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Hungary 2011 Year-End Market Report
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2011 | MARKET REPORT
www.colliers.hu
HUNGARY
MARKET REPORT 2011
EXECUTIVE SUMMARY
Dear Colleagues and Friends,
2010 was a year of change for Colliers International in Hungary. I replaced Michael Smithing as
MD after Michael had served for more than 10 years in charge of the office.
We also went through a re branding process and now have a strong shareholder in the region
who is committed to further growth and investment in the company. At a regional level, we created
new business lines and have appointed experienced professionals to lead these teams.
2011 will be a year of growth, a year in which we want to further integrate our professional
services and build them out. We also want to grow in office agency, where we were traditionally
very strong in Budapest, with an aim to reclaim our position as a market leader in the next two
years.
2011 will be another challenging year as property markets show signs of recovery, especially the
industrial market, but with an overall outlook still difficult to predict as so many factors remain
uncertain.
We are committed to further grow our service level for our clients and are ready to assist you in
any property matter, big or small.
We look forward to working with you in 2011!
Best Regards,
MARKET INDICATORS
2010 2011
FORECAST
GDP OUTPUT
UNEMPLOYMENT
INFLATION
INVESTMENT VOLUMES
OFFICE RENTS
OFFICE YIELDS
INDUSTRIAL RENTS
INDUSTRIAL YIELDS
RETAIL RENTS
RETAIL YIELDS
Tim Hulzebos Managing Director
Colliers International Hungary
MARKET REPORT | 2011 | HUNGARY | ECONOMIC OVERVIEW
P. 2 | COLLIERS INTERNATIONAL
ECONOMIC FIGURES
Source: Focus Economics
ECONOMIC OVERVIEW
SUMMARY
Following the crisis year of 2009, when the Hungarian economy contracted by more than 6%, 2010 was a year of stabilization not just for the country, but for the world and European economies as well.
The economy grew gradually during the year and is on an upward trend, which is expected to continue in 2011. Industrial production is growing at a double-digit rate, while the currency also showed relative stability compared to previous years.
The new government has expressed and demonstrated its commitment to continued fiscal consolidation and stabilization, taking measures to meet the original budget deficit target of under 3.8%. This policy is expected to continue in 2011, with a continued decline in the deficit.
POLITICS
General as well as municipal elections were held in Hungary in 2010, which were both won overwhelmingly by the center-right Fidesz, in line with expectations. The new government has a decisive two-thirds majority in parliament, allowing it to pass laws, and even amend the constitution, without any obstacles from the opposition.
While the previous government launched economic stabilization measures with the aid of a joint IMF-EU bailout package, the new government decided to take a different route and declared it does not plan to use any further loans from the IMF.
Instead, the government enacted a package of measures to increase budget revenues in order to meet the originally planned budget deficit target of 3.8% of GDP. These measures included so-called crisis taxes levied on companies in the financial, energy, telecom and retail sector, and will be in place for three years.
Hungary will hold the presidency of the European Union in the first half of 2011, which will bring increased attention to the Hungarian government and bring the country into the focus of the European and world public.
ECONOMY
Driven by industrial production, economic growth sped up to more than 2% by Q3 2010, year-on-year, and GDP is expected to show an expansion of more than 1% overall for 2010, and close to 3% in 2011. The EUR/HUF exchange rate also showed relative stability, settling at a rate of around 275 for the year on average.
The foreign trade balance continues to show a surplus, and unemployment is slowly but steadily decreasing.
The new government’s crisis management measures, in addition to the crisis taxes, saw a rearrangement of the personal income tax burden, resulting in cuts for many households, which could help boost growth through increased domestic spending.
The move to eliminate the second, private pillar of the pension system is expected to bring close to HUF 3,000 billion into state coffers, ensuring that the budget deficit will not exceed the target in the next few years, and also helping reduce state debt.
OUTLOOK
The country’s economic indicators are expected to improve further in 2011, with GDP growth and investments rising, the budget deficit, inflation and unemployment decreasing. The foreign trade balance is expected to continue to show a surplus.
The government is expected to announce further structural reform measures in February to help improve the economy and investor confidence toward the country.
