Real Estate Review 2019 by Business Publishing Services Kft.

review REAL ESTATE Price: HUF 990

Property Hungary 2019

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CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 4

Office Development Sites More

Market Sentiment . . . . . . . . . . . . . . . . . . . . . . 6

Difficult to Source . . . . . . . . . . . . . . . . . . . . . 50

INVESTMENT . . . . . . . . . . . . . . . . . . . . . . 14

Inside View: Cross Sections of Váci

International and Hungarian Capital

Corridor are new Potential hub for Tenants . . . . . 51

Active in Hungary . . . . . . . . . . . . . . . . . . . . . 16

RETAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Inside View: Amendment of Rules

The Return of Retail

on Commercial Premises. . . . . . . . . . . . . . . . . . . . . 19

Development in Budapest . . . . . . . . . . . . . . . 58

FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

INDUSTRIAL . . . . . . . . . . . . . . . . . . . . . . . . . 66

Financing Terms and

Industrial Market Growth Limited

Conditions Improving . . . . . . . . . . . . . . . . . . 26

by low Availability . . . . . . . . . . . . . . . . . . . . . 68

OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

HOTELS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Boom in Budapest Office Development . . . . 32

Rising Tourist Numbers Drawing

HIP Office Buildings by CPI . . . . . . . . . . . . . . . . . . . 34

Hotel Developers, Investors . . . . . . . . . . . . . 76

Szervita Square Building Premium

SUSTAINABILITY . . . . . . . . . . . . . . . . . . . . . 80

in Every Sense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Sustainability Accreditation

S IMMO is in the Fast Lane . . . . . . . . . . . . . . . . . . . 38

Increasingly the Norm . . . . . . . . . . . . . . . . . 82

IMMOFINANZ:

INTERIOR / FIT OUT . . . . . . . . . . . . . . . . . . . 86

“We are on a Constantly

Interior Elements Integrated Into

Growing Track” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Development Process . . . . . . . . . . . . . . . . . . 88

Inside View: Returned,

ARCHITECTURE / URBAN DEVELOPMENT . 92

Re-thought and Re-designed . . . . . . . . . . . . . . . . 42

Developments Must be Integrated

Success Story Continues . . . . . . . . . . . . . . . . . . . . . 47

Into the City . . . . . . . . . . . . . . . . . . . . . . . . . . 94

R E A L E S TAT E R E V I E W 2 0 1 9

A B U D A P E S T B U S I N E S S J O U R N A L P U B L I C AT I O N

BBJ Editor-in-chief: Robin Marshall • Real Estate Editor: Gary J. Morrell • Copy Editor/Proofreader: Robin Marshall, Christian Keszthelyi • Sales: Bernadette Oláh, Csilla Lengyel • Layout: Zsolt Pataki • Publisher: Business Publishing Services Kft. • Media representation: AMS Services Kft. • CEO: Balázs Román • Address: Madách Trade Center, 1075 Budapest, Madách Imre út 13-14, Building A, 8th floor • Telephone: +36 (1) 398-0344 • Fax: +36 (1) 398-0345 • ISSN: 2416-0423

REAL ESTATE review

INTRODUCTION Investors see Hungary as an attractive market with high yielding quality assets across the various real estate market sectors. Central European real estate provides a yield premium on Western Europe and Hungary, in turn, offers a yield premium on other core Central European markets. Local capital now constitutes a significant proportion of investment transaction volume with more than half of transactions undertaken by local funds. This provides perceived security and liquidity for these markets and makes them less reliant on a positive attitude from foreign investors. From the other viewpoint, it also makes sourcing product more difficult for international investors as local players are able to exploit long-term relationships with developers in order to react quickly when an asset is potentially available and conclude deals at earlier stages in the development process. Although the fundamentals of, for example, the office, industrial, hotel and increasingly the residential markets are seen as strong with high occupational demand, the long-term sustainability of the markets are regarded as being constrained by a limited supply of investment grade assets and the increasingly high price expectations of vendors. Growth in the investment markets obviously requires a continuous supply of suitable grade product. Development finance is more readily available and in these more mature markets, developers are pursuing more prudent development strategies in line with better researched knowledge of market conditions. However, labor and development costs are rising and well-located development plots at transportation hubs with access to labor markets or consumers are more difficult and expensive to source. This is particularly the case in the historic center, where the large number of protected buildings and strict planning regulations is restricting development. The infrastructure of the city needs to be improved while at the same time the classic Central European feel of Budapest needs to be maintained. In order to successfully develop, lease, and potentially sell assets, developers need to deliver product that is sustainable from an interior and locational perspective, meeting the ever more sophisticated demands of tenants, employees, retailers, consumers and hotel guests. Further, the expectation is that developments need to contribute to the wider city and environment. Hungary needs to continue to promote a positive image of itself, not only with regard to the capital, but also the regions outside of Budapest, which require investment, development and employment opportunities. Gary J. Morrell Real estate editor Budapest Business Journal

REAL ESTATE review

MARKET SENTIMENT Noah Steinberg Chairman & CEO, Wing

Viktor Nagy Country Manager Operations IMMOFINANZ Hungary

If you look at the way the Budapest office market has progressed in recent years, there has been a lot of development and growth, but there has also been a lot of take-up and we see a good balance between requirements for modern buildings and a diversity of types of new space and the ability of developers to deliver this. We also see that growth in the Hungarian economy and specifically in Budapest is very strongly founded on economic fundamentals and this makes us comfortable. I think that the quality and specification of the buildings that we develop is completely comparable with Western Europe. Last year we delivered the Telekom building, which is the largest single office building in Hungary, with a long-term lease to Magyar Telekom, the Ericsson building where they have both office and R&D functions, and we are also in the process of developing a building for evosoft; these are projects that conform to the highest international standards in every way. They are modern buildings, environmentally sound, very efficient in terms of space and environmental footprint and built to a very high quality with regard to both internal finishing and infrastructure. We are present across the entire spectrum of the Hungarian real estate market. Office is our largest single area but we are also active in all the other market segments and I think that this makes us a diversified Hungarian real estate player, which is a good strategy.

The Váci út office corridor has been very popular for years, and we also have well performing office centers there or in its catchment area. However, we are delighted that there is also considerable interest outside Váci út. For example, we achieved outstanding results last year with our Office Campus building in District IX, which is almost fully rented. New ways of working play a significant role, especially among tenants looking for new office space. The mere representation of the company is increasingly accompanied by the necessity to provide optimal working conditions. The intention of our myhive office brand was to create a friendly atmosphere and welcoming character. We launched the product together with hotel architects and created a hotel atmosphere with several signature elements like a low welcome desk, oversized floor lamps, and seating areas with comfortable armchairs that invite people to chat and relax. With regard to our properties and brands, we have a high degree of standardization. This means that regardless of whether you visit a myhive office building in Vienna, Budapest or Warsaw, or a STOP SHOP in Austria, Hungary or Serbia, you find the same standards and architectural features. IMMOFINANZ is firmly committed to environmental issues across our portfolio, and more than half of our Hungarian offices now have BREEAM In-Use certification. As responsible real estate owners, we consider this task a priority. Of course, it is also expected by clients, who increasingly see the clear advantages of being in a building that is environmentally-friendly, or environmentally neutral.

REAL ESTATE review Géza Barabás Country Manager, S IMMO Hungary

Mátyás Gereben Country Manager, CPI Hungary

As the saying goes, three things are crucial in real estate: location, location and location. If you buy the right property in the wrong location, you can change a lot of things, you can remodel and reposition it, but you can never change the location. It is vital for us to have our office buildings on main public transport lines and to ensure the best accessibility for our tenants. S IMMO always strives for having prime located properties in its portfolio, just think about the Budapest Marriott Hotel, City Center, Pódium office buildings. Usable and well-located development sites have become more valuable and of course, more expensive. On the one hand, there are some new, upcoming office regions in the pipeline, for example Soroksári út. On the other hand, the Váci corridor is still very popular, as 40% of transactions took place there last year. This is the reason why S IMMO decided to expand its portfolio with a property directly located on Váci út, close to the metro where a circa 30,000 sqm sustainable office building will be built. Development costs are rising and can only be partly compensated through increasing rent levels and decreasing incentives, which are also negatively impacted by the higher fit-out costs. Rising wages, materials and utilities have an impact on rental fees in new developments, but also on FM costs for the existing buildings. Tenants are aware of this and willing to pay a higher fee for a suitable office and a pleasant working environment that helps keeping employees today. This was reflected by our occupancy rate overall in the portfolio that is above 90%. There is only one larger available area in River Estates and half of it has already been succesfully relet before it has become physically vacant. Therefore we are very optimistic about the future.

With regard to sustainability, the biggest effort is being made in the office segment where all aspects of development have gone through a sustainability check process, such as building materials used, utility consumption, sustainability on maintenance, alternative energy sources and a decrease in the ecological footprint. Other sectors, such as shopping centers and logistic parks, are lacking in this respect, due to the fact that tenants are more price sensitive on overhead costs. At the same time we see sustainable initiatives in all segments. Hungary is on the curve to catch up with Western Europe with regard to BREEAM and LEED standards. According to current standards it is a must to develop a new building by taking into consideration some form of certification. Occupiers are looking for modern spaces with a human touch. Obviously, the CBD is always the number one development location. Available land plots are very limited in Budapest. The extreme construction prices are changing the game. While a few years ago office demand and financing were the weak links of the development process, today a business plan can be ruined by the extreme construction costs. There is a definite positive trend with regard to the availability of finance, with compressed interest rates on the market; however, CPI’s financing strategy favors bond financing rather than bank financing. We remain positive and see potential for growth, although there could be a definite slow down compared to 2018.

REAL ESTATE review Ede Gulyás Managing Director, CA Immo Hungary Positive sentiment is giving an impetus in all sectors but residential and office buildings dominate the development sector. Demand is stable and the forecast supply will have a sustainable market. Following the crisis a quite positive market sentiment has evolved both in rentaland investment sectors, which revitalized developments as well. Vacancy may increase as a result of the new supply but demand will remain alive ensuring a healthy vacancy ratio in mid-term. Single, classical sites that offer a sound and safe basis for development schemes in introduced office locations are more difficult to find, therefore, larger and newly emerging areas and zones of developments such as Népliget, Soroksári út, Kopaszi gát etc., remain as opportunities. In the long run, I can imagine refurbishment schemes offering alternative office spaces in central locations. Having a long term view, we always pay attention to common area refurbishment in order to follow design trends. A great example is City Gate, which, in spite of its age, has become a very successful element of our portfolio as a result of our large scale, all-inclusive refurbishment work. Construction works is a bottleneck for our operations lately, as companies suffer from the lack of sufficient labor. Costs have increased, fit-out periods have extended which require more careful and advance planning from both landlords and tenants. Green certification is essential. Some form of wellbeing, even if not in a certified form, is also key since employee focus in terms of office services and facilities is a priority nowadays. Local funds have ruled the investment battlefield in the past years. That dominance may decrease but I expect they will remain important players who have a key role in driving volume again this year again.

Nikolett Püschl Development & Leasing Director Atenor Hungary Developer are now constructing sustainable and environmentally friendly offices in response to demand, often from large international tenants. With regard to our development strategy we are following this huge demand by developing three projects at the same time: the 50,000 sqm Váci Greens E and F; the 20,000 sqm Building A at Aréna Business Campus; and we have just announce our newest development in Buda. All our buildings delivered in 2018 are fully let; and our projects that are due to deliver in 2020 are already 30% prelet. We were one of the first developers in Budapest to provide BREEAM accredited office buildings in large contiguous space. We look to create something new and therefore we are continuing to invite different architectural tenders in order to select the most creative and efficient designs. In parallel with this we work with interior designers who are concerned with common areas and green areas. Accessibility and public transport and metro connections are still the most important issues regarding location for tenants and do not think that this will change in the near future. In addition to a road connection, I think that that the area and the building should be livable and contribute to the economy and therefore we prefer to develop campus-type projects. It is not easy to find such plots but Atenor has bigger challenges in Belgium and Luxembourg and other parts of Europe and in this respect it is easier in Hungary with a better price to value ratio.

REAL ESTATE review Ferenc Furulyás Managing director, JLL Hungary With a record low level of vacancy of around 7.5% (apart from some less fortunate developments in the periphery with poor public transportation access), all new developments seem to find their clientele. Obviously, those which have direct metro access and a sufficient number of amenities nearby (especially those that are situated next to shopping malls) will prevail. For the time being, we see solid demand; however, due to the high level of activity of large occupiers with HQ projects over the past few years, it is questionable how long this trend can be maintained. On the other hand, besides the traditional occupiers (for example SSCs), we have experienced strong demand from the Hungarian state and other state-owned entities as new entrants. Suitable development sites are definitely more difficult and expensive to source, especially in the core submarkets such as the Váci Corridor, where available plots fronting the corridor have basically run out (options on secondary streets can still be discovered), and in South Buda, where the main problem is the multiple ownership of the former industrial areas. Sustainability certifications can be considered as standard and a base condition that almost every developer will apply for. LEED and BREEAM are widely spread and both focus primarily on building technical specifications, whereas WELL focuses on the people working in the building. It is a trend that developers often apply for two, or even for all three certificates at the same time. This will undoubtedly enhance the building specifications and make the projects more competitive to attract the best tenants.

Attila Kovács MRICS Managing Partner, Horizon Development Vice President, Real Estate Developers’ Roundtable Association With an overarching portfolio covering the office, retail, hotel and residential sectors, Horizon Development has always carried out its projects in the most sustainable way. Our commercial and mixeduse properties are all LEED and BREEAM certified, and we have also started assessing our developments in line with the criteria of the WELL Building Standard. I believe that market demand for the implementation of innovative, sustainable and smart solutions in the property sector will continue, and become even more omnipresent as a requirement from office tenants. When it comes to residential demand, smart home solutions are becoming a basic need. With our focus on developing and restoring premium downtown properties in the Central Business District of Budapest, we always seek new opportunities within these parameters. As the number of available plots is becoming scarce in this prime area, competition to source new sites is naturally growing. Beyond our traditional preference for downtown projects in the Hungarian capital, we have also stepped out onto the international property scene with a luxury residential and hotel development in Marbella, Spain. Our expansion beyond borders, however, does not stop here, as we are also considering launching a Milan-based project. As clearly seen by international investment sentiment towards our country, Hungarian development projects can compete with their Western European counterparts in all areas including design, technical quality, the range of implemented sustainable features and the complexity of integrated building services offered by developers. I am absolutely hopeful and positive about the coming years when it comes to the continuing success of the development and investment sector in Hungary. Both as the managing partner of a premium development company, as well as the Vice President of the Real Estate Developers’ Roundtable Association, I stand behind the point that Hungary’s ongoing quality presence at the two most prominent property expos – MIPIM and EXPO REAL – is the best way to keep the country on the international investment map.

REAL ESTATE review Marcin Łapiński Managing Director, Skanska Hungary Ecologically conscious and healthier offices are already considered a competitive must. LEED and WELL certifications are, therefore, becoming less of an ambitious edge and more of a market necessity to attract tenants, setting high standards for employee wellbeing and sustainability. Last year was another strong year for the real estate market in Hungary, from both investment and leasing perspective. Leasing demand has stabilized at a high level for the third year in a row and the investment market reached an impressive EUR 1.7 billion. In my opinion, Hungary will retain its attraction as an investment destination. As a developer our task is generally to create space that allows the tenant to use it in the most flexible way possible. If the office building is already pre-leased to an anchor tenant, we establish a collaboration between the tenant and the developer during the project, we work together closely on the design and other features. The trend which we observe is that over the years tenants have significantly increased their expectations regarding the quality of finishes and functionality. Office space has become an even bigger factor in retaining and recruiting new employees. The construction industry is dependent on manual labor and, even with the use of construction technology, the sector is having a hard time recruiting skilled blue-collar workers. Furthermore, construction material prices have increased by an annual 10-15% on average for the last two years. This can have an impact on the on-time delivery of projects and results in an increase of construction costs.

