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Industrial and Logistics Boom Continues
Uncertainty in the Office Market
There is little risk of oversupply in the Budapest office market with restrained delivery in recent years from a relatively small pool of established developers, according to many analysts. That said, a reconsideration of working habits and time spent in the office, and the broader economic considerations caused by the geopolitical environment, raise questions about the amount of demand there will be to meet supply.
The Budapest One Business Park by Futureal.
By Gary J. Morrell
In this challenging market environment, it seems certain substantial preleases will be required before a developer can acquire finance and start construction. Even so, financing on relatively favorable terms is still available for well-located, good-quality projects. However, there is expected to be less speculative development.
At the same time, developers and office owners need to reconsider the conceptualization and design of office projects to meet the changing specifications of tenants and their staff and for implementation of the sustainability measures necessary for a project to be successfully leased, and to offer an exit strategy with a sale to an investor.
Analysts consider that the new hybrid work pattern of three or four days in the office and one or two days in the home environment is now the new norm in the postpandemic environment.
“The new post-COVID office must be more attractive and more effective than working from home. Different aspects can contribute to this, including design, comfort, flexibility, technical equipment, and the people you work with,” comments Tamás Ádány, business development director at Horizon Development.
“This approach is completely different from what we had two years ago. Most companies now see the office as a community space where colleagues can meet, form joint ideas, and become a team,” he adds.
Hubert Abt, CEO & founder of New Work Offices, agrees that office use trends are changing. “By implementing hybrid workplace strategies, more corporations are switching their work policies from an office-centric to a human-centric approach. As a consequence, the headquarters of the company will not be the main place of work anymore; it will be a place for collaboration and meetings,” he argues.
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Sustainability Issues are now Central to the Development Cycle
Accreditation from an independent, third-party sustainability organization such as the U.K.-based BREEAM or the U.S.-based LEED and, increasingly, WELL, is now the norm for the entire lifecycle of a development project from conception to design to leasing to property management and, finally, an exit strategy.
By Gary J. Morrell
This is already evident in the office market and increasingly also in logistics and other sectors, not least driven by the rising importance of environmental, social and governance issues and EU Taxonomy.
“Sustainability, environmental and social adequacy are more and more important for developers, tenants, investors, banks, and individuals. ESG reports and the related advisory services are starting to become a growing business, but what really matters, in my opinion, is not necessarily the report itself, but the adaptation and implementation of those progressive ideas,” comments Tamás Ádány, business development director at Horizon Development.
As much as 47% (some 1.5 million sqm) of class “A” office stock in Budapest is accredited by a third-party sustainability organization, according to consultancy KPMG. This is expected to soon rise to 50%, given the standard of the Budapest pipeline.
“It is not conceivable that a real estate fund would buy an office project that is not sustainability certified. Further, most new buildings are occupied by companies operating in the global market and, therefore, need to locate in sustainability classified buildings,” said Pál Dános, head of real estate advisory and business at KPMG Hungary.
“This situation could easily be transferred to the logistics sector, as it is attracting investors, buildings are less complex than offices, and therefore savings on energy are easier to achieve. Branding through sustainability accreditation is an advantage in addition to savings on energy consumption,” he added.
BECOMING THE NORM “I would say that sustainability aspects must become the norm in all built environments; without the active promotion, integration and application of a holistic and systematic sustainability approach, our ambitious targets related to CO2 emission reductions and mitigation of climate change effects
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Developments Expected to Contribute to Their Urban Environment
The expectations for modern office, hotel, and other commercial developments is that they should be in an urban area with immediate access to amenities and public transportation links and provide a reciprocal benefit to the project and its surroundings.
By Gary J. Morrell
It is thus seen as highly important to evaluate a development at the community level and not just as a stand-alone commercial project, according to analysts. At the same time, office and hotel users have increasingly sophisticated expectations from the environment where they are workers or customers.
Taking all these factors into consideration, exterior and interior design and planning have increasingly become part of the same process, rather than stand-alone stages
Office design must consider the look and feel of the structure as well as the internal atmosphere and layout, hygiene, and how wellbeing can impact staff retention. Interiors have thus been integrated into the concept, design, leasing strategy, and property and facility management of office projects in response to constantly developing tenant and staff demands.
With developers striving to deliver ever more highly-specified and sustainable office complexes, interior and exterior design, in partnership with sustainability, have essentially become part of the same process. The emphasis is ever more placed on communal areas, collaborative spaces and meeting rooms.
All these processes have fundamentally changed the look and style of offices, as owners and developers have been forced by changing tenant and staff demands and raised expectations to respond rapidly to the challenges of the postpandemic environment.
“We have to offer a unique and smooth user experience with inviting community areas and innovative, smart, touchfree solutions, especially as offices’ role in regard to HR continues to gain weight,” says Csaba Zeley, managing director of ConvergenCE.
“It is important to make employees feel welcome, to draw them back [to the office] and keep them attracted. Office experience has become a crucial part of employee branding and an employee’s package,” he adds.
With the increasing attractiveness and sophistication of newly delivered class “A” offices when it comes to design and the provision of amenities, research indicates that the office is still seen as an attractive workplace location despite pandemic concerns, although staff require changes in setup and design.
WORKPLACE PREFERENCES According to “Evolution of Working Condition Needs in the Face of Pandemic,” a study by regional developer Skanska
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Investment Market Impacted by Political and Economic Concerns
Hungary is seen as having a pipeline of asset-grade products able to meet investor demand, particularly in the office and industrial sectors. The market is regarded as an attractive investment destination by investors, offering a significant yield premium on Western Europe and also Poland and the Czech Republic.
The Ericsson headquarters by Wing, purchased by GTC.
By Gary J. Morrell
The limited availability of existing investment-grade products continues to be an obstacle to market growth, despite those robust development pipelines. However, with a substantial amount of domestic and international capital looking for a home, market players would undoubtedly consider investing if the right asset or platform were available and the global situation improved.
Poland continues to dominate Central and Eastern European investment volume, with the lowest yields in the region along with the Czech Republic, although differing profiles are available to investors if the right product can be sourced.
Péter Számely, executive director of real estate finance at Hypo Noe Landesbank, argues that the availability of products at the right price is always an obstacle in smaller, highly sought-after markets like Hungary and the Czech Republic. Poland, with a markedly larger market and supply pipeline, is less of an issue in this regard.
Colliers recorded the investment volume for 2021 at around EUR 10-11 billion from what it calls the Central European-6 (Bulgaria, the Czech Republic, Hungary, Poland,
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