Market Knightfrank /research Overview
Budapest Market Overview 2020 - 2021 Inside -Out knightfrank.com/research Real Estate Report
Contents 4-9 10-11 12-15 16-21 Office Market Industrial & Logistics Market Capital Markets 2021: Workplace Trends
Knight Frank Budapest Market Overview, 2020 - 2021 2011 1,700 3,079,914 87,425 2014 2015 2016 3,172,400 68,220 3,280,970 96,274 3,360,090 79,920 3,415,550 3,628,105 70,640 3,687,620 231,945 Supply 3,903,840 sq m 105,000 232,000 70,000 The new supply was significantly higher than in 2019 and almost reached 232,000 sq m. Four high quality office buildings were handed over in 2020, three of them in the Váci Corridor submarket: Agora Tower (34,500 sq m), Váci Greens F (25,050 sq m), Váci Greens E (22,460 sq m) and Futureal’s signature development, Budapest One in the South Buda submarket. Váci Corridor submarket continues to dominate in terms of new deliveries, while there was a huge drop in Central and Non-Central Pest. Stock 3.9 m /sq m The total modern office stock currently adds up to 3,903,840 sq m, consisting of 3,289,090 sq m of ‘A and B’ speculative office space, as well as 614,750 sq m owner-occupied space. In terms of stock by submarkets, at the end of 2020, Váci Corridor stays on top with a total office stock of just over 1,000,000 sq m, followed by Central Pest and Non-Central Pest on the third place. 0 35,000 Deliveries 230,575 2020 140,000 3,238,180 50,920 2018 2019 3,196,405 30,100 Total Stock 2017 3,158,889 92,493 2012 2013 D EL I VERI ES V S. TOTA L ST I C K sq m Office Market 2010 2011 2012 DELIVERIES BY SUBMARKET 4 2013 2014 2015 2016 2017 Váci Corridor Central Pest 2018 2019 North Buda 2020 Non Central Pest STOCK BY SUBMARKET (CLASS A&B) 26% Vaci Corridor 11% South Buda 17% Central Pest 10% Central Business District 13% Non-Central Pest 8% North Buda 11% Central Buda 3% Periphery 5
Budapest Market Overview, 2020 - 2021 Knight Frank 700,000 525,000 43% 10% 13% 2% 6 SUBMARKET SIZE (SQ M) TYPE Budapest One Phase 2 South Buda 14,140 Pre-lease Budapest One South Buda 8,000 Pre-lease Váci Greens E Váci Corridor 7,450 Pre-lease Park Átrium Central Pest 6,300 Renewal Budapest One South Buda 4,730 New 2020 2019 2018 2017 2016 2015 2014 2012 2011 2013 DEMAND BY TYPE OF TRANSACTION 2020 Relocation and new demand Renegotiation/Renewal Expansion Pre-lease Owner Occupied Key transactions included a 14,140 and 8,000 sq m pre-lease both in South Buda submarket and a 7,450 sq m pre-lease in Váci Greens E, while the largest renewal was concluded for 6,300 sq m in Central Pest. The largest new transaction was registered in Budapest One at 4,730 sq m. Prime rent: 25.00 EUR/sqm 9.1% The office vacancy rate has increased to 9.1%, representing a growth of 1.0 p.p. quarter-on-quarter and 3.5 p.p. year-on-year. The lowest vacancy rate of 4.3% was measured in the North Buda submarket, whereas the Periphery still has the highest vacancy rate of 29.3%. We can see that the COVID-19 pandemic has brought new trends to the Budapest office market, the most significant of which, is the increasing number of sublease options coming to the market. Several companies decided to downsize their office space due to home office, adding approximately 2-3% to the vacancy rate. Rents Avg. rent: 14.50 EUR/sq m Vacancy 32% K EY T RANSACT IO N S BUILDING Rental fees remained at the same level at 14.50 EUR/ sq m/ month. Average rental fee in new developments was between 15.00 -17.00 EUR/ sq m/ month, whereas average rent in existing buildings stood at a bit lower level of 13.50 EUR/ sq m /month. There were no changes at prime rent either as it remained at 20-25.00 EUR / sq m. Although, headline rents remained at the same level, fit-out contributions and rent-free periods significantly increased. This is due to decreasing demand and growing supply. 2010 The total demand resulted at 333,310 sq m in 2020, representing a 52% decrease compared to last year (637,125 sq m). Leasing activity weakened towards the end of 2020, reflecting the economic restrictions triggered by the Covid-19 pandemic. 449 lease transactions were concluded in 2020, nearly 40% drop compared to last year. Out of the total leasing activity, renewals still represented the largest share (43%) – increasing even further, followed by new deals/relocations (32%), pre-lease agreements (13%) and expansions (10%). The average deal size amounted to 743 sq m. The total occupied stock decreased by 5,100 sq m and net absorption have therefore dipped into negative territory. 350,000 sq m Supply 175,000 333,310 Demand 0 Demand S U P P LY VS. D E MA N D sq m VACA N CY RATE 22% 16,50 % 11 % 5,50 % 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 7