David M. Johnston Head of Advisory & Transaction Services CBRE Hungary Despite mounting risks surrounding the global economic ecosystem and concerns about a looming cyclical downturn, most European economies performed above expectations in 2018. Economic growth in Central Europe at 4.3% strongly outperformed the Eurozone average of 1.8%. Based on the latest full year expectations, with Poland at 5.3% and Hungary at 4.9%, these are the front runners in the CEE region. GDP growth has not been this strong for 15 years. Activity in real estate markets is buoyant and driven by rising rents and falling incentives. However, rising construction costs of 15-25% over the past year could see a lengthening of the development process. Net absorption in the Budapest office market increased by 63% year-on-year for 2018. Of the circa 386,000 sqm currently under construction, 32% is already prelet. A number of big deals are being concluded with occupiers and gross take-up is expected to be as high as 530,000 sqm for 2019. The CEE office markets are durable with the quality of stock with projects such as Váci Greens of the same quality as in Western Europe. All projects have LEED and BREEAM accreditation, while WELL accreditation is an indication that the quality of projects from the perspective of staff is improving in developments like Budapest One by Futureal. In general, I think that the Hungarian Investment and Promotion Agency is doing an excellent job of promoting Hungary and the potential to improve Budapest from a working and living perspective is clear. I am very optimistic with regard to 2019.

REAL ESTATE review Christophe Boving General Manager of Codic Hungary

Stefan Cuvin Development Director, TriGranit

In office developments, the occupierâ&#x20AC;&#x2122;s comfort and wellbeing, ultimately their work performance, should always be at the center of a well designed and developed project. Accreditation like BREEAM provides evidence that this actually takes place and is the reason why we are committed to having Green Court Office assessed and certified under this holistic assessment methodology. Codic has continuously submitted its office developments for BREEAM assessment since it became the first developer to do so in Europe in 2008 with its Atlantis development in Brussels. We see the demand for offices and industrial developments remaining strong. The purchasing power of households and salaries are much more the driving factor in the retail and residential markets, and these have also progressed much in recent years. I see only two threats that could spoil the promising outlook: a lack of the labor force essential for the construction sector to keep up with demand, and of educated young people for recruitment in the service sector. In a city like Budapest, the recent trend of urban reintegration of young households, who see the benefit of living closer to its center, to reduce commuting between home and work, is definitely a positive driver. Our HomeWork project aims to provide an answer to such aspirations. Construction prices in Budapest have reached levels comparable to these we experience in Western Europe, sometimes even higher. In the last few months, however, we have started to note a slowdown in the increases, not to say stagnation. Tendering for contractors takes much more time than it used to and has become more a matter of finding the right timing and window of availability of a contractor.

The good performance of the Hungarian economy is still promising, however 2019 brings a slowdown on the real estate market in terms of handovers. Compared to 2018 with 250,000 sqm GLA of office space delivered, only ca. 130,000 sqm GLA is planned to be handed over during the year. This is a much more sustainable, healthier growth, that can be maintained in the longer term. The increase of construction costs and the presence of labor shortage in the region and in Hungary are signs of a real estate cycle topping out as well as important factors, that are obviously putting pressure on the development market and should not be disregarded when planning new developments. From standards, quality and design perspective, the gap between Hungarian and Western European assets have become already invisible. Global companies that are present in Hungary simply wonâ&#x20AC;&#x2122;t and can not rent an office unless it meets the international standards and requirements, leading the developers towards continuous improvement. At the same time sustainability accreditations like LEED Gold, BREEAM Very Good have become expected good practice requirements as sustainability and green buildings has moved to mainstream. 2018 brought an annual investment of EUR 1.85 billion with a remarkably strong H2, while domestic capital stood for more than a half of the volume, so I expect 2019 to remain stable with strong domestic and international investor apetite.

REAL ESTATE review László Kemenes Country Manager, Prologis Hungary European logistics real estate markets built up strong momentum in 2018, a positive sign for more expansion in 2019. Overall, the strong market fundamentals of positive customer sentiment, robust demand, disciplined supply, land scarcity and historic low vacancy rates will continue in 2019. The strongest market fundamentals for the past ten years are to be found across Europe, including Hungary. At the moment there is no sign to suggest that rental growth will slow down or stop. We continue to see that locations neighboring the M0 orbital motorway have benefitted most from the prosperity in the logistics real estate market of the past three years. We are experiencing the highest demand for space in the area between the M1 and M5 motorways (for example Szigetszentmiklós or Gyál). These locations are popular for logistics, transportation and light industrial manufacturing companies. New developments are expected along the eastern sector of the M0 in the coming two-to-three years, although in our view the above-mentioned locations will continue to dominate. In terms of new supply, we anticipate that 100,000-150,000 sqm will be delivered in the Greater Budapest market. The region continues to benefit from the fundamental change of risk perception following the 2008 economic downturn. A more disciplined approach to speculative development has contributed to a better-paced increase in new supply that is more easily absorbed by demand. There is a good chance that more than 50% of new supply will be started on a speculative basis; however, that could change throughout the year.

Emese Kovács Partner and Energy Advisor, MN6 Energy Agency WELL Appraiser Ideally, interior and exterior design should be part of the same process. The indoor air quality of office space is one of the most important parts of what we call a “healthy building”. Newly applied interior paints and coatings, interior adhesives and sealants, interior flooring, interior thermal and acoustic insulation and all newly purchased interior furniture and furnishings can degrade the indoor air quality, even in a new building. So planning the interior space and building materials use go handin-hand. Although standard design and fit-out of office space is still prioritized by developers, the aim of tenants is to support the wellbeing of employees in office spaces, inspiring creativity and strengthening the employer branding of the company. Tenants in office buildings often face problems with indoor air quality or thermal comfort, and we have to solve problems caused by high sound levels or problems caused by the lack of acoustic planning in office spaces. Some staff have irritated eyes and allergies because of insufficient air filtration, poor maintenance of the ventilation system or extremely low humidity in the office. Tenants are usually aware of the importance of wellbeing in the office, but they think that there is no possibility to make change as a tenant in a building. When we talk about WELL Certification, they are happy to hear that this can be a solution for their problems. Certification not only boosts the office building sector, as we also see buildings and interiors in the hospitality industry, restaurants, residential and healthcare sector applying for WELL certification.

REAL ESTATE review Bálint Erdei CEO and Founder, Redwood Development

Mike Edwards Head of Capital Markets Cushman & Wakefield Hungary

The major issues facing the development markets are construction prices and the development timeline. Planning is difficult and budget controls are virtually nonexistent. The residential market can be differentiated between use for investment purposes and local needs. With regard to investment purposes, price growth can be sustainable in downtown “triple A” locations. Office output and demand is in balance at the moment. Lease prices still have to increase due to development cost increases. In the hotel sector there is room for more quality, new age hotels. Output is constrained due to a lack of available good sized land plots, land prices and development costs. Financing is also lacking here. If rising labor and construction costs continue, this will paralyze developments. Many of these are not starting and if you do not find the right construction model it is better not to commence development. With regard to the standard of assets, there is a lot of room for improvement, especially with regard to internal space allocation, technology and new design ideas. Certification has become essential if you want to sell your product on the international market. The good part of this is that it has resulted in the design of more sustainable buildings. Finance is possible for established players but for newcomers it is very difficult to obtain. I believe that a balanced financing model is the right strategy as the future is very uncertain. I expect a stable year; however, global political risk is a systemic risk.

The last three years have been fairly stable in investment volume terms, but I think that we will be down on these levels this year due to a lack of available stock. Last year’s numbers were boosted by the transactions of two of Budapest’s sizable prime shopping centers and it is difficult to foresee how these can be replaced. I would expect around EUR 1.5 billion to be transacted this year and this is what we should expect moving forward. Typically, the office sector constitutes around 50% of this volume, but this is likely to increase this year since the larger, prime shopping center schemes have transacted in recent years and we do not expect imminent retrades. I have heard investors imply that the recent dominance of local capital is evidence of an emerging “closed-shop”, but in my opinion this is usually “sour grapes” from investors who have been out bid or left behind by a resurgent market. Local capital has provided a welcome boost to liquidity of the investment market, but clearly core international funds are now competing for the best stock. We are in a healthy, competitive position and I expect activity from domestic investors to slow down later this year, but they will remain players and international investors will pick up the slack. There is a real mix of investors: the German funds are strongly back; Far East capital is actively seeking opportunities and the global financial institutions remain active. We have already witnessed transactions at or near 5% and I would not be surprised if this is beaten for special or unique products.

INVESTMENT

REAL ESTATE review

Corvin offices sold to OTP fund.

INTERNATIONAL AND HUNGARIAN CAPITAL ACTIVE IN HUNGARY Real estate investment volume for 2018 in Hungary was close to EUR 1.8 billion, reflecting a third consecutive year of strong investor appetite and the highest annual transaction volume since the economic downturn of 2007 according to JLL. By Gary J. Morrell The fundamentals are seen as being strong in all market sectors with rents rising and yields compressing. CEE investment volumes have continued to rise. Local capital is dominating the Hungarian and Czech investment markets. Hungary is the only market where yield compression is forecast in all market sectors. Bence Vécsey, head of investment services at Colliers International Hungary, estimates

that investment activity for the year will be EUR 1.2-1.5 billion.

Edwards, head of capital markets at Cushman & Wakefield Hungary.

“The last three years have been fairly stable in investment volume terms, but I think that we will be down on these levels [this year] due to a lack of available stock. Last year’s numbers were boosted by the transactions of two of Budapest’s sizable prime shopping centers and it is difficult to foresee how these can be replaced. I would expect around EUR 1.5 bln to be transacted this year,” said Mike

Tim O’Sullivan, head of investment properties at CBRE Hungary, broadly speaking, agrees with that assessment. “Around EUR 1.7 bln in commercial real estate transactions was concluded in 2018 and an estimated EUR 1.3 bln-1.5 bln in investment volume is predicted for this year, based on the current outlook. The represents stable and

Did you know that in 2018, in 63% of the commercial real estate transactions a warranty period of 24 months or shorter was agreed?

Find out more, download the Hungarian Commercial Real Estate Intelligence Report 2019!

REAL ESTATE review continuous investment for the third year. The increased development pipeline for offices and hotels is set to ease the short tradeable product supply and help boost volumes,” he predicts. JLL also expects a similar investment volume. “There is limited visibility on volumes as there are very few large open tenders in the pipeline such as Roosevelt 7/8. A few off-market deals of magnitude might move the volumes significantly. I would say around EUR 1.5 bln,” comments Benjamin PerezEllischewitz, head of capital markets at JLL Hungary.

“Around EUR 1.7 bln in commercial real estate transactions was concluded in 2018 and an estimated EUR 1.3 bln-1.5 bln in investment volume is predicted for this year, based on the current outlook. The represents stable and continuous investment for the third year. The increased development pipeline for offices and hotels is set to ease the short tradeable product supply and help boost volumes.”

Last year saw a record high of around EUR 1 bln or 57% of transactions undertaken by Hungarian funds according to JLL.

relationships to react quickly when an asset is potentially available.

CBRE has traced 65% of investment by local funds in the same time period. The big institutional funds (OTP, Erste and Diófa) were again dominant and other local funds are also now active on the markets. DOMESTIC CAPITAL The purchase of the 88,000 sqm Corvin Offices portfolio by OTP Real Estate Fund from Futureal was arguably the largest office transaction to date in Hungary. The deal – concluded between a Hungary-based developer and a local investment fund – reflects the increasing role of domestic capital at the top end of the Budapest investment market. Local investors have built long-term relationships with developers and exploit these

“The acquisition of Corvin Offices by the local OTP Real Estate Fund signals the changed investment attitude of Hungarian investors, who have become strong competitors to foreign capital not only in the value-add or core plus assets but also for prime properties,” comments Perez-Ellischewitz. The second largest office deal last year was the purchase of the 36,000 sqm Mill Park by another leading domestic investor, Erste Real Estate Fund, from Skanska. This is the second acquisition deal between the developer and the Hungarian fund following the Nordic Light transaction in 2016 “A significant pool of local capital should be reassuring as it shows a

GREEN BUILDING CERTIFICATIONS IN THE CEE REGION, APRIL 2019 Czech Hungary Slovakia Poland Romania

EUR 2.5 billion EUR 1.5 billion EUR 0.75 billion EUR 5 billion EUR 0.8 billion

Total

EUR 11.5 billion Source: JLL

positive evolution in the accumulation of capital and the development of a local-based saving systems from private investors (this is the role of local open-ended funds) and also the development of local private groups including developers and asset managers,” Perez-Ellischewitz argues. “This gives international investors a clear sign that local investors can provide liquidity to the market if there is an exit of international capital. This is now a structural characteristic of the Hungarian market, similar to what is happening in Czech Republic. If local investors are more aggressive with their pricing and buy more than before; so be it. What is crucial is that the market keeps a good level of transparency for all investors, local and international alike. Competition among investors is at its peak, pushing capital values up and yields down,” he added. The Hungarian Diófa Asset Management Fund is focused on office, retail and logistics; however, with the scarcity of investment products other sectors could be considered. “We expect local capital to be very active in 2019 and, based on the lack of products, it is very likely that local Continued on page 20 ► ► ►

REAL ESTATE review INSIDE VIEW

AMENDMENT OF RULES ON COMMERCIAL PREMISES As of March 2, 2019, shop owners have faced new rules regarding work to be carried out within their commercial premises. These ae the result of several amendments to the government decree introducing the so called “function conversion permit” in 2018. Our earlier article in the Budapest Business Journal (October 26, 2018) examined the provisions of the government decree itself, requiring a special permit for function conversion and alteration works in commercial buildings. In this present article, we summarize the new applicable provisions.

Dr. Szilvia Andriska Attorney (H) Noerr and Partners Law Firm The decree originally defined in which cases it was necessary to conclude the function conversion proceeding. The amendment redefined these cases. As a result of the changes, such proceedings are necessary not only for the conversion of a building with a gross area of at least 400 sqm into commercial function, but also for the conversion of a separate unit with such gross area, located within a building. The procedure should also be applied if the owner or the lessee plans to carry out works within a commercial building, or within a separate commercial unit, with the purpose of increasing the area of such a building or unit to or above 400 sqm and the works are not subject to a building permit. Finally, the procedure also has to be followed regarding alteration works where no building permit is

necessary and which are related to the sales area of a commercial building, provided that the size of the sales area is 400 sqm or greater. Pursuant to the government decree amendment, in the above cases the owner or lessee of the given premises must obtain the assessment of the head of the Government Office of Hajdú-Bihar County. That authority will assess the expected advantages from the remodeling and the possible damages that such works may cause. The assessment will also cover the foreseeable impacts of the building in question on the surrounding area, with special regard to environmental, infrastructural and urban planning aspects. Further, the applicant of such proceedings must be able to outline the measures planned with the purpose of minimizing the related adverse effects and the feasibility thereof. As part of the application, promoting the usage of alternative energy, and supporting sustainable transport solutions might be evaluated positively. The amendment now also provides for the specification documentation to be submitted together with the application for the permit. Amongst others, precise technical documentation and present and future floor plans of the commercial edifices will have to be added to the documents, based on which the Government Office will assess the application for permit. The current

amendments also apply to permit applications already in progress. It should be remembered that the above cases concern basically those matters when the construction works themselves do not require a building permit. However, this does not mean that no special assessment is necessary from the authority when the works are subject to a building permit. If the construction requires a building permit, the above detailed aspects are indeed duly taken into account during similar proceedings by the competent authorities. What is also important to note is that if anyone plans to open a store selling fast moving consumer goods, the parking spaces prescribed by law together with electric chargers have to be made available in order to obtain the operational permit. According to the above, special attention has to be paid while opening or carrying out alteration works in commercial premises. If the rules are not followed, the authorities have the possibility to impose a fine. The information contained in the article is for informational purposes only and should not be considered legal advice, legal statement or interpretation.

www.noerr.com

NOTE: ALL AR TICLE S M ARK ED INSIDE VIE W ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPE S T BUSINE S S JOURNAL DOE S NOT TAK E RE SP ONSIBILIT Y

REAL ESTATE review Continued from page 18 ► ► ► investors will purchase a major part of the available products,” said Balázs Czifra, real estate investment director at Diófa Asset Management. FOREIGN DEMAND Demand from foreign investors is also strong: South Africa’s NEPI Rockcastle has purchased the 44,000 sqm Mammut Shopping Center from Lone Star, the second purchase of a leading Budapest mall by the investor. Another retail transaction was the purchase of MOM Park by OTP Real Estate Fund. These deals are seen as a commitment by investors to established and strategically located shopping centers. The number of transactions in the office market is expected to rise; however, this will mainly be for smaller lot sizes with a value of around EUR 50 million. “We expect both the office and industrial breakdowns to be relatively similar to last year, with the notable changes coming from the retail and hotel sectors. Over the last few years

“We expect local capital to be very active in 2019 and, based on the lack of products, it is very likely that local investors will purchase a major part of the available products.”

at least one or two of the major, prime shopping centers have traded, but we do not expect this trend to continue into 2019,” explains Ben Barclay, senior investment consultant at CBRE Hungary. “This reduction in retail volumes will be offset by the increasing volumes of hotel transactions, as we continue to see more international, core capital targeting the hotel sector. The lot sizes can affect liquidity: offices at sub-EUR 50 mln are very liquid, whilst platform deals in excess of EUR 100 mln also attract a lot of investor attention. However, there is a thinning within the investor pool for those assets in the region of EUR 60 mln-80 mln, as only a handful of local players have the equity and it does not provide

sufficient scale for certain international investors,” Barclay adds. This shortage of investment grade product is not deterring international investors from visiting Hungary, although the market has become more competitive in the view of many consultants. “It [the shortage] has made it more difficult for those already present to increase their exposure, whilst those who are yet to enter have struggled to react in time when a suitable product does become available due to fierce competition from local investors,” Barclay notes. “I have heard investors imply that the recent dominance of local capital is evidence of an emerging ‘closed-shop’,

Mill Park, sold to Erste RE Fund.

