Banks will be even more conservative on the real estate market, while the investment atmosphere will be more cautious. However, 2009 also provides possibilities, first of all for buyers and tenants” – summarized the expectations János Hidasi, Operative Director of Colliers International.

In the opening of the event Managing Partner Michael Smithing emphasized that the world has changed in September 2008. This year marks the end of 13 years of continuous growth, GDP decrease of 2.5% has been forecasted for 2009. Most analysts still expect a recovery as of 2011.

Ákos Balla, Director of Valuation Divison called the attention to the fact that there have been remarkable negative processes in property value. In case of B or C Class properties, or too risky development properties serious loss in value can be realized. The main reasons were on one hand the changes in yields, on the other hand the limited financing on the market. „Investors prefer buying Class A properties because of their better marketability.

Obtaining financing for development properties is difficult, also more expensive than earlier, and investors do not start development from own sources, only in the case of exceptionally good returns” - Ákos Balla said. In 2009 slight decrease in property values, and weak market activity is expected. For 2010 stabilization of the market and the property values further re-structuring of rental rates can be forecasted.

Tamás Beck – Director of Industrial Sales & Leasing underlined in his presentation that 2008 was a record year in the Industrial Market with 250 000 sqm speculative construction (73% more than in 2007), 333 000 sqm lease (82% increase versus 2007). There was a higher vacancy rate 17% at the end of December 2008. From this vacancy the former Rynart portfolio (e.g. WestLog DC) represents 37%. Round 33% of transactions were pre-leases, 13.3% of transactions expansions. 40.8% of all space was leased by logistics companies. „This market can be considered stable at the moment. In headlines we can forecast a reduced development activity for 2009, stable demand versus delivery (H1 2009), stable headline rent at 4 – 4.4 €/sqm/month (for big box warehouses), and a frozen acquisition market”.

2008 closed with a record take-up of 330.289 sqm, this is due to the significant lease transactions concluded in the fourth quarter. The high take up figure should not mask the fact that vacancy rate reached 16,8% for the total market (Class A and B) and it is already 17,9% for Class A office buildings. Class A vacancy was 12,6% at the close of 2007 - Hamish Williams – Director of Office, Hotel & Leisure said. The main forecasted figures for 2009: construction of 331 000 sqm of office building, 248 000 sqm delivery of Class A space.

We are expecting the vacancy rate will be as high as 25% by the end of 2009. While net effective rents have been pushed down about €0.50 in 1 year, another depression of €1.00 in 2009 is expected. We also expect a significant amount of leveraged renegotiations as tenants use other offers to renegotiate at more favorable rates without having to move. Pre-leasing and build-to-suit constructions will rise in popularity as speculative development decreases. Class A buildings on metro lines can expect stronger returns and quicker lease-up periods than buildings not close to a metro stop.

The Class A+ market is affected but there is still room for over €20/sqm+ tenants who cannot compromise on image and location. The bad news for the market is that landlords with high vacancy will be forced to reduce rents to remain competitive and will therefore see smaller returns. Also banks will continue to react in a conservative manner and with little financing available supply will slow and Class A will require longer lease up periods. The good news is that with supply slowing, eventually pricing will stabilize. Also we expect a significant amount of tenant activity in 2009 as they realize that this is now a tenant's market and there is there’s hardly a better time in history to be a office tenant looking for space in Budapest.

Regarding the hotel market Hamish Williams called the attention to a renewed interest for Hungary by low cost airlines and in parallel with it developers for 2* budget hotels. As the director of Hotel & Leisure division informed 517 new rooms are under construction in 2009 (13% five stars, 87% four stars). 5 Star Hotels have enjoyed more than 65% occupancy since 2005. Today occupancy is declining due to economic crisis across all star categories, however with the “üdülési check” program, for the first time in history, Hungarian tourists now outnumber foreigners. Williams added, they see a lot of potential in the growth of the sector due to Hungarian businesses and tourists rather than traditional foreign visitors.

Providing an overview of the Retail Market Anita Csörgõ, Head of Retail Divison is expecting a challenging 2009 for owners, developers, occupiers, retailers, as well. There is depressed consumer spending on market (retail spending reduced by 2% in 2008), and a further albeit smaller decline of 1,4% has been projected for 2009 as well. As a result there, coupled with the difficulty of retailers to obtain financing for new shop openings, there will be a slowdown in new store openings for multiple branch retailers. Total retail area is still increasing, while total number of retail establishments is decreasing (thus average shop size area continues to increase) and many smaller local retailers are either leaving the market or going out of business. International multi-branch retailers are increasing their market share in all market segments.

2009 will be a tenant’s market, there will be a downward pressure on rents in all segments. „Consumers will however be in catch-up mode starting in 2010 after six years of retail spending growth decline. Developers need to be more flexible in leasing terms, longer pay-back periods are to expected and pro-active strong management and optimizing tenant mix for new and existing centers will be especially important. I am also expecting continued strong interest for prime High Street retail, especially for Andrássy út and the Váci utca areal” - Anita Csörgõ summerised the market situation in headlines.

The Investment Department at the Hungarian office of Colliers International concluded a very strong 2008 by closing eight transactions, which represents approximately 30% of the transactions settled last year commented Hamish White, a Partner in the firm and Director of the Investment Division. About the expectation for 2009 he added „It is a transitional market with no floor yet. As far as we are aware there have been no new transactions started and closed since the collapse of Lehman Brothers which is seen by most as when the rules changed completely". To make matters worse there is a significant country risk factor and practically zero financing available.

Taking these negative aspects into account we are expecting a large yield adjustment greater than that experienced by markets such as the United Kingdom, Ireland and Spain. On a positive note Mr. White added that as we are entering into a new property cycle those with the ability and courage will acquire property on favorable terms and do extremely well, after all real estate investment is a long term business.

Author of the article: O|G|H