Knight Frank Budapest Market Overview, 2020 - 2021 TOTA L D E A LS A ND AV E RAG E D E A L S IZE 1100 825 550 275 2012 2013 2014 2015 Forecast 2016 2017 2018 2019 2020 Despite to a strong end in 2019, the Budapest office market is inevitably showing effects reflecting economic restrictions caused by the COVID-19 pandemic in 2020. The total leasing activity decreased, as we experienced a sq m 175,000 in the next 12 months significantly lower number of transactions. We are expecting almost 175,000 sq m stock-increase until the end of 2021, depending on how the economy will react to the changes triggered by the COVID-19 pandemic. Renegotiations and more flexible landlord-terms are expected as a result of the economic changes prompted by the pandemic. Tenants are keen to introduce risk-minimising measures, which – with an effective strategy and experienced advisor – might bring early savings. Several businesses carried out extensive researches to examine the possibilities of working from home permanently, which will undoubtedly change the office market further. Despite, the aforementioned recently improving trend, the Hungarian office market is well positioned for a recovery in office leasing. 8 5 m. 3.75 m. 2.5 m. 1.25 m. 0 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 MO D ERN OF F IC E STO C K ANNUAL EVO LU T ION AND F OR ECAS. Class A B 9
Budapest Market Overview, 2020 - 2021 Capital Markets Office 60% Hotel 15% Industrial 15% Retail 7% Other 3% 2020 TRANSACTION DISTRIBUTION BY SEGMENT TYPE Yields downward pressure 7% 6.5% With regards to yields, office is expected to be at 5.5% for prime, industrial will likely end up at sub-7% and 6.5% at the prime end, with retail at 6-6.5%, although no assets are seen as being available. 5.5% Prime Yields Forecast Office Retail Industrial Transactions One of the main results of the current restrictions on shops and businesses is that the industrial sector has overtaken retail in terms of investment activity, although it suffers from a lack of available assets. Office remains the most popular asset to invest in. Investment volume EUR 1 billion The improvement of the investment market is dependent on the arrival of a COVID vaccine. The logistics and office sectors are seen as being the most favorable positioned for a post-COVID improvement, however it will mostly depend on how new working trends and habits will change. A large part of acquisitions have now slipped over to the next year, which will boost the volumes in 2021. We expect logistics and offices to pick up in volume, however there is uncertainty with regards to retail and hotels. The annual investment volume of the Hungarian property investment market totalled at around EUR 1 billion, representing a nearly 50% drop compared to 2019. As in previous year, a significant part of the investment volume was generated by the office segment, which accounted for 60% of the total volume followed by 15% for industrial, 15% for the hotel sector and 7% for retail. We expect about EUR 680 million in ongoing deals likely to close in the first half of this year. 11
Industrial and Logistics Market The modern industrial stock stands at 2.374 million sq m in and around the close vicinity of Budapest. The level of deliveries in 2020 was 127,960 sq m, a 50% increase from last year. 128,000 2016 2017 2018 2019 2020 4% 0% 2% 50k Completion Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 0 BUDAPEST INDUSTRIAL PROPERTY MARKET INDICATORS 12 PROJECT Airport BUD Cargo City West CTPark West CTP 31,320 South Budapest Dock Szabadkikötő Weinberg 10,000 South Prologis Harbor DC11 Prologis 13,520 South CTPark South CTP 22,840 East East Gate Business Park Wing 17,780 West Inpark Páty NIPÜF 10,600 East CTPark Budapest East CTP 13,200 Demand /Total leasing activity DEVELOPER AREA (SQM) 8,700 Total leasing demand for industrial space amounted to 537,900 sq m in 2020, representing a 29% increase compared to the previous year and second-highest annual volume on record. 538,000 In terms of type of transactions, lease renewals accounted for the highest ratio, followed by lease renewals. The largest transaction – and second largest new lease ever recorded on the local market - was Lenovo’s pre-lease in CTPark Budapest East for 35,700 sq m BTS space. 6% 100k 8% 150k 10% 12% 200k 14% 250k 16% 2015 sq m sq m Supply SUBMARKET 2020 DELIVERIES Budapest Market Overview, 2020 - 2021 Knight Frank Total leasing activity (sqm) SUBMARKET PROJECT SIZE (SQ M) TYPE South Batta Park 28,585 Renewal South CTPark Budapest South 28,470 Pre-lease South Prologis Park Budapest - Sziget 24,800 Renewal South Prologis Park Budapest - Sziget 20,800 Expansion East CTPark Budapest East 35,700 Pre-lease East CTPark Budapest East 23,370 New lease 13
