Investment Market Uncertainty

BudaPart Gate, developed by Property Market, acquired by S Immo.

While international, regional and domestic investors continue to show interest in the Hungarian and Central European investment markets, the current low level of activity reflects geopolitical uncertainty in the region; a calm summer is expected in the investment markets.

Benjamin Perez Ellischewitz, director of Avison Young Hungary, expects a total investment volume of around 1.3 billion euros for the year amid uncertainty caused by the war in Ukraine, interest rates potentially high interest and price inflation on construction costs. He expects a quiet summer as investors hit the pause button and reconsider their strategy for later in the year.

“Large assets over €100 million are currently illiquid in Hungary, and all Central European markets are moving slowly,” he said. He argues that the investment volume for 2021 ended significantly higher than initially expected at 1.4 billion euros.

Avison Young has successfully negotiated the disposal of two architecturally significant assets in Budapest’s central business district. Báthory Street 12 and the Herzog Villa at Andrássy út 93 are two fully leased single tenant office buildings in prime locations in the CBD. They have been locally managed by Teichmann & Companions since their acquisition in 2015. Investors are increasingly looking for value-added opportunities in older generation office stock and older historic buildings in need of renovation.

Gábor Borbély, head of business development and research at CBRE Hungary, traced an investment volume of 580 million euros for the first half and, taking into account the investment pipeline, expects 1.2 billion euros for the whole year. Everything depends on the improvement of the geopolitical situation, he says. Investors operating in Hungary remain cautious, according to Cushman & Wakefield.

Underlying resilience

“Investment volumes in 2021 reached 1.13 billion euros. While 2020 and 2021 […] were down compared to the last few years, they exceeded the €1 billion mark, demonstrating an underlying resilience to a difficult environment”, comments the consulting firm.

“International capital continues to be active in Hungary, and domestic sources of capital continue to seek ever greater opportunities. Indeed, more than 40% of the capital invested in commercial real estate in 2021 came from Hungary,” he adds.

The office sector remains the most sought after in Hungary, accounting for 73% of total investment activity for the second half of 2021, according to Cushman & Wakefield. The purchase by Union Investment of the Szervita Square Building and the acquisition of BudaPart Gate by S Immo AG indicate a solid performance for the high-end products of the market. On the other hand, industrial and commercial recorded weak figures with 3% and 4% of market activity respectively, reflecting the lack of assets available in these sectors.

The purchase of the 18,000 sqm BudaPart gate from Property Market by Vienna-headquartered S Immo was also an example of foreign capital acquiring prime Hungarian office stock. Domestic investors continued to dominate market activity, despite increasing competition from international investors. Of the investment activity plotted for 2021, domestic investors were responsible for 30%, while cross-border investment activity undertook 70%.

The conventional wisdom is that despite the problems with the war in Ukraine and other economic factors impacting the commercial real estate market, there is still a large amount of capital looking to be invested. Hungary and Central Europe remain attractive investment destinations that offer a yield spread and range of assets tailored to specific investor preferences.

This article first appeared in the print issue of the Budapest Business Journal on July 29, 2022.