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MOM Park.

but in my opinion this is usually ‘sour grapes’ from investors who have been out bid or left behind by a resurgent market,” says Edwards of Cushman & Wakefield Hungary. “Local capital has provided a welcome boost to the liquidity of the investment market, but clearly core international funds are now competing for the best stock. We are in a healthy, competitive position and I expect activity from domestic investors to slow down later this year, but they will remain players and international investors will pick up the slack,” he continues. OFFICE TO GROW? Typically, the office sector constitutes around 50% of the total investment volume, but this is likely to increase this year as the larger, prime shopping center schemes have transacted in

recent years and imminent retrades are not expected, according to Edwards. Vécsey, of Colliers International Hungary, believes retail will constitute around 40% of investment volume for 2019, with office likely to dominate the market. The hotel sector is expected to constitute a higher share than in previous years. Barclay at CBRE points out that transactions are ongoing in the hotel sector, and there are a further four or five that could be on the market. Another possible investment target is residential with the acquisition of large complexes on the Germany model. Office yields are estimated at 5.75%, although this is regarded as being under pressure and at least

ten assets could test this figure if they became available in the view of O’Sullivan. The 7.5% yield for industrial could also be tested if the right opportunities become available on the market. Yields for prime retail assets are put at 5.5%, although, as outlined above, the leading shopping centers are not expected to trade. In general a 100-150 basis point differential is estimated between Hungary and the other core Central European markets. Czech Republic is experiencing the most aggressive pricing in the CEE region. “Prime buildings in Prague are now trading close to 4% so even if Roosevelt 7/8 gets close to 5% we will still carry a spread of 100 basis points or more,” says Perez-Ellischewitz.

REAL ESTATE review YIELD COMPRESSION Colliers estimates that prime office and retail yields will compress to 5.25%, high street retail could fall to 5% and logistics yields to 7%. Hungary and Romania are the two countries in the Central European region where there is room for more yield compression, in contrast to Czech Republic and Poland. Yields for Hungary are much higher than the risk; therefore, there is the possibility that further interest here will fuel further yield compression, according to Péter Számely, head of CEE & SEE at Hypo Noe Gruppe Bank. “There is a real mix of investors, the German funds are strongly back and Far East capital is actively seeking opportunities and the global financial institutions remain

“This reduction in retail volumes will be offset by the increasing volumes of hotel transactions, as we continue to see more international, core capital targeting the hotel sector.”

active. We have already witnessed transactions at or near 5% and I would not be surprised if this is beaten for special or unique products,” argues Edwards. “People quickly forget that the property downturn that followed the financial crisis was not just a factor of economics or politics, as we had a very limited investor pool and a massive oversupply of offices, our dominant sector,” he points

out. “Subsequently, we had years of undersupply, resulting in the current very low vacancy. I would argue that the real estate fundamentals of Hungary are the strongest in the region. On the investor front, we have a more diverse investor pool and an active domestic market, which will assist our recovery in the event of a downturn. Of course a global downturn will have impacts, but we are in a good place to recover,” Edwards concludes.

PROPERTY SALE AND RENT We offer for sale a total 151,006 sqm site in Budapest near to the Campona Shopping and Entertainment Center in the heart of District XXII, close to the bank of the Danube on the Buda side of the city. The property is 18 kilometers from the city center. This part of the district is traditionally an industrial and manufacturing area, and the surrounding land use reflects this. All opportunities are open for development except polluting production activities (e.g.: recreation, residential, warehousing, logistics, retail-wholesale, etc.) The property has office buildings and factory space. It is a revenue producing property, the site of which is free and clean of all debt obligation, and also of all contamination issues. The property provides excellent road access from a logistics perspective, and also benefits

from convenient access to the M0 orbital motorway, which in turn provides access to all other motorways in Hungary. Public transport is available in the neighborhood. New permanent zoning relations have been established and all interested parties can consult our website to see these. Owner financing is available. All offers received will be reviewed and responded to. Presently we also looking to rent out parts of the area. Currently we can offer a 2,900 sqm warehouse with 420 sqm of office availability; on the ground floor there is 2,300 sqm of warehousing possibility, with 1,200 sqm of free space upstairs. Also for rent is a three-story building of 3000 sqm, which has to be renovated but would be suitable for an office or hostel.

The location of property

Green areas are also available for rent in 20,000-30,000 sqm that are suitable for the storage of cars, stock or other goods including heavy equipment, miscellaneous materials etc. The site is guarded; fully serviced with gas, water, electricity, and internal road network. We can offer a very competitive rental rates with mixed opportunities in rental period. We are prepared to make modifications where necessary. If you are interested, please contact Judit Debreceni at ginacakft@gmail.com Phone +36/70-679-7989 or +36/1-424-6200. Please also visit our website: www.ginaca.hu Ginaca Ingatlankezelő and Hasznosító Kft. 1222 Budapest, Háros u. 7.

FINANCE

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Magyar Telekom HQ Inner court.

FINANCING TERMS AND CONDITIONS IMPROVING In general, finance is seen as more readily available on more favorable terms as there are four or five lenders active on the Hungarian market, competing to provide finance for what are considered to be the best projects. By Gary J. Morrell Obviously, it is developers with the best track records that are able to source finance on the most favorable conditions. Those established developers who utilize debt finance

on their projects have built up close relationships with lending banks. Horizon Development (through SZ8 Real Estate Development Investment Fund, owner of the Szervita Square development and 100% owned by

Horizon Development) has signed a financing agreement with UniCredit Bank Hungary for the development of the mixed-use, 15,000 sqm project. â&#x20AC;&#x153;As a leading bank in real estate finance, UniCredit is proud to be

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Magyar Telekom HQ.

involved in the best development projects as a financing partner. After two previous successful cooperations, Szervita Square is our third project with Horizon Development,” comments Gábor Pető, real estate financing director of UniCredit Bank Hungary. With increased market liquidity and positive demand and supply fundamentals in the Budapest office market, developers are now able to sell product to developers at an earlier stage in the development process. SELF-FINANCED Both Skanska and Atenor finance their projects from their own resources. But while developers such as GTC opt

“As a leading bank in real estate finance, UniCredit is proud to be involved in the best development projects as a financing partner. After two previous successful cooperations, Szervita Square is our third project with Horizon Development.” to maintain projects they have built, Skanska has the policy of exiting a few months after completion, once it is close to fully let. The company has delivered its eighth Budapest office project, the speculative 35,000 sqm

Mill Park in District IX. The LEED “Gold” accredited complex has already been sold to Erste Real Estate. Belgium-based Atenor has three ongoing office projects in Budapest

REAL ESTATE review

Latest Budapest Skanska delivery, Mill Park.

and has successfully sold different phases of Váci Greens to Hungarian and Slovak investors. “Financing is available on more favorable terms and we are getting very good proposals, but normally Atenor finances its projects from its own equity. Significantly, the approximately 40% increase in construction costs and 20-30% increase in labor costs is resulting in more expensive developments. The good news is that rents are also showing a remarkable increase,” says

Nikolett Püschl, development and leasing director at Atenor Hungary.

project also includes the 65,000 sqm Budapest One office park.

The established Hungarian developer Futureal has agreed a EUR 32 million loan agreement with K&H Bank for the 20,000 sqm Advance Tower office development in Váci út. The complex is valued at EUR 68 mln.

Wing has completed the 58,000 sqm Magyar Telekom Group headquarters, located in District IX. The circa HUF 50 billion project was financed by Wing’s own equity and a consortium of banks consisting of UniCredit Bank Hungary and K&H Bank.

Futureal has also concluded a EUR 150 mln financing agreement with UniCredit Bank and Erste Group for the development of the 53,000 sqm Etele Plaza. This latter

FINANCING AVAILABLE “For good projects sponsored by a company like ours, financing is

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“Hungary and Romania are the two countries in the Central European region where there is room for more yield compression in contrast to Czech and Poland. I think that yields for Hungary are much higher than the risk and therefore there is the possibly of a risk premium. I think that the gap is wider than it should be, so there will be further interest in Hungary that will fuel further yield compression.”

Republic is in part due to the higher cost of finance. The differential in the cost of lending between Hungary and Czech is estimated at 30-40% basis points as Czech and Slovak banks are more liquid and there is more pressure on them to invest than in Hungary. Although deals are obviously concluded on a case-by-case basis, the equity requirement on a development for Hungary is put at around 30%, with a prelease requirement of around 50%.

available. We work with a variety of different banks such as UniCredit, KBC Bank, Raiffeisen Bank, Erste and OTP,” commented Noah Steinberg, chairman and CEO of Wing. Debt finance for Hungary is more expensive than in Czech Republic and Poland as lenders take into consideration the perceived country risk when making a decision on a project. The yield gap of about 100-150 basis points between Hungary and Czech

“As lenders we are following our clients and with regard to Hungary I see that the fundamentals are very good and economic development is there,” explains Péter Számely, head of CEE and SEE at the Vienna-based lender, Hypo Noe Gruppe Bank. RATING IMPROVEMENTS “The country is improving in the view of rating agencies and this is a good basis for further development of the markets [here]. Hungary and Romania are the two countries in the Central European region where there is room for more yield compression in contrast to Czech Republic and Poland. I think that yields for Hungary are much

higher than the risk and therefore there is the possibly of a risk premium. I think that the gap is wider than it should be, so there will be further interest in Hungary that will fuel further yield compression,” Számely adds. “We have recently completed a transaction in the office sector and our portfolio in Hungary essentially consists of office and retail where we have two projects in our portfolio. We would also do logistics if we had the opportunity,” he continues. “For very good assets there is strong competition from local banks. I think that the markets in Hungary are promising and if there are no external shocks then this year will be a very good year. The number of competing banks depends on the funding strategy of the client and I know clients that are inviting five banks. For good assets there is enough interest from lenders,” Számely says. One area where there is still room for improvement in terms of lending options comes from Germans banks that are active in Poland and Czech Republic but have still not returned to the Hungarian market.

OFFICE

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BOOM IN BUDAPEST OFFICE DEVELOPMENT Hungarian and international developers on the local office market are going ahead with speculative, long-term phased and built-to-suit (BTS) projects; vacancy is low with a limited supply of 5-10,000 contiguous sqm class “A” space to meet demand. Gary J. Morrell In reaction to ever more sophisticated tenant demands and specification requirements, developers are delivering more imaginative

developments from the specification and interior and exterior design perspectives. “If you look at the way the Budapest office market has progressed in

recent years there has been a lot of development and growth, but there has also been a lot of take-up and we see a good balance between requirements for modern space and a diversity of types of new space and

REAL ESTATE review the ability of developers to deliver this,” comments Noah Steinberg, chairman & CEO of Wing. Total supply in the Budapest office market has reached 3.6 million sqm, around 3 million sqm of which is class “A” and “B” speculative stock according to the Budapest Research Forum (BRF), which collates data compiled by CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary. Total gross demand for 2018 reached 535,000 sqm. “The city now has circa 482,000 sqm of office space under construction. As a result of the strong demand

in the market, the average vacancy rate in Budapest has fallen to 7.3%. Tenants need to make a quick decision in order to secure quality space,” says Judit Varga, head of office advisory at CBRE Hungary. Despite accelerating speculative development, delivery is expected to be limited to 112,000 sqm of space for the year, around 50% of which is already prelet. PHASED DEVELOPMENT HB Reavis is due to deliver the 36,000 sqm Agora Tower, the first building scheduled to be completed at the Agora Budapest project in the Váci Corridor. Eventually, the scheme is planned to provide 136,000 sqm of office, retail and

service space, developed on a phased basis according to demand. Elsewhere, Belgium’s Atenor is developing the 50,000 sqm Váci Greens E and F, the final stages of a phased, speculative office project that will consist of a total of 130,000 sqm of space across six buildings. In parallel with this, the developer has also undertaken construction of the speculative, phased 72,000 sqm Aréna Business Campus in Váci út. Such large-scale projects reflect the current long-term confidence in the Budapest office market. Continued on page 45 ► ► ►

Evosoft headquarters by Wing.

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F O C USIN G O N W E L L- B E IN G IN O F F I C E S

HIP OFFICE BUILDINGS BY CPI CPI, the leading real estate investor in the CEE region, realized that creating a human-centered working environment and maximizing well-being at workplaces play 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.

Tenants may participate in community activities, coaching days, in gymnastics classes and recreational programs and may even refresh themselves with a soothing massage.

The purpose of the HIP program developed by CPI is to make services available to tenants of an office complex that facilitate every day office life for them. The various elements of the service package help tenants to preserve their well-being, take care of their day-to-day needs and brighten up the usual office routine. Program tickets, dry cleaning, shoe repair services, products from farmers and food truck availabilities are offered in the building periodically.

Due to the program supervisorâ&#x20AC;&#x2122;s presence in the office building and the intercommunication with tenants, the list of services is constantly expanding and being updated according to the clientâ&#x20AC;&#x2122;s requirements.

www.hipbudapest.hu

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SZERVITA SQUARE BUILDING PREMIUM IN EVERY SENSE The most anticipated downtown development in Budapest is undoubtedly Szer vita Square Building, awarded with multiple professional acknowledgements already at the concept phase. From location, architectural concept and interior design solutions to overall technical quality, sustainability, tenant mix, service range, professional partnerships and commercial activities, it communicates prestige and premium quality all around. GREAT DESIGN The architectural concept has been formulated for years before it reached its refined, final shape presented now. The ongoing knowledge-sharing and exchange of ideas between co-designers Hungarian DVM group and Finta Studio, as well as Milan-based Metrogramma Architecture Studio made the design process both a mutually rewarding international cooperation and a clear success. As Attila Kovács MRICS, managing partner of Horizon Development pointed out: “Building in the historic downtown area of our capital is a great privilege, but is also comes with great responsibility. The reason why we dedicated this much time and energy to planning Szervita Square Building right is because the architectural legacy we will leave in Budapest’s 5th district ultimately shapes the urban fabric in the medium and long-run.” COMPLEX CONSTRUCTION The project is currently in the substructural stage with the slurry walls and base slab already in place, and the underground levels under construction, using two

safely secured giant cranes. Balázs Czár managing partner talked about the logistical challenges of building in downtown Budapest: “The scarcity of loading/unloading opportunities, traffic limitations, noise considerations and all challenges that come with going 18 meters below ground and 30 meters above ground all need to be taken into account when we launch a project at such a central location. With relevant previous experience gained at our similarly located Eiffel Palace and Váci 1 developments, we are well-prepared for all challenges we might encounter during the construction process. With a fast approaching completion date of December 2020, all of our construction efforts need to be perfectly coordinated and carried out with maximum efficiency.” SUCCESSFUL LEASING & SALES The 7-story development of a mixed-use function will feature office, retail and luxury residential spaces on a total of 12,500 sqm, complete with 5 underground floors accommodating private and public parking, and a vibrant social space with outside seating options and various services. Leasing activities for the office and retail areas are hallmarked by a major pre-lease contract for the entire available office area (8,500 sqm spreading out on 5 consecutive floors), as well as advanced ongoing negotiations for the remaining retail spaces. The

retail mix will consist of a café and other functions to be revealed at a later stage. All retailers setting up their new unit in Szervita Square Building will greatly benefit from the exclusive location, high footfall numbers and first-rate tenancy, as well as the overall exclusivity of the property. The luxury residential sales process is also well under way, with a Bentley Home-themed sales office featuring the finest furniture-line of the sophisticated British automobile company. It is the most adequate setting to introduce the only residences in Europe with the ‘Furnished by Bentley Home’ brand to their future owners. SOCIAL CONTRIBUTION Concluding the project with an overall development, commercial and financial success is an obvious goal for any developer, but Horizon Development aspires to achieve even more. After demolishing the previous 70’s structure that had overtowered the entire neighborhood, the developer decided to give back to the community by reducing the size of the new development and creating a larger public square. The park in front of the building will serve as a much-needed social space for the general public, contributing to Szervita Square becoming a downtown meeting point and community hub. www.szervita.com

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S IMMO IS IN THE FAST LANE S IMMO started 2019 with large-scale transactions in the Budapest property market. Through purchasing a nearly 9,000 sqm plot, the company is preparing the development of a new office complex, while its existing buildings are still close to full occupancy.