On the property market, a recovery is expected on the industrial market, there is hope that retail sales will be stimulated by the government’s measures, helping the retail property market, while the office market is expected to see healthy take-up and a drop in vacancy rates.
Developer activity will start to see the first signs of a recovery although financing will remain tight. Meanwhile, the property investment market, which had a quiet year in 2010, will hopefully show more activity as the economy recovers and investors see that the market has attractive products on offer.
Overall, 2011 is expected to be another challenging year for both the Hungarian economy and the real estate market.
FOREIGN TRADE BALANCE
Source: Focus Economics
BASE RATE
Source: MNB
-10 %
-8 %
-6 %
-4 %
-2 %
0 %
2 %
4 %
6 %
8 %
10 %
12 %
2006 2007 2008 2009 2010 2011*
GDP growth(%)
CPI (%)
Fiscal Balance, % of GDP
Unemployment
-1500
-1000
-500
0
500
1000
1500
2000
€M
n
Foreign trade balance
0%
2%
4%
6%
8%
10%
12%
14%
20
08
.10
.22
20
08
.12
.22
20
09
.02
.22
20
09
.04
.22
20
09
.06
.22
20
09
.08
.22
20
09
.10
.22
20
09
.12
.22
20
10
.02
.22
20
10
.04
.22
20
10
.06
.22
20
10
.08
.22
20
10
.10
.22
20
10
.12
.22
MARKET REPORT | 2011 | HUNGARY | INVESTMENT MARKET
P. 3 | COLLIERS INTERNATIONAL
KEY INVESTMENT FIGURES INVESTMENT OVERVIEW
OVERVIEW
Total investment transaction volume on the Hungarian real estate market is estimated to have been around €185M in 2010, which includes only transparent investment transactions. This is well below our expectations from the start of 2010.
Most of the transactions were closed in the first half of the year, with the second half seeing little activity except for the notable sale of the Vörösmarty 1 prime retail property by ING to Redevco for €44M.
The causes for the lower than expected transaction volume of the past year are mixed.
On the one hand, investor interest, both foreign and domestic, has increased compared to the previous period, with potential buyers making investment tours and reconsidering market entry, but not yet closing any major transactions. The predictable shortage of prime office space foreseen around 2012 is also an attractive draw for investors who anticipate rental growth.
On the other hand, there has been continued weak confidence toward the country since the massive GDP contraction in 2009, now combined with the government’s crisis measures and the state of the European sovereign debt.
At a domestic level, investors have raised concerns over perceived anti-market actions such as crisis taxes on selected industries like banks, energy, telecoms and retail.
The main factors hampering the ability to conclude transactions are finance related, such as the very constrained level of debt available and the devaluation of foreign currency loans – in particular the presently weak EUR against the CHF; or the cost of breaking finance (swap) arrangements.
Colliers International does not forecast considerable easing in the finance sector in the medium term, which will continue to restrain the investment market in Hungary.
OUTLOOK
In 2011 Colliers expects overall investment volume to be higher than in 2010, possibly reaching up to €500M, driven by a strong pipeline of potential deals. Supporting this is the fact that owners’ and buyers’ price expectations are now much more in tune with current values. The strong pipeline is driven by property funds being wound up, bringing assets to market. Another source of deals is property developers, who see a window to exit developments with a positive gain, in part “encouraged” by shareholders or financiers to dispose of assets.
In terms of yields, no significant change has been seen over the past year, and no quick improvement is expected in 2011. Investor interest for prime office and retail projects is currently at around 7.5–8%, and nothing below this level is likely to occur in the upcoming year. Prime industrial yields are above 9%.
There is a list of potential buyers considering investments in Hungary, but this won’t create additional pressure on pricing as there is a considerable amount of property that can be purchased.
The focus of interest remains high-class trophy assets in good location, such as A-class modern offices. There is also interest for prime retail centers, but limited interest for prime industrial properties. There is practically no interest for B-class real estate assets unless at absolute give-away prices. Sustainability and green certifications are also becoming essential to attract buyer interest.
