expansion is having such a huge impact levels, where SMEs have even less space to finding a person with special skills can on finding suitable labor force on the IT compete with the multinationals. easily take more than a year. market. György Strausz, president of the The good news is that employees are Companies in the private sector Hungarian CIO Association (Magyarországi looking not only at salaries when searching are struggling especially hard to find Vezető Informatikusok Szövetsége, or for a new job, but also for flexible work employees who match information VISZ) identifies them as the penetration hours, sports opportunities and other technology skills with experience in that of IT into all levels of business incentives, Strausz notes.

60,000-65,000

3

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2018

Special Report Real Estate Development

Budapest Office Market Seen as Sector of Choice

16

Hotels Seen as Attractive Building Option

18

Despite low Availability, Industrial Development Restrained 20 Shopping Center Redevelopment the Norm

22

CEE Attracting Growing Number of Asian Investorss 24

Discover the very latest trends shaping the future of the Hungarian real estate development market.

12 | 3

Special Report

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Development Booming Across the Various Sectors Demand fundamentals in the various commercial property development sectors are regarded as positive, while at the same time supply has been relatively constrained in comparison with past cycles. Then, market optimism resulted in oversupply, which became a significant contributor to high vacancy rates and projects being abandoned.

GARY J. MORRELL

Indeed, there are still several half completed projects around Budapest that are a testament to this over optimism and lack of planning from developers and their financial backers that resulted in illconceived projects that either failed to get off the ground or were abandoned at different stages in the construction process.

Today, the regional office market is continuing to thrive, with demand for space continuing unabated across the major CEE European cities, and with record low vacancy rates in Budapest. It is fair to say, however, that developers (perhaps with an eye on previous high vacancy rates of 20% plus) and building owners (previously forced to offer concessions to tenants such as rent-free periods) are undertaking phased development strategies, albeit at some are large-scale.

While long-term retail demand fundamentals in Europe are seen as less favorable and new concepts are having to be devised to meet the perceived threat from e-commerce, international retailers are looking to establish outlets in leading high streets and shopping centers.

Restrained shopping center development in Budapest has resulted in waiting lists at the leading shopping centers, and older malls and second tier schemes are undergoing refurbishment and upgrades with the aim of repositioning in the market. A further trend is the retail provision being developed as part of a mixed-use project alongside office and residential developments.

Aréna Business Campus, under construction by Atenor.

Ironically, any negative impact of e-commerce in the retail sector also positively impacts logistics, with a particular need for the provision of logistics facilities with easy access to large urban areas. Despite a growing number of speculative projects being undertaken, the further development of this sector is handicapped by the very low availability of large contiguous space.

Hotel Potential

In both Hungary and the wider Central European region, developers, investors and operators have recognized the potential for hotel development with a rising number of tourism visits.

Hotel occupation rates in Budapest now stand at more than 70% for Budapest, and the city is second to only Prague in the CEE region with regard to annual room occupation numbers. In the Hungarian capital, CPI, Horizon Development, Indotek, Redwood Holding, and Wing all have ongoing hotel developments in addition to the more traditional development/investment sectors such as office, industrial and retail.

With regard to environmental concerns, tenants, staff, customers and guest expectations and demands are exerting an influence on asset owners, and developers are delivering ever more sustainable projects that have a mutually beneficial impact on the local environment.

This improved quality and more sustainable product is applicable to all levels of the development process, from the sourcing of a location, to exterior and interior design, construction and property management.

“It is highly important to evaluate the project also on the community level and not just as a stand-alone project. Sustainable buildings are smart buildings and they are responding to the needs of the building

users, but they are also interconnecting with their environment as well. Sustainability should make a city more livable, therefore, in an ideal case, it should also have a huge effect also on the city’s appearance as well,” comments Zsombor Barter, president of the Hungarian Green building council (HuGBC).

“Although the planned development pipeline has increased to its pre-crisis level, the real-time delivery for this new supply is very sporadic.

The construction market is still running above its capacity and remains a bottleneck for the industry. All kinds of real estate projects have suffered or are suffering from delays, and there is an almost constant price increase due to escalating labor and material costs.”

The major issue negatively impacting the development process is rising construction costs that, through a combination of increasing construction material and labor costs have been rising by 20-30% per year.

Sporadic Delivery

“Although the planned development pipeline has increased to its pre-crisis level, the real-time delivery for this new

supply is very sporadic. The construction market is still running above its capacity and remains a bottleneck for the industry.

All kinds of real estate projects have suffered or are suffering from delays, and there is an almost constant price increase due to escalating labor and material costs,” says David Johnston, head of advisory and transaction costs at CBRE Hungary.

With regard to an exit strategies, in the current market developers have a choice of whether to agree a forward purchase agreement, exit after completion and a substantial letting, or hold onto the asset and sell the product onto investors at a time of their choosing.

Demand for investment grade product is far higher than supply as an increasing number of international investors from an ever wider variety of counties are targeting Hungary and the CEE region. Further, these are facing competition from Hungarian funds who are in close contact with developers and, therefore, have the opportunity to conclude deals at an earlier point in the development process.

JLL expect 2019 CEE investment volumes to come close to last year’s figures with total volumes of between EUR 13 billion-13.5 billion. With regard to Hungary, investment is expected be in the EUR 1.4 bln-1.7 bln range.

“A limited supply of product can be an inhibitor of investment volumes, but it does not stifle market growth. The region is still performing very well with strong macro fundamentals combined with confident occupational markets in office and industrial in particular. Investors are still heavily targeting this region and I expect this to continue,” said Mike Atwell, head of capital markets for the Czech Republic and CEE at JLL.

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

PRESENTED CONTENT

3

Perfect Location, Complex Development Strategy: The BudaPart Offices BudaPart is a unique investment in Budapest, which is made even more exquisite by its exceptional waterfront location and urban, vibrant metropolitan environment.

Innovative technologies, smart home solutions and a wide range of services guarantee an easy and smooth everyday lifestyle for the whole community of BudaPart, including both residents and employees.

BudaPart has started to take its shape in reaching the first milestones of its development. Recently, the first residential building, BudaPart Homes “A”, welcomed

BudaPart CITY its owners, and in the coming few weeks, the second, BudaPart Homes “C”, will be also ready to do so. The first phase of the project includes two more residential buildings (BudaPart Homes “B” and BudaPart Homes “D”), but before that, BudaPart GATE, the first office building will be handed over in 2020 Q1.

Special Report | 13 network and public transportation possibilities of the area as well. The location of the buildings and the entrances to BudaPart were all carefully selected to efficiently channel into the existing traffic options, including the M1/M7 and M6 highways and other routes leading to the heart of Budapest.

As for public transportation, several new bus lines were introduced, combined with increased running frequency of existing routes. Since July 2019, Tram 1 terminates at Kelenföld railway station and delivers, on an average working day, approximately 153,000 passengers, which equals to the capacity of Hungarian metro. Currently, BudaPart is also easily accessible by BKK’s D11 and D12 boat services. With more infrastructural developments planned, the city center will be accessible directly within a little bit more than 10 minutes on fixed rails by the interconnecting Tram 2 without changing at Gellért tér.

High Standard Long-term Development

BudaPart GATE The whole development of BudaPart will be carried out on 54 hectares: 11 hectares of water and 23 hectares of developmental area, of which 17 hectares can be built on, leaving almost half of BudaPart’s territory, 26 hectares, as green area, including the Kopaszi Dam and the Lágymányos Bay.

New Wave Office Solutions As employers and employees come with high standards and have a defined view about the workplace environment they prefer, developing office buildings requires complex strategy and planning.

While previous generational offices were usually designed to serve one specific approach and trend, featuring either more closed spaces or an open office set up, nowadays companies come with a very straightforward workplace strategy, asking for more agile solutions with a mixture of different services.

During the general development of the office buildings, Property Market focused on creating complex infrastructural functionalities. Therefore, all 13 office buildings at BudaPart will host a wide range of service providers. The ground floor is exclusively reserved for retail units including coffee shops, bakery and canteen areas contributing to the everyday life of the employees working at BudaPart. The total planned office space stretches up to 250,000 sqm and, by the end of the development, BudaPart could become the home and workplace of up to 25,000-30,000 citizens. Also, by the time BudaPart GATE will be handed over, the services located in the residential buildings shall start operations, including businesses with a recreational profile as well, granting the wellbeing of every employer and employee.

BudaPart GATE’s signature office architectural solutions were designed

by Studio 100, a well renowned firm led by László Szász, János Dombóvári and Erzsébet Hajnády. The building of BudaPart GATE started in 2017, and it comes with LEED “Gold” certification.

The building offers more than 20,000 sqm of lettable area and has 11 floors with an orientation to catch optimal natural light, and an additional four underground levels, including the basement with parking spaces. Currently, there is a lease contract is in place for 44% of BudaPart GATE; with further letters of intent signed, 73% of the area has already found future tenants.

The development of BudaPart continues with high intensity, as the construction works of the next phase of the project have already started: residential building BudaPart Homes “E” offers 182 apartments and BudaPart CITY, the second office building (designed by Fazakas Architects) represents the same high quality standards as BudaPart GATE. On the banks of the Danube, in the neighborhood of the Kopaszi Dam, BudaPart is the newest quarter of Budapest, and offers an outstanding quality of life, providing not only an unparalleled, closeto-nature work environment, but also recreational opportunities for residents and employees alike.

Channel to the Heart of Budapest While designing the already mentioned complex infrastructure of BudaPart, Property Market, the developer of the project, focused on improving the road

Further information: 1117 Budapest, Kopaszi Dam 5 Tel.: + +36 1 701 3991 Email: sales@budapart.hu

The unique view of BudaPart

14 | 3

Special Report

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

News///in brief Budapest Chinatown Developer Launches Fresh Project The real estate developer of Budapest’s Chinatown in Kőbánya (District X), Monori Center, plans to build some 360 new apartments on 4,200 sqm and catering facilities on 2,500 sqm, index.hu reported. As Monori Center does not plan to advertise the new investments, it most probably aims to sell them to Asian citizens. The area of Kőbánya had been abandoned for years, until a Chinese investor bought plots and started its rehabilitation with

several real estate developments.

The refurbishment of the area includes new service facilities, healthcare centers and a school, index.hu said.

EUR 5 bln of Hungarian Projects Highlighted at Expo Real

Hungary and Budapest showed about EUR 5 billion worth of projects at the Expo Real international real estate and investment trade fair in Munich (October 7-9), business site portfolio.hu reported, citing a joint statement by the Municipal Council of Budapest,

the Hungarian Investment Promotion Agency and the Property Developers Roundtable Association (IFK). More than 2,000 exhibitors from 75 countries were showing at this year’s Expo Real.

Foreign investors from China, Korea and Singapore remain open to the Hungarian real estate market, the portal says. There is high demand for industrial developments where the vacancy rate nears zero. Experts said that Hungary has strong potential in the tourism industry and through its skilled workforce, portfolio.hu said.

Duna House Feels Impact of BGS on Q3 Sales Volume

Listed real estate broker Duna House’s revenue from commissions edged down 2% year-on-year in Q3 as a fall in volume in Hungary countered a marked rise in sales in Poland, state news wire MTI reported, citing preliminary data

released by the company. Revenue from commissions in Hungary fell by 9% to HUF 2 billion, as volume was “seriously hit” by the launch of a government bond for retail investors that pays an annualized yield of almost 5%, Duna House said. Subscription of the Hungarian Government Securities Plus bonds, which was launched in June, reached almost HUF 2.3 trillion by last week, according to data from the Government Debt Management Agency (ÁKK). In Poland commission revenues jumped 46% to just over HUF 0.5 bln, supported by a 17% rise in the number of Duna House offices there. Duna House’s brokered loan volume climbed 87% to HUF 47.5 bln in Q3. In Poland, brokered loan volume more than tripled to HUF 32 bln from HUF 9.2 bln because of the acquisition of Gold Finance as well as organic growth. In Hungary, brokered loan volume fell 4% to HUF 15.5 bln.