At the beginning of this year, S IMMO acquired a development plot on Váci út, the main office corridor of the city. The property at Váci út 113 will accommodate an office building with approximately 30,000 sqm of gross leasable area on seven or eight floors. The site is directly located along metro line M3, providing excellent accessibility for future tenants. The new office complex is going to be the new flagship of S IMMO’s Budapest property portfolio. Construction is set to start in the spring of 2021, the planning phase of the project has just begun. As the office building is planned to meet the highest building standards, S IMMO will apply for a BREEAM certificate, much like the other two existing S IMMO office buildings (Blue Cube and River Estates) on the Váci út corridor.

In the meantime, S IMMO has concluded two major significant lease transactions in River Estates. Danone, one of the world leading food companies, and one of the

building’s largest tenants, will move its other business units into the facility, expanding its office space within the building. Another large-scale deal was made with state-owned KIFÜ (Governmental Information Technology Development Agency), which serves Hungarian digitalization with information and communications technology development and operation. It provides extensive ICT services for members of the public sector, and also plays a leading role in the realization of info-communication projects. The company occupies two floors in the building. The volume of these two transactions is nearly 4,500 sqm and thanks to these recent leases, almost half of the area from our former Anchor tenant who left end of March 2019 is already let again.

Available spaces

up to 4,500 sqm from Q2 2019 (+36 1) 429 50-50 www.riverestates.hu office@simmoag.hu 1134 Budapest, VĂĄci Ăşt 35.

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“WE ARE ON A CONSTANTLY GROWING TRACK” IMMOFINANZ has achieved significant success in both the fields of office leasing and the retail sector. In Hungary, very dynamic growth was recorded in 2018. By continuously updating to meet the latest market needs and trends, IMMOFINANZ Hungary is not only a valuable player on the market, but also a trend setter, taking into account its modern and unique myhive concept on the local market. Viktor Nagy, the Country Manager Operations Hungary of IMMOFINANZ was asked about the development in 2018. What kind of year was 2018 for the company? It was another successful year for IMMOFINANZ; the company continues to enjoy very high tenant loyalty. The occupancy rate in the standing investment portfolio continued to improve and reached a new record level (at 95.8%) in the company’s history. With a portfolio volume of EUR 4.3 billion, the company is one of the leading commercial real estate players in Europe concentrating on office and retail properties. In Hungary, we have further strengthened our position with our two brands: myhive for offices and STOP SHOP for retail parks. We are on a constantly growing track.

Nearly two years ago, myhive was introduced to the office market, as an IMMOFINANZ international office brand. What does it mean for tenants to work in a myhive office? Our office concept is working very well; tenants appreciate it and their employees like to work in our myhive offices. We are currently continuing the roll-out of the brand in Vienna, Düsseldorf and Bucharest, which will give us a total of 26 locations in Europe. Our mission was to create more than an office, with a friendly atmosphere and the sort of infrastructure that not only encourages everyday work, but also inspires communication between tenants and helps to create an active community. The community manager is constantly present in the life of myhive office buildings, and not only organizes, but also keeps track

of events and guarantees the quality of the services. To quantify the local myhive success, we organized nearly 100 events in Hungary and our tenants, employing 7,500 people, attended those events regularly in 2018. It supported by the myhive mobile application that we developed. Our tenants are able to interact with each other through it and it also strengthens the relationship of office workers. How do the “more than office” services help tenants? There are a lot of aspects to keep in mind when looking for a new office, and the office itself gains importance regarding attracting and keeping employees. Therefore, not only the numbers are interesting, but also the creation of human relationships, social experiences and work-life balance

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within the office buildings. It is ever more important for tenants to have a good time in the office building, and we make their everyday lives easier with our myhive services, so that employees love to work there. Last year we recognized that the different composition of tenants in our office buildings requires different services. The regular events – business breakfasts, client parties, concerts, yoga classes, even a farmers’ market – are very popular. Maintaining high service quality levels for tenants is the responsibility of the community manager, who plays a key role in taking myhive services and lifestyle directly to the tenants. What kind of extra services do you provide to tenants? An important factor of the success is that the company is constantly asking about the needs and expectations of the tenants and, based on those results, introduces new services for the convenience of the tenants. These new services include, for example, the

To quantify the local myhive success, we organized nearly 100 events in Hungary and our tenants, employing 7,500 people, attended those events regularly in 2018. ParkL service launched with Park and Go at myhive Atrium Park, which offers available parking spaces to the guests. The tenants also asked for childcare services, therefore we opened the myplay childcare center where children can be taken care of for a few hours. It can be an important support for parents during the school holidays and also for parents who are returning to work.

STOP SHOP is a leading brand among retail parks. Could you tell us about its international success? IMMOFINANZ is driving the expansion of its successful STOP SHOP retail park brand and has recently purchased eight retail parks in Slovenia, Serbia and Croatia. These transactions increased IMMOFINANZ’s STOP SHOP portfolio to 80 locations in nine countries, with more than 567,000 sqm of rentable space, and we want to strengthen our positioning as the leading retail park operator in Europe with further acquisitions and our own STOP SHOP development projects. There are 14 STOP SHOPs in Hungary, and the occupancy rate is more than 98%. Last year, many new stores were opened or existing brands moved to larger premises. Both the international growth and the Hungarian successes indicates that people like STOP SHOP concept; parking is easy and our retail parks represents an easy-shopping concept for everyday needs with high recognition value.

REAL ESTATE review INSIDE VIEW

RETURNED, RE-THOUGHT AND RE-DESIGNED After a hiatus of several years, during which it pursued projects in Western Europe, the Belgium-based international developer Codic has returned to Budapest with three projects. “Codic had been active in Hungary since 2007, and from 2008-2010 completed the Krisztina Palace in Buda, which we sold to German investors and is now owned by the Erste RE Fund,” Christophe Boving, the head of operations in Hungary recalls.

in 2014-15 the company “started again to plan and, importantly, redesign projects” Boving explains.

That year, 2010, is significant; Hungary was in the teeth of the financial crisis. Although Codic had a number of excellent development plots in Budapest, it was clear the market appetite, not to mention bank financing, was not there. So Codic’s group concentrated instead on projects in Belgium, France and Luxembourg, where Boving says it “delivered several projects in this period”. (For more information on this, see www.codic.eu.)

“The users of buildings have different needs and expectations today, which is crucial to anticipate in our activity as a developer. We give much importance to what corporate tenants want, how they like to use and organize their work space. There is also a more urban and human aspect to it. Mixed-use has really become a trend that Codic has integrated in many projects since 2010; for example in downtown Luxembourg, we currently deliver the 60,000 sqm Royal-Hamilius project with retail, residential, office and public parking functions in one development, with one designer architect, Foster and Partners.”

Having kept a careful eye on the property market recovery in Budapest,

Having completely re-thought what it wanted to do in its Budapest

Green Court.

plots, Codic’s work began with a fundamental revamping of its project on the one-hectare plot on Dózsa György út. This was the start of the Green Court project. WELL-RESPECTED Together with partners Pesti Házak, a well-respected Hungarian residential developer, and Austria’s Venta Group, it has come up with a project involving two residential blocks and two contiguous office blocks, separated but sharing a common green courtyard. Green Court office is located on Dózsa György út 144-148, which runs perpendicular to the much coveted Váci Corridor. “We think that within the Váci Corridor submarket, Dózsa György út will come to see a concentration of new developments, and we took the first initiative with Green Court. With two contingent offices facing Dózsa

Green Court Office.

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György, and the residential blocks facing the park, laid around a common green courtyard, this multifunctional development will become alive 24 hours a day, seven days a week,” Boving says. “It will share synergies and answer the demands of, in particular, those who want to live close to a work space so they can limit travel time, and enjoy the quality of the environment where they work and where they live within easy reach of downtown Budapest.” The residential blocks have already been topped out. Boving says apartment pre-sales have already hit the 90% ratio, with handover due at the end of this year. Ground works for Green Court Office will be completed “with days”, with those buildings currently slated for handover at the end of 2020. One unique feature of the offices will be terraces overlooking the green, southern-oriented courtyard. “Where most offices on Váci Corridor are fully enclosed, we wanted to open them up for the view and to allow the maximum amount of natural light into the buildings. We use continuous glazed façade with full height, openable windows and high selective glazing to reach the best performance in terms of energy savings and high light transmission.” The road facing side of the offices will have a double skin façade to offer enhanced solar protection and sound proofing. DUTY TO DELIVER The next project in the timeline will be HomeWork, situated in Buda at the foot of Rózsadomb, on the intersection of the Margit krt ring road and Rómer Flóris utca, and between the Mammut shopping mall and Margaret Island. Thousands pass the site daily, and with a strong corner architecture clearly marking the spot, Boving says he feels particular expectation – and, indeed,

Homework.

duty – to deliver something that truly gives back to the area. What was once to have been a single use site will now be something else. “The new HomeWork is a unique boutique development not least because of its size; it will offer 13 apartments and a total of 3,500 sqm of office space,” he explains. The name is a nod to the history of the site, for it includes a monumentally protected former school building dating from 1881 (itself built on the foundations of one of the first schools in Budapest). The façade will be maintained, and the high ceilings and large window areas will be carried over into a complementary but contemporary extension. Residential and office sections will have separate entrances, and there will be a retail unit on the corner and a restored garden area. “The aim is to give a future legacy to this historical building and to put it back into use,” Boving explains. Building permits were obtained last year, and the current hope it to deliver the project by Q2 2021. Codic’s third Budapest project is very much a pipeline development,

also with a historical angle. Back on Váci út, with Lehel tér metro stop at its doorstep, the V48 project will see another older building, this time a 1930s cigarette paper factory, repurposed, its original façade reinstated and worked in with more contemporary design features to create 15,000 sqm of mixed office and retail space. As with all Codic office developments, BREEAM accreditation will be sort (Green Court Office’s is currently under assessment for an “Excellent” score). With the plans still on the designer’s drawing board, the building permits will be sought in the course of the year as to allow construction to start in 2020. “We are always assessing demand, of course, but looking at the amount of take up, the current economic outlook and the forecast, we believe this project, especially with its very central location and unique architecture, will represent a very attractive addition to the market once delivered.”

www.codic.eu

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REAL ESTATE review Continued from page 33 ► ► ► “The biggest threat for tenants has been the lack of available, large modern, class ‘A’ spaces where they can secure expansion areas, 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,” comments Nikolett Püschl, development and leasing manager at Atenor Hungary. HEADQUARTERS Wing has commenced construction of a 21,400 sqm BTS headquarters for evosoft Hungary. In its largest recent completion, Wing delivered the 58,000 sqm Magyar Telekom Group headquarters. Located in

“If you look at the way the Budapest office market has progressed in recent years, there has been a lot of development and growth, but there has also been a lot of take-up and we see a good balance between requirements for modern space and a diversity of types of new space and the ability of developers to deliver this.” District IX this currently the largest single office block in Hungary. “With BTS projects we are able to agree a long-term lease with a

major tenant and this puts us in a position to tailor the building to the specific needs of the tenant. At the same time the tenant needs to commit to a long-term lease of more

Aréna Business Campus by Atenor.

REAL ESTATE review

Budapest One Business Park in Budapest by Futureal.

than ten years. This is in contrast to those buildings which are designed to a more flexible specification to meet the needs of multi-tenants,” Steinberg says of the development strategy of the Hungarian developer and investor. Elsewhere, Skanska is developing the third 14,000 sqm phase of it Nordic Light office complex on Váci út. Skanska has acquired a further development plot in District IX and will undertake development of the first 20,000 sqm phase of the three phased Skandanavia Gardens, once a prelease has been agreed. In another completion, Skanska has delivered its eighth Budapest office project, the speculative 35,000 sqm Mill Park, also in District IX. The LEED “Gold” accredited complex is close to fully let and has already been sold to Erste Real Estate.

“As a result of the strong demand in the market, the average vacancy rate in Budapest has fallen to 7.3%. Tenants need to make a quick decision in order to secure quality space.”

In the current market environment, class “A” office developers are able to conclude the necessary preleases and sell a property to investors and exit if necessary and go on to further projects, as is the development policy of Skanska. LONG-TERM Another long-term Budapest and CEE developer, GTC has officially opened its new Budapest office development, the 21,500 sqm White House on Váci út. The company is continuing

to develop the 37,000 sqm Twist and 29,000 sqm Pillar office developments close to the Váci corridor. In a rare office project in the historical center of Budapest, Horizon Development is currently developing the mixed-use Szervita Square, consisting of 15,000 sqm of office, residential and retail space. The LEED “Platinum” accredited project is due to Continued on page 48 ► ► ►

PRESENTED CONTENT

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SUCCESS STORY CONTINUES ARENA BUSINESS CAMPUS • The next major development project of Atenor is a campus of office buildings and commercial spaces covering 72,000 sqm on Hungária Boulevard. • The complex will consist of four buildings with an exceptional proportion and significance of green areas. • Excellent location, metro station is only 300 meters away, the Aréna Plaza shopping center is five minutes away. The first building is 20,000 sqm and will be handed over in 2020 Q2.

VÁCI GREENS E & F • A large-scale campus-style development with more than 130,000 sqm of exclusive “A+” class offices in the heart of one of Budapest’s most famous business districts.

• BREEAM “Excellent” green certification and an extensive green working environment • After the successful sale of the first four buildings (A, B, C, and D), the handover of office buildings E &F is scheduled for 2020 Q2-Q3.

Contact: Atenor 1138 Budapest Váci út 117-119.

Zoltán Borbély Country Director +36 1 785 52 08 borbely@atenor.hu

Nikolett Püschl Development & Leasing Manager +36 1 785 52 08 puschl@atenor.hu

REAL ESTATE review Continued from page 46 ► ► ► complete this year and the office space is prelet to a single tenant. CPI is developing the 16,000 sqm Balance Hall in the Váci Corridor. This third phase of Balance Office Park – again on Váci út – is scheduled to be delivered at the end of 2019, bringing the total space at the complex to 35,000 sqm; there remains the possibility of a fourth phase of the development. Hungary’s Futureal has undertaken development of the first 25,000 sqm phase of the 65,000 sqm Budapest One Business Park in Kelenföld. The urban mixed-use project is on a similar model to the Corvin Quarter development in District VIII where Futureal has completed phase one of the Corvin Technology &

“The biggest threat for tenants has been the lack of available, large modern, class ‘A’ spaces where they can secure expansion areas, 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.” Science Park. The developer has also undertaken development of the first 12,000 sqm phase of Advance Tower in Váci út. Of the circa 430,000 sqm currently under construction, 50% is already

prelet. A number of big deals are being concluded with occupiers and gross take-up is expected to be as high as 530,000 sqm for 2019 according to David Johnston, head of advisory and transaction services at CBRE Hungary.

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Agora Tower in Budapest by HB Reavis.

