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COVID-19 Impacts on Hungary Real Estate

Orsolya Hegedűs • 6/25/2020

As of 22 June, the containment measures have been lifted in Hungary. Restrictions on retail were already lifted, but everyone entering a shop must wear face protection of some kind.  From 18 June, shopping hours for seniors were abolished and from 25 June, cinemas and theatres will fully reopen. Free street parking that has been introduced with the aim of reducing the occupancy in public transport is expected to be abolished on 1 July. 

The Hungarian Government, together with the MNB, has announced a large amount of policies designed to support the economy amounting to nearly 20% of GDP. Monetary and fiscal stimulus combined with a strong recovery in discretionary spending should ensure a rebound in activity once the worst of the virus-related disruption is past. The economy is therefore expected to recover from H2 this year.  

International travel is a key factor in the facilitation of new investment deals and the gradual reopening of the skies should stimulate more international activity. Clearly occupational performance will be monitored very closely by investors, prior to committing on new deals. We believe the fundamentals of the Hungarian CRE market, with low supply and vacancy across most sectors - underpinned by a strong domestic investor pool - as being in a relatively strong place. Therefore, we expect Budapest will be able to pick up quickly once travel restrictions are fully lifted and decision making allows new investment transactions to move forward. 

 


18 June

As of 15 June, the containment measures have been lifted in Hungary. The country borders have been reopened to and from neighbouring countries like Austria, Slovakia, Croatia and the Czech Republic. The ban on visiting hospitals was lifted on most hospitals, and hotels can restart operation. From 15 June religious ceremonies are allowed, just like weddings and funerals, and must have fewer than 200 guests. Restrictions on public transport is also taking a step in easing the measurements as buses will be fully occupiable. From 16 June, cinemas and theatres are both expected to reopen.   

Restrictions on retail including F&B were gradually eased, first in the countryside and later in Budapest. The current crisis however delivered a drastic but temporary decline in retail sales. According to CSO figures, retail sales in April declined by 10.2% and F&B fell back by c. 70%. May is expected to be significantly improved with consumers returning to physical retail. Google's mobility report now shows that the mobility to retail and recreation returned to baseline figures in early June.  

The volume of online retail accounted for 12.5% of the total retail sales in April, which is an all-time record high figure. Structural changes therefore have been accelerated by the current crisis and there is likely a permanent shift in demand for online retail. Changes however will take more time to filter through in Hungary as the share of online sales was only 7.3% in 2019 as opposed to Western European markets having a share of 18-20%.  

 


11 June

As of 8 June, the containment measures were lifted in Hungary. The country borders have been reopened to and from neighbouring countries like Austria, Slovakia and the Czech Republic. Universities can reopen but student accommodation facilities are still closed. Senior homes, nurseries, kindergartens and schools have gradually reopened country wide.  

Restrictions on retail including F&B were gradually eased, first in the countryside and later in Budapest. Cinemas are still closed, some that had the equipment have eased the situation by opening drive-in cinemas. From 16 June, cinemas and theatres may be able to reopen. The footfall in shopping centre schemes is recovering with a rebound in retail spending expected to follow from this month. Still, many retailers are struggling with debt loads accumulated during the lockdown period. As a result, many retail units have been closed down permanently, which might attract new operators and indicate changes in the tenant mix, even in prime retail schemes.  

All automotive production and OEM production resumed from late April, suggesting the Hungarian economy will begin to recover from Q3, although production is still operating under limited capacity due to global supply chain disruptions. BMW has recently taken over the land of the planned car manufacturing factory in Debrecen. Reliance on global materials and parts sourcing has become problematic during the pandemic for manufacturers all over Europe. The expectation is that over the mid-term, manufacturers will revert to holding more inventory and move away from ‘just-in-time’ inventory management. Consequently, more warehouse demand especially near automotive hotspots is anticipated in the mid-term of which Hungary, as a hub for German car production in Europe including Audi, Mercedes and the planned BMW, should benefit. 