We anticipate Investors will remain extremely cautious in the upcoming period, indicating that the climb out of the bottom of the market will be a slow and gradual process. This also means that sellers will need to have their house in good order if they want to a have a strong chance of closing deals.
Lastly, there is a clear preference to purchase assets rather than acquiring property via a company. Investors do not wish to inherit liability, particularly any tax liability. It appears all the elaborate ownership structures previously arranged to optimize value may become redundant in the cautious markets of today.
METRIC MEASURE
Investment Turnover €185M
Prime Office Yield 7.5–8 %
Prime Retail Yield 7.5–8 %
Prime Industrial Yield 9 %
Source: Colliers
INVESTMENT VOLUMES
Source: Colliers
PRIME OFFICE CAPITAL VALUES
Source: Colliers
750
1 700
400260 185
500
7%6.25% 6%
9%
7.70%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2006 2007 2008 2009 2010 2011
Pri
me
off
ice
yie
ld
INV
ESTM
EN V
ALU
ES (
mill
ion
EU
R)
0
5 000
10 000
15 000
20 000
25 000
30 000
EUR
/s q
m
MARKET REPORT | 2011 | HUNGARY | OFFICE MARKET
P. 4 | COLLIERS INTERNATIONAL
KEY OFFICE FIGURES 2010 OFFICE MARKET
OVERVIEW
Following the dramatic mood of 2009, when the players of the Hungarian office market experienced the most difficult times, the overall mood improved last year, with take-up increasing and vacancy slowly starting to decrease by the end of 2010, as new completions decreased significantly.
Total modern office stock increased by more than 145,000 sqm in 2010 as a result of new deliveries, of which 77% took place in the first half of the year. There was only 6,300 sqm of new space delivered in the last quarter.
Lease transactions last year totaled at 282,000 sqm, of which 39.6% (around 111,000 sqm) was signed in the fourth quarter, exceeding the average 55,000 sqm volume of the previous three quarters.
Renegotiations played a large role on the market in 2010, accounting for around half of all take-up during the year. Experience shows that around 90% of large companies leasing space of more than 5,000 sqm eventually decide to renegotiate in their current buildings.
Last year transactions excluding renegotiations totaled 165,000 sqm. This indicates that the market, for the first time since the beginning of the economic crisis, was able to absorb office space equal to – or even more than – the size of newly delivered office buildings. As a result, the vacancy rate stood at 25.7% at the end of the year, slightly less than the previous 26.1% at the end of 2009 and than the high of 26.8% registered at the end of Q3.
Absorption on the market increased due to shared service centers (SSCs) and some office space expansions. Willingness to move remains the characteristics of smaller firms only, while the government was not active on the market in 2010.
There was some success in terms of leasing in 2010, as two prime buildings, Capital Square and Eiffel Square leased more than 70% of their space. This underscores that projects in good locations can be leased; although rents continue to trade at 20-30% discount to rents pre crisis. The number one location remains the Váci corridor, but the Southern Buda region performed well too.
OUTLOOK
Colliers forecasts that take-up will remain strong in 2011, with a significant number of renegotiations, parallel with the decline in the amount of available quality space on the market.
The number of completions is expected to decline significantly this year, to only around 50,000 sqm (of which only 26,000 sqm will be actually vacant, as pre-leases have been signed for the remainder). Further new developments are unlikely to begin until 2012, at the earliest. Meanwhile, we expect absorbtion to rise leading to a decline in vacancy rates.
We believe that rents have reached the bottom level of 11-13 EUR prime rent, and will not decline further this year.
Office developers remain in a tough position due to the lack of financing, with only few deliveries and new projects planned for the next few years. Large, tested, equity-rich investors, such as Belgium’s Atenor or Sweden’s Skanska, are able to launch new developments even under these circumstances, and could thus be in a good position when the amount of quality supply dries up in 2012–2013.
For larger companies where existing contracts expire in 2012–2013, the only solution to ensure moving to a new quality location (if they decide to move) is to sign a pre-lease agreement before the end of 2011. This would be a win-win situation, as the company would have a say in how the project is developed, while the developer would be able to launch the project with the signed pre-lease, and lease the remaining space in the building at a higher price in 2013, for example. This would also help promote new developments being launched.
