Coronavirus is now expected to lead to an 8% drop in GDP in Q2 and 3.1% in 2020 overall.
Despite a strong end to 2019, the Hungarian economy is inevitably being heavily affected by the virus containment measures. The economy is expected to experience recession this year, although a rebound is anticipated in activity once social distancing measures are relaxed. As of 21 April 2020, Oxford Economics forecast that GDP will fall 3.1% this year, after a growth of 4.9% in 2019, and before recovering to grow by 7.5% in 2021 and 3.3% in 2022. The GKI business sentiment index fell sharply in April, yet the business expectations during the Global Financial Crisis were more pessimistic.
In spite of that, the investment market remained strong in Q1 It in fact produced the highest office investment volume since 2017. As in previous quarters’ investment activity, several schemes were acquired in Budapest with the domestic buyers being the most active.
SUPPLY AND DEMAND
High supply meets with low current availability. Total demand in the first quarter of 2020 reached 79,660 sq. m showing no decrease year-on-year, with the Central Pest submarket enjoying the highest share of take-up. Leasing activities were dominated by renewals having a share by 36% from the total demand. Net take-up amounted to 46,140 sq. m and was driven by new lease transactions. Pre-leases amounted to 10,940 sq. m and owner-occupation added up to 5,120 sq. m. The office vacancy rate has increased to 6.2%, representing a slight 0.6 pps uptick quarter-on-quarter due to planned relocations only. Net absorption reached 22,780 sq. m.
A total of 45,500 sq. m of new space was delivered in Q1 over two schemes. 2020 will see an improved level of completions with 185,000 sq. m of new supply registered in the pipeline. Ongoing development schemes proceed, no major delays reported yet.
Budapest remains Landlord favorable. Prime headline rents have increased in most submarkets, with the CBD prime headline rents remained unchanged in Q1 2020. Tenant flexibility (i.e. flexible lease terms, wide incentive packages, etc.) remained limited.