Elsewhere, Duna House estimated that home sales in Hungary came to 13,364 in September, up 4.5% from the same month a year earlier, portfolio.hu reported. For the period JanuarySeptember, home sales edged down 2.2% year-on-year to 115,466.

Stock of Mortgage Loans Near HUF 3.5 tln

Székesfehérvár is one of those cities that benefits from being able to offer high quality jobs that draw in migrants from the towns and villages around it. Photo by Andocs/Shutterstock.com.

Pest County Most Popular Agglomeration The highest positive net migration rate, 13.2%, was generated by Pest County according to a recent study compiled by OTP Ingatlanpont, the real estate division of Hungarian lender OTP Bank, index.hu reported.

The area grew significantly in terms

of the number of new and temporary Tatabánya (60 km northwest of the capital city) and Győr (120 km residents. The region’s popularity stems from its proximity to Budapest west of Budapest) all follow the as well as moderate real estate prices. same trend: offering high quality jobs, small towns and settlements The cities of Székesfehérvár (64 km near to them show positive net southwest of Budapest), Veszprém migration rates, index.hu said.

(115 km southwest of Budapest),

The stock of residential mortgage loans stood at HUF 3.488 trillion at the end of June, up 4.9% compared to the end of 2018, and its share to GDP rose to 8.2% from 7.8%, the Central Statistical Office (KSH) said in a report. Mortgage loans made up 58% of all loans provided to households at the end of June. The stock of state-subsidized mortgage loans was down by 7.6% year-on-year while that of non-subsidized loans grew by 16% in the period. The share of nonsubsidized mortgage loans rose as a result to 84% from 80%. In H1, banks managed 56% of all loans, mortgage banks 28%, home savings banks 13% and savings and credit cooperatives only 3%. The share of problem-free loans has been continuously rising in recent years, and stood at 97% at the end of June, up from 95% at the end of 2018 and 89% at the end of 2016. Restructured housing loans accounted for 1.9% of performing loans, while this ratio was 31% for nonperforming loans. The number of NPLs was down at 21,000 at the end of June from 34,000 at the end of December.

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Budapest Business Journal | October 18 – November 3, 2019

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Special Report | 15

Market Changes Require Flexibility From Funds These are interesting times for the country’s property market.

The Hungarian Government Bond Plus (MÁP Plusz) has drawn money out of the local property funds, on the one hand, and a paucity of assets on the other has led some funds to turn developer.

ROBIN MARSHALL

Aware that the country’s state bond markets are small in comparison with its regional and EU peers, the Ministry of Finance introduced MÁP Plusz in June with the aim of raising the government bond stock held by retail investors to HUF 11 trillion by 2023 from the current HUF 8.06 tln.

expected Q3 sales to the bond, saying real estate sales volume had been “seriously hit”. Open ended property funds have, similarly seen money withdrawn since the launch of the government bonds.

“There has been quite a lot of money shifting to these bonds, some of that has been taken from public property funds,” agrees Balázs Czifra, real estate investment director at Diófa Asset Management.

“Quite a lot of money has been taken out of the funds in general. The local funds are certainly much less active than last year, when 50% of the investment volume was down to them. We don’t know the full figures yet, of course, but this year the activity of the local funds will be much reduced.”

Limited Assets

Balázs Czifra MÁP Plusz pays an interest rate that gradually rises from 3.5% to 6% over five years. The scheme has seen eyecatching take up since its launch in June: subscriptions reached HUF 2.1 trillion by the end of September, according to data from the Government Debt Management Agency (ÁKK).

Assuming Hungary’s citizens have not been raiding Grandma’s cash stash hidden under the mattress, that money has to have come from somewhere. As the BBJ. hu reported on October 8, listed real estate agency Duna House attributed poorer than

Czifra does not necessarily see that as a problem, however. The Hungarian market is small, even by Central and Eastern European standards, with relatively limited investment grade product coming to market. As BBJ real estate editor Gary Morrell often points out, local developers and local funds, not surprisingly, have a close relationship going back years, which means those funds are often the first to hear about available assets.

“Hungary is a very attractive market still, with a stable economy and a property market that performs well. If there is less activity from the local funds, it just gives more room for the international investors, but equally newly emerging local private funds and investor groups,” he says.

And the local funds have hardly walked away from the Hungarian market. In September, OTP Prime Real Estate Investment Fund purchased the 26,000 sqm Class “A” Roosevelt Office Building on Széchenyi tér, next to the Four Seasons Hotel Budapest Gresham Palace, from a fund managed by Munich-based real estate fund manager GLL Real Estate Partners. It is one of the largest and most significant prime commercial real estate transactions in the region.

Czifra can also talk to the phenomenon of property funds turning developer.

To be clear, this is not an everyday occurrence, nor will it ever become one.

Real estate investment funds exist to gain value for their investors, primarily via cashflow generating standing investments, and risk mitigation is therefore a high priority. For that reason alone, the actual cash-intensive development of real estate is generally left well alone.

But sometimes the stars align; for example when paucity of product, and availability of land overlap. That’s exactly what happed at the South Pest Business Park, a logistical and industrial facility Diófa Asset Management acquired for the Magyar Posta Takarék Property Investment Fund from developer Wing Zrt. in 2017.

Complex Background

“We are not a classic developer, but we already had the opportunity to substantially increase property value by a re-development [of the Shopmark asset, see below] and the option here to develop on a property with some vacant land in our portfolio, meeting high demand. Of course, things are always more complex in the

Diófa: A Tale of two Funds Diófa Asset Management manages two major property funds.

The Torony (Tower) Real Estate Investment Fund manages a total value of HUF 18 billion with property worth approximately half of the fund. It has a very tight focus on Class “A” office buildings in Budapest, and owns the V17 office center at the start of the Váci út corridor, the former Skanska Green House building (District XIII), and Alkotás Point (District XII). The emphasis is on “well located, very well let, quality buildings” Czifra says. The money in the fund is largely institutional , with one major equity partner.

background, but there was a strong market demand, also from existing tenants there, so it was not as high risk as it could have been,” he explains.

“Financing was relatively easy for us because we used our own capital.

And the property itself, the park, also benefitted from the infrastructure investments. In fact, we had leased the new building within two months of starting construction, ensuring the anticipated investment value upon completion of the project.”

Czifra adds a couple of caveats: logistical buildings are relatively straightforward structures to build, although planning and delivering flexible options and solutions is a key fundamental for in-town logistics facilities that often include office or retail areas besides the warehousing and dispatching areas. The South-Buda Business Park addition was ready on time and within budget, which Czifra considers a success, given that the labor crisis affecting Hungary as a whole means completion dates for buildings often slip.

But the logistics hall also hit a timing sweet spot; such buildings rely on a pre-fabricated concrete frame structure, and at the time it was being ordered and built, the manufacturers could provide the required materials, as there were no other major projects competing for such elements.

The labor crisis did impact another slightly Diófa project, however; the closure and complete refurbishment of the former Europark (now Shopmark) mall in District XIX, purchased from Unibail Rodamco in June 2016, and reopened in 2018. Labor shortages, particularly the availability of subcontractors, threatened the reopening time table, so the fact that the redevelopment was completed in just six months, Czifra says is “almost a miracle”.

“We had to step in practically as a contract manager and run things dayto-day. That’s not a criticism of the main contractor, it is a criticism of the construction market; because of the very tight timescale that was very challenging for the company.” The investment and redevelopment has proved to be a good decision, he says, as Shopmark’s new look and layout has seen it returning increasing trading results since re-opening.

The Magyar Posta (Hungarian Post) Takarék Property Investment Fund, which is Hungary’s third largest domestic open-ended fund, has a value close to HUF 200 billion with over 50% in property.

Its investors are a mix of public institutions and private individuals. It has a wider focus, with a diversified portfolio roughly split three ways between offices (in Budapest), industrial and logistics (mainly in the capital, but with one asset in Sopron) and retail (mainly strip malls, with 12 in the countryside and three in Budapest area, plus the Shopmark shopping center in District XIX).

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Special Report

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Budapest Office Market Seen as Sector of Choice Against a background of strong demand fundamentals, office developers are able to take office projects forward with the confidence that tenants can be found and preleases concluded.

GARY J. MORRELL

Budapest office supply has continued to boom, with vacancy falling to some of the lowest levels on record. Preleases now constitute a significant part of the market; companies looking for large offices in the short-term have very few opportunities.

The latest delivery is the 27,300 sqm Corvin Technology Park by Futureal; it consists of two phases of 14,000 sqm and 13,000 sqm, with the latter due to be completed by the end of the year.

Total supply in the Budapest office market has reached around 3.6 million sqm according to the Budapest Research Forum (BRF), consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary.

From this figure, a little more than three million sqm is defined as Class “A”.

Vacancy has fallen further to close to 7%, one of the lowest levels ever recorded in the Budapest office market. Established developers are therefore going ahead with built-to-suit (BTS), speculative and longterm phased projects.

As a comparison, total quality office stock in Prague stood at about 3.6 million sqm as of this summer. More than 70% of this is defined as class “A” and

around

20%

as “AAA” by JLL. Total new supply in Budapest for 2019 is estimated at 200,000 sqm, with more than

Magyar Telekom building by Wing.

Arena Business Campus by Atenor.

300,000 sqm under construction. Cushman & Wakefield anticipate 90,000 sqm of new Budapest supply office for the second half of the year, much of which will have already been let by the time of delivery.

New Supply

JLL have traced 113,000 sqm of new supply for 2019, 70% of which is already prelet. CBRE has pinpointed 98,000 sqm of space under construction and due to be completed by the end of the year, raising the annual completion for 2019 to 130,000 sqm In a major phased development in the Váci corridor, HB Reavis is constructing the 136,000 sqm Agora Budapest. The 34,000 sqm Agora Tower and the 32,000 sqm Agora Hub are due to be delivered next year.

Belgium’s Atenor is developing the final elements of the phased speculative Váci Greens that will consist of 130,000 sqm of space in six buildings upon completion.

At the same time, the builder has also undertaken development of the speculative,

phased

85,000 sqm

Arena Business Campus in the outer boulevard of Budapest.

The first 20,000 sqm phase is due to be delivered in the second quarter of 2020, and ground work has already started on a second 14,000 sqm phase. Essentially, one of the four phases of the development is due to be completed every year.

In parallel with both these developments, Atenor has undertaken two projects in Buda.

“Undoubtedly, Hungary is the main focus of Atenor, as it is well ahead of the regional average in terms of economic growth,” comments Nikolett Püschl, leasing and development director at Atenor Hungary. “Our development model remains unchanged: we purchase, develop, lease and sell and then start over again with new projects.”

Selling of Váci Greens E and F is now in progress, and Aréna Business Campus will soon follow, she adds.

Positive Mood

In a further sign of the continuing positive mood in the Budapest office market, CPI is developing the 15,500 sqm Balance Hall, also in the Váci Corridor. This third phase of Balance Office Park is scheduled to be delivered by the end of this year and 9,500 is already leased, bringing the total

countries. This can be seen as market pressure exerting influence on developers and building-owners to meet the demands of tenants and staff.

Developers are employing architects and interior designers to deliver ever more imaginative projects to meet more sophisticated demands from building users.

The area around the 13,000 sqm Nordic Light complex will offer 2,400 sqm of landscaped multi-activity gardens open to tenants and neighboring communities, bicycle storage facilities with changing rooms and showers, as well as parking with charging stations adapted for electric vehicles.

The complex by Skanska was designed

by Paulinyi & Partners and could be one of the first WELL-certified buildings in Hungary in addition to its LEED “Gold” certification.

“Delays have had a domino tendency over the next years, supporting our earlier expectations of the sizable office development pipeline smoothing itself out over a longer time period.

According to our current Excellent The Hungarian developer/investor estimates, the potential Wing achieved BREEAM “Excellent” pipeline amounts to circa accreditation for the built-to-suit Telekom headquarters, designed by TIBA Architect 208,000 sqm and circa Studio. The 58,000 sqm complex includes 280,000 sqm in 2021 and two restaurants, an internal garden, roof top fitness club and running track.