Overall, Colliers International expects 2011 to be a positive year showing further improvement compared to 2010.
METRIC MEASURE
Total Stock 2.34M sqm Take-Up 281,747 sqm Vacancy 25.7 % Completions 145,339 sqm
Source: RERA
CLASS A OFFICE STOCK, ABSORPTION AND VACANCY
Source: Colliers, RERA
DISTRIBUTION OF TRANSACTIONS 2010
Source: Colliers, RERA
COLLIERS TOP TRANSACTIONS 2010
TENANT SIZE (sqm) PROJECT
UPC Magyarország 8.373 Kinizsi Office Building
KCI Hungary Kft. 5.816 Capital Square
DLA Piper 1.370 MOMentum Offices
XEROX Magyarország Kft. 1.212 Madarász Office Building II
Source: Colliers
0%
5%
10%
15%
20%
25%
30%
0
500
1 000
1 500
2 000
2 500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Vacan
cy r
ate
(%
)
Sto
ck a
nd
ab
so
prt
ion
(000 sq
m)
Stock Absorption Vacancy
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
<500 500-1,000 1,000-2,000 2,000-5,000 >5,000
Per
cen
tage
of
tota
l tra
nsa
ctio
ns
Size of transactions (sqm)
Renewal New
MARKET REPORT | 2011 | HUNGARY | INDUSTRIAL MARKET
www.colliers.com/[marketname] P. 5 | COLLIERS INTERNATIONAL
KEY INDUSTRIAL FIGURES INDUSTRIAL MARKET
OVERVIEW
After a year of records in 2008 and the year of adaptation in 2009, 2010 was the
year of stabilization on the Budapest industrial real estate market. The market
moved towards a state of balance during the year, in terms of supply and demand,
as well as rents.
Market developments were largely in line with Colliers‟s expectations voiced at the
beginning of last year, when we noted that speculative developments would
decrease sharply, demand would be similar to 2009 and the role of pre-lease
agreements would increase significantly. We missed the mark, however, with regard
to completed new developments, which underperformed our earlier expectations.
SUPPLY
Developer activity in 2010 was weak, with a total of 63,000 sqm of space delivered
to the market, only half of what we originally expected for the year. The cause of
this was that fewer projects were launched, as developers took the position that
they would not launch new projects until there is a significant fall in vacant space on
the market.
The majority of the new supply was delivered in the first half of the year, comprising
four speculative projects of a total 46,000 sqm area, while the second half saw the
delivery of only a single built-to-suit (BTS) project, with 17,000 sqm of space.
As a result, the overall stock of industrial space built for lease in Budapest and its
vicinity rose to 1.622 million sqm.
DEMAND
Take-up during the year was mostly in line with our expectations, coming in at
122,000 sqm. The figure includes 33,600 sqm of expansions, or 27.5% of the total,
which is in line with the traditional 15–40% range. Of the newly leased space, 71%
was in “big box” buildings, 20% in “small units” and around 9% in city logistics
spaces. Small units performed especially well.
A notable trend was that large-scale transactions were missing from the market,
with the average size of leased space falling to around 1,300–2,000 sqm, with no
deals for space of more than 5,000, or especially 10,000 sqm.
Logistics firms, which earlier accounted for around half of take-up, were also
missing, closing just one or two deals. At the same time, manufacturing firms have
started to appear on the market, both in Budapest and elsewhere, seeking to lease
space.
Similar to 2009, there were also many renegotiations and extended leases in 2010.
However, in many cases, these are negotiated directly between the tenant and
owner, and are therefore not so transparent, providing insufficient data to be
representative for the market. Colliers is aware of at least 60,000–70,000 sqm that
was renegotiated, but we would not be surprised if the actual figure was double or
even many times this.
Overall, we can say that interest and activity on the lease market is very high, with
many firms looking for adequate space, but remaining cautious for the time being
and often deciding to wait to see how the market develops.