Budapest Market Overview, 2020 - 2021 Knight Frank 2% Vacancy The vacancy rate at the end of the year stood at 2.0%, an increase of 0.1pp compared to last year. At the end of the year, a total of 48,000 sqm logistics stock stood vacant and there was only one existing building with more than 5,000 sqm of available warehouse space. Net absorption amounted to 121,590 sq m in 2020. VACANCY RATE 11% 8,3% 5,5% 2,8% 0% 2015 2016 Rents 4.60 EUR/sqm/month 14 2017 2018 2019 2020 The rent level remains at a stable 4.60 EUR/ sq m/ month, however this could soon go higher as we see an increasing number of leases getting renegotiated at often higher rates. Increasing competition on the development market could put further pressure on prices, although this could be delayed due to the uncertain market conditions caused by the COVID-19 pandemic. 11
Knight Frank Budapest Market Overview, 2020 - 2021 Flexible working "The future of work will be flexible – there’s no one-size-fits-all model for businesses or employees. Autonomy and variety will drive business performance." 2021 Workplace Trends: Predictions for the year ahead Many of the trends will continue to shape our world of work, but the pandemic has also accelerated several others. Here are our predictions for 2021 workplace trends – both accelerated and new. Working from home will continue It’s safe to say that Covid-19 has accelerated the adoption of flexible working. Several lockdowns have forced many companies to work from home – even those that were reluctant to work anywhere but the office. We believe working from home, as well as other types of flexible working, such as staggered hours and working closer to home, will continue to form a part of our working lives in 2021. While this partly comes down to our ongoing efforts to contain the pandemic, it’s also a consequence of our newfound focus on flexibility as a whole. We’re beginning to see the extent to which different people, roles and tasks require different parameters for optimal performance. To boost employee productivity, engagement and happiness, our world of work will feature a strategic blend of different environments, places, working hours and even agile working setups – such as sit-stand desks, active sitting chairs and even exercise balls. 16 Office space will continue to be crucial Undeniably, despite our newfound acceptance of remote working, there is a growing need for businesses to provide office space for their employees to develop their skills, collaborate and learn from one another. The ‘death of the office’ narrative that murmured through 2020 wasn’t silenced by academic rhetoric, it was silenced by people sincerely missing their office environments – and everything that came with them. Businesses still want a central hub. In fact, only 8% of employees want to work from home five days a week, and 53% of UK businesses surveyed by Knight Frank said they wanted their offices to feature more collaboration space. So, while the demand for flexibility continues, social capital remains critical. Health and wellbeing For most forward-thinking companies, health and wellbeing were firmly embedded into corporate agendas, but Covid-19 has catalysed efforts across the board. Covid-secure workplaces will prevail As the first lockdown was lifted, flexible office space providers went to great lengths to create Covid-secure workplaces in order to comply with government guidelines and lower health risks. They enhanced their cleaning regimes, increased airflow, added hand sanitizer stations throughout all spaces, displayed safety signage, organised one-way systems and redesigned furniture layouts to enable social distancing. For all workplaces, this safety-first approach will prevail in 2021 and beyond as we continue to mitigate the dangers of Covid-19. 17