2022, respectively.” space at the complex to 35,000 sqm. There remains the possibility for a fourth phase of the development.

The Váci Corridor is the number one development destination with

around

40%

of the ongoing development volume according to CBRE. However, well-located development sites are becoming more difficult to source in the area.

When it comes to the quality of the stock in Budapest and Central Europe, regional and established international developers such as Skanska, Atenor, GTC, HB Reavis, and CPI have common sustainable development policies across

For 2020, consultants have traced about 190,000 sqm of new supply, of which around 90,000 sqm is let, lower than previous forecasts.

“Delays have had a domino tendency over the next years, supporting our earlier expectations of the sizable office development pipeline smoothing itself out over a longer time period,” comments Anikó Kovács, head of offices advisory and transactions at CBRE Hungary.

“According to our current estimates, the potential pipeline amounts to circa 208,000 sqm and circa 280,000 sqm

in

2021

and 2022, respectively,” she adds.

For 2021, JLL has traced 280,000 sqm of new supply or under construction, of which 160,000 sqm is let.

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Budapest Business Journal | October 18 – November 3, 2019

Hotels Seen as an Attractive Building Option Developers, investors and operators see strong potential for hotels against the background of positive tourism supply and demand indicators: CBRE have estimated a pipeline of 3,750 rooms in Hungary, 85% of which are in Budapest.

GARY J. MORRELL

The capital has an average occupancy rate of 74%, as of the summer, according to Hungary’s Central Statistical Office (KSH).

With very different skills required for running a hotel than, for example, those needed in the office sector, developers tend to work in partnership with specialized hotel operators.

“After years of relatively limited new supply, the total volume of new hotel deliveries finally took off in the first half of 2019, and we registered

590 modern

rooms in four individual schemes that have been handed over in the past six months,” says Laurent Lassier, head of hotel services at CBRE Hungary.

“We expect the delivery volume to increase as the yearend approaches. We know about some additional 1,100 rooms to be delivered by then; out of this, 740 rooms across seven hotels are in Budapest.

Currently, CBRE monitors circa 3,330 rooms in 25 schemes under construction and hoped to be delivered by yearend 2020,” Lassier adds.

Dates Slipping

However, due to the complex development process and labor issues, delivery dates are very difficult to accurately estimate, and completions are slipping back. Commercial property developers such as Wing, Horizon Development and Redwood Real Estate Holding have ongoing hotel projects, while DVM is working on the construction of a hotel project for a regional hotel developer.

Major hotel brands such as Hilton, Hyatt, Marriott and Accor Hotels have planned hotel projects. Horizon Development is redeveloping a listed 1870s building in the historical center of Budapest into a 150room luxury hotel in partnership with KKH Capital & properties.

Attila Kovács, managing partner of Horizon Development, says the project essentially sees the transfer of skills

learned from the development of such projects as Eiffel Palace to the hotel sector.

Almost all Budapest hotel projects are located in Districts V, VI, VII and VIII. JLL has traced a pipeline of eight hotel projects under construction in District V alone, scheduled to be delivered in 2019-2022; the biggest of these is the five-star,

250room

Marriott Autograph Collection.

The largest project outside the capital is the 123 room Hunguest Hotel Sóstó in eastern Hungary.

In a high-end project in the historic center, Accent Hotel Management delivered the four-five-star, 214-room Hilton Garden Inn Budapest Center in District V1. The Hungarian company agreed a franchise agreement with Hilton Hotels for the complex, located 100 meters from the Hungarian State Opera.

In a renovation/regeneration project, the Hungary-based, Jordanian-owned hospitality developer Mellow Mood has opened the long-awaited, 110-room and 18-suite Párisi Udvar Hotel, also in the historic center of Budapest. A franchise agreement has been concluded with Hyatt Unbound Collection.

The company has a policy of developing the brand at what it sees as key train stations and airport locations; the Budapest project is scheduled to complete

in

2020.

A contract with DVM group has been agreed for the design and construction management of the development.

Wing, which is active in all commercial markets, has agreed a forward contract to develop a hotel in Boráros tér in District

“After years of relatively limited new supply, the total volume of new hotel deliveries finally took off in the first half of 2019, and we registered 590 modern rooms in four individual schemes that have been handed over in the past six months.”

Marriott First

Another top-end hotel historical reconstruction by the Turkish Özyer Group will see the 130-room and suite Matild Palace become Budapest’s first Marriott The Luxury Collection branded hotel.

In the mid-range segment of the market, Deutsche Hospitality, in conjunction with the B&L Group, is building the 300room and six-conference room, three-star InterCity Hotel Budapest, its first in the CEE region, at Keleti Railway Station.

IX for the French hotel chain B&B Hotels.

The project is a reconversion of a former office building with a view overlooking the Danube.

Wing delivered the 145-room Ibis Styles Budapest Airport Hotel in 2017, which is still the only hotel with direct access to the Ferenc Liszt International Airport.

The Hungarian developer Redwood Real Estate Holding has agreed a management contract with Hard Rock

International for the operation of what it calls the 140-key Hard Rock Hotel Budapest in Nagymező utca in District VI, due to complete in the fourth quarter of the year.

Growing Sophistication

The four-five-star “life-style” hotel and Hard Rock Café, located in a party hub in Budapest, reflects the growing sophistication of the hotel market and the need for different models of hotel development.

The hotel and leisure complex, designed by Studio 100 of Hungary, will include a Hard Rock Café restaurant with a seating capacity of

up to

120.

“Hotel operation is a completely different skill to office operation and therefore we are developing the project and, upon completion by the end of the year, the hotel will be operated

by Hard Rock International,” comments Bálint Erdei, founder and CEO of Redwood Holding.

In addition to attracting developers, the hotel market is also drawing in investors who have not traditionally concluded hotel acquisitions. As an example, Hungarianand American-owned investment manager Indotek has purchased the Art Nouveau, 230-room Gellért Hotel, overlooking the Danube.

The fund plans to refurbish the landmark building and upgrade the hotel to five-star status, for which the new owner is looking for an international luxury branded hotel operator.

Elsewhere in Budapest, a K&K Hotel was purchased as part of a European portfolio acquisition by a joint venture of Event hotels and InterGlobe Enterprises.

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Budapest Business Journal | October 18 – November 3, 2019

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Special Report | 19

Skanska: Shaping a Futureproof Real Estate Industry Human-centered office spaces, sustainable developments and technology innovations are at the heart of Skanska’s developments.

Marcin Łapiński, managing director of Skanska Hungary, tells the Budapest Business Journal more why being an advocate for wellbeing and innovation can pay off, both for tenants and developers.

BBJ: How was Skanska Hungary’s last year and what do you expect for the upcoming period?

Marcin Łapiński: For the past few years the investment market in Budapest has been dynamic, with demand being strong from both local and international investors.

Currently, we don’t see any major shift in investors’ high interest. In terms of the leasing perspective, the demand for office spaces is still high and absorbing vacant space rapidly. I am very proud to say, that in our current project, Nordic Light Trio (to be completed in 2020) 100% of space is already pre-leased and the building attracted the attention of JR AMC, a South Korean real estate investment trust. Nordic Light Trio is JR AMC’s first investment in the CEE region.

I look positively into the future. The vacancy rate is low, and our solid project pipeline provides certainty for the upcoming period. We provide our future tenants with top office locations and tech advanced work environments of the very highest quality. Having a leading role in sustainable developments, we continue our commitment in raising awareness of the well-being of office users.

We are putting a lot of energy currently into the planning our next office complex, to be built on the corner of Dózsa György út and Váci út. We always see each of our buildings in the context of bringing added value to the communities’ lives.

BBJ: Why do you think it is important to be an advocate for the well-being of office users?

MŁ: Healthy lifestyle is a noticeable trend; therefore, ecologically conscious and healthier offices are a competitive

Nordic Light Trio garden by Skanska. must for companies nowadays.

Successful businesses are paying significant attention to the quality of their interiors, since the work environment is basically a business card for a company, reflecting its culture and values.

Theoretically, we can work from anywhere, but an office is still a meeting hub where ideas are born and social ties are formed. At a time of shortage of highly skilled workforce, companies that have a human-focused work environment with outstanding features can ensure the wellbeing of workers and have confidence that their employees will stay with them longer.

By developing futureproof, people and environmentally friendly office buildings, we support our clients in strengthening their employer branding.

We conducted a survey about the ideal office recently and the results confirmed that the work environment is so essential when changing job that it came in third (66%) as the most important element after salary (84%) and appreciation (69%). Most office workers would like to have an external or internal courtyard to get some fresh air; a cafeteria with a good variety on offer and a quiet room for a bit of relaxation. They appreciate well-ventilated offices with minimal unwanted noise, providing acoustical comfort where they can concentrate and create, and temperature customized to their needs by having personalized microenvironments enabling each worker to control their own space; this is what the WELL approach is about.

We at Skanska are supporting the introduction of the WELL Building Standard to CEE markets. WELL looks into whether a building’s design supports a healthy lifestyle for its occupants. The standard focuses on the soft factors in a building’s operations through measuring, monitoring and certifying the office environment according to 10 key concepts: air, water, nourishment, light, movement features, sound, thermal

comfort, mind, community and materials.

Our first WELL certified building in Hungary will be Nordic Light Trio.

BBJ: One of the widely used buzzwords in the industry nowadays is PropTech.

How can you leverage property technology to make a difference in office users’ lives?

MŁ: Skanska has been leading in digitalization and innovation for years. We have developed Connected

by Skanska, an all-in-one integrated operating system that connects building

Marcin Łapiński functionalities and people in the workplace and provides beneficial features appreciated by tech-savvy tenants.

Thanks to the Connected Building feature, from your smartphone you can easily navigate through the building and its services. Access the building with your smartwatch or phone, use the virtual reception or activity-based parking function, see what events are happening around you, find amenities in the building

or nearby, check the lunch menu or report a defect to facility management – these are just some of its functionalities. In addition, tenants and building managers will have access to a special web portal which will provide them with data regarding the building’s functioning.

For the most innovative tenants, we have created additional modules including smart solutions for their own premises, such as indoor positioning, room booking integration, and work environment management to maximize the comfort of employees.

BBJ: Where can we see such initiations come to life?

MŁ: Our Nordic Light Trio building will be the best example for the application of the principles of WELL standards and the use of smart solutions, including Connected by Skanska We aim to offer the highest-level comfort to our tenants, so we take a good location and modern features into consideration.

Nordic Light Trio will be located on the Váci Corridor, the most popular office hub in Budapest. The project will be easily accessible from all directions, both by public and private transportation. Office users who cycle to work can use outdoor and indoor bicycle storage facilities with lockers, showers, and dedicated changing rooms The complex will also have chargers for electric cars. The promenade of the office complex will be a semi-urban space, a corridor from the city towards the building’s interiors. It is airy and close to nature, with a 2,400 square meter green garden for contemplation and relaxation open to office users and the public.

When arriving at the building, a Scandinavian-style lobby will await office employees and visitors. Part workspace, part social hotspot, the lobby is ideal for users to gather and work.

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Budapest Business Journal | October 18 – November 3, 2019

Despite low Availability, Industrial Development Still Restrained Although there are several ongoing speculative developments by both international logistics park operators and builders and Hungarian developers, the local industrial sector is generally regarded as underperforming in comparison with other established Central European markets.

300,000 sqm of

CTPark Budapest West.

GARY J. MORRELL

Further, a developer-led market is mainly limited to the Budapest area in contrast to Poland, the Czech Republic and Romania, where a functioning commercial industrial market has been established outside the capital.

In Hungary companies establishing light industrial facilities have tended to develop their own. However, demand is there, with Hungary having the lowest vacancy rate in the Central European region.