METRIC MEASURE
Total Stock 1.622 million sqm
Take-Up 122,000 sqm
Vacancy 20.7 %
Headline Rent, „big box‟ € 3.2-3.8 / sqm / month
Headline Rent, City Logictics € 5 / sqm / month
Source: Colliers
TOTAL STOCK
Source: Colliers
STOCK EXPANSION
Source: Colliers
NEW CONTRACTS AND VACANCY RATE
Source: Colliers
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
To
tal s
toc
k (
00
0 s
qm
)
SPECULATIVE BTS
0
50
100
150
200
250
300
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sto
ck
ex
pa
ns
ion
(s
qm
)
SPECULATIVE BTS
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010
Va
ca
nc
y r
ate
(%
)
New
co
ntr
ac
ts (
00
0 s
qm
)
NEW CONTRACT
MARKET REPORT | 2011 | HUNGARY | INDUSTRIAL MARKET
www.colliers.com/[marketname] P. 6 | COLLIERS INTERNATIONAL
MAJOR NEW LEASE TRANSACTIONS 2010 VACANCY
As there was also a certain amount of industrial space going vacant in the period,
the take-up of the past year was enough to bring net absorption to around 25,600
sqm in terms of speculative buildings, which compares to the 50,000 sqm figure for
2009 overall. This figure can be considered a positive sign, as it indicates that
stabilization has taken place and that the market is in a state of balance.
As a result of the positive net absorption, the vacancy rate decreased slightly in
2010, to around 20.7%, compared to 21.2% at the end of the previous year. There
was 336,000 sqm of vacant space at the end of 2010.
Within this, vacancy at speculative buildings moved up slightly from 23% to 24%,
while the figure dropped from 17% to 13% for BTS investments, compared to the
end of 2009.
The amount of empty space available is still fragmented in Budapest and its vicinity.
While it is relatively easy to find 1,000–4,000 sqm of leasable space, there are only
eight locations where more than 10,000 sqm of continuous space is available and
only four where more than 20,000 sqm can be leased at this moment.
RENTS, TRANSACTIONS
Rental levels stabilized during the past year, as headline rents for big box buildings
remaining in the €3.2–3.8/sqm/pcm range, while the rate at city logistics buildings is
around €5/sqm/pcm.
Owners are mostly managing their vacant space, trying to offer them at favorable
prices, in which case however they prefer not to sign agreements for the long term.
While the market of industrial property and land sales transactions was entirely
dead in 2009, last year saw some movement in this field, with some interest toward
smaller buildings and plots, mostly from small businesses. However, although
demand picked up, there were few actual transactions. At the same time, interest
for larger projects and plots remains limited.
OUTLOOK
Colliers expects that 2011 will be a year of continued stabilization on the industrial
market, with moderate growth possible in the near future.
Project deliveries will be well below even last year‟s low figure, with only two
speculative projects known of at the current time comprising a total of 10,500 sqm.
Additional BTS or pre-lease projects could be developed, however, as some
companies continue to consolidate their operations. We do not expect significant
additional space to become vacant in 2011.
As a result of the large amount of tenant interest currently seen on the market, we
expect take-up to be similar to last year, resulting in higher net absorption and thus
also a visible decline in the vacancy rate. Rents are also expected to remain stable
or, as a result of the above, perhaps rise slightly.
The transaction market is expected to show moderate activity, but interest toward
larger buildings and plots is expected to remain weak.
Source: Colliers
MARKET REPORT | 2011 | HUNGARY | RETAIL MARKET
P. 7 | COLLIERS INTERNATIONAL
SHOPPING CENTER FIGURES IN BUDAPEST RETAIL MARKET
OVERVIEW
Following the crisis years of 2008 and 2009, the retail market in Hungary stabilized
during 2010 as market players adjusted to the changed conditions.
The decline in retail turnover which has been experienced every year since 2006
has stopped and a recovery on the market is slowly but surely starting to take place.
Rents have stopped falling in many market segments, but tenants remain cautious,
focusing on their best-performing stores, reducing the size of units where
necessary. There is more emphasis on market position, profitability and location.
DEMAND
Domestic spending is showing signs of a turnaround, as official statistics indicate
that retail turnover increased slightly year-on-year starting from July. 2010 should
show an overall stagnation, which is a positive sign after five years of continuous
declines. Absolute turnover levels however remain at the level of around 2003.