OFFICE DEVELOPMENT SITES MORE DIFFICULT TO SOURCE As developers look to go ahead with office developments to meet strong demand, there is increasing competition for suitably-sized sites that provide visibility and meet the requirements of tenants and staff regarding access to amenities and public and road transportation links. By Gary J. Morrell Third-party sustainability accreditation organizations such as BREEAM, LEED and WELL have requirements that include locational and urban development issues. The norm is now for developers to source sites with direct access to local amenities and metro, train, bus and tram

stops, which are all seen as basic requirement of tenants and staff working in office centers. “Every project and every office is individual as it depends on the type of activities and services that are conducted in the building. For example, buildings serving industrial or airport type facilities often need

to be located outside of the urban areas, without metro connections,” comments Zsombor Barta, president of the Hungarian Green Building Council (HuGB). “However, office buildings should be connected to a good public Continued on page 52 ► ► ►

REAL ESTATE review INSIDE VIEW

CROSS SECTIONS OF VÁCI CORRIDOR ARE NEW POTENTIAL HUB FOR TENANTS While development plots are running out on Váci Corridor, there are new office developments underway on the intersecting streets near the main artery of District 13. The Green Court Office, developed by CODIC in partnership with Venta and Pesti Házak and represented for leasing in co-brokerage by JLL, will deliver 21,000 sqm of leasable space by the end of 2020. With its record-low vacancy rate of 4% and stock reaching one million sqm, Váci Corridor has proven to be not only the biggest, but also the fastest growing office submarket in Budapest over the past few years. This and the sustained demand for category “A+” office space in that specific submarket may explain why more developers are recognizing the potential in new developments on the side streets of Váci út, especially in its central most section. Dózsa György út is probably the most obvious example of this phenomenon, with several new office projects announced. Among these, Green Court Office, construction of which started in 2018, may claim to be in the most advanced stage, and is due to be completed in Q4 2020. Realization of the project has already begun with the groundworks and the laying of the foundation. In the coming months, the building itself will gradually emerge and reveal its architectural splendor. The Green Court Office will complete the multifunctional Green Court complex, initiated in 2017 with the Green Court Residences, totaling 275 apartments and with several shop units on the ground floor, due to be handed over this year. Bordered by four streets, the complex is nestled in a green, quality environment that the planners and designers opted to continue into the very heart of the Green Court project itself. With the handover of the office building, a fully developed green environment will welcome new

tenants, including an inner courtyard which is one of the Váci Corridor’s most expansive green landscaped gardens of 3,300 sqm. GREEN ACCREDITATION In order to further emphasize the environmental credentials of the building, Green Court Office will be green certified to a BREEAM “Excellent” rating. It will also feature, besides many other facilities, 100 bicycle racks, shower and changing facilities and several electric car chargers in the basement. Unique features of the office building are the full height, continuous windows and the private terraces on each floor offering views of the beautiful inner courtyard. The double skin façade creates an acoustic barrier so that the office workers will be isolated from the traffic of the main road, though enjoy the advantages of a major transportation hub. The project’s focal location on the Váci Corridor, high visibility, strong

architectural expression and large floorplates make the development an attractive target for corporate tenants. JLL’s leasing experts underline that office projects around the area are of significant volume, yet not every sidestreet offers the opportunity for such a unique development combination. CODIC is among the first to realize a multifunctional complex in this district as a result of the developer’s conscious choice. “We are very pleased to take part in this unique project and contribute to the rise of an important extension of Váci Corridor, to be known as the Cross-Váci Business Area. We foresee the potential in this zone and eagerly promote it, so that future occupants could enjoy the same wide range of amenities and opportunities that the Váci Corridor provides but in a more relaxed and green environment,” said Krisztina Deák Major, head of landlord representation at JLL. “We understand that livability and environmentally conscious construction are becoming some of the most decisive factors for medium- and large-sized enterprises when selecting a new location. Green Court Office is exactly the development that can fulfil these expectations,” she added.

Green Court Office represented by JLL.

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REAL ESTATE review Continued from page 50 ► ► ► transportation network. Even remotelylocated workspaces (office buildings) should have public transportation connections; this might be designated bus services or something similar,” the HuGB head explains. Reflecting these locational development trends, the Budapest periphery suffers from an overwhelming vacancy rate of 38%, according to the Budapest Research Forum. This compares to around 4% in the ever popular Váci Corridor with its excellent public and road transportation links. This corridor is the most favored area for office development with around 30% of total construction, followed by South Buda with about 22%. These two areas are expected to receive two-thirds of the estimated

“Office buildings should be connected to a good public transportation network. Even remotely located workspaces (office buildings) should have public transportation connections; this might be designated bus services or something similar.” office pipeline. The challenge for developers is to source suitably-sized, well-located development plots at a time when competition for sites is becoming more intense and therefore more expensive. PROMOTING PROACTIVELY For their part, local authorities are pro-actively promoting suburban

districts to developers as part of urban redevelopment schemes. The concept offers a reciprocal benefit to the developer, the companies that locate in the project and the surrounding population. The transformation of Váci út from a post-industrial area to a major business district is a good example of this, and the District XIII local

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“It is not easy to find development sites, but as we experience there is still significant potential in the different parts of Budapest. Our aim is not primarily to find a good plot in the most popular and successful part of the city, but creating submarkets to be the most popular in the future with the added value resulting from our developments.” authority is continuing to promote the area as a business destination. But it is not the only location in town, of course. Atenor has undertaken the development of the 72,000 sqm Aréna Business Campus in District VIII. “It is not easy to find development sites, but as we experience there is still significant potential in the different parts of Budapest. Our aim is not primarily to find a good plot in the most popular and successful part of the city, but creating submarkets to be the most popular in the future with the added value resulting from our developments,” comments Nikolett Püschl, development & leasing manager at Atenor Hungary. “Of course accessibility is crucial, therefore we prefer locations with metro connections. On the other hand, spaciousness is another very important factor for us, as our goal goes beyond simply creating office space for rent. It is to enrich the urban landscape with sustainable buildings in a pleasant green and livable environment,” she adds. The outer ring road is also now seen as a developing business district. Wing, for example, delivered the

58,000 sqm Magyar Telekom Group headquarters here in District IX last year. The complex is located at a metro, tram and road intersection with direct access to the city center and the capital’s international airport. The company has an option for a further office development on an adjacent site. Wing has also broken ground on the 21,400 sqm headquarters it is building for evosoft Hungary Kft., part of the Siemens Group. This represents the latest built-to-suit, high-tech development project by the developer in Budapest. South Buda has been the established hightech hub of Budapest. SECOND PHASE The LEED “Gold” accredited evosoft HQ will form the second phase of the Hungarian Nobel Prize-winners Research and Development Park, spread across a two-hectare site on the Buda bank of the Danube, in the vicinity of the Infopark technology park and Budapest University of Technology and Economics. Phase one of the project, the 24,000 sqm built-to-suit, LEED “Gold” Ericsson House was handed over in 2017 by Wing. Despite the green environment

close to the Danube and the technical university, the South Buda area is generally lacking in development sites with direct metro access, which has been one of the major reasons for the success of the Váci Corridor. Atenor has acquired a plot around 5,000 sqm for the development of its latest office project in Rózsadomb. This site is located adjacent to local amenities and has easy access by public transport

REAL ESTATE review

Balance Hall by CPI.

and car to Árpád híd and the M0-M3 motorways and the HÉV suburban railway, according to developer. This is the first office development by Atenor on the Buda side of the river. With regard to the Central Business District, large office development projects in the historical center of Budapest are rare, with suitable sites difficult to source. Horizon Development is currently developing the mixed-use Szervita Square,

consisting of 15,000 sqm of office, residential and retail space, the LEED Platinum accredited project is due to complete in 2019. Attila Kovács, managing partner of Horizon Development describes the permitting and planning process as longer and more complex in the historic center. “Accessibility and public transport and metro connections is still the most important issues regarding the location for tenants and I do not think

that this will change in the near future,” Püschl of Atenor says. “In addition to a road connection, I think that the area and the building should be livable and contribute to the economy and therefore we prefer to develop campus-type projects. It is not easy to find such spaces but Atenor has bigger challenges in Belgium and Luxembourg and other parts of Europe, and it is easier in Hungary with a better price to value ratio,” she concludes.

RETAIL

REAL ESTATE review

Etele Plaza by Futureal.

THE RETURN OF RETAIL DEVELOPMENT IN BUDAPEST Although consumer demand in Hungary is continuing to rise, with around 7% year-on-year growth in per capita retail sales for 2018, the shopping center stock in Budapest and across Hungary remains low by European standards with no new shopping center completions since 2013.

REAL ESTATE review By Gary J. Morrell The hiatus in mall development has been due to concerns over the economy and therefore spending power and the possible longerterm impact of e-commerce on brick and mortar retail, with an eye on Western European retail markets. However, development is finally starting to take off again with several pipeline projects at different stages of the planning and construction process, although the next delivery is not scheduled until late 2020.

On the demand side, although average per capita purchasing power for Hungary remains low by both EU and Central European standards, real estate consultancy CBRE registered 15 new retail brands entering the Hungarian market in 2018; these primarily targeted landmark shopping centers over

high street locations. In Budapest, both leading shopping centers and main streets are performing exceptionally well, secondary centers and locations less so. â&#x20AC;&#x153;There are two major shopping center developments in the pipeline for Budapest: Etele Plaza by Futureal

Photo: Shutterstock.com

Further, a number of investors have concluded shopping center acquisitions with the aim of redeveloping and repositioning the asset in the market. Developers and retail center owners are very conscious of the need for the design and retail offering of centers to meet changing consumer demand.

â&#x20AC;&#x153;We see the [Etele Plaza] project as the next generation of shopping center as part of a brownfield regeneration project on a similar model to Corvin Promenade. However, the design concept and offer reflects the changing expectations of consumers and retailers in the time period between the two projects,â&#x20AC;?

Allee Shopping Center.

REAL ESTATE review

and Bogdáni by ECE,” comments Viktória Szabó, partner and head of retail agency at Cushman & Wakefield Hungary. “The concepts of the newly planned malls have changed to better serve changed customer demand. For the same reason, a number of existing major shopping malls are also under concept change and re-modelling. The main targets are to increase the food offer within the malls, and secure new, interesting leisure elements. Developers are designing future schemes to have more entertainment and F&B elements. Unique leisure elements are design targets, in order to differentiate them from

other shopping centers, attract more customers and increase dwell time,” Szabó adds.

of several landmark shopping centers in Budapest, such as Arena Mall and Campona,” CBRE says.

CBRE put the average vacancy rate in Budapest shopping centers at 1.5%, a remarkably low figure driven by the fact that the city has not seen any shopping center deliveries in recent years.

The planned new projects and ongoing refurbishments are not expected to exert downward pressure on rents. CBRE put rents in tier one shopping centers at EUR 105 per sqm per month and tier two centers at EUR 50 per sqm per month. Prime high street rents stand at EUR 100 per sqm per month for a typical 100 sqm unit in a prime Budapest high street.

INCREASING ACTIVITY “After years of limited pipeline volumes, we see increasing development activity on the retail market throughout the country. The overall active monitored pipeline currently adds up to circa 140,000 sqm, excluding the planned extensions

The first, long awaited delivery in Budapest will be the 54,000 sqm Etele Plaza by the Hungarian developer Futureal, with a scheduled handover of

REAL ESTATE review

Mammut Shopping Center.

the third quarter of 2020, ground having been broken on the development last summer. Etele Plaza, co-designed by the Hungarian Paulinyi-Reith & Partners and Dyer Studio Inc. of Portland, Oregon, will include around 180 retail outlets located at a transport hub at the Kelenföld railway station, Metro line 4 and the approach section of the M1-M7 motorways. The hub is used by 165,000 people daily, according to Futureal. The company has concluded a EUR 150 million financing agreement for the project with UniCredit Bank and Erste Group for the development. The mixed-use project also includes the 65,000 sqm Budapest One office park, making this essentially the second

“In general, retail will always be a good investment option, as it addresses the fundamental needs of people. […] Moreover, postindustrial economies in the CEE region are growing at a faster rate, with the retail sector being the one which benefits most from both industrial and urban development. The retail sector is still performing well in most of countries, and as long as the location of the asset is good and it is well maintained, such investments should be a safe option.”

brownfield development by Futureal after its Corvin Promenade urban regeneration project, which delivered a 44,000 sqm shopping center and 10,000 sqm of street retail. “We see the project as the next generation of shopping center as part of a brownfield regeneration project on a similar model to Corvin Promenade. However, the design concept and offer reflects the changing expectations of consumers and retailers in the time period between the two projects,” comments Tibor Tatár, CEO of Futureal. JLL put total modern shopping center stock in Budapest at 722,000 sqm, which is low by European standards, as this represents a total

shopping center density of 433 sqm per 1,000 inhabitants. MAIN MALLS The leading centers are generally considered to be the 68,000 sqm Árkád center, the 66,000 sqm Arena Mall (formerly Arena Plaza), the 58,000 sqm Mammut, the 47,000 sqm Allee, the 45,000 sqm WestEnd City Center and the 30,000 sqm MOM center. All have waiting lists for tenants and are therefore able to command the highest rents. With regard to supply, Éva Sréter, head of retail at JLL Hungary, argues that the market has reached a relatively high density level, and therefore refurbishment instead of

REAL ESTATE review Photo: Shutterstock.com

Fashion Street.

pure development is becoming more relevant. She cites as examples the refurbishment of Shopmark by Diófa Asset Management and the extensive redevelopment of Campona by CPI Property Group. The next pipeline shopping center project is the 53,000 sqm Bogdáni shopping center by the German developer ECE, located in the Óbuda area of Budapest, again at a transport hub. ECE is currently waiting for new permits on the development, its original ones having expired while the project was on hold. In contrast to Etele Plaza, the Bogdáni location has no obvious competitors, according to Sréter. ECE has developed five shopping centers across Hungary: Budapest; Győr; Pécs; Debrecen; and Szeged. In the capital, ECE’s 68,000 sqm Árkád center, currently the largest shopping center in Hungary, was originally completed in 2002 but extended and renovated in

2013, making it the last major shopping center delivery in Budapest. Another major planned project is Central Park by the Hungarian developer Granit Polus, located in Districts VI and XIII. According to the development plans, the mixed-use development will consist of retail, office and residential elements. Negotiations with the planning authorities are ongoing for the scheme. Another long-time planned Budapest project is Mundo owned by the Polish Echo Investment. The development plot in Zugló (District XIV) has the required planning approvals needed for work to begin, although there is no firm date for delivery. “Shopping centers are challenged by online retail that drives urban logistics and diminishes the role of traditional concepts. We are witnessing a food retail revolution with the new food

hall concepts and the ‘gamification’ of the food and beverage sector,” says Jan Kotrbáček, head of CEE retail at Cushman & Wakefield. MIXED-USE FUTURE “There are currently two major trends in the shopping center business: brick to drive click, as the shopping center is accompanied by online retail and ultimate experience centers, where consumers can get a unique experience. New developments are going to be mainly mixed-use urban projects combining retail, leisure, offices, residential and hotel use. Also, there is still a potential for extralarge destination shopping centers including all elements of a small city center, including entertainment,” Kotrbáček explains. “Shopping centers will have to change their position to become closer to the local community by creating an authentic environment and hiring

REAL ESTATE review local people. Competition will extend from the numbers (i.e. sqm and the number of stores) to the experience. In this regard, architecture will play an important role, because retailers and brands will need to present their product in an exceptional environment. Subsequently, brands will prefer ‘statement’ and ‘reference’ shops to be recognized and identified with on the market. They will try to appeal to new customer trends, such as ecoawareness and guilt-free consumption. This is going to be a difficult situation for shopping centers, which have so far been associated with rather the opposite perception,” he adds.

suggesting it has plans to extend the mall. The company certainly has a policy of redeveloping and extending its acquisitions as a long-term investor and owner. In a further retail acquisition, NEPI Rockcastle also purchased the Mammut shopping center almost a year later in September 2018. In another acquisition and redevelopment, Diófa Asset Management reopened the rebranded

Shopmark shopping center in District XIX in late October 2018 after an extensive refurbishment and reconstruction. Elsewhere, the CPI Property Group is redeveloping the Campona shopping center in the outer District XXII and will extend it to a GLA of 70,000 sqm. “Although the absolute volume of retail domestic completions still lags behind the levels in other core-CEE countries, some of the major Tier One

Photo: Resul Muslu/Shutterstock.com

The South African investor, NEPI Rockcastle acquired the 66,000 sqm Arena Plaza (now the Arena Mall) in 2017. This represented the first entry by the prolific CEE investor and developer into the Hungarian market and the company has since then also purchased a 22-hectare development plot adjacent to Arena,

“New developments are going to be mainly mixed-use urban projects combining retail, leisure, offices, residential and hotel use. Also, there is still a potential for extra-large destination shopping centers including all elements of a small city center, including entertainment.”