“Based on current expectations, a supply breakthrough could be expected next year, as the planned pipeline for 2020 amounts to 184,000 sqm, of

which

93,000 sqm

is already underway, while the remainder is still at the planning stages. However,

Dominant Markets

Owner-occupied developments are in the majority in the Hungarian countryside, according to Colliers. Poland and Czech Republic continue to be the dominant CE markets, with stock for the former standing at around 17 million sqm, while stock in the latter stands at 8 million sqm according to JLL. Reflecting the size of the country and its industrial market, Poland has five substantial hubs: Upper Silesia, Wroclaw, Central Poland, Warsaw, and Poznan.

The Czech Republic also has a developed industrial network across the country; stock in the South Moravian region has exceeded the one million sqm barrier.

Romania is emerging as a major industrial and logistics market with approaching 2.5 million sqm of stock.

Colliers International has estimated that

based on recent experiences regarding timely project delivery, there is a good chance that not all of next year’s planned volume will come to market,” comments Gergely Baka, head of industrial and logistics at CBRE Hungary.

JLL estimates that around one-third of the space under construction is already prelet. “As the vacancy rate reaches a record low, it becomes more difficult for tenants to find immediately available adjacent industrial space in greater Budapest, which hinders occupational activity,” says Hajnalka Király, research analyst at JLL Hungary.

Fully Preleased

The consultancy says it is aware of only one speculative city logistics project with a GLA of as much as 10,000 sqm, and this is fully preleased. Further, there are few locations that could provide a built-to-suit development option.

The Hungarian industrial market currently has a vacancy rate of about 2.4%, a historical low for the greater Budapest area, a market with a total stock of 2.2 million sqm. Few existing logistics schemes have 5,000 sqm plus spaces available,

according to the Budapest Research Forum (consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary).

The regional industrial and logistics market is continuing to thrive, with total space in the Czech Republic, Hungary, Poland, Romania and Slovakia having surpassed the 30 million sqm mark according to Cushman & Wakefield.

CE Industrial Stock (sqm) H1 2019 Czech Republic

8 million

Hungary

2.2 million

Poland

18 million

Romania

2.4 million

Slovakia

1.7 million Source: Cushman & Wakefield

JLL has traced 132,000 sqm of new supply in Hungary for 2019, including 33,000 sqm of speculative space at CTPark West, 22,000 of (fully let) speculative space at CTPark South, 22,000 sqm of speculative space at OTP Budapark, 21,000 sqm at New BILK building, 19,000 sqm of speculative space at East Gate Business park and the 10,000 sqm BUD Cargo City by Budapest Airport.

The area around the Budapest Ferenc Liszt International Airport is developing into a logistics hub with cargo traffic rising annually. There are

currently

124,000 sqm

Prologis Park Budapest Harbor by Prologis.

of speculative and 53,000 sqm of BTS space under construction, with a further 88,000 sqm of new construction is expected in the second half of the year, according to JLL. The consultancy argues that in the current market, tenants need to plan nine12 months in advance to secure space.

industrial space was delivered in the first half year, one–third of which was in the western Transylvania region of the country.

Hungary recorded 190,000 sqm of take-up in the first half year. Poland leads with more than 1.8 million sqm recorded in the first half year, followed by the Czech Republic with 750,000 sqm and Slovakia with 210,000 sqm. CTP and Prologis completed the largest transactions in Hungary, with a 13,400 sqm letting at Prologis Park Budapest-Sziget and a 10,000 sqm prelease at CTPark Budapest West.

Leading Regional industrial developers and park operators are delivering higher specified and sustainability accredited space in response to more sophisticated tenant demand.

For example, CTP is now committed to developing BREEAM-certified buildings and Prologis has five BREEAM accredited buildings in Hungary: Four buildings at Prologis Park Budapest-Sziget have been awarded BREEAM “Good” accreditation.

Positive Development

With the positive development and demand indicators, industrial is regarded as the CEE investment destination of choice after office. South Africa’s JT Ross has entered the Hungarian market with the purchase of the Aerozone Business Park from M7 Real Estate for a reported EUR 40 million-50 million.

Prime Industrial investment yields vary significantly depending on the country.

Hungary has yields of 7.25%, with the lowest yields recorded in the Czech Republic

at

5.75%,

compared to 6.25% for Poland, according to Cushman & Wakefield.

Although developers have an exit strategy if required, they are faced with the rising cost of plots and in their development strategies.

With regard to developer reaction to low vacancy, Gábor Borbély, head of research and business development at CBRE Hungary, sees the industrial market as a bottleneck, due to rising construction and labor costs that are leading to scheduled projects being put back.

When it comes to further development, it is worth noting that the state-owned Nemzeti Ipari Park Üzemeltető és Fejlesztő has a landbank that covers most regional cities across Hungary. The company has the aim of delivering logistics parks in areas not currently provided for by the market.

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Budapest Business Journal | October 18 – November 3, 2019

Shopping Center Redevelopment the Norm Hungary is recording positive retail indicators, with sales increasing by 5% year-onyear in August, according to the Central Statistical Office (KSH).

However, shopping development has been very low in recent years, with only one shopping center currently under construction in Budapest, although several older malls are undergoing refurbishments.

GARY J. MORRELL

“It is a general trend on the Hungarian retail market that the older shopping centers are now under repositioning and concept change,” comments Viktória Szabó, head of retail agency at Cushman & Wakefield Hungary.

“Part of the reason is the fact that a large number of centers are truly outdated, not only from a tenant mix perspective, but also from an appearance and design point of view. A typical example for the most recent modernization is Shopmark (formerly Europark), which was one of the first centers on the Budapest market,” Szabó points out.

“Allee shopping center is also planning major changes, which is timely not only due to the upcoming opening of Etele Plaza, but also, since the center is celebrating its

10th anniversary

this year. The plan of the owner is to upgrade the mall with new, high class brands, being able to even better serve its immediate catchment area,” she says.

The next shopping center delivery in Budapest will be the 54,000 sqm Etele Plaza by the Hungarian developer Futureal, with a scheduled handover at the end of 2020.

Transport Hub

Designed by the Paulinyi & Partners (Hungary) and Dyer Studio Inc. (Portland,

Etele Plaza by Futureal.

Orlando), the complex will include around 180 retail outlets located at the meeting point of the Kelenföld railway station, Metro 4 line and the M1-M7 motorways.

Futureal says the site provides access to one of the largest residential areas in Budapest and as a transport hub it is used by an estimated 165,000 passengers daily.

“The differentiation of shopping centers has already started; for example, Allee, which is in Etele’s competition catchment area, has been concentrating on attracting more and more premium category retailers and services, which is reflected by its marketing activities,” says Éva Sréter, head of retail at JLL Hungary.

“Obviously, it has an effect on the refurbishment of other malls. On the other hand, in Budapest there are many first generation shopping centers. As a consequence, revitalization has to be done; their layout is old-fashioned and their technology is outdated,” Sréter adds.

JLL puts total modern shopping center stock in Budapest at 722,000 sqm, which is low by European standards. This represents a total shopping center density

of

433 sqm

per 1,000 inhabitants, with an average mall size of 30,000 sqm; around a third are more than 60,000 sqm, according to the consultancy.

The leading centers all have waiting lists for tenants and are therefore able to command the highest rents. At the same time, the market has reached a relatively high density level, and therefore refurbishment instead of pure development is becoming more relevant and therefore will become the norm.

“Etele Plaza will be the first major scheme on the Budapest market having a strategic location since 2011, when KÖKI opened,” says Cushman & Wakefield’s Szabó.

Fresh Mix

“Etele will most likely affect the shopping center market in general, due to its overall size and planned fresh trade mix, which

will not only focus on the latest and most popular brands, but will also accommodate new profiles based on changed customer needs, such as a larger food court and restaurant area, more leisure elements, etc.,” she adds.

Another planned mall is the 53,000 sqm Bogdáni shopping center by the German developer ECE, located in the Óbuda area of Budapest at another transport hub. ECE’s 68,000 sqm Árkád

“A large number of centers are truly outdated, not only from a tenant mix perspective, but also from an appearance and design point of view.” center is currently the largest shopping center in Budapest. The complex was completed in 2002 and extended and renovated

in

2013,

making it the last major shopping center delivery in Budapest.

ECE’s new project has not yet received a green light from the authorities, although the market is certainly ready for the new development. The location of the project is well planned, with no other large-scale malls in the close vicinity according to Szabó.

Central Park, by the Hungarian developer Granit Polus, located in Districts VI and XIII is at the planning stage. The mixed-use development will consist of retail, office and residential elements.

Negotiations with the authorities are ongoing for the long-planned development.

Existing centers such as the 66,000 sqm Arena Mall and 58,000 sqm Mammut are

expected to be renovated and extended in response to a perceived market need to upgrade malls with a strong focus on the food and beverage and leisure elements.

Unique Elements

“The tenant mix of most schemes has always been mixed-use; however, the focus on the F&B sector and unique leisure elements is stronger nowadays,” says Szabó. “Both profiles are logical reactions to the changed retail market environment, such as the strongly growing e-commerce. People may buy more products through the internet, but they will surely leave their homes for good quality food and a unique leisure experience,” she insists.

The South African investor/developer, NEPI Rockcastle, has in recent years acquired the Arena Mall and an adjacent

22-

hectare

development plot, as well as the Mammut shopping center.

“Refurbishment has provided a differentiation from other houses. The F&B selection should be developed; entertainment components should be introduced/advanced; or another option is to widen the GLA of existing malls due to interest from the retailer side, such as at MoM Park, or on the Aréna plot,” comments Sréter at JLL. Indotek is one of the most active shopping center owners at present in Hungary, and recently acquired the shopping center portfolio of Kleppierre. With this latest acquisition, Indotek owns 14 large-scale shopping and commercial centers across Hungary, most of which the company plan to revitalize by refreshing their overall trade mix, as well as refurbishing the buildings to a newer standard.

Refurbishment works at the Debrecen, Szeged and Szolnok Plazas are under way, whilst other projects are still in planning phase.

Péter „I’m glad working in an office park where community building and environmental consciousness does matter.” #greenpark #application #consciousbuilding

We care about you.

office

retail

hotels www.cpigroup.hu

logistics

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Budapest Business Journal | October 18 – November 3, 2019

CEE Attracting Growing Number of Asian Investors Total office stock in major CEE cities now totals almost 21.8 million sqm and forecasted completions by 2021 will increase this number by another 20% to 26.5 million sqm, according to “Thriving Metropolitan Cities” by Skanska, Colliers International and Dentons.

The Nordic Light Trio office building, built by Skanska and sold to South Koreaʼs JR AMC.

GARY J. MORRELL

This stock is attracting an increasing number of international investors from a widening variety of sources. The analysis was released at the annual Expo Real, the international trade fair for property and investment in Munich, which attracted 47,000 participants and 2,200 exhibitors, including the Hungarian Investment Agency and leading Hungary developers and consultants.

The CEE region has enjoyed an unprecedented inflow of overseas capital, ranging from South Africa to Asia (originating from Singapore, the Philippines, China, South Korea and Malaysia). In 2019, South Korean investors have been the most active in the CEE real estate market.

“A favorable economic situation and a very good performance by the CEE cities is driving demand for new investments, including in the office market,” the report says.

“The office stock has been growing over recent years and now totals 21.8 million sqm throughout the entire CEE. Last year’s investment in real estate markets in CEE reached

approximately

EUR 13.2 billion,

with over [sic] EUR 5 billion in the office market,” it finds.

“Since 2013, the CEE region has accounted for less than 3% of all capital spent by Asian investors outside their home continent. This year that figure jumped to 9.5% in CEE, and within Europe it has risen to 14.5%. The total value of Asian capital invested directly in CEE since 2013 is EUR 7.7 bln, compared to the EUR 8.6 bln inflow of German capital. South Korean companies

alone invested over EUR 1 bln in the entire region,” the report continues.

1st Investment

In an example of this growing trend, developer Skanska sold the 14,000 sqm Nordic Light Trio office building to JR AMC, a South Korean real estate investment trust.

This is first office investment in the CEE region by the investor.

The close to fully-leased property is valued at EUR 41 million and the transfer is scheduled to be completed in the second quarter

of

2020.

