Budapest, 10th September 2008

“The global turmoil has had an impact on the Hungarian real estate market, but the Hungarian economy has overcome the most difficult obstacles. The budget deficit is under control, inflation has been tamed and investment keeps flowing into the country. Most analysts agree that the country’s economic growth will accelerate, unlike the other regional economies. That translates into robust demand for office and industrial space as well as renewed spending, which will prop up demand for retail space. While the demand side for real estate is stable, it will be key to properly manage the supply side to ensure that the Hungarian real estate market passes through this uncertain period with little damage.” – Managing Director Michael Smithing pointed out some major facts from Colliers International’s latest property market report, which will be published in early September 2008.

Office Market

In a world of constantly increasing fuel and food prices it’s difficult to find items which do not contribute to inflation; however the price of office space in Budapest is likely to decrease over the next 12 months. Although demand is strong, with total absorption of 135 000 sqm during the first half of 2008, even more new space was delivered and the pipeline is overflowing. In the Class A office market the vacancy rate will increase from 12,6% today to a forecast 18% by the end of 2008, bringing significant downward pressure on rents. This will be fantastic for tenants, but will certainly make life difficult for the office building owners, developers and financiers. The current total market supply of Class A and B market in Budapest is some 2 000 000 sqm, with 1 432 000 sqm of Class A and 558 000 sqm of Class B space. "Hungary is still a popular place for multi-national companies to do business. The supply of product at regionally competitive rates, will only increase the demand for new office space in Hungary through 2010." – head of Office Division of Colliers International Budapest, Hamish Williams announced.

Retail Market

“The worst may be over for the retail sector as consumer spending is set for positive growth in the second half of 2008, although retailers will be happy to leave 2007 and the first half 2008 behind them.” said Anita Csörgõ, Director of Retail Sales and Leasing at Colliers International Budapest. According to Colliers’ research, most major fashion retailers experienced a sharp drop in sales during this period, which was particularly strong in the countryside where turnover was reported down by 20-30%. Sale volumes have finally been picking up over the summer. Even after a very difficult year, those retailers committed to occupying a leadership position in the market have to remain aggressive. Hungary is still underserved in terms of shopping centers and spending will increase over time to EU averages as real wages increase.

Hungarian consumers have reduced their spending over the past two years due to uncertainty associated with austerity measures implemented by the government. Now, however, the indicators are turning positive. Real earnings are growing and GKI, a major Hungarian economic think-tank, estimates they will increase by 1% this year. These positive developments, together with more optimistic growth prospects this year, should translate into modest growth in consumption by Hungarian consumers this year. Retail trade volume will increase by 1% this year after a decline of 3.1% in 2007.

Industrial real estate market

“The industrial real estate market has been quite active this year. In 2008, twice the amount of speculative development will be completed (290,000 sqm) versus 2007 and throughout the first half (H1) of the year the same amount of space was leased as in the whole 2007 (188,000 sqm). “Temporarily an exceptionally high vacancy rate (15.8%) is registered because the Rynart portfolio became vacant” Tamás Beck, Director of Industrial Sales and Leasing division at Colliers International pointed out.

In line with trends over in past several years, logistics companies accounted for half of all transactions, while the ratio of expansion within industrial parks also remained unchanged at around 20%. In the first half of the year, seven transactions larger than 10,000 sqm were already signed, which is a significant development compared to 2007. Logistics parks located close to the city center are also successful with significant leasing activity in these locations. Build-to-suit projects continue to make only a minor contribution in the market. While the market is very active, absorption and new supply are moving together which has left rents unchanged for the time being, but we can foresee an increase for the mid term.