Retailers are much more aware of market circumstances and consider very
cautiously the number of shops a market can sustain, careful that any potential new
stores do not take business away from existing ones. Brands present on the market
were able to hold on to their positions during the year, as there were few new
market players.
Stronger brands such as H&M, C&A, Deichmann, Jean’s Club, Butlers, Gulliver
Toys and some discount fashion operators such as Invázió and COSMOS have
taken advantage of vacancies and obtained competitive terms to gain greater
market penetration. These conditions have spurred more new brands to the market,
including the return of Debenhams who will open a 2,400 sqm department store in
WestEnd City Center in spring 2011 and another planned for later in the year.
Although fewer new brands entered the market in 2010, there were some new
players: bijou retailers Beeline (SIX and Iam) and Claire’s opened their first stores
with plans to rapidly establish a network, Müller opened its first store in Budapest
with more planned for 2011, and Starbucks will follow their 3 newly opened cafés
with about 5 more in 2011. Hard Rock Café will make its Hungarian debut in Váci1
Shopping Emporium, set to open in September.
There were some market exits as retailers continued to experience difficulties:
ElectroWorld and Pizza Hut have closed some units, banks have reduced their
branch networks and drogerie chain Schlecker announced it will leave Hungary.
There were also many cases of space reductions and other efforts by retailers to
optimize networks.
SUPPLY
Only a handful of new retail centers opened in 2010. Aside from neighborhood strip
malls outside the capital (Alpha Park in Keszthely, Family Center in Vác), the year’s
only major new center was the Corvin Shopping Center in Budapest, with GLA of
34,500 sqm. All opened with turnovers and footfalls exceeding expectations.
Three smaller unique concept centers will definitely open in 2011 in downtown
Budapest: ORCO’s landmark Váci1 Shopping Emporium (11,000 sqm GLA), the
futuristic retail and events center CET along the Danube (12,000 sqm GLA) and
Europeum (6,000 sqm GLA) on Blaha Lujza tér, below a Marriott Courtyard Hotel.
The two larger projects are also scheduled for Q4 opening, KÖKI Terminál (55,000
sqm GLA) and Árkád Szeged (34,000 sqm GLA).
METRIC MEASURE
Stock Q4 2010 1,145,095 sqm Completion 2010 39,600 sqm Furure Supply 2011 84,000 sqm
Source: Colliers
SHOPPING CENTER STOCK FOR GREATER BUDAPEST
Source: Colliers
RETAIL SALES FOR HUNGARY
Source: Focus Economics
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
2005 2006 2007 2008 2009 2010p 2011p 2012p
Sto
ck (0
00 sq
m)
Stock (SQM)
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010p 2011p 2012p
GDP Growth %
Consumer price Index % (annual average)
Volume Index of Retail Trade
MARKET REPORT | 2011 | HUNGARY | RETAIL MARKET
P. 8 | COLLIERS INTERNATIONAL
RENTS
Source: Colliers
Budapest’s dominant high streets Váci utca and Andrássy út remain popular targets
for retailers, especially luxury brands, and have held on to their market positions
even during the crisis. Turnover has been adequate, with new shops opening in
2010, including Max Mara and Frank Müller on Andrássy, Calzedonia and Bijoux
Brigitte on Váci utca. Replay and Sinequanone signed for spring 2011 openings on
Andrássy, also a Tezenis and a large Salamander flagship unit will open on Váci
utca. Several weaker retailers have closed on Andrássy where there are numerous
vacant units currently available for rent.
RENTS
Following the decline in rents seen since the beginning of the crisis, levels have
stabilized somewhat during 2010. While rents are still dropping in certain segments,
especially outside Budapest, driven by the renegotiation of expiring contracts, 2010
saw slight increases in rental values on Váci utca and some centers with wealthier
primary catchment areas, such as MOM Park and Mammut.
