THE HUNGARIAN ECONOMY AND OFFICE MARKET IN 2020 Due to the COVID-19 epidemic, the performance of the Hungarian economy decreased by 5.8% in the first half of 2020, which was in line with the Visegrád region’s average performance. The economic impacts of the restrictions enacted to curb the pandemic were concentrated in the second quarter. Compared to other member states of the EU, the narrowing of the service market was in line with the average; however, the industry and construction industry performed relatively weaker. Among the key sectors of the commercial real estate market, only the performance of the financial sector did not fall back in the second quarter. In the first semester, the financial and information and communication technology (ICT) sector has grown. In comparison, the added value of manufacturing has decreased by 10.9%, while the performance of the trade and logistics sector declined by 5.5 % compared to the same period of last year. Relevant to the office market, the service sector and manufacturing created weaker demand conditions for trading in commercial real estate as a consequence of the economic setbacks. Due to the outbreak, there was a spread in home/ remote working, which, should it become a persistent trend, could override real estate market strategies in the longer term. In the first half of 2020, nearly five times as many worked remotely regularly or occasionally than a year earlier. This trend could result in shrinking demand for regular offices and growing need for flexible office solutions. In addition to the real economic recovery, the following two years’ worth of expected new office deliveries (500,000 square meters is planned by developers) could result in oversupply.
The performance of the economy might be subdued for the rest of the year, as the recovery from the crisis will take some time due to the second wave of the epidemic. BUSINESS SERVICES SECTOR The Business Services Sector (comprising Business Process Outsourcing (BPOs) and Shared Services Centers, or SSCs) has become one of the fastest growing sectors of the Hungarian economy, attracting a significant amount of investment into the country. Looking closely at the BSC industry, Hungary has moved up in the value chain in recent years. Companies are raising the number of high value-added positions and implementing digitalisation. Furthermore, BSCs aim to expand in the capital and in countryside locations, therefore the transmission of robotics does not result in downsizing. The business services industry is still one of the leading sectors of the office market in Budapest. Most of the service providers have raised their capacities in Budapest. The reason behind this is the relocation of functions from other cities, that leads to increased demand for premium office space in all the significant submarkets. Furthermore, there are outstanding growth opportunities in other rural cities, such as the county seats with higher education institutions (Veszprém, Miskolc, Szolnok, Dunaújváros, Eger, Kaposvár and Sopron), cities where there are already one or more centers (Kecskemét, Békéscsaba and Zalaegerszeg), and where the size of higher education institutions in the city, or its proximity to Budapest (eg. Gödöllő, Tatabánya) could provide an opportunity for greater expansion.
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