Budapest Market Overview - Knight Frank

BUDAPEST MARKET OVERVIEW H1 2018Project ManagementTechnology companies rewritethe rules of the real estate marketSpaces designed to promote shared activitiesincrease the likelihood of interactions andthe data repeatedly demonstrate that moreinteractions create positive outcomes:According to Deloitte’s analysis in the futureless office space will be needed, shoppingcentres must become event-driven and themarket of commercial real estate must beready for the spread of blockchain as well.The traditional players of the sector mustalso get used to the fact that technologycompanies are going to rewrite the rules inthis segment as well.The content ofinteractions doesn’tmatter; wheninteractions occur,regardless of theircontent, improvementtypically follows;CampusGreater than workplace!Sometimescirculating,exploring, engaging,and increasingthe number ofpeople’s collisionsis more importantthan individualproductivity orcreativity;Office is not self-contained but verymuch connects with and spills overinto a mix of other uses, turning a worklocation into a place of choice. It hasborrowed themes from other sectors:01For example, a workerfinds a better way todo their job but nevertells anyone else doingthe same job what theyhave discovered. Theyhave improved theirperformance but no oneelse’s. If the worker takestime out of their day totell others about whathas been learned, theirown productivity drops,but group productivityhas increased;In some caseseven a 5% dropin personalproductivity canhave a positiveoutcome on groupperformance.8 KNIGHTFRANK.HUOffice as a tallent hubA place that attracts young talent, where thesense of belonging and camaraderie is likethat experienced in the education sector bytoday’s generation of students – tomorrow’sworkers – on a university campus.02“The essence ofworkplace asan experienceis where all theelements of work– the physical,the virtual andthe behavioural– are carefullyorchestratedto inspireemployees.Office as a destinationNot just in the sense of its locationin an urban setting but offering staff,partners and visitors alike a welcomingspace for co-creation and partnership.Such is the Crick Institute.A place forencounter that borrows its aesthetics andfunctionality from the hospitality sector.04Office as an eventThis is about the experience of work andmaximising its potential as it spills into lifeas part of a 14 hour day cycle. It borrowsits themes from the media sector andbrings together local businesses, large orsmall, and communities around sharedexperiences, that become the talk of town.HOW WILL WE WORK?The digital revolution brings significantchanges into the world of work. Current jobs,just as the demand for manpower and theway work is done are going to change. Thedemand for workers with low qualificationsand lack of digital knowledge (especiallyworkmen, unskilled workers) shall drop.Intellectual jobs will increasingly becomedata-driven and most of the time will becarried out from a distance, which is goingto affect the demand for office space, theirperspectives and infrastructure.Due to telecommuting the area of office spacesis expected to shrink, though from time totime people would have to come into theoffices. Most likely the offices will be located inurban areas, in modernised or new high-techbuildings, that are extremely suitable andefficient for teamwork. The highly developedpublic transportation and self-driving carsare going to reduce the time to get to work andit will not require large parking spaces.03Office as a brandBorrowing from the retail sector, where itis all about communicating and enhancingthe brand. As employees are measuredby their sense of initiative and the qualityof the output they produce, it becomesincreasingly important to display this.Technological development, digitization andautomatisation bring a significant change onthe commercial real estate market, real estatedevelopers and commercial centres have toget ready for comprehensive changes. By aninnovative data analysis, the experts fromDeloitte made it possible for us to have aglimpse into the future of real estate market,thus helping the affected to get ready.HOW WILL WE SHOP?“Engaging peoplewith their work,connectingthem to thebusiness visionand creating agreat workplaceexperience.Demand for commercial real estate might bereduced due to the constant push of onlineshopping and due to the development of3d printing. “Just-in-time” logistics is moreand more popular; delivery by drones isbecoming faster and safer. The so-called“luxury shopping streets” like DEak Ferencstreet or Vaci street are probably going tosurvive in their current form thanks to their“see and be seen” function, though smallershops that are not located in centres are goingto increasingly feel the pressure.Dr. Gábor GömöriHead of Real Estate& ConstructionDeloitteShopping centres have to become event-oriented in order to meetthe demands of the shoppers and to be able to offer a new kind ofexperience beyond simple shopping. The changes that will affect theoperation and the profitability of the shopping centres and the effectof these on the rent that is proportionate with the turnover shall bediscussed in a future article.WHO IS GOING TO PROFIT FROM REAL ESTATEIN THE FUTURE?For now the profit of real estate investors originates mainly fromrenting and sales. In the future there shall be a new importantfactor: data collected on the users. The classic rent may also drop,however taking into consideration the value of the collected data,the final amount collected from real estate assets may be larger.Nevertheless, overall the shift of prices may be moderate, due tothe fact that digitisation increases productivity and efficiency,which taking into consideration the current market situation, itmight lead to excessive offer.In respect of the real estate market participants, the more transparentmarket and the automatic, more direct negotiations betweenthe property owners and their lessee, the role of the realtorsmight decrease or change. In general it can be said the real estatetransactions are going to be based on technologies like block chainsand the smart-contracts, thus the need for a third party intermediaryis going to diminish.The winners of these changes could be the governments, that findthe way to profit from the benefits of development due to the newtax models (e.g. digital or “robot tax”). The so acquired additionalincome is going to be needed for the financing of the increasing socialcosts that might appear because of the increased unemployment. Infinancing, the banks of the future are going to have a competitor inthe form of crowd-funding platforms and the FinTech companiesthat will result in the fact that banks will have fewer benefits from thevalue-chain.“the changes will benefit especially those technological companies thattoday are not considered as defining players of the real estate market. Thecurrent technological giants and dedicated start-ups are going to find theirway into the real estate sector, there is going to be more and more attractiveas it produces more and more data. These companies shall create datadriven business models, which are going to produce value for the leaseswhile user data is collected. With the comprehensive experience gainedfrom the digital business models combined with the support of the high techenvironment, these technolog y companies are going to conquer the buildingand operations sector, gaining large shares from the real estate value-chain,if the current real estate market players will not be able to discover and“mine” the treasure hidden in the world of big data.” — declares dr. GaborGomori team leader of the real estate department of Erdos es TarsaiDeloitte Legal law firm.“Technological development, digitization andautomatisation bring a significant change onthe commercial real estate market, real estatedevelopers and commercial centres have to getready for comprehensive changes.KNIGHTFRANK.HU 9