“As the biggest office developer in the region, we have been observing the inflow of foreign investors with great

Futureal Starts Construction of Final Planned Office Phase at Corvin Promenade Futureal Group has started the development of the final office complex on Corvin Promenade. Corvin7, developed in two phases, will deliver around 30,000 sqm of office space at the southern extension of Corvin Promenade.

GARY J. MORRELL

“Corvin7 is going to be a key milestone in the success story of Corvin Promenade. This is the last chance for tenants to move into the brand new, state-of-the-art office complex right next to one of Budapest’s most iconic

and ground-breaking public areas,” said Gábor Futó, founder of Futureal Group.

The new complex will be surrounded by a dimensional “veil” that divides the facades with an horizontal ledge system, while its dynamic lamella system will give the complex a playful presence Futureal says in its sales blurb.

Corvin7 has been designed and will be operated according to BREEAM and WELL Building third-party certification systems as is Futureal’s policy for all its office developments.

The complex will include a 3,000 sqm internal garden functioning as a social space for employees. Internal green spaces, balconies and roof terraces will be included on the different floors and the complex will include a meditation area, bicycle storage and changing rooms.

This BREEAM “Very Good” accredited and WELL pre-certified building also includes an inner garden on the ground floor and a rooftop terrace. As with other office buildings at Corvin Promenade, Futureal Group has sold the complex to the OTP Prime Real Estate Investment Fund.

interest, especially Asian investors looking for office assets in the CEE markets,” comments Adrian Karczewicz, head of divestments at Skanska Commercial development CEE. “In 2018, we made the first transaction with a Philippine investor, whereas this year we have made a first and direct transaction with Korean funds in Budapest,” Karczewicz adds.

The report also highlights the development of CEE cities, which have gone through profound economic and social transformations. “For those of us that live and work within CEE, the evolution of the capital cities over the past decade is both undeniable and inspiring,” it says It goes on to not that the quality of life has risen dramatically, domestic and international investments are increasing at a record pace, and CEE economies are now diversified and focused on the future.

“As real estate continues to globalize, we wanted to capture both the evolution and the opportunity with factual evidence and data,” concludes Luke Dawson, managing director and head of capital markets for Central and Eastern Europe at Colliers International, one of the people behind the report.

“More and more, international investors view their investment decisions based on comparing new opportunities against what they already know. By drilling down to the key components of what makes a city an attractive investment destination versus its peers, this report shows not only the differences between the key CEE cities but also against its established European counterparts,” he continues.

“We believe that the region offers the best opportunities for stabilized growth within Europe and the evidence clearly supports this,” Dawson adds.

Funds managed by OTP Real Estate Investment Fund Management now own

almost

100,000 sqm

of office space at Corvin.

The Promenade is an internationally recognized development project, having won the European Commercial Property Award for the Best Mixed-Use Development of Europe and a FIABCI Hungary Real Estate Development Award. In 2014, the project received the Urban Land Institute’s Global Award for Excellence.

Park Completion

The last completion at Corvin Promenade was the first 14,000 sqm phase of the 27,300 sqm Corvin Technology Park, the second phase of which is due to be completed by the end of the year.

Corvin 7 by Futureal.

Available spaces

up to 3,000 sqm (+36 1) 429 50-50 www.riverestates.hu office@simmoag.hu 1134 Budapest, VĂĄci Ăşt 35.

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Budapest Business Journal | October 18 – November 3, 2019

INSIDE VIEW

VAT Reverse Charge or Not Judit Jancsa-Pék Senior advisor, Partner

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

LeitnerLeitner

One of the most important questions in the construction industry is properly determining the VAT treatment of transactions from the domestic reverse charge point of view. Although the legislation has been valid for a while, our experience shows that implementation is not consistent across the market, which results serious penalties.

The Hungarian VAT Act eliminates the need for VAT financing for specific services connected to immovable properties; meaning that the supplier need not charge VAT but the recipient self-charges and ideally deducts VAT at the same time in its VAT return under the so-called domestic reverse charge procedure. This possibility is available in connection with construction and other similar works, which are treated as services supplied for the purpose of building, expansion, remodeling and any other form of alteration of a property, including where a property is terminated by demolition, provided that this is subject to processing by the competent building authority of which the customer shall supply a statement in advance and in writing to the supplier of the service.

Incorrect qualification, however, may result in significant penalty sanctions for either the supplier or the recipient. This might be come from a tax shortage deriving from the uncharged VAT for the supplier if the reverse charge method is used incorrectly. Similarly, unlawfully deducted VAT could pose a problem for the recipient if the reverse charge method is not applied in a case where it should have taken place. Both cases

generate a tax penalty of up to 50%, plus late payment interest, and a default penalty up to HUF 500,000 (approximately EUR 1,560).

The qualification of a transaction is based on several criteria that must be fulfilled simultaneously. There is a long list of cases in which the domestic reverse charge is not applicable. This includes design, scaffolding, removal of building materials, demolition debris, rental of crane or other machinery, gardening, technical inspection, installing a lift, and the sale of building materials. In real life, however, it is often difficult to clearly qualify the services, as the contracts include elements of both goods supply and service supply, falling or not under the reverse charge. For such cases, the substance of the contract shall be determined to see what the main goal and contractual intent of the parties was, and particularly of the recipient. If it is a “mixed” transaction, and one of the transactions supports the completion of the other work as an ancillary activity (performed by the same entrepreneur), it shall be treated in the same way as the taxation of the main activity. The same applies to “complex” transactions, when the separate activities combined result in a new transaction regarding its substance.

Built-in materials and components and the relative volume of elements connecting to supply of goods vs. the services itself, the timing of work prior to or after the release of the occupancy permit, and different procedures at the construction authority are among areas that may also typically lead to qualification problems.

Although it is required by law that the principal makes a prior declaration about the eligibility of the project for the reverse charge method, in practice it is often difficult to obtain such a declaration. This is probably because of the risk associated with mis-characterization and due to the surrounding uncertainties.

Váci Greens by Atenor.

Market Talk: Developing a Growing Market Some of the leading players in Hungary’s real estate market talk to real estate editor Gary J. Morrell about which are the most lucrative sectors, changing tenant requirements, the availability of assets and sustainability issues. Excerpts.

GARY J. MORRELL

Nikolett Püschl Leasing and Development Director Atenor Hungary Atenor Hungary is continuing its existing office projects in Budapest (Váci Greens and Aréna Business Campus) and Buda.

In parallel, we are actively searching for plots for further new developments. We are focused on office developments, but we are open to enter the residential and/ or retail market as well.

It is not easy to source development sites but, as we have experienced, there is still significant potential in the various parts of Budapest. Recently, the biggest threat for tenants has been the lack of available, large modern, class “A” spaces where they can secure expansion areas,

In the light of the above, agreements with contractors and subcontractors must be assessed carefully, with an emphasis on the substance and nature of the work. The involvement of a tax specialist in the process may also help avoid penalties. In LeitnerLeitner you will find an excellent partner: with the help of our EU-wide VAT network, we open a window to Europe as a whole through one single contact person. LeitnerLeitner is a member of the VAT Expert Group set up by the European Commission, which is a further guarantee of our expertise.

Balance Hall by CPI.

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Special Report | 27

INSIDE VIEW

Award winning projects pave way for new development Property Awards on 24 October in The Royal Lancaster hotel, London.

The most acclaimed industry award throughout the region is chaired by Business members of the House of Lords in Development the UK Parliament, and judged by Director an independent panel of over 80 industry experts who focus on design, Horizon quality, service, innovation, originality, Development and commitment to sustainability.

Horizon Development’s Szervita Square Building (currently under construction) competes in the mixedHorizon Development has use development category, while just returned from EXPO its already completed Promenade project runs for an office REAL where the ongoing Gardens development award. projects of its diverse With such solid references and a proven business model, the developer portfolio were presented started to revisit its architectural to the international concept for another commercial in the 11th district, investment community. development right next to Hotel Flamenco and Another global event, Lake Feneketlen. Design plans are being finalized for an office building the European Property of human proportions, organically Awards is also just around fitting into the urban setting of the neighboring residential buildings and the corner, where two adding significant greenery that will of the developer’s replace the current industrial plot covered with concrete in 95%. As premium projects will be Tamás Ádány Business Development Director emphasized: “By respecting recognized among the and following the build-up parameters best of the continent. of the surrounding sites and keeping wellbeing at the forefront of our With more exhibitors and visitors than development considerations, we aim ever before, EXPO REAL proved to at delivering a LEED Gold certified remain the most important industry sustainable office project to the 11th event, confirming the property sector’s district that is in harmony with its hunger for further growth, innovation traditional architectural setting both and technological advancement. A in its height and volume. The increased panel discussion at the Budapest, green area we add will include a public Hungary stand also tackled the front yard, multiple green roofs and an hot topics of proptech, coworking inner garden amounting combined to and sustainability, where Horizon 7,000 sqm in total that equals 55% of Development business development the entire development plot. director Tamás Ádány referred in detail to Szervita Square Building as a benchmark project.

The premium mixed-use downtown Budapest development has already received multiple awards in the concept phase, and it is soon to be www.horizondevelopment.hu acknowledged again at the European

as most of the multinational tenants are going through frenetic growth. The good news is that developers clearly understand such challenges by delivering the appropriate amount of new supply.

Atenor is a developer who is always thinking in the long-term. In all markets, recessions and expansions come and go, and we do not define ourselves as a player who only invests during good times; we were here during the crisis that started in 2008, and we are staying here in the future.

Nikolett Püschl We are confident that our ongoing projects represent value which meet with demand. Our successful leasing and sale results verify this strategy.

Our development model remained unchanged: we purchase, develop, lease and sell and then start over again with

new projects. The sale of Váci Greens E and F is in progress and Aréna Business Campus will soon follow.

Mátyás Gereben Country Manager CPI Hungary CPI is a long-term asset holder and developer. In the Váci Corridor, we are due to complete the third phase of Balance Hall by the end of the year and we are waiting for zoning for a fourth phase of the project.

In addition we have just completed a standalone, 13,000 sqm logistics building at our logistics park in the vicinity of the Ferenc Liszt International Airport. We see strong demand for logistics space, notably in the area around the airport. We have room for further development and could development on a speculative or built-to-suit (BTS) basis, although we are aware of a handful of BTS requirements on the market.

We are also working on the refurbishment/redevelopment of two buildings into a 160-room hotel on a plot in central Budapest. The location also offered the opportunity for office and residential development, although through our CPI Hotels business wing we see hotel as a fast-growing development option with the upcurve in the Budapest-PragueWarsaw hotel markets.

The activity of CPI in Hungary has tended to divide between around 85% investment and 15% development. With regard to further office development, we have four-to-five offers for development plots in the Váci Corridor and I therefore do not consider that plots are difficult to source in the area.

An issue with regard to development is rising construction material and labor costs. Construction costs have risen by Continued on page 28 ‣ ‣ ‣

Szervita Square Building

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Tamás Ádány

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Budapest Business Journal | October 18 – November 3, 2019

INSIDE VIEW

Indotek: Growing Beyond Hungary’s Borders Krisztián Hornok MRICS

Indotek

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Indotek has grown to become a significant player in the local market in the last 20 years, but the company was uncomfortably aware it had all its real estate eggs in one Hungarian basket. Following recent acquisitions in Spain, Portugal and Croatia, in September it closed its first deal in Romania.

“Five years ago, when I came on board, it was already on the table that we wanted to look for opportunities outside Hungary,” explains transaction director Krisztián Hornok, MRICS. The company looked for locations where its current investment strategy would work, mainly to the south of Hungary, but within the EU: Greece, Cyprus, Croatia, Slovenia. Two years ago it found an asset in Romania, the Promenada Targu Mures mall. It was part of a two-property deal, and Hornok is wary of naming the other party involved on the buyer side, but it has been widely reported that it was one of the top investment banks.

“The first opportunity we found was this shopping center, which was brought to us by a partner with whom we had done investments before. That was a good start. The product itself also made sense to us; we could see some value add we could bring, some ideas for how we could make it perform better.” Promenada Targu Mures effectively ticked all the boxes Indotek was looking at.