Váci utca.

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shopping centers will be undergoing significant refurbishments, creating more ground for tenants to expand to several locations within the capital. This follows the major repositioning of several tier two Budapest centers,” CBRE noted. GOOD INVESTMENT Retail is generally regarded as a good investment despite the lack of assets and concerns over the possible impact of e-commerce on the market. “In general, retail will always be a good investment option, as it addresses the fundamental needs of people. With the challenging situation on the market, the concept of a shopping center is very flexible and

can adapt to changing trends,” says Cushman & Wakefield’s Kotrbáček. “The competitive positioning of a shopping mall can be changed by re-conception, re-design and new management techniques to provide unique opportunities for value-add investments. Moreover, post-industrial economies in the CEE region are growing at a faster rate, with the retail sector being the one which benefits most from both industrial and urban development. The retail sector is still performing well in most of countries, and as long as the location of the asset is good and it is well maintained, such investments should be a safe option,” he adds.

From a positive development perspective there has been significant development activity in prime high street retail in central Budapest. “Supply in the downtown area is continuously growing, although not primarily with fashion and related products, but rather the F&B sector. All formats of food and beverage type operations are expanding from the traditional fast food concept up to the fine dining restaurants. Due to this trend, the overall downtown area is expanding, although development is expected to be concentrated on the following three main streets: Váci utca, Fashion Street and Andrássy út,” said Szabó.

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Andrássy út, viewed from Hősök tere.

“[…] A number of existing major shopping malls are also under concept change and remodelling. The main targets are to increase the food offer within the malls, and secure new, interesting leisure elements. Developers are designing future schemes to have more entertainment and F&B elements. Unique leisure elements are design targets, in order to differentiate them from other shopping centers, attract more customers and increased well time.”

The threat of e-commerce is currently not seen as being as strong as is the case in Western Europe, as shopping center stock is much lower in Hungary. “We are experiencing a more moderate retail expansion in most European markets in general. This is a result of the global changes experienced within the industry. The strengthening of e-commerce has resulted in an increased need for new, alternative concepts in shopping centers, targeting the renewal of the overall shopping experience. The future schemes are designed in the light of the growth of e-commerce,” Szabó concludes.

INDUSTRIAL

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INDUSTRIAL MARKET GROWTH LIMITED BY LOW AVAILABILITY The limited availability of contiguous industrial space in the Budapest area and rising demand has resulted in a record low vacancy rate of 2.4% in a market with an estimated total stock of 2.18 million sqm, according to Cushman & Wakefield.

Goodman Üllő Airport Logistics Center.

By Gary J. Morrell Despite rising demand, further development of the Budapest industrial market is continuing to be impeded by a limited supply of space and take-up is dominated by renewals.

more than nine million sqm as of the end of 2018. Of that, 3.16 million was developer-led and generally operates on a lease basis, while the rest was owneroccupied stock. The majority of the developer-led stock (some 2.18 million sqm) is located in the Budapest area.

A further obstacle to market growth is that developer-led logistics projects are mainly limited to the greater Budapest area. However, there are signs of demand in regional cities, stimulated in particular by the automotive industry. Against this background, developers are now considering the speculative development option.

CBRE estimates that modern industrial stock across Hungary totaled a little

The Central European industrial and logistics market is continuing to record

high demand, reflecting the indicators in wider European industrial markets. Total Central European industrial stock has surpassed the 27 million sqm threshold and most of the region has low vacancy at 5% or less. Poland and Czech Republic continue to be the dominant markets, with 2018 supply at around 2.2 million sqm and 735,000 sqm respectively, compared to 127,000 sqm for Hungary, according to Cushman & Wakefield. Andrea Pusztai, associate director of industrial agency at Colliers International Hungary, estimates the 2019 industrial pipeline for Hungary at 180,000 sqm. A significant proportion of this is pre-let.

REAL ESTATE review FUNDAMENTAL CHANGE “In terms of new supply, we anticipate 100,000-150,000 sqm to be delivered to the greater Budapest market. The region continues to benefit from the fundamental change of risk perception following the 2008 economic downturn,” says László Kemenes, country manager at Prologis Hungary. “A more disciplined approach to speculative development has contributed to a better-paced increase in new supply that is more easily absorbed by demand. There is a good chance that more than 50% of the new supply will be started on a speculative basis; however, that could alter throughout the year with any change in demand patterns. Speculative developments represent confidence in a given market and strong fundamentals stimulate this form of new supply. The increasing number of these developments has been driven by the low vacancy and strong demand throughout the CEE region,” Kemenes adds. With these low vacancy rates, very limited availability and the high proportion of preleased pipeline, some leading developers are moving towards the speculative development option in established logistics parks, often as an addition to a built-to-suit (BTS) project. At the same time, BTS activity is expected to accelerate from tenants looking to secure space for both market entry and expansion.

“Last year brought the highest completion volume in a decade with 127,000 sqm of new space handed over. However, in terms of absolute volume as well as the nature of the delivered supply, this must still be considered rather conservative in the current market environment.” and operated by Goodman, which will manage the new facility. The 87,000 sqm center is the largest of its kind yet built in Hungary according to the French supermarket chain, and will handle Auchan’s food and non-food logistics, while also supporting the company’s on-line commerce in Hungary. According to István Kerekes, country manager of Goodman Hungary, the developer’s business model provides what it describes as integrated “own plus develop plus manage” customer service. Goodman’s current portfolio in Hungary comprises warehouse and office space in two locations in Gyál and Üllő, both on the outskirts of the capital. URBAN LOGISTICS Prologis has commenced construction of a 10,600 sqm speculative facility at

Prologis Harbor Park. The company has a Hungarian portfolio of 580,000 sqm with close to 100% occupancy. László Kemenes sees a possible development in the Budapest market in the growth of smaller scale urban or city logistics facilities, following the trend in some of the larger European cities. Another regional industrial developer, CTP plans to go ahead with a 32,000 sqm speculative development at CTPark Budapest West, a significant proportion of which is already let. With regard to supply, the company has hit the five million sqm mark in Central Europe. “We have been working on buying strategically located land in the five capitals of the countries in which we operate. I am excited about the latest acquisitions in Budapest and we are now able to offer warehouse

“Looking ahead, the pipeline for 2019 looks similarly conservative in terms of volume, albeit with signs of increased willingness to undertake speculative projects, which would mark a turning point in the development cycle,” adds Baka. In a recent transaction, the international industrial park operator and developer, Goodman, has delivered a new logistics center for Auchan Retail Hungary at the Üllő Airport Logistics Center. The logistics park is owned

Cargo facility at Liszt Ferenc Airport.

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East Gate Business Park by Wing.

properties all around the city,” says Remon Vos, CTP’s CEO. The developer is also constructing a 22,000 sqm facility at CTPark Budapest South and plans to start construction of a further 20,000 sqm of space at CTPark Budapest East where there is 80,000 sqm build-out potential. At CTPark Arrabona in Győr (120 km west of Budapest), major Audi supplier Dana Hungary has requested a 9,000 sqm extension to its existing facility. Rudolf Nemes, country manager at CTP Hungary, estimates the current pipeline at 20% speculative standard big box, against 80% customized BTS. “CTP has started to build warehouses around Budapest on a speculative basis, without lease agreements in place at the acquisition or construction start. Due to strong demand, all of these developments are completed with low or zero vacancy. I could not imagine a better market environment than the one today,” he says. Ferdinand Hlobil, head of CE industrial at Cushman & Wakefield, argues that in the current landlord

favorable market the majority of development is undertaken on a BTS basis as developers are quickly able to conclude deals for available development space.

speculative new developments in greater Budapest at EUR 4.4-4.8 per sqm per month and for BTS schemes at EUR 4.5-5. Rents at the low supply of city logistics centers are EUR 4.75-5.5.

TRACK RECORD According to Ádám Székely, managing director of the Hungarian developer Infogroup, “Speculative development is when a developer intends to comply with all kinds of market requests. This could be a fully prepared site with a building permit, or ready warehouse: in Infogroup’s industrial parks we provide both solutions. Industrial developments are typically BTS products. Logistic warehouses are partly built on speculative basis. In Polgár, where we have positive track records and are experiencing significant demand, speculative developments are feasible options.”

“The biggest difference nowadays is that companies are ready to make their leasing decisions quicker than before. Pricing is not the major question, but flexibility and the ability to make changes in the daily operation have become a key factor. Although rental prices are increasing, the costs and duration of construction is not as predictable as before, which is a significant risk for developers,” Székely comments.

The lack of available warehouse space and rising cost of construction has put upward pressure on rents, which has resulted in about 13% year-onyear growth, according to Cushman & Wakefield. The company estimates prime logistics rents of EUR 4.25 per sqm per month as of the turn of the year. CBRE put headline rents for

Logistics developers are building increasingly-complex industrial projects in reaction to developing tenant requirements such as automized warehouses and a growing concern with the working environment in tight labor markets. As with other commercial real estate sectors, the major industrial park developers and operators are increasingly seeking third party sustainability accreditation from the likes of BREEAM and LEED. This is partly driven by tenants who

REAL ESTATE review are looking to save on utility costs and developers needing to comply with international environmental regulations. Further, the rising construction and labor costs are putting upward pressure on rents, increasing the need for ever more efficient logistics facilities and property management systems. “Unemployment remains at a historic low, pushing the economy to its limits and industrial operations are working at maximum capacity. This encourages innovation and automization of warehouse operations,” comments Cushman & Wakefield. 3D DESIGN Prologis has commenced construction of a 10,600 sqm speculative facility at Prologis Harbor Park. The complex will be submitted for BREEAM “Very Good” accreditation. Prologis describes the complex as the first BIM (Building Information Modeling) designed logistics center in CEE. The system is a 3D model-based process that enables architectural, engineering and construction professionals to more efficiently plan, design, construct and manage buildings and infrastructure. According to Prologis, sustainable features of the development will include high graded insulated wall panels and roof systems that, together with high performance gas fired heaters, can cut heating costs by 30%. Further, energy-efficient LED lighting and large skylights reduce electricity costs by 40% compared to the latest lighting standard. Smart metering will also optimize water, gas and electricity consumption in the complex. “The importance of labor in warehouses has risen in the last decade. Access to qualified labor in the 12 European countries where Prologis operates is a key requirement for real estate selection,” the company explains.

“CTP has started to build warehouses around Budapest on a speculative basis, without lease agreements in place at the acquisition or construction start. Due to strong demand, all of these developments are completed with low or zero vacancy. I could not imagine a better market environment than the one today.” “More than 150,000 people work under Prologis roofs in Europe and their environment has never been more important. A warehouse is no longer just a place for only storing goods. Higher value-added and complex activities now take place in logistics facilities, which require a much more diverse workforce than historical norms. We believe that the logistics market is on the verge of transforming the labor market. Automization/ robotics impacts labor demand. This is expected to reduce some pressure for lower qualified employees, but the need for higher qualified employees will only increase. As seen in other sectors, automization/robotics does not necessarily lead to a reduced need for staff; it leads to a changing composition of the employee skillset,” says Prologis.

Both Wing and CPI Property Group, developers and commercial center owners who operate across the different commercial real estate sectors, have ongoing projects. Wing is operating the 100,000 sqm East Gate Business Park located on the M0-M3 motorway in the vicinity of the Budapest Ferenc Liszt International Airport. The complex has the possibility for 150,000 sqm of warehouse space when fully developed. Wing also operates the South-Pest Business Park, which has the possibility for 52,000 sqm of space when fully developed. CPI is set to deliver a 13,000 sqm BTS building at the Airport City Logistics Park in Vecsés, which has a 55,000 sqm built-out potential.

CTPark Budapest East.

REAL ESTATE review The Ferenc Liszt International operator, Budapest Airport, has commenced construction of the 20,000 sqm first phase of its Cargo City project. The operator helped establish the Budapest Airport Region Cluster (BARC) in conjunction with local authorities to promote development of the airport and the surrounding area. ROAD, RAIL AND AIR The cluster sees the improvement of national and international road and rail transport and the creation of a network of modern logistics facilities as central to the development of the airport and the surrounding area. In contrast to its Central European neighbors, a developer-led industrial market has not emerged outside the capital, with only a handful of such projects established outside the greater Budapest area. However, demand from automotive and related companies is beginning to change this. Kecskemét (93 km southeast of Budapest), for example, is looking to become a new hotspot as developers hope to exploit their landbanks on the back of the expected supplier influx around the second Mercedes plant in the city. “We believe an industrial market will develop outside the capital, just

“We believe an industrial market will develop outside the capital, just take a look at Győr, Székesfehérvár or Tatabánya, or the current market developments in Kecskemét, Miskolc or Debrecen.” take a look at Győr, Székesfehérvár or Tatabánya, or the current market developments in Kecskemét, Miskolc or Debrecen,” says Székely. His Infogroup has undertaken development of the Kecskemét South Industrial Park adjacent to Mercedes. The complex will consist of 55,000 sqm of logistics-industrial space in three speculative phases. In addition, 30 hectares of industrial plots are available for sale or to be developed on the basis of a BTS cooperation. Nemes, of CTP Hungary, also sees a huge industrial market beyond the capital in Győr, Tatabánya, Székesfehérvár, Kecskemét, with the market in Miskolc also growing and Debrecen on the horizon. These are mainly driven by the automotive industry and therefore most buildings are customized.

“We have a number of requirements (mainly related to production/assembly) for the major countryside locations, mostly connected to the automotive industry, but not yet a speculative market for developer/investors. So it is difficult to serve immediate interests,” comments Pusztai, of Colliers International. “Moving forward the market is expected to remain BTS-dominated. In response to the increased cost of new development, developers are showing an increased interest in land banking, even in subprime Budapest locations, and are in a wait-and-see position, assessing their speculative build options,” concludes Gábor Halász-Csatári of Cushman & Wakefield.

Prologis Park Budapest Harbor.

HOTELS

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RISING TOURIST NUMBERS DRAWING HOTEL DEVELOPERS, INVESTORS The number of tourists visiting Hungary is continuing to rise, with more than 30 million guest nights registered in 2018. Indeed, overall there was growth of around 3% in tourist visits across the CEE region last year and this growth trend is expected to continue. By Gary J. Morrell Developers, investors and hotel operators therefore see a strong potential for hotel development; CBRE has traced a pipeline of 2,900 hotel rooms in 20 hotels under construction in Hungary. However, due to the complexed development process and labor issues, delivery dates are very difficult to estimate, with many completion dates slipping. Despite this, the hotel sector in Hungary is continuing to flourish. “The attractiveness of the Hungarian capital is reflected in the consistent double-digit passenger traffic growth

at Budapest Ferenc Liszt International Airport, which became the fastestgrowing airport in the region in 2018, with 14.9 million registered passengers throughout the year,” says Gábor Borbély, head of business development and research at CBRE Hungary. Budapest is regarded as part of a Central European “golden triangle”, along with Prague and Vienna, from a hotel investment perspective by many analysts. The CEE hotel markets are no longer the Cinderella to the more established office, retail and industrial market sectors; according to Rolf W. Schmidt,

ibis Styles Budapest Airport Hotel.

founder and general manager of TopHotelProjects, Austria is the leading Central European hotel development market with 68 projects, followed by Croatia with 25. Hungary and Czech Republic are fourth and fifth in the region, each with ten projects. An interesting comparison reflecting the development potential in the markets is that is that Germany alone has 373 projects. “It is exciting to see the evolution of the CEE hotel market with a growing number of sophisticated investors and arrivals of new brands tailoring their concepts to the needs of new generations of travelers (affordable life-style hotels, soft-brands, new generation of hostels and innovative serviced-apartments concepts),” says Bořivoj Vokřínek, head of Hospitality Research, EMEA at Cushman & Wakefield. “The relatively low brand penetration across the region provides space for expansion of innovative products and therefore present a tremendous opportunity for the CEE hospitality market to propel itself into a leading position as the most progressive market in Europe. Hotels are currently moving from alternative to mainstream investments as investors get increasingly comfortable with the CEE becoming a maturing hotel market,” Vokřínek adds.

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Intercity Hotel Budapest.

