MNB: the value of the Budapest offices has decreased significantly, but we have reached the bottom of the pit

The decline of the domestic economy in 2023 and its structure did not support the processes of the commercial real estate market, which is therefore still surrounded by cyclical and structural risks, but looking into the future, the prospects are already more positive, he emphasized Adam Banai.

Hotel, logistics and office market

Among the commercial real estate segments a hotel sector its performance indicators improved – thanks to foreign guest traffic – in 2023, and in the other segments individual investor and government decisions, as well as the return of economic growth this year, may bring some improvement – he emphasized Alexander Winkler. He added that

2,000 new hotel rooms are expected to be handed over this year, which could increase the stock by 3 percent.

Looking ahead, in 2024, with the moderation of inflation, the rise of real wages and the strengthening of consumer confidence, the internal demand items will support the expansion of the GDP, which can have a positive effect on the retail and hotel sub-segments – the expert pointed out.

Export performance is restrained by the weak European economy, but at the same time, the implementation of ongoing and newly announced significant capacity-expanding foreign direct capital investments will help the expansion of exports in the long term, having a positive effect on industrial-logistics demand and developments.

In 2023 it is in the industrial-logistics segment the volume of new developments started decreased by almost a quarter compared to the previous year. The pre-leased rate of the new areas planned to be handed over in 2024 is also around 55 percent for office and industrial logistics developments, which is higher than the data of the previous two years, alleviating the pressure in the direction of rising vacancy rates.

Last year brought a record amount of new handovers in the industrial logistics market of Budapest and its surroundings, so the vacancy rate increased to 8.6 percent, which is the highest in the region.

This year, the stock in Budapest and the surrounding area may increase by another 9 percent, but development activity is also decreasing here.

The one in Budapest office market In 2023, the vacancy rate rose by 2 percentage points to 13.3 percent, and in the industrial-logistics market by 4.8 percentage points to 8.6 percent. In addition to the demand levels in 2023 and the volume of newly planned areas to be handed over, the indicator is expected to rise further. The decreasing trend of the volume of office space under construction was broken in the fourth quarter of 2023, due to the office needs of public institutions, the construction of several new buildings started.

Investment turnover and returns

Sándor Winkler highlighted that the investment turnover of the domestic commercial real estate market in 2023 amounted to 0.6 billion euros, which is 38 percent less than the turnover in 2022. 82 percent of this volume was linked to domestic investors. Rising yields, high financing costs and moderate rental demand continue to encourage investors to wait, which predicts a low investment turnover for 2024 as well.

In all countries of the CEE region, the primary office yield (for properties with the best location and quality) increased, and investment turnover decreased by between 24 and 68 percent per country. The capital values ​​calculated on the basis of primary office yields and rents decreased by an average of 8 percent in the CEE region and by 9 percent in Budapest by the end of 2023 compared to a year earlier.

Over the past year and a half, a 13 percent decrease in value can be seen in the CEE region, and a 21 percent decrease in the value of the best-rated office buildings in Budapest.

Relapsed lending

In 2023, banks disbursed project loans secured by commercial real estate in a 42 percent smaller volume, with the exception of hotels, the volume of new issues decreased for all types of real estate, said Sándor Winkler.

Based on the MNB’s Lending Survey, in the fourth quarter of 2023, banks tightened lending conditions in all commercial real estate segments, and further tightening was expected in the first half of 2024 due to the changed risk tolerance. Overall, the total balance sheet total and solvency capital of domestic credit institutions’ project loan exposure secured by commercial real estate is proportionally less than half of the level after the 2008 crisis, and there was no deterioration in portfolio quality either.

Finally, the expert emphasized that the commercial real estate market may now be at the bottom of the cycle, so no further declines are expected.

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