Although the deal was completed this September, it actually took two years to complete. “It is one of the longest transactions I have ever been involved in,” Hornok recalls. “Whenever you step into another jurisdiction, it is a learning curve. It seemed that every possible issue that could come up did come up, but nothing was disastrous and we were able to handle everything, so it has also been a great learning opportunity for us.”

Right Place, Right Time Romania was at the right point in its development cycle when Indotek was considering its investment, with the economy improving rapidly. “The country generally is very interesting, and the market quite different from Hungary,” Hornok says. “It is bigger, the population is over 20 million, the

distances are further apart, so it is a very different country to what we are used to – particularly if you consider its past in political, legal and economic terms.”

Having stepped out across the border, does Indotek plan more foreign acquisitions in the near future?

“We are interested in investing in the wider region; we are still actively assessing opportunities and looking for more,” the transaction director says.

“We are fairly opportunistic as a company. If we are offered a product where we see a future, see how we can make it work and how we can make the money invested into it work well, we will go ahead. The next investment may not be in Romania, but perhaps the one after that is going to be. We are in discussions over assets in several countries, including Romania. We will make an announcement hopefully in this year, but definitely in the next half year.”

But nobody should think the company has turned its back on Hungary, Hornok insists.

“We are still active in Hungary; if you read the Hungarian press that much should be clear. We have bought hotels, several shopping centers, we recently bought a non-performing loan portfolio which is the largest in this market thus far. We are absolutely active in Hungary, that has not changed; indeed, our numbers in Hungary will be much larger than before,” he says.

“Generally, we hope to have some bases outside Hungary soon. We have close to 300 people here now; we are not going to have that number in any other country, but we hope to be a regional player. We hope to have our first colleagues abroad next year, perhaps one or two per country, and grow from there. It is a very exciting time in our story.”

Indotek Info Box The Indotek Group is a group of investment management companies owned by American and Hungarian shareholders.

According to its website (indotek.hu/en), it uses the assets entrusted to its care principally to purchase real estate and loans, and its portfolios place it among the most important market players in both fields in Hungary. “The key to our activity is calculated risktaking and professional risk management, which enable us to achieve outstanding returns.[…] We achieve aboveaverage financial returns by investing in situations that require special knowledge and resources to profit by.

Our property investment volume is unmatched in Hungary, especially in class B and C properties, which offer excellent opportunities to create value,” the website says.

BudaPart by Property Market.

Continued from page 27 ‣ ‣ ‣ an annual 20-30% over the last three years.

If a contract with a constructor was signed three years ago, this would represent a 60-90% rise in costs over the time period

Mátyás Gereben and the hope is that this tempo will slow down. Possibly less development activity in the public sector could free up labor for the private sector.

Balázs Czifra Director of Real Estate Investment Diófa Asset Management Diófa acts as an investor rather than developer in the local market and as such it is our core strategy to have a diversified platform. We still believe in all the major sectors (office, logistics, retail) performing in the long-term, although alternative sectors could also grow into such a position, for example hotel and student housing.

We primarily acquire to grow our platform. Redevelopment and development is an option in well-defined available plots in our portfolio, or where the performance of the asset could only be improved via (re-) development, as happened for example with our Shopmark shopping center (formerly Europark).

Given the relatively stable tenancy in our portfolio, tenant requirements are a less crucial topic. However, ensuring a sustainable workable environment, for example by maintaining high quality property and asset management services, is a must. We also invest considerable amounts into adapting our space to changing requirements.

The latest addition to our portfolio, an in-town logistics building, is suited to meet the logistics and online trading profile of our tenant.

We are careful to select the best matching architect to the individual

Aréna Business Campus by Atenor.

3

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Special Report | 29

INSIDE VIEW

HIP OFFICE BUILDINGS BY CPI

Váci Greens by Atenor. of employers over their competitors is the workplace environment and the surrounding infrastructure.

Having workplaces, homes and services in the same project in a walkable environment adds enormous value to the customers’ everyday lives.

In addition to that, it is the sustainable way to build, as this reduces the carbon footprint of a project by requiring lower traffic capacity and produces lower emissions than monofunctional projects.

Dr. Gergely Árendás Managing Director Property Market I think that the future is definitely in mixed-function developments. One of the main competitive advantages

PR and marketing director CPI Hungary

Five years ago, CPI Hungary, realized that creating a human-centered working environment and maximizing well-being at the workplace plays an essential role.

In order to facilitate all this, the Human Innovation Program was developed by the company and has been implemented in its innovative office buildings in Budapest.

“It’s not enough anymore that an office park has a good location only; we truly believe in human – and experience oriented, environmentally friendly buildings. The question was how to develop our vision?,” says Bea Déri, PR and marketing director.

The aim of CPI’s HIP concept is to make services that facilitate every day office life available to the tenants of an office complex. The various elements of the service package help tenants to preserve

Balázs Czifra product. Luckily, there is a good pool of experts any developer can select from.

The availability of quality assets have been limited in recent times. As several completions are delayed, there is not sufficient new product in general.

Nevertheless, with a careful process, it is feasible to identify products.

Tenants have a better understanding of accreditation and what this could mean in the life of a building. Given that companies may find a limited supply of suitable and available space for their requirements, accreditation is a priority, but may be used in the assessment with a lower weight.

Bea Déri

Dr. Gergely Árendás Our primary goal at BudaPart is to provide residents, workers and visitors with all the essentials they need, while staying close to nature. All this makes everyday life simpler and more comfortable; thanks to a long-term, wellthought-out strategy and unique location, BudaPart will produce sustainable returns for investors.

their well-being, take care of their day-today needs and brighten up the usual office routine: Program tickets, dry cleaning, shoe repair, fitness and beauty services; even farmers’ markets and food trucks are offered in the office parks periodically.

Tenants may participate in community activities, coaching days, gymnastics classes and recreational programs and may even refresh themselves with a soothing massage. To enjoy all of these programs CPI developed “HIP zones” in its office buildings, where people can use relaxing and training rooms; outside recreational areas can also be found.

“We spend a lot of time in our work places, therefore it is essential to have possibilities and space to recharge ourselves,” adds Déri.

Community managers are present in the office building to look after the various programs and communications with tenants. The list of services is constantly expanding and being updated according to clients’ requirements. Furthermore, CPI also launched an app this year, to ensure the community building on an online platform too.

www.cpigroup.hu www.hipbudapest.hu

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

Well-being in Offices, In-house Services

30 | 3

Special Report

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Speculative Countryside Projects Still the Exception The Budapest Business Journal discusses the current trends on the Hungarian industrial real estate market with local advisory companies.

BENCE GAÁL

“Speculative modern stock in the Hungarian countryside is limited to one-off projects,” Gábor Halász-Csatári, partner and head of the industrial department at Cushman & Wakefield Hungary says of how the sector’s development compares with the region.

Citing figures by the Budapest Research Forum, he says some 103,000 sqm of new stock is expected to be delivered in Budapest by the end of the year.

“This volume is concentrated in three-to-four large projects. In comparison, Warsaw is likely to reach

logistical activity is concentrated in the Budapest area.

Tamás Beck, director of industrial agency at Colliers International also says that the Hungarian market is Budapest-centric.

“Speculative developments are still rare outside of Budapest and there are only a few large leasing transactions above 20,000 sqm,” he notes.

“The transactions in the countryside industrial market are not transparent yet, and still the occasional demand and supply is driving the market, where the pre-lease/ BTS developments are still more dominant.”

He argues that countryside tenants have only moderate willingness of relocate further than a few kilometers due to the lack of regional labor supply, with the general labor shortage contributing to the static market.

Transaction Types

Regarding the types of transactions in the mix, Halász-Csatári says, “Industrial

circa

400,000 sqm

of new deliveries, while Prague and Bratislava are looking at 76,000 sqm and 17,000 sqm respectively,” he adds, noting that speculative development pipeline in Budapest is above the two northern neighboring capitals.

“However, taking into consideration entire, nationwide pipelines, the Czech Republic and Poland are far ahead of Hungary.” He points out that the latter two countries have regional logistics hotspots, while Hungarian

Tamás Beck and logistics developments in Budapest rely on a mixture of transaction types: BTS, pre-let, speculative and expansion

Gábor Halász-Csatári deals are all recorded. Built-to-suit developments are initiated in the countryside, too, for producers and manufacturers, and there is also demand for existing manufacturing buildings by end users, either for purchase or lease.”

Beck adds: “Speculative developments occur only in the key locations in Budapest and its surroundings, such as in the proximity of the airport, M0 ring road and the M1 highway.” He notes that in these areas, speculative developments are usually fully preleased before completion.

“The developers prefer rather the pre-lease/BTS constructions over the speculative, especially in the countryside,” Beck points out.

Regarding special market demands, such as green accreditation and sustainability, Halász-Csatári argues that while most developers direct reasonable resources into the matter, they are not yet a priority. He says that green energy is a good way to limit expenses, which tenants consider due to high rental rates.

“This can be especially important for tenants in the production and manufacturing sector, as they are likely to use large volumes of electricity,” he reasons. The expert notes that improved insulation standards allow for savings on heating costs and reducing carbon footprint.

“Certainly, as more strict regulation comes into effect in terms of sustainability, developers will have to ensure compliance in the most effective and rapid way possible,” Halász-Csatári says.

Beck notes that, in the case of speculative projects, developers emphasize basic standards and most necessary features due to exceptionally high construction costs. He says that, on the logistics market, demand is related to standard logistics buildings and cross-dock buildings, while in the case of industrial/manufacturing buildings there is need for high quality, special technological requirements.

“However, taking into consideration entire, nationwide pipelines, the Czech Republic and Poland are far ahead of Hungary.”

“Green certification is not a typical requirement from the tenant’s side; therefore it is mostly apparent in the owner-occupied industrial buildings.”

According to Beck, developers focus on general energy efficiency through better insulation and lighting.

“Alternative energy efficient solutions are not widespread in speculative developments, mainly due to the already high construction costs,” he concludes.

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32 | 3

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Budapest Business Journal | October 18 – November 3, 2019

Asset Management Companies

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3

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Budapest Business Journal | October 18 – November 3, 2019

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Special Report

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Budapest Business Journal | October 18 – November 3, 2019

Real Estate Developers(1) Ranked by total net revenue in 2018

1

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3

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–

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–

✓ ✓

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Ÿ

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3

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Budapest Business Journal | October 18 – November 3, 2019

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Váci Greens buildings E and F - 2020 Q2, Q3, Aréna Business Campus building A: 2020 Q2

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Váci Greens buildings A, B, C and D

–

Eiffel Tér office building 2010), City Point 9 Városi Logistics Center (2010), Park One office building, Bratislava ✓ ✓ (2007), CityZen office building (2016), Kálvin Square office building (2016), Árpád Office Center (2019), Central Business Center (2019)

ConveRgenCe NR

Center Point office building (2003;2006), Spiral office building (2008), GTC Metro office building (2010), GTC White House office building (2018), Riverside apartment house (2004), Riverloft office and apartment house (2007), Sasad Resort residential park (2008; 2010

–

www.atenor.be

Ÿ

pReviously Completed ReFeRenCe pRojeCts, yeaR oF Completition

–

atenoR HungaRy kFt. NR

FaCility management

industRial

273

ongoing pRojeCts in HungaRy (invested value in HuF, expeCted yeaR oF Completition)

poRtFolio management

aCtivities and seRviCes

publiC building

inFRastRuCtuRal

Residential

CommeRCial

oFFiCe

Company Website

total net Revenue in 2018 (HuF mln)

