It is now clear that Hungary, like the rest of Europe, is facing a resurgence of the coronavirus as we head into winter. While Hungary entered the crisis from a position of relatively solid macro fundamentals, more recent indicators suggest sentiment have begun to stall when COVID-19 cases started recurring.
The Hungarian economy contracted by 13.6% in Q2 according to CSO, which reflects the impact of the April lockdown. The GKI business sentiment index has strongly improved from its April low by October, but plans for downsizing has appeared in the business sector with decision making processes remaining slow.
Hungary is expected to significantly benefit from the recently-agreed next generation EU recovery fund which will provide a stimulus to the economy, equal to some 6.7% of GDP in the period of 2021-2025. Recovery is expected to start in 2021, Oxford Economics forecast GDP to grow by 5.1% in 2021 and by 5.0% in 2022.
Office investment volumes in H1 2020 reached a record Eur 400 million driven by Optima’s corporate acquisition of GTC accounts. Whilst Q3 was moderate in terms of the number of deals, there are several ongoing transactions still proceeding and expected to be closed in the remainder of 2020.
SUPPLY AND DEMAND: The impact of WFH remains to be seen in Budapest
In line with the global trend, Q3 demand levels in the Budapest office market were restrained compared to the same period of previous years. Q3 total demand shows a decrease of 59% y-o-y but net take-up dominated the market activity amounting to 48 250 sq m. As new supply is continuously delivered to the market, vacancy rate has increased by 0.8 percentage points q-o-q. Net absorption levels reached 70,000 sq m in YTD 2020.
SUPPLY AND DEMAND: Record high demand and apparent under-supply
The Budapest industrial and logistics market is buoyant with record high demand levels and an apparent under-supply of modern space, pushing the vacancy rate further down. Demand equalled 176,900 sq m, driven by net take-up amounting to 124,300 sq m in Q3. YTD demand level reached 427,700 sq m representing a massive 30% increase on the already strong 2019 levels. The largest transaction was a pre-lease agreement concluded with Lenovo in CT Park Budapest East.
Retail sales were reaching pre-pandemic levels in the summer and according to CSO, the total retail sales in Q1-Q3 showed a growth of 0.5% y-o-y. Online sales have seen a significant increase as by the end of September the share of online reached 8.4% which represents a strong growth rate of 40% on 2019 level. Oxford Economics forecasts however, private consumption will fall by 2.8% this year due to crisis-related declines in spending, before rebounding to grow 5.3% in 2021.
SUPPLY AND DEMAND: Lease transactions are present but with slower pace and greater caution
After a brief recovery period during the second half of the summer, shopping centres are experiencing some decrease in footfall since September. Retailer expansions are ongoing but with a careful approach, only to prime target locations. The retail warehouse sector was less affected by the COVID–19 pandemic and some profiles such as furniture and sports have even experienced an increasing turnover compared to the last quarter in the previous year. Outlets and Discounters with fashion and cosmetics profiles are also less affected, whilst profiles such as Food & Beverage and Leisure on the other hand were strongly hit.
Investment trends: Total transaction volume in the first 9 months of 2020 reached €245M, representing a 22.9% increase compared to the same period in 2019. 5 hotels have been transacted in 2020, although some deals were agreed on pre-COVID. Nonetheless, investor appetite for the Budapest hotel market has been relatively positive.
Prime yields: There is no evidence so far of COVID-related yield change, however, some upward pressure is expected given the increased uncertainty and restricted access to financing. Nevertheless, the relatively high number of investors looking for opportunities and lack of assets on the market should prevent any major change.
Market performance: Budapest hotels saw a major RevPAR decline in the first 9 months of the year, down by 78% to €16. This was driven by a significant fall in occupancy to 20%. As COVID-19 concerns continue, uncertainty remains on the timing of the recovery. However, recent news of a potential vaccine may offer positive signals.