Knight Frank Active commuting will rise In the months we were encouraged to return to our workplaces, active commuting became a popular way to both avoid public transport and break up a sedentary working day. It’s likely this trend will continue, and as a result, employers will look for offices fit for a cycling commute, which neighbour cycleways and feature showers and secure bike racks. Businesses will try to prevent remote working loneliness For some, remote working came with a sense of loneliness and isolation – our innate need for social interaction was barely being met. But for others, it was a dream come true. Ultimately, 2021 wellbeing strategies will come down to personal choice, flexibility, and an additional integrity in remote environments. What’s important is that the conversation continues. The office experience Though dull, drab and cubicle-clad offices have been a thing of the past for some time, we’re likely to see an increased focus on the office experience in 2021. Quality and collaboration will centre stage The office won’t be what it’s always been. Workplace strategies will feature a flight to quality, a focus on design and an emphasis on collaboration – especially as we try to rebuild our depleted levels of social capital. The office will be a destination that provides experience, connection and choice – with insta-worthy cafés, curated meet-ups that instil a sense of community and belonging, biophilic office design that boosts wellbeing, agile working strategies that encourage mobility and technology that streamlines workflows. 18 Budapest Market Overview, 2020 - 2021 The demand for flexible office space will grow A focus on the office experience is also likely to boost the demand for flexible office space – which has already witnessed a surge (as monthly rolling contracts acted as a tonic for uncertainty amid lockdowns. Sustainable commutes will trend We’ve already witnessed the rise of active commuting – and in particular – cycling to work, but 2021 is likely to see the sustainability trend reach new heights. Green, sustainable offices will win the war for talent There is a growing recognition that younger generations of talent are seeking out businesses that increasingly align with their moral values across environmental, social and governance initiatives. These include efforts to reduce corporate carbon footprints, improve employee wellbeing, and ensure diversity and inclusion. As businesses continue to view real estate as a strategic device and an investment, choosing to base their teams in green, sustainable offices is a clear way to demonstrate a commitment to the cause (for both employees, clients and competitors). We’re experts in finding you the perfect office space at the best price. Ask us to start your search today – it won’t cost you a penny. 19
Knight Frank Romania Market Overview 2020 WORKPLACE RADICAL CHANGE HEPA FILTERS Capturing up to 99.995% of microscopic contaminants. VEHICLE LICENSE PLATE RECOGNITION Avoiding direct contact with any surface (access cards, buttons etc.) 20% of employees present in the offices Smaller companies – easier to handle Covid-19 measures 2020 WORK FROM HOME Smarter controlled elevators; Larger revolving door at the main entrances. 2021 & BEYOND HYBRID / FLEXIBLE WORK Large companies kept their people home, tech especially. Rents were collected in more than 95% of the cases ULTRAVIOLET GERMICIDAL IRRADIATION NO RECYCLED AIR 100% fresh air intake UVGI lamps in the air handling units and elevators as extra barrier for viruses & bacteria. NEW BUILD INGS. Improved Standards BREEAM I. II. III. IV. Good LEED Very good I. Silver Excellent Outstanding II. Gold III. Platinum WELL GREEN CERTIFICATIONS HOW THE MARKET SHAPES POST PANDEMIC? Net impact in size is incertain Collaborative face to face work still necessary Safe distances between offices, total amount of space/person could rise Organisational culture 2021 & BEYOND HYBRID/ FLEXIBLE WORK Office demand to pick up in 2021 Employees will start going back to the office as of Q2 2021, up to 70-80% in Q4 2021 Occupiers to reduce their size by 10-20% Lower office attendance 13 13
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Budapest One Phase 2 South Buda 14,140 Pre-lease Budapest One South Buda 8,000 Pre-lease Budapest One South Buda 4,730 New Váci Greens E Váci Corridor 7,450 Pre-lease Park Átrium Central Pest 6,300 Renewal Avg. rent: 14.50 EUR/sq m Prime rent: 25.00 EUR/sqm
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Office market take-up, a significant bounce as the economy opens up. 35% of Q3 take-up was in Dublin 2. PAGE 4 133m Invested in Dublin office assets in Q3, taking total office investment to 772m for the first nine months of the year. 81% of investor spend was on five buildings. PAGE 10 DUBLIN OFFICE MARKET OVERVIEW Q3 2021
Source: Knight Frank Research, 2021 Source: Knight Frank Research, 2021 Source: Knight Frank Research, 2021 The vacancy rate in the Moscow region warehouse market declined to 0.6% by the end of Q3 2021, becoming the lowest since the first half of 2008, when the vacancy rate was 0.4
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