Over the past year, most new centers in new and problematic locations were able to
find new tenants when the owners adapted to the changed circumstances, reducing
headline rents or implementing ‘stepped’ rental rates, coupled with higher
percentage turnover provisions. In general, terms have become more ‘tenant
friendly’ and lease terms shorter.
EXPECTED SHOPPING CENTER DELIVERIES FOR 2011
PROJECT COMPLETION DATE
VÁCI1 Q3 2011 CET Q3 2011 EUROPEUM Q2 2011 Árkád Szeged Q4 2011 KÖKI Terminál Q4 2011
OUTLOOK
The outlook on the retail market, while positive, is still characterized by a wait-and-
see approach for 2011. Prevailing market and economic conditions have created an
uncertain atmosphere regarding the future.
The reduction in personal income taxes in effect from January will increase the
disposable income of households, especially those with above-average incomes.
This should have a positive effect on retail turnover in 2011, most noticeably in the
non-food sector where a 3–5% increase is projected. However, the more cautious
shopping patterns brought on by the crisis will continue.
In a regional comparison, Hungary is already seen as a favorable investment target
by some retailers. Interest and activity from new market entrants is already picking
up in response to projected increases in retail spending and rental conditions that
are very favorable compared to neighbouring countries.
New pipeline shopping center supply will be delayed to 2013–2015. There will be
greater activity in the next two years for older centers to refresh themselves in terms
of design, concept and attracting new tenants, to hold onto their market position or
even gain market share. Management will be under pressure to increase turnover
through better marketing and more focus on customer services and retention of
both tenants and regular shoppers while reducing costs.
Source: Colliers
MARKET REPORT | 2011 | HUNGARY | HOTEL MARKET
P. 9 | COLLIERS INTERNATIONAL
NUMBER OF GUESTS IN HUNGARY HOTEL MARKET
TOURISM OVERVIEW
In 2010, the number of guests and guest nights grew by nearly 2% in Hungary
compared to the previous year. Primarily hotels benefited from the rise in guest
numbers, with growth of around 6% overall, and within this, higher-category four
and five-star units fared best, registering growth of around 15%.
The rise in turism nights was mainly due to returning foreign guests, while the
number of domestic guests was essentially stagnant. Primarily Budapest profited
from this, where the proportion of foreign guests is generally high; the number of
guest nights increased by 5% here.
Due to the low demand, the number of guest nights at Lake Balaton fell by 5–8%
both among domestic and foreign guest; wellness hotels (mainly due to an increase
in capacity) were the only ones able to register a notable increase.
Another positive development is the increase in the number of conferences held in
Hungary, based on data from the first three quarters of the year. The number of
international conferences was 40% higher than in the same period of the previous
year, and although it remained below the base of 2008, there was an increase in the
number of attendees.
Hotel room rates fell in every category, by 5–8%. On the other hand, occupancy
increased by an average 2 percentage points. The tendency remains that higher-
category hotels reach higher occupancy rates. This meant occupancy rates of 60%,
50% and 39% in 5-, 4- and 3-star hotels respectively.
Hungary’s EU presidency will in all certainty have a positive effect on the occupancy
of Budapest hotels this year, but it should be noted that this will only last for six
months, and that significant supply appeared in the capital in recent years. Taking
these into account, as well as the expected positive effects of new personal income
tax rules, we continue to expect a moderate improvement in the main tourism
indicators.
DEVELOPMENTS
There were 8 new four-star hotels opened in 2010, adding more than 1,000 new
rooms to supply. On the one hand, it is positive that Budapest’s hotel supply is
expanding with new quality units, but the increase in tourism has not kept pace with
this supply, therefore strong price competition and relatively low occupancy is still
expected in this segment.
Rural hotel developments continue to be driven by EU funds. In 2010, several such
hotels were opened, primarily near popular bathing resorts, and we expect this
trend to continue in the next 1–2 years as well.
Based on preliminary announcements, we expect 6 new hotels (around 400 rooms)
to be opened in Budapest in 2011, including 3-, 4-, and 5-star hotels, as well as an
apartment hotel.
Meanwhile, the number of new rooms is showing a decline from year to year, and
we expect that by 2012 new supply will dry up, as financing has disappeared from
the market in the last few years. Based on the experiences of financers, the
financing of hotel properties and developments will remain one of the riskiest areas,
which will keep the number of new developments low for years to come.
