In recent months, we have written several times about the sale of large industrial plots in Hungary and already indicated that this year it is almost certain that the warehouses to be built on these will steal the show from offices and shopping centers. Institutional real estate investment has picked up, with recent data showing a 10 per cent increase in the first half of the year compared to the same period in 2020, while this indicator has stagnated in several neighboring countries.
Major international real estate consulting firms publish their summaries and forecasts one after the other. These suggest optimism on the part of investors and many believe that the amount spent for the full year could be up to a third more than last year. This, of course, will still be well behind the years 2018-2019, when it far exceeded 1.5 billion euros.
Although the investment market was more expected at the beginning of the year due to the second and third waves of the pandemic, in the second quarter the volume of real estate investment doubled globally compared to 2020. Many countries exceeded expectations: the United States and Asia-Pacific countries reached pre-pandemic levels on a quarterly basis in the second quarter. The strong growth is mainly in countries and regions where vaccination programs have proved successful, resulting in a reduction (or complete abolition) of travel restrictions. As a result, the recovery in continental Europe is slower: the continent may reach pre-epidemic levels by the end of the second half of the year, CBRE outlined its experience.
European markets show a different picture: while the UK, like the North American region, is approaching pre-epidemic levels, the Nordic countries are performing better than the southern Europeans, and in Western Europe, Germany has shown a strong recovery, driven by domestic investment by German investors. caused. In contrast, the recovery of the Central European market is still slow: in the first half of the year, the volume of investment in the region was 4.1 billion euros, which is a 33 percent decrease compared to the previous year.
Differences between European markets can also be observed on a regional basis, as cross-border capital movements are still limited due to travel restrictions, which has adversely affected markets with higher exposure to international investment (such as Romania and Poland). In contrast, the Czech and Hungarian markets were able to rely more on domestic capital, so Hungary achieved a 10 percent increase in investment volume of 550 million euros compared to the first half of 2020.
According to CBRE’s calculations, the investment turnover in the Hungarian market may exceed the limit of 700 million euros by September. Based on ongoing transactions, by the end of 2021, the level of investment volume in Hungary may reach 1.2-1.3 billion euros, which means a 25-30 percent increase on a year-on-year basis.
Investment demand for industrial real estate is growing everywhere in the world, but in Hungary, according to the unanimous assessment of the agencies, office purchases are still dominating the turnover. This is an interesting finding because the outside observer is still confused as to why an investor needs an office building when a significant portion of the workers are rare guests there and anyway: office investment has slowed down a lot.
Obviously, the market must be viewed differently here as well. Investors will continue to invest in an office building or an entire office building portfolio if they are in good locations, well-equipped homes, and the property is rented out at a high rate with long-term contracted tenants. There may also be considerations in buying a property in preparation for a change of function. There is an example of this in Budapest: the real estate developer WING turned a dilapidated downtown office building into a lower-middle-class hotel.
However, it is worth returning to the slowdown in investment, as this is definitely a sign of caution, almost uncertainty. Almost hardly any new developments have been announced in the Budapest office market in recent months, only 20,000 square meters of land were handed over in the second quarter, and in principle 350,000 square meters of land will flow into the market by the end of next year, increasing vacancy. This indicator has been creeping up for the fourth quarter, now standing at 10 percent, which is not dangerous yet, but if, say, it exceeds 13-14 percent in 6-8 months, the fall could be unstoppable. However, an investor thinks ahead for years, which of course fits short ups and downs, but not lasting ones.
The good news, though, is that industrial real estate is experiencing a golden age almost worldwide. Looking at our region, in the Czech Republic and Poland, related investments have already accounted for 25-30 percent of total turnover in recent years. Here we have to talk mostly about plots of land for industrial developments, but it has already been the case that superstructures have also changed hands.
For us, this proportion is less than 10 percent, mostly due to low willingness to sell and a lack of new developments in recent years. According to the CBRE survey, investor demand is very high: in 2020, 36 percent of Hungarian investors preferred industrial real estate, and this year as well, 26 percent would invest in industrial real estate (the decline is due to limited supply).
The Hungarian consultant VLK Cresa perceived significant activity along the M0 ring road. According to experts, further site transactions are expected, especially in the eastern part of the road, not far from Liszt Ferenc International Airport and some motorway junctions. It is a significant development that Maglód, which has so far played little in the past, has also been placed on the industrial real estate map, where Futureal is setting up a huge logistics center.
Interest in industrial real estate is also faithfully reflected in pricing feedback, as due to the lack of available assets, potential buyers do not expect a discount compared to the pre-pandemic period, and even 31 percent of CBRE respondents are willing to buy above the offer price. In contrast, for office real estate, 55 percent would negotiate a discount and 45 percent would buy at a bid price. Demand for discounts is strongest in the retail sector: only 15 percent of investors are willing to buy at a bid price, while a further 15 percent would invest at a discount of at least 30 percent.
The hotel market is on the verge of skipping
In Hungary, it is not expected that a large number of hotels in the fall are going to fall into other hands, but interest is constantly growing on the investor side. A lot depends on the intensity of the 4th wave of the epidemic and whether the government will extend the banking moratorium, which has been exploited by quite a few owners or operators. However, large international chains can’t get into much trouble, nor do they make a loss because they’re just renovating more. The situation is the worst in Budapest, there may be forced sales in the spring and summer of 2022.
In global terms, huge growth was measured for the first half of the year: € 26 billion worth of hotels were given and bought, a 66 percent increase from the first six months of 2020, the international agency Jones Lang LaSalle (JLL) reported. The U.S. took the prime, with about 70 percent of the amount, but as investors in the Middle East and Asia remain active in Europe, there have also been significant transactions here. The backwardness of the old continent is clearly due to the fact that the vaccination rate was worse in the large countries leading the hotel market, with far fewer tourists moving, meaning that tourism did not generate enough revenue for most hotels, so they were still not attractive enough.