3 June

As of 1 June, the containment measures have been lifted in Hungary. Restrictions on retail were gradually eased, first in the countryside, as of 4 May, and later in Budapest from 18 May.  Most retailers including F&B have now reopened. The footfall in shopping centre schemes is recovering with a rebound in retail spending is expected to follow from June.  

Hungary's economy is ranked one of the most resilient to the impacts of Coronavirus epidemic, with a contraction of 5.0% expected for 2020. A strong recovery is expected with a projected GDP growth of 4.4% in 2021 and 5.2% in 2022, according to Oxford Economics. 

The country borders have been gradually reopened from 25 May. The virtual standstill of automotive factories however contributed to a decline in industrial production. According to CSO figures, industrial production volume decreased by 5.6% y-o-y in March. All automotive production and OEM have restarted production from late April suggesting the economy began to recover from Q3, although production still works under limited capacity due to global supply chain disruptions.

The Budapest office market has entered the current crisis with solid fundamentals. Vacancy levels are stabilised at around 5% which is one of the lowest among the CEE capitals. Demand continued to grow y-o-y since 2009 and has not reduced for two consecutive years. Hungary has been a key beneficiary of the offshoring of BPO’s and shared service centres following the Global Financial Crisis, and whilst many other global offshoring destinations have struggled with the infrastructure requirements, Budapest has adapted well to the switch to home office necessitated by the current crisis. This should increase Budapest’s attractiveness further as a global offshoring location.   

 


28 May

As of 25 May, the lockdown in Hungary has eased throughout the country with social distancing measures remaining in effect. A gradual reopening of the country borders has been announced as follows: the southern borders will be reopened with Serbia from 25 May and with Croatia from 29 May. The western borders are planned to reopen with Slovenia from 1 June and with Austria from 15 June.   

Most office occupiers are now making extensive plans to facilitate a return to the office, and some are even trying these plans out in practice. Universities can reopen but student accommodation facilities are closed. Nurseries, kindergartens and schools will gradually reopen from next week, and hotels outside the capital can reopen from this week. 

Restrictions on retail are lifted, but everyone entering a shop must wear face protection of some kind. Shopping hours for seniors remains in effect for grocery stores and drugstores. F&B may be open if they have a garden or terrace where customers may consume food or drink. Most retailers are gradually reopening, and a rebound in retail spending is expected from June. 

The economy contracted by 0.4% q-o-q in Q1 according to latest estimates, the first decline in activity in four years. The closure of automotive factories contributed to a strong decline in industrial production in March and April. However, all car manufacturers have gradually restarted production, which suggests the economy will begin to recover in Q3. The outlook for the economy is well balanced, as the lockdown period was only about seven weeks, but Hungary has a central role in international supply chains and so depends on the pace of the recovery in the wider global economy. Oxford Economics forecast Hungary’s GDP will fall 5.0% this year, before recovering to grow by 4.4% in 2021 and 5.2% in 2022. 

 


21 May

As of Monday, 18 May, the curfew restrictions were lifted in the countryside on 4 May and in Budapest on 18 May. Social distancing measures and shopping hours for seniors are still in effect. Everyone entering a shop or using public transport must wear face protection of some kind. Public parks and outdoor playgrounds can be visited, outdoor swimming pools and museums can reopen to visitors. 

All retail stores were allowed to open from 18 May including F&B, with the restriction that outdoor areas and terraces can only be opened to guests. Public spaces can be used by restaurants as terraces free of charge in the period 18 May - 1 September. Most retailers are gradually reopening their premises and others are actively planning to do so under strict safety and health measures. Food retailers may have to calculate the safe maximum number of customers in the store at the same time.  

Most office occupiers are now making extensive plans to facilitate a return to the office, and some are even trying these plans out in practice. Universities can reopen but student accommodation facilities are still closed. No exact dates have been announced yet as to the schools reopening.  

With the reopening of the Opel factory in Szentgotthárd from 11 May, all automotive production and OEM have gradually been restarting. BMW, however, has announced a one-year delay in opening their new plant in Debrecen than originally planned, whilst groundwork and hiring for the new scheme had already begun.  

 


14 May

As of 11 May, a gradual opening of certain retail started and will be followed by the opening of restaurants and bars in Hungary. Curfew measures and shop restrictions, however, remain in place in Budapest and in Pest County.  

