Budapest‘s office market has long been the riddle of CEE. In other markets, double-digit vacancy would scare off developers and markets from starting new projects, especially on a speculative basis. But the Hungarian market was always more adventurous, with developers claiming that tenants would only sign leases on buildings they could see, and physically walk around in as construction progressed.
Not surprisingly, the view on spec office development have changed pretty dramatically over the past 24 months. As in, it virtually doesn’t exist, not least because vacancy has ballooned out to 25%.
Developers these days are concentrating on leasing their existing space, rather than plotting how to begin new projects at all costs. And they’re willing to do deals to get tenants in.
Gergely Pados, head of Cushman & Wakefield‘s office department says that in general, headline rents have fallen between 10 and 20 percent. But it’s more difficult to specificy what sort of extra incentives are on offer. “It’s hard to generalize, because it depends really on the whole package,” says Pados. “But before the crisis on a five year lease you were probably getting five months rent-free, now on average you can get six and more.”
Miklos Saly, director of Colliers’ office agency in Budapest, agrees that rents have taken a hit, but argues that the lack of supply is finally starting to have an impact, and that developers are getting tougher as their buildings fill up.
As the economy finally begins to stabilize, and big companies are beginning to make plans for the future, they’re beginning to realize the office landscape has changed significantly.
“If you’re a 500 sqm company, then 20% vacancy means you can do a good deal because probably you can a deal just about anywhere,” says Saly. “But if you need 2,000, 3,000 or more than 4,000 sqm, then your opportunities to find a good location, at a good price are quite limited.”
If this continues much longer, Budapest may come out of the crisis with a much more “normal” office market than it entered with.
Robert McLean is Editor-in-Chief of CEE Construction & Investment Journal, the region’s leading property magazine.. To read more, visit the CIJ blog.
Top image credit : Photobank gallery