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