Most office occupiers continue to operate through home working despite there being no regulatory restrictions on the workforce coming to the office. Companies are now making extensive plans to facilitate a return to the office. No dates have been announced as to schools reopening.  

Specific retail profiles are gradually reopening their premises (e.g. IKEA, Decathlon), and others are actively planning to do under strict safety and health measures. Everyone entering a shop or using public transport must wear face protection of some kind. Social distancing measures and shopping hours for seniors are still in effect. Food stores may have to calculate the safe maximum number of customers in the store at the same time.  

Whilst border closing still limits ‘just in time’ in manufacturing, most automotive production and OEM are gradually restarting. Returning to work is being planned in a potentially rearranged labour market. BMW, however, has announced a one-year delay in opening their new plant in Debrecen than originally planned, whilst groundwork and hiring of the new scheme had already begun.  

The Hungarian Government, together with the MNB, has announced a large amount of policies designed to support the economy amounting to HUF9.2tr, nearly 20% of GDP. Most of the measures are focused on loan moratorium, tax deferment and liquidity provision, which will accumulate liabilities occurring this year and will have to repaid in 2021. Direct additional fiscal stimulus remains very limited. 

 


7 May

As of 4 May, a new phase of protective measures is in effect in Hungary. Starting this week, a gradual opening of all retail may start. Hotels, restaurants and coffee shops may follow later this month. Nevertheless, everyone entering a shop or using public transport must wear face protection of some kind. Food stores may have to calculate the safe maximum number of customers in the store at the same time. Stricter health protocols regulating restaurants and other businesses will probably be in effect for the whole year.  

Curfew measures and shop restrictions will remain in place in Budapest and in Pest County. Social distancing measures and shopping hours for seniors are still in effect. As of 1 May, a new progressive tax element will be introduced in Hungary, primarily affecting large FMCG retailers.  

The Hungarian Government, together with the MNB, has announced a large amount of policies designed to support the economy amounting to HUF9.2tr, nearly 20% of GDP. Most of the measures are focused on loan moratorium, tax deferment and liquidity provision, which will accumulate liabilities occurring this year will have to repaid in 2021. Direct additional fiscal stimulus remains very limited. 

 


30 April

As of 27 April, Hungary is still under lockdown. Curfew restrictions introduced on 27 March have been extended for an indefinite period to be reviewed on a weekly basis. Prime Minister Viktor Orbán has announced that some of the restrictions might be eased from mid-May taking into consideration nearby countries such as Austria and Italy who are dialling back restrictions on social and economic life. The automotive production and OEM have been gradually restarting with Audi, Opel and Suzuki all reopened. Production at the Daimler plant in Kecskemét will gradually resume from 28 April. 

Social distancing measures and shopping hours for seniors are still in effect. People are only allowed out to shop for groceries, do basic errands or obtain medical supplies. As of 27 April, people must wear face masks on public transport and in stores. Most retail stores are closed due to dramatic decline in footfall, but shopping centres are open and operate under tightened opening hours. As of 1 May, a new progressive tax element will be introduced in Hungary, primarily affecting large FMCG retailers.  

The Hungarian Government has announced a Financial Aid Package, which offered a blanket moratorium on loan repayments until the end of the year and, imposed measures to payroll tax cuts for the most heavily affected sectors. The package is fiscally supported by the Central Bank providing loans to commercial banks at a fixed interest rate of 0.9%. The MFB Group (Hungarian Development Bank) announced loan programs in a total of HUF 1,490 billion for the micro, small and medium-sized enterprise and large enterprise segments.

 


23 April

As of 20 April, Hungary is still under lockdown. Curfew restrictions introduced on 27 March have been extended indefinitely to be reviewed on a weekly basis. Whilst the current Government measures imposed no restrictions on the workforce coming to the office, most companies made an immediate transition to home office where their infrastructure was easily transportable.  

The borders are still closed from passenger traffic which limits ‘just in time’. Yet, automotive production and OEM have been gradually restarting with Audi being the first. More manufacturers’ restart is expected soon which includes Mercedes, Opel and Suzuki too.  