Rank

types oF investment

Special Report | 35

–

–

Ÿ

Ÿ

✓ ✓ ✓

✓

–

✓

–

–

✓ ✓ ✓

–

✓

–

–

✓

–

www.ece.com

majoR Clients in 2018

oWneRsHip (%) HungaRian nonHungaRian

top loCal exeCutive CFo maRketing diReCtoR

addRess pHone email

Ÿ

Ÿ Ÿ

Robert snow, yovav Carmi, gedai borbála Ariel Ferstman Imola Boós

1138 Budapest, Népfürdő utca 22.

(1) 412-3680 gtchungary@gtc.hu

– Rudolf Riedl, STRABAG Real sonja Wertitsch Estate GmbH – (100) –

1027 Budapest, Ganz utca 16.

(1) 345-6400 real-estate-hu@ strabag.com

GE, FORD, zoltán borbély – NN, Storck, – Aris Global, Atenor S.A. (100) Nikolett Püschl Főtáv

1138 Budapest, Váci út 121–127.

(1) 785-5208 info@atenor.hu

Ÿ

alan a. vincent – –

1133 Budapest, Árbóc utca 6.

(1) 225-0912 cszeley@ convergen-ce.com

Interspar, Media Árkád 1. Budapest, Örs vezér Markt, Zara, tere, (2002) Árkád Pécs, H&M, C&A, – (2004), Árkád Győr, (2006), New Yorker, ECE ProjektmanDebrecen Fórum, (2008), Hervis, Mülagement GmbH Árkád Szeged, (2011), Árkád ler, Bershka, & Co. KG (100) 2. Budapest, Örs vezér tere, Pull&Bear, (2013) Stradivarius, Van Graaf, Reserved

Christoph augustin, michael Werner eckert, marcus janko, dr. nóra kismarci, gergely lászló, györgyné szilvásy Györgyné Szilvásy –

1106 Budapest, Örs vezér tere 25 A (1) 434-8200 info@ece.hu

Eiffel Square (2011), Eiffel Palace (2014), Váci1 (2016), Promenade Gardens (2018)

Ÿ

Individuals (100) –

attila kovács – Ildikó Rézműves

1052 Budapest, Deák Ferenc utca 5.

(1) 473-1209 info@horizondevelopment.hu

Ÿ

– Real estate funds (100)

martin polák – Marta Tesiorowska

1095 Budapest, Lechner Ödön fasor 7.

(1) 577-7700 info-hu@prologis.com

Ÿ

– Skanska Com- Marcin Łapiński – mercial Develop– ment Europe AB (100)

Ÿ

(45) Alan A. Vincent (55)

HoRizon development kFt.

www.horizondevelopment.hu NR

Ÿ

pRologis HungaRy

NR management kFt. www.prologiscee.com

Ÿ

✓ ✓ ✓ ✓ ✓ ✓

–

–

skanska magyaRoRszág ingatlan kFt.

NR www.skanska.hu

Ÿ

✓ ✓

–

–

–

–

✓

–

–

–

tRigRanit Fejlesztési kFt. NR

www.trigranit.com

Ÿ

✓

–

–

–

–

–

Ÿ

Ÿ

Ÿ

Millennium Gardens, 2021

✓ ✓ ✓ ✓ ✓ ✓ ✓

✓

✓

✓

–

–

–

✓

–

–

✓ ✓ ✓

✓

–

–

–

–

✓

✓

✓ ✓

–

–

–

www.whitestar-realestate.com

Ÿ

✓ ✓ ✓

–

✓

–

–

✓ ✓ ✓ ✓ ✓ ✓ ✓

NOTES (1) The list includes companies that are active in office, industrial, logistics and/or commercial real estate development.

✓

✓

Prologis Park Budapest-Sziget DC6, 2014; Prologis Park Budapest-Sziget DC7, 2016; – Prologis Park BudapestSziget DC8, 2017; Prologis Park Budapest-Harbor DC12, 2018

–

–

Ÿ

Bonarka for Business (A-H), Kraków 2011-2019

Alexander Mann Solutions, State Street, – tomasz lisiecki Euroclear, Revetas Capital Bálint Brenner Pegasys(100) Katalin Kovács tems, Herbalife Nutrition, Innogy

–

✓

–

Markó Irodák 9 (2018), IP West office building (2009), AIG & The Quadrum office building Partners, (2008), Haller Kert office GLL, Corpus – building (2008), Market Sireo, DEKA ✓ ✓ Central Ferihegy retail park Immobilien, White Star Real Estate LLC (100) (2007), M1 Business Park Logicor, (2006), Airport Business Park Erste (2004), Alkotás Point office Alapkezelő building (2002), Infopark Zrt. (1999)

WHite staR Real estate kFt. NR

✓ ✓

jános gárdai Marietta Biczó Edina Magó

1133 Budapest, Váci út 96–98.

(1) 382-9100 property@skanska.hu

1132 Budapest, Váci út 30.

(1) 456-6200 info@trigranit.com

1117 Budapest, Budafoki út 91–93.

(1) 382-5100 HU.Office-BUD@ whitestar-realestate.com

4

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Socialite On the Wings of Mantra: in Conversation With Miten Often called mantra music superstars, Deva Premal and Miten held another of their sacred music gatherings in Budapest on October 6. I caught up with Miten, who has just released an album called “Devotee”, on the morning of the concert. He’s a softly spoken, warm and mellow character.

Miten Devotee

Father’s Ambitions

DAVID HOLZER

Born Andy Desmond just outside London in 1947, Miten was a reasonably wellestablished singer songwriter in the 1970s.

He made two albums as part of folk-rock duo Gothic Horizon and an eponymous solo album in 1976.

Although Miten now describes the music he made before as “uncooked me, without life experience”, his profile was sufficiently high to win him support slots on tours by Randy Newman, Hall and Oates, Ry Cooder and The Kinks among others. In 1978, he was the special guest of Fleetwood Mac on their UK tour in support of their multimillion selling “Rumours” album.

But Desmond was thoroughly disillusioned with the world of rock and roll and the way he was living. In 1980, he was initiated into “sannyas” by Indian guru Osho and given the name Prabhu Miten or “Friend of God”. Miten met Deva Premal at Osho’s ashram in Pune

I began by asking Miten how he first got into music. “My whole childhood was about football,” he told me.

“I was good enough to have trials with big teams. Then The Beatles came along. I

was

14

and football went out the window. I started growing my hair and listening to loud music. It was the first time I’d stepped away from my father’s ambitions for me. But he bought me my first guitar. He got it. Music and the whole wave I was part of, exploring new possibilities and perspectives, was very creative but it also took me into drugs.

That’s where I remained until I walked out on my wife and son.”

What about Osho? “In 1979 or so I had this kind of breakdown. But at the right time came the guru, through a book called “No Water, No Moon”, a collection of Zen parables Osho had commented on. I joined an Osho community in London. Suddenly, in I heard Sufi music. I was around adults all singing together, happy and making love, strong in our respect for each other. I and the couple have been together ever since. had the experience of freedom coming out Today, they tour continually. Their record of chaos. That’s where the music comes company, Prabhu Music, reports combined from. Out of silence, nothingness, being CD sales of more than one million. Miten’s comfortable in one’s self.” most streamed track on Spotify is “So “Devotee” is a lovely, warm and relaxed Much Magnificence” with 7.4 million album. Doesn’t Miten ever get angry? streams. “Gayatri Mantra”, recorded “There’s nothing left there really. The with Deva Premal, has been streamed 14 passion is somewhere else. It’s in song like million times.

‘Bring Me Your Love’ on the new album.”

1990

While it’s very much in the spirit of previous Deva Premal and Miten albums, “Devotee” has a different kind of vibe to it, for me. There’s a certain kind of organic warmth and a feeling of space. Miten’s voice, often not much more than a whisper or murmur, draws the listener in. Songs like “Into Your Hands”, adapted from what Jesus is supposed to have said before he passed on, have a mesmeric quality without being mantra. There’s also a lovely version of that old chestnut, Bob Marley’s “Rivers of Babylon”.

“This album is the most organic experience I’ve had making music. We were in Byron Bay, Australia and I decided there was something about the acoustic guitar that wasn’t compatible with the musicians I’d invited in. When it was just Deva, Manose and me, acoustic was great because I could support them,” Miten said.

Evolved Rock

“But these new guys were very evolved rock, almost jazz, musicians and I felt acoustic wouldn’t be right. I heard a young boy playing a Stratocaster at the farmers’ market and thought ‘I’ll get myself a Strat’. The Strat gave me space the acoustic didn’t so the songs started to have a spacious feeling. We cut the album almost live. Now, when we’re performing, I’m having fun getting to know my new electric girlfriend.”

When I saw Deva Premal and Miten’s concert in Budapest last year, he looked fragile. As he was recovering from heart

surgery, this wasn’t surprising. This time around, it was clear that Miten was in good health thoroughly enjoying himself.

“We play every other night,” he told me earlier. “It takes up most of my life. And people coming now know what they’re going to get. There’s something magical about the voice and sitting in silence. If you’re singing together, you’re breathing together, without realizing it. And then you’re singing Sanskrit sound healing mantras that are really potent. It’s alive. To this day, it gives me goosebumps.”

Miten has the air of someone who has found his place in life. He agrees.

“It feels like we’re part of a growing community. And the response to our music is beautiful. It’s not unusual for us to get Facebook messages and emails from people telling us that a person is listening to our music as they prepare to leave their body or for someone to come up to us at concerts with a baby in their arms and tell us the child was conceived or born to our music. That’s my world and it’s the best thing I can do. When it’s time for me to go, I hope I fall off my chair in the middle of the Gayatri Mantra.”

“Devotee” will be available to buy from devapremalmiten.com or stream at Spotify or iTunes from October 25.

4

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

When Rock ‘n’ Roll met Communism, There was Only Going to be 1 Winner

Simonyi describes the trauma, tensions, heartache and absurdities of a rock fan growing up behind the Iron Curtain, where the best music lovers could hope for was an illicit listen to the Doors, Animals or Who on Radio Free Europe; this at a time their U.S. and Western European peers could see such acts live for three dollars or less.

András Simonyi with his red Stratocaster, which he got for his 40th birthday.

My Loving’ again and again and again. …

These Beatles understood who I was.”

In 1966, much against his will, Simonyi returned to complete his schooling in Budapest.

“I was a precocious 14-year old, keenly aware that I had seen more of the world in five years than most Hungarians would see in a lifetime. … Five years earlier I had boarded a plane with a rubber fox, a penknife and a copy of an English-language primer. Now I was stepping off a train in Budapest with an electric guitar and a copy of George Orwell’s ‘Animal Farm’.”

Clearly those years in Copenhagen had awakened more than just his appreciation of Western music.

“I was a precocious 14-year old, keenly aware that I had seen more of the world in five years than most Hungarians would see in a lifetime. … Five years earlier I had boarded a plane with a rubber fox, a penknife and a copy of an English-language primer. Now I was stepping off a train in Budapest with an electric Kinks and Marx Back in Budapest, it wasn’t long before his love guitar and a copy of George of all things pop caused ructions: a poster Orwell’s ‘Animal Farm’.” of the Kinks, deftly placed alongside Lenin,

Musical Epiphany

Simonyi’s anguished musical development in Hungary was all the more difficult to endure because he had spent time in the West. As a boy, his father, a civil servant, was posted to Denmark to head the Hungarian Foreign Trade Office in 1961, and it was in Copenhagen that master András had his musical epiphany, or better put, epiphanies.

The boy was two years into his Danish sojourn when, one Saturday afternoon at a school party, an older kid picked up a

beyond

1989.

Lucid Style

KESTER EDDY

320 pages,

in a bullying mood could not only ruin your night out, he could ruin your very life.

But unlike the system, Simonyi and 10 million other Hungarians survived to and

He became Hungary’s ambassador to NATO and Washington D.C., where he used his guitar skills to further Magyar-U.S. relations.

As you might have guessed that the Hungarian police at that Traffic concert did not stop the show. Simonyi not only saw and heard the band, he sussed out their hotel, met them and got half the group to Balaton, where they spent a couple of nights at his parent’s “vikend” home. His friendship with Steve Winwood continues to this day.

Traffic, the U.K. foursome famous for their flower-power hit “Hole in My Shoe”, were one of the first Western rock acts to play in communist Hungary. It was 1968, and even though they had sanctioned it, the authorities were less than happy with the band’s presence.