LIMITED AVAILABILITY According to Marius Gomola, managing director of Horwath HTL Hungary and HOTCO, the major problem with the development of the hotel investment market has been the limited availability of stock to meet the growing needs of investors. “Despite this low availability of investment grade assets, established European investors such as Deka and Invesco have become increasingly active in the hotel sector against a background of growing tourism visits and concerns regarding the retail sector,” he said at the third HOTCO Hotel Investment Platform CEE & Caucasus conference in Budapest in January 2019. Despite the number of delivery dates slipping, the strong completion pipeline and positive hotel market indicators are seen as creating opportunities for major international investors to make acquisitions in the hotel market. According to CBRE four

“The attractiveness of the Hungarian capital is reflected in the consistent doubledigit passenger traffic growth at Budapest Ferenc Liszt International Airport, which became the fastest-growing airport in the region in 2018, with 14.9 million registered passengers throughout the year.”

“An additional eight hotels with circa 1,000 rooms were originally scheduled for late 2018 but have been moved to 2019 due to considerable shortages in both the construction sector and general labor market,” Borbély concedes.

the capital and regional cities, development activity remains strong across the country with expected delivery of circa 2,000 rooms in 16 individual hotel schemes by the end of 2019. Budapest accounts for 75% of the overall pipeline volume scheduled for the year, remaining the most targeted region within Hungary,” he adds.

“Although we experience shifts in completion dates throughout

In the mid-level of the Budapest market, Hungary’s Bedori Investment

schemes totaling 360 rooms were handed over in Hungary in 2018.

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Meininger Hotel in Budapest.

and Germany’s Meininger Hotels have delivered 184 three-star rooms at the 6,500 sqm Meininger Hotel Budapest in Fővám tér, directly opposite to the Nagycsarnok (Great Market Hall) food market in District IX. CEE FIRST The hotel will be operated by Meininger Hotels based on a 20-year lease, and is its first CEE project (it has a portfolio of 16 hotels in European capitals). The development is the first hostel-hotel complex in Budapest aimed at urban travelers. “We are somewhere between a threeand four-star hotel in terms of quality but we have also taken some ideas from the hostel concept and therefore we have a guest kitchen and a lobby. We also provide multi-bedrooms as we feel that families are somewhat neglected in hotel markets. If you travel with children it can be difficult to find suitable hotel accommodation,” says András Holczer, feasibility manager on the project for Meininger Hotels.

The company achieved 88% room occupancy last year across its portfolio and 91% in 2017, the slight drop due to new openings, Meininger says. “When we target a city we require at least three million overnight stays per year, the city needs to have both strong leisure and business tourism to benefit from our concept and Budapest is certainly one of these markets,” Holczer explains. “We are a pure operating company and we do not own the assets or carry out construction so we always try to find a local partner,” he adds. With regard to further expansion, the company says it is looking to source a site for a hotel in Prague and possibly a further site in Budapest. In the next scheduled delivery at the top end of the Budapest hotel market, Hungary-based, Jordanian-owned hospitality developer Mellow Mood is due to complete the long-awaited, 110-guest room and suite Párisi Udvar Hotel in the historic center of Budapest.

ART DECO The complex, in an Art Deco building dating back to the 19th century, has been designed by Hungary’s Archikon and a franchise agreement has been reached with Hyatt Unbound Collection. The project has been under development for several years, reflecting the difficulties associated with the redevelopment of historic, listed buildings in the heritage protected center of Budapest. However the large number of historic buildings in key central locations does provide the opportunity for the redevelopment of boutique and medium-sized hotels in the historic center, providing a use-value and an opportunity for the renovation of class turn-of-the century listed buildings. With this in mind, Horizon Development has acquired a building in the central business district for the redevelopment of a building into a circa 150-room hotel. Attila

REAL ESTATE review Kovács, managing partner of Horizon, describes the project as transferring the skills learned from the company’s development of the Eiffel Palace office project to the hotel sector. In another high-end pipeline project due for delivery this year, Accent Hotel Management is constructing the four- to five-star 210-room Hilton Garden Inn Budapest in District VI. Accent has agreed a franchise agreement with Hilton Hotels for the complex, located 100 meters from the Hungarian State Opera. Similarly, Matild Palace, another reconstruction project involving a 19th century building, this time by the Turkish Özyer Group, is scheduled to deliver the first 130-room Marriott The Luxury Collection branded hotel in Budapest in District VI. In the mid-range segment, the German Deutsche Hospitality in conjunction with the B&L Group has acquired construction permits for the 300-room 16,000 sqm InterCity Hotel Budapest at the Keleti Railway Station. The company has the policy of developing its InterCity Hotel brand at what it sees as key train station and airport locations. The Budapest project, the first in the region, is scheduled to complete in 2020. A contract with DVM group has been agreed for the design and construction management of the development. MANAGEMENT STRATEGY With regard to management strategies, the pros and cons of the choice of a management contract, lease, franchise or hybrid by a developer is seen as depending on the type of business and location, and the extent to which a developer wishes to be hands on in the business, according to Arik Ramot, lawyer and investment banker at Ramot & Co Investment House. It is seen as more difficult to source debt finance the further a developer is from the management of a project.

“The relatively low brand penetration across the region provides space for expansion of innovative products and therefore present a tremendous opportunity for the CEE hospitality market to propel itself into a leading position as the most progressive market in Europe. ” Hungarian developer Redwood Real Estate Holding has agreed a management contract with Hard Rock International for the operation of the 136-room Hard Rock Hotel Budapest in Nagymező utca in District VI, due to be completed in the fourth quarter of the year. The four-star “life-style” hotel 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 the Hungarian Studio 100, will include a Hard Rock Café restaurant with up to 120-seating capacity. Wing, which is active in all commercial development markets, has agreed a forward development

contract to develop a hotel in Boráros tér in District 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, the only hotel with direct access at Ferenc Liszt International Airport, and also developed a hotel project in Székesfehérvár (64 km southwest of Budapest). “The airport hotel project is a very unique property and in this way it works a little bit differently from the way other hotels work, but we feel that we now have sufficient knowledge to continue,” says Noah Steinberg, chairman and CEO of Wing.

Parisi Udvar Budapest Hotel.

SUSTAINABILITY

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Budapest One Business Park by Futureal.

SUSTAINABILITY ACCREDITATION INCREASINGLY THE NORM Sustainability accreditation from an independent, third-party sustainability organization such as the U.K.-based BREEAM (Building Research Establishment Environmental Assessment Methodology), the American LEED (Leadership in Energy & Environmental Design) or, increasingly, WELL, is now the norm for development at the top end of the Hungarian office markets and increasingly at the higher strata of other sectors such as logistics. By Gary J. Morrell Regional and established Hungarian developers such as Skanska, Atenor, GTC, HB Reavis, CPI, Prologis, Wing, Horizon Development and Futureal all have common sustainable development policies across Hungary and Central and Western Europe. This growing use of green and sustainability accreditation systems by developers and building owners is in response to tenant demand and the need to conform to environmental regulations,

and can be seen as market forces operating in the interest of, and the safeguarding of the environment.

Dr. András Reith, director of sustainability at the architectural studio of Paulinyi-Reith & Partners.

Developers are, at the same time, constructing on better quality and higher specified buildings that have a lower negative impact on the natural environment.

“Green architectural solutions will gain a stronger emphasis in 2019, and this is also strengthened by new regulations and client needs,” Reith adds.

Developers have become increasingly concerned with interiors and the perceived wellbeing of staff in office centers, as evidenced by the fact that more are seeking WELL accreditation in addition to BREEAM and LEED sustainability accreditation.

REAL ESTATE review Skanska, for example, is doing just this with Nordic Light Trio, the 14,000 sqm third-phase of the Nordic Light office center, which is being designed to meet the WELL Building Standard. “Employee wellbeing was at the forefront when designing Nordic Light Trio and this will be our first office project in Hungary to receive WELL certification,” confirms Marcin Łapiński, managing director of Skanska Hungary. Elsewhere, the same developer has been awarded WELL Core & Shell “Gold” Certification for its Visionary office development in Prague, the first such certified project in the CEE region. The project achieved LEED “Platinum” certification with 95 points shortly after its completion. RIGOROUS RESEARCH “Created through seven years of rigorous research and development working with leading physicians, scientists, and industry professionals, WELL is a performance-based certification system that marries the best practices in design and construction with evidence-based scientific research,” explains Alexandra Tomášková, managing director of Skanska in Czech Republic.

“Trends have become more transparent, taking into account the effects of the building industry both on people and the environment and reacting to these effects with the help of innovative technologies and architectural solutions.” “Visionary earned the distinction based on seven categories of building performance – Air, Water, Light, Nourishment, Fitness, Comfort and Mind, plus Innovations – and achieved a Gold level rating,” Tomášková adds. The 21,000 sqm White House by GTC became the second Budapest office development after Green House (developed by Skanska), to be awarded LEED “Platinum” accreditation.

For its part, the local District XIII authority has successfully overseen the development of a former industrial area into a thriving commercial center by attracting developers to the socalled Váci Corridor with its excellent public and road transport links.

The complex is located in Váci út, adjacent to the metro, on the site of the 100-year-old former Schleck Elevator Factory and includes a refurbished area that provides a stand-alone loft with 2,000 sqm of office space.

“Built on the Váci Corridor, GTC White House has excellent public transportation opportunities within a short walking distance, complemented by a bicycle lane passing by the building,” says Norbert Szircsák, senior associate of Colliers Green Building Advisory Services. The certification process for the building was advised by Colliers’ advisory team.

GTC are regarded as contributing to the revival of the area as well as the former factory building with a complex that integrates old and new.

“Plenty of bicycle racks, common area showers and changing rooms serve the needs of environmentally conscious employees as well as chargers for

GREEN BUILDING CERTIFICATIONS IN THE CEE REGION, APRIL 2019 BREEAM

BREEAM

LEED

DGNB

Total

Hungary Austria Czech Republic Slovakia Slovenia Croatia Romania Serbia

43 8 97 34 2 0 62 0

56 38 59 30 0 3 86 4

99 46 156 64 2 3 148 4

53 29 51 17 0 3 39 13

4 57 1 1 0 0 3 0

156 132 208 82 2 6 190 17

Sub total CEE

246

276

522

205

793

New Construction

In-Use

total

Source: Hungarian Green Building Council (HuBC)

REAL ESTATE review

Nordic Light Trio.

the growing number of electric car owners,” said Szircsák adds. The Futureal Group has been awarded WELL Building precertification for its three current Budapest office projects: the first phase of the Budapest One Business Park; the initial phase of the Corvin Technology & Science Park; and the first phase of Advance Tower. “Healthy building certification systems complement and in some cases overlap with green-building rating systems [such as LEED and BREEAM]. The dynamic growth of WELL certified projects in 2018 was remarkable,” comments Emese Kovács, energy adviser at MN6 Energy Agency, and a qualified WELL assessor. BIG GROWTH “More than 12 million sqm of WELL project space has been registered, which is a 108% growth from 2017. In the CEE region, there are almost 50 registered or certified WELL projects; in Hungary there are nine projects on the way to becoming WELL certified,” Kovács details.

She believes the impact of the holistic approach of WELL certification on interiors result in healthier spaces. Even in beautiful and very trendy offices, there are problems in terms of ergonomics, acoustics, thermal comfort or the amount of fresh air, she says. “A WELL certified office has to offer a certain level of indoor air quality, the maintenance protocols must be measured and reported and the system is evidence based and controlled, so the operation must be taken more seriously,” Kovács points out.

“For this year, we expect five or six new certifications, most in WELL core-and-shell certified buildings as new tenant space. Tenants from the IT and financial sectors are showing an interest in the certification and how offices can be used to ensure a positive experience for both employees and partners. WELL encourages a more collaborative approach between tenant and landlord, it always results in a win-win situation,” Kovács insists.

“Through the biophilic design, nature can be part of interiors, and it improves air quality at the same time. Art pieces and colors are meaningful in order to relieve stress and healthy snacks and fitness opportunities can also be provided for employees.”

With regard to how WELL accreditation complements the other third-party accreditation systems, Zsombor Barta, president of the Hungarian Green Building Council (HuGBC) sees it as a very good addition to BREEAM and LEED, and says its coexistence with the established schemes is, therefore, very beneficial.

The MN6 Energy Agency she works for supports companies and tenants to “go WELL” by helping them create new interiors, whether in new or refurbished buildings in Hungary, mainly in Budapest.

“The WELL system is a holistic scheme for the interior spaces, focusing on the building users, and therefore a project should ideally have a green building certification plus the

REAL ESTATE review interior spaces certification in order to fulfill the sustainability aspects and approaches,” he said. With regard to the sustainability of various market sectors, Mátyás Gereben, country manager at CPI Hungary, sees the biggest effort being made in the office segment, where all aspects of development have gone through a sustainability check process, including building materials used, utility consumption, sustainability on maintenance, alternative energy sources and a decrease in the ecological footprint. CATCHING UP But other sectors appear to be catching up, or at least attempting to do so. Major industrial park developers and operators are now seeking thirdparty sustainability accreditation such as BREEAM and LEED as tenants are looking to save on utility costs and developers increasingly need to comply with international environmental regulations. Prologis, for example, is currently developing a 10,600 sqm speculative facility at Prologis Harbor Park and the complex will be submitted for BREEAM “Very Good” accreditation. According to Prologis, sustainable features of the development will include high grade insulated wall panels and roof systems that, together with high performance gas fired heaters, can cut heating costs by 30%.

“Created through seven years of rigorous research and development working with leading physicians, scientists, and industry professionals, WELL is a performance-based certification system that marries the best practices in design and construction with evidence-based scientific research.”

Kemenes, senior vice president and country manager at Prologis Hungary. The development of sustainable buildings is seen as having a significant impact on many other areas of the economy. “It directly affects the energy and utilities sectors through reduced consumption, and the materials sector also has to accommodate to the different needs,” comments Edina Hornok, head of sustainability consultancy at the building services provider DVM group. “The healthier building interiors and the initiatives for a healthy lifestyle in these buildings impacts the healthcare sector and the food industry. The different transportation habits of employees

effect the automotive industry, while the IT sector is involved through smart building solutions,” Hornok adds. Barta, of HuGBC, says that many investors now have green building certification as part of their preselection procedure. “Not only investors, but also tenants and customers require certifications more and more. This is helpful for the wider adaptation and implementation of green building certifications. Notably, the retail sector is adapting sustainability issues and some logistics and industrial companies are also using certifications. However, this is still not a common standard for the overall commercial real estate sector,” he concludes.

Further, energy efficient LED lighting and large skylights reduce electricity costs by 40% compared to the latest lighting standard. Smart metering will also optimize water, gas and electricity consumption in the complex. “At Prologis, sustainability is central to what we do. That is why we submit all of our new buildings for BREEAM accreditation. Our customers know that working with Prologis can help them run their operations efficiently and more sustainably,” says László

Prologis Park Budapest-Harbor BIM building.

INTERIOR/ FIT OUT

REAL ESTATE review

INTERIOR ELEMENTS INTEGRATED INTO DEVELOPMENT PROCESS Developers have become increasingly interested in interiors and tenants with the perceived wellbeing of their staff in office centers and other buildings. By Gary J. Morrell WELL accreditation is more and more being sought in addition to BREEAM and LEED third-party sustainability accreditation. Further, with interiors now regarded as a central element of building development, interior and exterior design are increasingly part of the same design process. The interior of an office development reflects the need for a creative and healthy environment for staff. “The design process for a new development must be a unified process which should start with the overall vision for the scheme,” says Gergely Árendás, managing director of the Property Market. “Our BudaPart development’s buildings are all designed focusing on delivering a sustainable new neighborhood for those choosing to work and live here,” Árendás explains. Ida Kiss, head of design at DVM group, says: “With regard to interior and exterior design, there are certain similarities, but they are rather different when it comes to collaboration dynamics with the clients. The interior design process evolves at a rapid pace, in which we have to take into consideration more personal requirements. Exterior design, what we call base build design in the case of commercial projects, takes much longer and the investment

value has greater importance.” Kiss argues that budget is always important, especially as fit-out costs have boomed in the last two years. Nevertheless, there are other factors that are gaining more importance since companies are aware that the work-place they are creating is an important employer branding tool.

