Active in Hungary

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?

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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.

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 relationships to react quickly when an asset is potentially available.

“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 EUR 2.5 billion Hungary EUR 1.5 billion

Slovakia EUR 0.75 billion Poland EUR 5 billion Romania EUR 0.8 billion

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