5th March 2008

Last year denied the expectations of numerous economic analysts on the investment markets. In terms of Hungary the volume of investments made on the real estate markets produced extraordinarily high figures (EUR 1.794 million) even though the avalanche started on the secondary financial markets could have easily pulled down the investment markets. If turbulences are expected in 2008 supported by the fact that different yield expectations are present on the supply and the demand side of the market it may rather cause some correction than permanent fall – states the analysis of Colliers International Magyarország Kft. Managing Director Michael Smithing adds that it cannot be precisely estimated whether the correction will last 1-2 months or even 1-2 years?

It can be seen in the 2008 market analysis of Colliers International real estate agency that although  there has been withdrawal of capital there is still cash and demand on the investment markets and from the side of institutional investors. The great range of new projects supports the Hungarian market; financing does not cause problems however it is not as flexible as it was in the previous years, and still high yields may be reached in a Central-European comparison.

Budapest might feel the least of the turbulences – thinks Michael Smithing who added that the development of economic processes will be severely affected by the bargaining position of the market players in the present situation; that is are the “vendors” willing to sell the projects, developments a little bit cheaper as due to the decreasing yields the “emptors” that is the real estate funds are not willing to pay as much as even 6 months before. It is true that the real estate developers are not under the pressure of selling. All in all a balanced situation
might occur resulting in stagnating real estate prices and yields and decreasing volume of transactions.

Due to the crisis of secondary financial markets starting from the USA the market will inevitably have to face corrections but it had to be seen as well that the Hungarian real estate market reacted to the events calmly thanks to the conservative bank system and to the fact that transactions are generally realized at a leisurely pace of 9-10 months. Although there were examples in 2007 of emptors or vendors backing out of the market, a number of significant transactions were realized in the second half.

The market of category “A” office buildings was especially active; EUR 768 million worth of transactions were realized, which meant over double increase compared to the previous basic year. The EUR 490 million value of the sale of Aréna Pláza and Campona shopping centers also significantly increased the annual turnover of investment markets.

On the market of category “A” office buildings yield rate broke the limit of 7 % last year however it is 64 basis points lower at 6.81 % at the moment below the annual level of 2006. Two major sales took part in establishing the present rate. The subject of one transaction if Múzeum Park Atrium office building located downtown and having high prestige that was sold at a price of approximately EUR 90 million while the other real estate was Wallis’ Atrium Park. These two individual transactions covered 20 % of the market volume (representing 5.9 % and 6.03 % yield rate).

Return rates are under pressure as well in terms of industrial real estate. The average was 7.43 % in 2007 that is 109 basis points lower than in 2006 while the volume of sales rose just above the figures of 2006. The sale of DHL Logistics Center having large office space too played a major role in the market results on which a long term lease contract has been concluded.

2008 may be the year of challenges in many aspects and market players have great expectations to see whether the different processes and corrections take place in a few months or years – summarizes the Managing Director of Colliers.