As the musicians took to the stage, police, uniformed and plain clothed, watched intently for any sign of “irregular behavior” among the crowd, straining to catch the merest whisper of an anti-government utterance.

But after a couple of numbers, the mood relaxed a little: the crowd, it seemed, knew their limits. It was then that Steve Winwood, Traffic’s front man, calmly announced: “The next song we would like to dedicate to the police. It’s called ‘Who Knows What Tomorrow May Bring’.”

Was this a joke? A provocation? Didn’t these guys know you don’t mess with communist police?

“We froze. Hundreds, maybe thousands, of kids all froze. Will they stop the concert?

Take them away in handcuffs?”

András Simonyi, then a Budapest teenager besotted by Western rock music in general and Traffic in particular, recalls this pivotal, if not prophetic, moment half a century later in “Rocking Toward a Free World: When the Stratocaster beat the Kalashnikov”.

Across

Socialite | 37

7-inch single,

declared it “p-h-e-n-o-m-e-n-a-l”, and put it on the deck.

As Simonyi describes it: “I lost my breath. That singing. That drumming. That guitar solo … I had never heard anything like it before … Nothing. … I stood next to the turntable, blocking anyone who wanted to change the record. I played ‘All

Marx and Engels on the classroom wall, caused giggles among his school mates, but lasted just milliseconds once spotted by the teacher.

Simonyi takes us through his teenage years, describing the clubs, semi-official, semi-illicit, and the musicians he met and played with on the way. To any Hungarian of the era, the names of venues – The Danuvia Mechanical Engineering Works (yes, really!), The Scampolo – and of acts like Gábor Presser, Omega and Metro, will bring back a tsunami of smoky, bitter-sweet memories.

For the Western reader, Simonyi shines light on an unknown culture, one where a policeman

Written in a lucid, intimate and inimitable style, the book nonetheless has its annoying quirks: while the chapter numbers – all 44 of them – are listed in contents, they don’t have titles, so it is anyone’s guess where to find the story of, say, that first Traffic concert. Like your reviewer, you’ll have to read the book again to find it. (It is chapter 27.)

And it may seem overly pedantic, but the deportees to Nazi death camps were not executed (Introduction pp xii): they were murdered, at an industrial rate, without any form of trial.

But these are, to be sure, minor complaints in an otherwise compelling, illuminating read.

Those quoted on the jacket praising the book include Simonyi’s idol Winwood, Madeleine Albright, former ambassador to Hungary Nancy Brinker and U.S. comedian and talk show host Stephen Colbert. The latter writes: “A fascinating and very personal account of how rock and roll conquered communism.”

That might be taking things a bit too far. But, for sure, it played a far bigger role than even Simonyi could have imagined as he first listened to the p-h-e-n-o-m-e-na-l “All My Loving” back

in

1963.

Rocking Toward a Free World: When the Stratocaster Beat the Kalashnikov by András Simonyi, Grand Central Publishing, ISBN-13: 9781549141119. Kobo cover price USD 25.98, available from Best Sellers at HUF 10,270.

38 | 4

Socialite

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Fundraiser Aims to Raise a ‘Double Whisky’ to Charity Success The organizers of the annual XpatLoop Bonfire Night charity gala are inviting guests and sponsors to “feel good and do good” at the Grand Ballroom of the Marriott Budapest Hotel on Saturday, November 2, from 6 p.m.

ROBIN MARSHALL

Apart from being a great occasion to “network and socialize with friendly expats and cosmopolitan locals”, XpatLoop.com publisher Stephen Linfitt is promising something very special for this year’s event.

One of the key highlights of the evening will be a special performance by the British Ambassador to Hungary Iain Lindsay, in Hungarian, of the local blues song “Jég Dupla Whiskyvel” (“Ice With Double Whisky”), backed by what Linfitt calls a “super group of Xpat Charity Event supporters” drawn from many of the night’s sponsors.

The event celebrates the 19th birthday of the English-language portal.

More than that, however, it provides an opportunity for expats and locals ADVERTISEMENT

alike to give back to three Hungarian Children’s Charities. These are: UNICEF Hungary: works to save children’s lives, to defend their rights, and to help them fulfil their potential, from early childhood through adolescence; Magic Lamp Wish Granting Foundation (Csodalámpa): helps 3-18-year-old children suffering from lifethreatening illnesses.

Young People in Need (Rászoruló Fiatalok) Non-Profit Organization: focuses on solutions to the emotional abuse of Hungarian children up to the age of 18, this non-profit also supports other local charities helping children in need, including those above.

Gábor Patzauer, founder and president of Csodalámpa, is delighted his foundation will again benefit from

British Ambassador Iain Lindsay at the 2017 event. Photo by Russell Skidmore/XpatLoop.com the evening: “Our team is greatly honored that its mission of granting

260-300 wishes

per year for very ill children is supported

by XpatLoop.com readers, thank you!”

Popular Pattern

The evening follows a by now familiar pattern, including live music, games,

charity auctions and draws, plenty of food and drink, and a virtual bonfire and fireworks display to celebrate the foiling of the Gunpowder Plot that aimed to blow up the U.K. Houses of Parliament in 1605, and from which the gala takes its name.

Pulling the event together takes up a significant amount of time for those at XpatLoop.com, but Linfitt says he is, despite all the hard work involved, by turns delighted and inspired at how the community unites each year.

“Such a wide range of good folks come together to back the event and make it happen; it’s a real team effort,” Linfitt enthusiastically tells the Budapest Business Journal, a long-time media supporter.

“So many people give what they can, be it guests making donations, wine makers providing drinks, restaurant owners giving food, to musicians who perform on a complimentary basis. I think there genuinely is an inherent reward in helping others.”

The suggested donation upon arrival is HUF 12,500, or more, per person, although a gala table for eight can be booked in advance

for

HUF 100,000,

payable by bank transfer. Either way, places are limited so prior registration is required via info@xpatloop.com.

Those wishing to sponsor the event or donate prizes can use the same address.

Successfully registered guests will receive a confirmation email prior to the event.

The dress code is smart casual, and guests should be 18 plus.

4

www.bbj.hu

Budapest Business Journal | October 18 – November 3, 2019

Socialite | 39

Spotlighting Sopron, Szekszárd and Somló Sopron, tucked away in the northwestern corner of Hungary, can be a little off the radar for Hungarian wine lovers, seemingly having more in common with Austria’s Burgenland, which itself was part of Hungary, pre-Trianon.

ROBERT SMYTH

The self-professed title of “Capital of Kékfrankos” is perhaps a little cocky, given that Burgenland’s Blaufränkisch provides the benchmark for this pan-Central European red-wine grape.

Nevertheless, Sopron is home to a number of exciting producers, some of whom actually come from the Burgenland, working on some choice places of growth with mica-schist and limestone soils.

At the end of September I visited with Birgit Pfneiszl, an Austrian winemaker of Hungarian descent who runs a Sopron winery carrying the Pfneiszl family name, together with her sister Katrin. All the grapes were already in, and she spoke of excellent quality, although in a reduced quantity, a similar assessment to other producers in this region of Hungary.

Távoli Világ (literally Faraway World) from 2015 is not a Kékfrankos but it is Birgit Pfneiszl’s “CV in a bottle”, made from the grapes associated with the faroff corners of the winemaking world where she’s either worked or interned as she built up her wine experience.

There’s Shiraz (South Australia), Zinfandel (California), Carménère (Chile), Malbec (Argentina), Sangiovese (Tuscany).

Birgit, who was educated at Klosterneuburg College of Oenology in Austria, planted the latter when she settled in Sopron, making wine on the shores of Lake Fertő.

Távoli Világ, which costs HUF 3,290 from Monarchia, is a field blend, meaning that the grapes of different varieties were picked and vinified together.

This method works very well as no one grape sticks out and the result is a wine that is very much Sopron in character, with good acidity, medium tannins, restrained alcohol (at

13%, less

than the typical New World interpretation of the aforementioned grapes), and vibrant (especially red) fruit.

Classy and Concentrated

While Pfneiszl’s Kékfrankos – Ugrál a Kenguru 2015 (HUF 4,090 from BorPont – bortnekem.hu) is classy and concentrated, if a tad oaky (it was aged for 22 months in Hungarian oak barrels), the Merlot “Classic” 2018 (HUF 2,390 from Borháló) – vinified only in steel tank – is delightfully fresh, fruity and is

a real “session” red wine, if that term can be switched from the grain to the grape.

Pfneiszl will be one of 15 Sopron wineries who will be pouring their wines at Borjour’s walkaround Sopron Show in Budapest at the Hotel Nemzeti Budapest on October 25.

Before that, 16 of Szekszárd’s finest wineries will be on show at another walkaround, Szekszárd Palackban, or Szekszárd in the Bottle, tasting on

October

22,

which will be held at Société Budapest on Sas utca.

While there, look out for the first Bikavér from Szeleshát, an estate that didn’t previously have one its armory due to not having the all-important (for Szekszárd Bikavér) Kadarka grape among

its plantings. That has now changed as Szeleshát’s fledgling Kadarka vines have come of age to contribute 5% to the blend.

The debuting 2017 Bikavér Prémium is immediately appealing on the nose; quite complex but also fruity, with red and black fruit, with the Kadarka certainly making itself felt with its fragrant rosehip note.

The blend is smooth, and also sufficiently robust to appeal to fans of bigger wines, though the alcohol burns a tad on the warming southern palate. It’s likely to mellow nicely as it’s still quite young and although a bit tight, it has a spicy mouthful.

The rest of the blend is made up Kékfrankos (45%), Merlot (20%), Cabernet Franc (20%) and Cabernet Sauvignon (10%). The grape varieties were separately fermented by controlled fermentation in tanks, and then blended before being moved to barrels for ageing; half of the wine went into large French barrels of 4,000 liters, and half into small 225 liter Hungarian barrels, both for a year. The oak is very well integrated.

It costs a very reasonable HUF 3,900 a bottle from the cellar and delivery is free in Budapest if you buy a minimum of six bottles. It will hit the shelves later at Bortársaság, well in time for Christmas.

Little and Large

Somló, meanwhile, may be Hungary’s smallest wine region, but some of the country’s biggest whites are born out of its basalt. One such wine I recently tasted is Barnabás Pince’s Hárslevelű 2017. This is one of those rare white wines that actually gets better as it warms up, so rich and complex it is, with no faults to hide.

Harvested in the middle of October, it was spontaneously fermented in six-year-old barrels. It also manages to capture elements of the grape variety and Somló’s terroir.

There’s the honey, citrus and floral aspect of Hárslevelű that’s enhanced by the flinty, oily and nutty Somló touch. It’s smooth, slightly creamy, really full bodied and dense with a certain mushroom-like note.

It costs HUF 3,500 a bottle from the winery (winemaker Barnabás Tóth delivers personally to Budapest) or HUF 4,350 from demijohn.hu.

I tasted the Barnabás Hárslevelű at the DemiJohn tasting on September 30, but Tóth will be back in Budapest as one of 22 Somló producers at Stefánia Palota on November 12. This Borjour-organized tasting is one I really look forward to.

Somló, meanwhile, may be Hungary’s smallest wine region, but some of the country’s biggest whites are born out of its basalt.

This miniscule but magical wine region is a hotbed of vinous activity with mavericks like István ‘Stefan’ Spiegelberg making marvelous wines, and young guns like Bálint Barcza (Barcza Pincészet), Tamás Kis (Somlói Vándor Pince) and Péter Tóth (Kőfejtő pince) having firmly established themselves.

For anyone who missed last month’s Budafoki pezsgő- és borfesztivál (Budafok sparkling wine and wine festival), it’s good to know that this Budapest wine suburb with a cellar network of

almost

100 km

has mini-festivals running throughout the year, on the first Saturday of each month.

The next is on Saturday, November 2.

While the grapes may come from elsewhere, you can experience the classic Hungarian wine cellar atmosphere without leaving the city. For a small fee, there’s a bus running from opposite the Bálna Budapest building (on the Pest embankment of the Danube in District IX).

The Property Manager

Experience Professionalism Innovation www.granitpolus.com