Source: HCSO
HOTEL ROOM OCCUPANCY IN BUDAPEST
Source: HCSO
2010 HOTEL HANDOVERS IN BUDAPEST
0
3 000
6 000
9 000
12 000
15 000
18 000
21 000
24 000
0
1 500
3 000
4 500
6 000
7 500
9 000
10 500
12 000
2003 2004 2005 2006 2007 2008 2009 2010
thousandthousand
NUMBER OF GUESTS (LEFT SCALE)
NUMBER OF GUEST NIGHTS
30%
40%
50%
60%
70%
80%
2004 2005 2006 2007 2008 2009 2010
3-star 4-star 5-star
MARKET REPORT | 2011 | HUNGARY
P. 10 | COLLIERS INTERNATIONAL
480 offices in 61 countries on 6 continents United States: 135
Canada: 39
Latin America: 17
Asia Pacific: 194
EMEA: 95
• $1.9 billion in annual revenue
• 2.4 billion square feet under
management
• Over 15,000 professionals
COLLIERS RESEARCH
Colliers Research Services Group is recognized as a knowledge leader in the commercial real estate
industry, providing clients with valuable market intelligence to support business decisions. Colliers
research analysts provide multi-level support across all property types, ranging from data collection to
comprehensive market analysis.
Across the CEE-SEE-Russia region of EMEA, Colliers researchers regularly collect and update data
on key real estate metrics, set to consistent definitions. This information is constantly managed using
databases, enabling staff to readily produce analysis on key regional markets including supply,
demand, absorption, pricing and transaction data on capital markets and the office, industrial and retail
sector. In most CEE-SEE-Russian markets, the office definitions used are consistent with those set
out by the CEE Research Forum – an umbrella group, of which Colliers is a founding member –
established to ensure consistent research methodologies are used, bringing greater transparency and
reliability to the analysis of real estate markets in the region. Definitions of the key metrics used in our
regular reports are highlighted below.
KEY METRIC DEFINITIONS
Prime Net Effective Rent: Prime Net Effective Rent is the net rent payable, based on
a calculation of the Prime Headline Rent, less the monetary equivalent of either the rent-free
period and/or fit-out contribution available at the time of the survey date.
Average Headline Rent: Average Headline Rent represents the average open-market tier of rent
that could be expected for a unit of standard size commensurate with demand, based on deals in
both Grade A & B office space across a range of locations in the market at the survey date. For
warehouse stock, rents are quoted on Grade A space.
Total Competitive Stock: Includes the gross lettable floorspace in all Grade A and B class office
buildings. As regards warehouses, only Grade A buildings are taken into account. Retail space is
defined according to ICSC standards.
Space Under Active Construction: Represents the total amount of gross lettable floorspace of
properties where construction has commenced on a new development or in existing properties
where a major refurbishment/renovation is ongoing at the survey date.
Space Under Construction – Inactive: Represents the total amount of gross lettable floorspace
of properties where construction had started/where a major refurbishment/renovation was
ongoing, but activity has since stopped for a period of 3 months or longer.
Vacant Space: The total gross lettable floorspace in existing properties that meet the Competitive
Stock definition, which is physically vacant and being actively marketed at the survey date. Space
should be available for immediate occupation.
Total Occupational Market Activity (Take-up): This comprises the total gross lettable floorspace
known to have been let or sold during the survey period, categorized as one of the following: Pre-
construction, Pre-completion, New Occupation, Expansion, Renewal/Renegotiation, Sub-lease
and Sale & Leaseback.
Colliers Magyarország Kft.
Budapest
Csörsz utca 41.
H-1124, Hungary
www.colliers.hu
TEL +36 1 336 4200
FAX +36 1 336 4201
DIRECTOR OF VALUATION &
ADVISORY, RESEARCH:
Budapest
Ákos Balla
Director
Csörsz utca 41.
H-1124 Budapest, Hungary
TEL + 36 30 991 8509
FAX + 36 1 336 4201
www.colliers.hu
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