Social distancing measures and shopping hours for seniors are still in effect. People are only allowed out to shop for groceries, do basic errands or obtain medical supplies, and exercise in the open. Most retail stores are closed due to dramatic decline in footfall, but shopping centres are open but operate under tightened opening hours. As of 1 May, a new progressive tax element will be introduced in Hungary, primarily affecting large FMCG retailers.  

The Hungarian Government has announced a Financial Aid Package, which offers a blanket moratorium on loan repayments until the end of the year and, has imposed measures to payroll tax cuts for the most heavily affected sectors. 70% of wages will be paid by the Government for 3 months for part-time workers. The package is fiscally supported by the Central Bank providing loans to commercial banks at a fixed interest rate of 0.9%.  

 


16 April

As of 14 April, Hungary is still under lockdown. Whilst the current Government measures imposed no restrictions on a workforce coming to the office, most companies made an immediate transition to home office if their infrastructure was easily transportable.   

As of 16 March, the borders are closed from passenger traffic which limits ‘just in time’. Therefore, the key production industries such as automotive and related component supplier manufacturing have ground to a virtual standstill. Audi however, partially restarted production under strict safety measures from 14 April.  

Social distancing measures and shopping hours for seniors are still in effect. People are only allowed out to shop for groceries, do basic errands or obtain medical supplies, and exercise in the open. Whilst the Government still has not enforced non-essential shop closure, as a result of a dramatic decline in sales, many retailers have opted for voluntary shut down over the weeks. Most shopping centres are open but operate under tightened opening hours.

The Hungarian Government has announced a Financial Aid Package, which offered a blanket moratorium on loan repayments until the end of the year and, imposed measures to payroll tax cuts for the most heavily affected sectors. 70% of wages will be taken over by the Government for three months for part-time workers, and engineers and workers in the R&D sector will receive a 40% wage supplement. The Central Bank has increased the potential available liquidity of the banking system by HUF 2,600 billion and a moratorium has been introduced in the Growth Credit Programme. The base rate is left unchanged at 0.9%.  

 


9 April

Hungary is under lockdown. Whilst the current Government measures imposed no restrictions on a workforce coming to the office, most companies made an immediate transition to home office if their infrastructure was easily transportable. As of 16 March, the borders are closed from passenger traffic which limits ‘just in time’. The key production industries such as automotive and related component supplier manufacturing have ground to a virtual standstill.  

Social distancing measures and shopping hours for seniors are still in effect. People are only allowed out to shop for groceries, do basic errands or obtain medical supplies, and exercise in the open.  

Whilst the Government still has not enforced non-essential shop closure, as a result of a dramatic decline in sales, many retailers have opted for voluntary shut down in the last two weeks. Most shopping centres are open but operate under tightened opening hours.  

The Hungarian Government has already announced a Financial Aid Package, which offered a blanket moratorium on loan repayments until the end of the year and, imposed measures to payroll tax cuts for the most heavily affected sectors. A further larger scale rescue package is expected to be announced on 7 April.  

 


2 April

Hungary has been in lockdown since 28 March. Car manufacturers including Audi, BMW, Mercedes and Suzuki have temporarily closed production. Most office occupiers have shifted to home office. 

Social distancing measures are in place and shopping hours for seniors was introduced. By decree, leisure and entertainment venues have all closed and people are only allowed out to shop for groceries, do basic errands or obtain medical supplies, and exercise in the open. 

Whilst the Government has not enforced non-essential shop closure, as a result of a dramatic decline in sales, many retailers have opted for voluntary shut down in recent days. Most shopping centres are open but operate under tightened opening hours. 

The Hungarian Government has announced a Financial Aid Package, and more is expected to follow this week. It includes: 

A blanket moratorium on loan repayments for all companies and private borrowers until the end of the year. 

Measures to defend jobs, including payroll tax cuts for the most heavily affected sectors, such as tourism and entertainment among others.  

In the meantime, the National Bank of Hungary has left the base rate unchanged and will increase the available liquidity of the banking system by HUF 2,600 billion.  

 

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