Significant changes in Hungarianreal estate law in the first half of 2018Hungary amended and adopted many new acts and decrees in 2017and in the first half of 2018 which significantly affected various areasfrom townscape assessment to energetic requirements of buildings.Below, we summarize the most important novelties:Dr. Hetényi KingaManaging Partner BudapestDr. Menczelesz AdriánÜgyvédjelöltSchoenherrAFFECTED AREAOF REAL ESTATE LAWSUMMARYTOWNSCAPEASSESSMENTREGARDINGTO ADVERTISEMENTSAND SIGNAGESPursuant to Governmental Decree no. 104/2017. (IV.28.), new advertisements andadvertising display devices may be placed only on certain public spaces and are bannedfrom private spaces visible from public spaces. Advertisements affixed before 28 May2017 may remain until 31 December 2020. In the event of a violation of these rules, thecompetent authority may impose a fine up to EUR 9,600.Company and shop signages and logos which are placed on a building for the purposeof orientation are exceptions. Further rules may be set forth in local townscape decreeswhich the local municipalities were required to adopt by end of 2017.In such decrees, the local municipalities are entitled to make the signages subject tonotification procedure. Moreover, they may set forth additional rules covering the designand affixing of the signages in detail. Because of this, a company must seek informationabout the local rules in every case before the installation of the signage on the façade ofthe building.LAND REGISTRYAND PROCEDUREThe amendment to Act no. CXLI of 1997 on Land Registry was required because of theintroduction of the new Act on Administrative Procedure. Despite the general trendtowards digitalization, the amendment still requires submissions to the land registry to bemade on paper. This means that the e-land registry will not be adopted in Hungary soon.The amendment also simplifies the administrative procedure regarding newinvestments: no site plan is needed to be submitted if the entire area of the land plot willbe withdrawn from agricultural cultivation.CONSTRUCTIONPERMITTINGPROCEDURESSome legislative changes occurred in the construction sector also. Contrary to the landregistry, the amendment to Governmental Decree no. 312/2012. (XI. 8.) makes clearthat written application forms may not be used in construction permitting procedures.Only digital application forms submitted through the designated digital platform(in Hungarian: ÉTDR) will be accepted. The amendment also emphasises that theconfirmation of the payment of the procedural fee must be attached to the applicationform in every procedure; otherwise the procedure will be terminated by the R BUILDINGSThe reform of the rules on energy performance requirements for buildings alsocontinued. The next station of the reform was in 1 January 2018, when the amendment toMinisterial Decree no. 7/2006. (V. 24.) became effective. Pursuant to the amendment, thebuilding design must achieve the so-called cost optimisation requirement level. Withoutsuch qualification the competent authority may not issue the occupancy permit. Becauseof this, the new buildings and the buildings affected by new construction proceduresmust comply with a cost optimisation requirement level or must qualify as a nearly zeroenergy building. For the sake of compliance, an annex to the ministerial decree providesthe specific requirements for main structures of buildings.In the above, we tried to summarise the most important changes to Hungary realestate law in the first half of 2018. These modifications will have wider implicationsin the Hungarian real estate sector in the future years.10 KNIGHTFRANK.HUConnectingpeople & property,perfectly.

KNIGHT FRANK BUDAPESTKNIGHTFRANK.HUErika LóskaHead of Office DivisionE: erika.loska@hu.knightfrank.comTimea Henter-BalázsAssociate Director, Office DivisionE: timea.henter@hu.knightfrank.comRéka BarthaResearchE: reka.bartha@hu.knightfrank.comEUROPEAN RESEARCHAlice MarwickAssociate International ResearchT: 44 2038 667 84E: alice.marwick@knightfrank.comRECENT MARKET RESEARCH PUBLICATIONSThe Wealth Report2018European Quarterly2018Global Cities2018Knight Frank Research Reports are available at KnightFrank.com/Research Knight Frank LLP 2018This report is published for general information only andnot to be relied upon in any way. Although high standardshave been used in the preparation of the information,analysis, views and projections presented in this report,no responsibility or liability whatsoever can be acceptedby Knight Frank LLP or Knight Frank Hungary KFT forany loss or damage resultant from any use of, reliance onor reference to the contents of this document. As a generalreport, this material does not necessarily represent the viewof Knight Frank LLP and Knight Frank Hungary KFT inrelation to particular properties or projects. Reproductionof this report in whole or in part is not allowed withoutprior written approval of Knight Frank LLP and KnightFrank Hungary KFT to the form and content within which itappears. Knight Frank LLP is a limited liability partnershipregistered in England with registered number OC305934.Our registered office is 55 Baker Street, London, W1U 8AN,where you may look at a list of members’ names.

The highest vacancy rate in Budapest is still recorded in the periphery, standing above 30%. Non-Central Pest has taken over the title of lowest vacancy with 4.8%, with Central Buda following close by with a vacancy rate of 5.2%. The continuous growth of the market since 2012, when the vacancy rate stood at its peak of 21%, reflects the net