“The design process for a new development must be a unified process which should start with the overall vision for the scheme.” It enhances employee engagement and supports collaboration within the company. HEALTH IMPACT It is also acknowledged that the workplace environment has a great impact on the mental and physical condition of employees. Conscious design can reduce absenteeism and help people perform better and focus. The new BREEAM accredited Magyar Telekom Group headquarters by

Wing (designed by TIBA Architects Studio Ltd.) includes a 300 person capacity conference center, two restaurants, a fitness and wellness center on the top floor with a running track, a 2,000 sqm internal garden, three internal courtyards, 1,350 parking spaces, 350 bicycle places with changing facilities and 50 electric vehicle charges. “All our built-to-suit headquarters buildings are built to the highest international standards and there is a lot of cross over with the international markets in terms of people working in these buildings,” explains said Noah Steinberg, chairman and CEO of Wing. “They are modern buildings and environmentally sound and very efficient in terms of the use of space as well as their environmental footprint. The nature of the way people use space has changed a lot with more flexibility in the spaces and collaborative space to encourage creativity,” Steinberg continues. One of the main priorities is still the location and the fees of the rented spaces. However, as the workforce and keeping the workforce for a longer period has become a more important issue in the region, the provision of a healthy and also esthetically appealing working atmosphere has also become an important factor as well in the

REAL ESTATE review

Mastercard office interior by DVM group.

view of Zsombor Barta, president of the Hungarian Green Building Council (HuGBC). Edina Hornok head of sustainability of DVM group, and also a board member of HuGBC sees designers using more organic materials and biophilic elements like plants or natural patterns. “The layout is usually more diversified to ensure places for both production and relaxation, and there is great emphasis on the lighting and acoustical requirements of different activities. Designers are required to apply less common concepts and a new approach when creating a human-focused, healthy environment,” she says. WELLBEING AT FOREFRONT Skanska is developing the third 14,000 sqm phase of the Nordic

Light office complex to meet the WELL Building Standard.

building users to receive natural lighting and good air quality.

“Employee wellbeing was at the forefront when designing Nordic Light and this will be our first office project in Hungary to receive WELL certification,” says managing director Marcin Łapiński.

“Ideally, interior and exterior design should be part of the same process. The indoor air quality of office space is one of the most important parts of what we call a ‘healthy building’. Newly applied interior paints and coatings, interior adhesives and sealants, interior flooring, interior thermal and acoustic insulation and all newly purchased interior furniture and furnishings can degrade the indoor air quality, even in a new building,” says Emese Kovács, partner at MN6 Energy Agency and a WELL appraiser.

The complex, designed by PauliniReith & Partners, has energy efficient heating and cooling systems. According to the architects, employees and investors are both focusing more on the quality on the environment. Further, it is seen as important to focus on the principle of biophilia, which aims to bring nature closer to people living in cities with the help of natural building materials, largescale green areas and natural lighting sources. In this way, architectural tools are making it possible for

“So planning the interior space and building materials use go handin-hand. Although standard design and fit-out of office spaces are still prioritized by developers, the aim of tenants is to support the wellbeing of

REAL ESTATE review

Forest Offices in Debrecen.

employees in office spaces, inspiring creativity and strengthening the employer branding of the company,” she continues. By seeking WELL certification, Ottó Feuertag, founder of Europa Design is seeking to strengthen the company’s commitment to the worklife balance idea in office spaces. “WELL accreditation aims to support the wellbeing of employees in the building, inspiring creativity and strengthening the employer branding of the company at the same time. The quality and architectural value of the new HQ building is a significant upgrade from Europa Design’s previous office, that better reflects the brand and its core corporate values,” Kovács says. MN6 Energy Agency has worked with Europa Design on the accreditation process.

“Companies, as tenants, often think they have few possibilities to break out of the standard fit-out zone, but they have the possibility to invest in their employees, and create a really inspiring office space, with a fresh and clean air supply, acoustic and thermal comfort, healthy nourishment, natural light and inspiring spaces that can be varied according to the changing requirements or preferences of staff. Buildings and offices can be used to ensure a positive experience for both employees and partners,” she adds. The Europa Design HQ is expected to fulfill the WELL requirements and complete the certification process this year. The cost of getting WELL accreditation for a 500-1,000 sqm space (big enough, for example, for 50-100 working places) is estimated at USD 11,000-12,000 for the certificate itself, with the advisory fee on top of putting the total cost

in the region of USD 15,000-20,000. This can be measured against staff retention and the associated costs of head hunting and training and the energy and resources needed to replace staff. BEYOND BUDAPEST Outside of Budapest, Forest Offices in Debrecen (231 km east of the capital) is the first LEED “Gold” certified office in the Hungarian countryside, and the first new office building in the country certified under LEED version 4, LEED’s most stringent green building standard. The 22,000 sqm complex was handed over last year and designed by BORD Architectural Studio. The LEED certification program for Forest Offices placed a significant focus on features which would improve occupant productivity and

REAL ESTATE review wellbeing. The building has full height windows to maximize natural light and assure all occupants have the highest quality views, while the air-handling systems provides an abundance of fresh. “WELL certification will become more and more popular as long as there is competition for tenants in the developing property market, and the labor shortage forces companies to provide more attractive workplaces to their employees,” reckons DVM group’s Hornok. “However, the unreasonably high registration and certification fees, and the complicated performance testing procedure can result in a slower spread than was the case of BREEAM or LEED,” he adds. In addition to the office sector buildings and interiors in the hospitality industry, residential and even healthcare developments are also applying for WELL certification.

“Companies, as tenants, often think they have few possibilities to break out of the standard fitout zone, but they have the possibility to invest in their employees, and create a really inspiring office space, with a fresh and clean air supply, acoustic and thermal comfort, healthy nourishment, natural light and inspiring spaces that can be varied according to the changing requirements or preferences of staff.” “The majority of the WELL certified projects are of shell and core type. If the tenants or other stakeholders are really willing to operate and manage the building according to well-established international standards, and therefore to providing healthy and productive interior spaces, then a real change can be

visualized. But the interior material designer and manufacturing companies are definitely affected by this movement, as they are reacting to the new challenges and needs, which comes together with the WELL scheme and new tenant and client expectations as well,” concludes Barta.

Magyar Telekom HQ atrium by Wing.

ARCHITECTURE/ URBAN DEVELOPMENT

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DEVELOPMENTS MUST BE INTEGRATED INTO THE CITY Developers and architects are increasingly incorporating urban development elements into the design of commercial projects, which also need to be developed and managed according to the needs of the market in order for stake holders to make a return on their investments. By Gary J. Morrell The development process brings in environmental issues across different private and public market sectors relating to the look and feel of the city, its architecture, public and private transportation, access to amenities and proximity to residential areas. Sustainability accreditation organizations take these issues into account when making assessments. From a positive perspective, office developments are now being undertaken in urban locations that are more integrated into the wider city. The conventional wisdom is that staff who often work flexible hours prefer to be located in areas where they can utilize amenities and commute by public transportation or bike.

The evidence from the vacancy rates is that office staff have a clear preference for offices within the city. With the scarcity of labor and rising costs, office workplace accommodation is seen as a major element in the recruitment and retention of staff. Thus, a central requirement for a successful Budapest office project today is a development site with direct access to metro, train, bus and tram stations. This is also a requirement of third-party sustainability accreditation organizations. Further, new developments now include bicycle parking, changing facilities and electric car charging possibilities. Certification body LEED in its assessment criteria marks projects on the basis of density and connectivity,

The Ferenc Puskás Stadium (formerly the Népstadion or People’s Stadium) before it was demolished in 2016 to make way for the Puskás Aréna, currently still under construction. Commercial developers have complained that the large scale state project has sucked resources, especially labor, away from the rest of the market.

brownfield redevelopment, alternative transportation (public transport access, bicycle storage and changing facilities), protection and restoration of habitat and maximum open space provision. Rival organization BREEAM has the stated aim of enhancing the social value of a project in a given area while mitigating its environmental impact. According to it, transportation accreditation points encourage better access to sustainable means of transportation for building users. There is thus a focus on the access of public transport and other alternative transportation solutions that help reduce car journeys and therefore lower congestion and CO2 emissions over the life of a building. “Public and alternative transportation must be further improved in order to increase the air quality of the city. Budapest already has a very good public transport network, however, individual motorized transport [cars] is also continuously growing,” says Zsombor Barta, president of the Hungarian Green Building Council (HuGBC). “Therefore, public transportation must be prioritized, the attractiveness of this transportation must be increased further and alternative transportation must be further developed, as we still do not have a good enough quality bicycle lane network and efficient electric car charging points. Further, the city authority should put more efforts into improving air quality,

REAL ESTATE review which begins with a tidy and clean public road network; dusty and dirty roads in Budapest are not improving the air quality,” Barta adds.

should make a city more livable; therefore, in an ideal case, it should have a huge effect also on the city’s appearance as well,” he says.

TENANT PRIORITIES Tenant priorities have not changed a lot over the last few years; main priorities still include the location and rental fees, in the view of Barta.

Agora Hub and Agora Tower, the first speculative phase of the Agora Budapest development, which is aiming at BREEAM “Outstanding” and WELL “Gold” accreditation, will deliver 65,000 sqm of office, retail and service space by 2020.

“However, the workforce and workforce retention for a longer period has become a more and more important issue in our region. The provision of a healthy and esthetically appealing working atmosphere has also become an important factor. Further, the efficiency of the leased spaces (regarding productivity but also consumption) is also something that is now on the ‘wish-list’ of tenants,” he says. “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 as well and they respond to the needs of the building’s users, but they also interconnect. Sustainability

often forgotten about this priority in the past, and prioritized, for example, individual traffic or infrastructure. Cities must be transformed to livable urban spaces, where the wealth and health of the inhabitants is the highest priority,” explains Barta.

Jan Hübner, country CEO at HB Reavis Hungary, describes the architectural concept by Make Architects, with studios in London, Hong Kong and Sydney, and Hungary’s own Finta and Partners Architect Studio as having a reciprocal benefit to the developer, companies that locate to the project and the surrounding population. “Urban spaces must be livable and therefore their transformation should also go in this direction. The most important ‘part’ of a city are the inhabitants, the people, or citizens. Their health and wellbeing is the most important criteria. City planning has

As developers are looking to go ahead with office developments to meet strong demand, there is increasing competition for suitablysized development sites that provide visibility and meet the requirements of tenants and staff regarding access to amenities and public and road transportation links. Horizon Development is developing the 15,500 sqm Szervita Square office, retail and residential complex. The project is a rare new-built development in central District V, where it is becoming increasingly difficult to source development sites. The LEED “Platinum” certified development will consist of retail space on three floors, office space on four levels and luxury residential

Szervita Square by Horizon Development.

REAL ESTATE review units on the fifth and sixth floors. The seven modern levels are designed to fit organically into the historic setting of Hungarian Art Nouveau buildings in this heritage protected area of the city. A park in front of the building is designed to add a public space in the area. COMPETITION GROWING “With our focus on developing and restoring premium downtown properties in the Central Business District of Budapest, we always seek new opportunities with these parameters. As the number of available plots is becoming scarce in this prime area, competition to source new sites is naturally growing,” comments Attila Kovács, managing partner of Horizon Development. There are a lot of positive examples in the Central European region for keeping the historic values of a city by enabling the development as well according to HuGBC’s Barta. “We do not have to travel far, as Vienna is a good example for that. Part of sustainability is definitely the maintenance and management of historic values, and part of this is also the historical built environment. Landmark buildings might be an important factor, especially for tourism; however, I do not think that it is a must have, especially in our CEE region. On the other hand, buildings, which are designed also as an ‘art object’, with a very high quality of designed space, can fast become a landmark building as well. I am prioritizing high quality design and therefore for me this is more important than a design which tries to set a new landmark building,” he adds. With the very limited possibilities for new-build development in the historic center, new development areas are emerging in out-of-center districts at key transportation hubs. Wing has completed the 58,000 sqm Magyar Telekom Group headquarters,

“It is vital for us to have our office buildings on main public transport lines and to ensure the best accessibility for our tenants. Usable and well located development sites have become more valuable and, of course, more expensive. On the other hand, there are some new, upcoming office regions in the pipeline.”

located in District IX, adjacent to the Groupama Ferencváros Stadium. A daily average of around 1,000 builders and 150 subcontractors worked to complete the built-to-suit project over the course of 28 months. Wing has the opportunity to develop a further project on an adjacent site in the area, which is now developing into a business district with its excellent road, metro, and tram links. Such well located, large sites are becoming increasingly difficult to source in the booming Budapest office market. Futureal is developing the 68,000 sqm Budapest ONE Business Park located at another transport hub at Etele tér, adjacent to the Kelenföld Railway Station and the Metro 4 stop. Budapest ONE will form part of the Kelenföld urban redevelopment project that will also include the 53,000 sqm Etele Plaza shopping mall. Futureal aims to create a business, service and leisure hub on the 22-hectare site, where an estimated 165,000 daily passengers pass through, according to the company. “Based on the success of our flagships project, the Corvin Promenade, we see an enormous market demand for locations with direct access to key transportation hubs. Due to the country’s largest multimodal intersection located next to Budapest ONE Business Park, the

city center can be reached via direct links in under ten minutes,” says Tibor Tatár, CEO of Futureal. In this market with high demand and the resulting rising prices, developers need to weigh up the balance between the suitability of plots and the price of land. “It is vital for us to have our office buildings on main public transport lines and to ensure the best accessibility for our tenants. Usable and well located development sites have become more valuable and, of course, more expensive. On the other hand, there are some new, upcoming office regions in the pipeline,” says Géza Barabás, country manager at S Immo Hungary. NEW CITY QUARTER Another mixed-use project is BudaPart, the developer of which, Property Mark, describes as a “new city quarter” on a 54 hectare site on the southern Buda bank of the Danube at Kopaszi Gát (Kopasz Dam). The project will include office, retail and residential elements, in addition to large green and park areas. The complex will include the 120 meter high, 83,000 sqm MOL Tower, designed by the London-based Foster & Partners and the Hungarian Finta Studio. Debate has continued over the issue of height restrictions on buildings in Budapest, and this will certainly be unusually high.

REAL ESTATE review

Magyar Telekom HQ By Wing.

The construction industry is regarded as going through a major boom, as Ferenc Furulyás, managing director of commercial property and investment management firm JLL Hungary, explains. “Demand relative to construction work is much higher than the available supply. This is explained by the large amount of governmental developments, and the missing professional workers who either moved out of Hungary in the hope of higher salaries, or quit their profession and moved on to other sectors,” he says. “Nowadays, developers compete with each other to work with the best contractors, whereas a few years ago we saw a price war between contractors to win work. Construction costing and budgeting has become challenging and developers take on increased risks on cost exposures and unforeseen events that may detrimentally affect their business plans. The importance of spending quality time on project preparation

and allocating a realistic budget contingencies has never been so high,” Furulyás warns. The construction industry has become the second largest contributor to GDP in Hungary following two years of double-digit expansion. However, one of the major challenges facing developers is the rising cost of construction. The annual cost inflation for office and industrial construction has reached 18% according to consultancy CBRE. “The Hungarian construction market is experiencing a critical shortage of available labor. An estimated 40,000 skilled workers are missing from the sector, out of which circa 25,000 are working abroad. This shortage has been driving up labor costs, yet so far the wage increase has failed to attract back skilled labor from Western Europe, where construction is also fueled by the increased pipelines across major European economies,” comments Barna Harangi, head of project management and consultancy at CBRE.

One possible solution to the labor shortage is the improvement of technical training and education and the encouragement and promotion of the construction industry as a career choice. Many developers see the construction of the new 68,000 seater Ferenc Puskás national football stadium by a consortium of the constructors ZÁÉV and Építő as contributing to the labor force shortage in Hungary. Significantly, a number of large-scale sport and infrastructure projects are planned in Budapest. The aim is to make Budapest “one of the most livable cities in Europe” Gábor Bagdy, deputy mayor of Budapest said at MIPIM 2019. The Municipality of Budapest, the Hungarian Investment Promotion Agency and the Association of Property Developers’ Round Table were present with a joint stand, Budapest-Hungary Time To Invest, where leading developers such as Atenor, GTC, HB Reavis, Horizon Development and Wing all presented projects due to be handed over in 2020.

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Real Estate Review 2019

Articles inside

Developments Must be Integrated Into the City

Development Process

Increasingly the Norm

Hotel Developers, Investors

Development in Budapest

by low Availability

Corridor are new Potential hub for Tenants

Success Story Continues

Re-thought and Re-designed

Difficult to Source

Growing Track

S IMMO is in the Fast Lane

Boom in Budapest Office Development

HIP Office Buildings by CPI

on Commercial Premises

INTRODUCTION

in Every Sense

Conditions Improving

Market Sentiment

Active in Hungary