beyondbrics

When the property market struggles, the marketing spin has a tendency to rise exponentially. Take this recent example about the sale of a “big format unit”:

“Cushman & Wakefield, the world’s largest privately-held commercial real estate services firm, has secured 200 sq m premium retail space for Skiny, the well-known, originally Austrian underwear retailer, at Market Central Ferihegy on behalf of the owner AIG/Lincoln.”

Er, 200 sq m? That is 0.45 per cent of the space in Market Central Ferihegy, a 44,000 sqm complex described as “one of the most successful” in Hungary.*

It has long been clear that the economic crisis has hit Hungarian commercial property badly. Just how badly is clear from the latest data.

In 2012, developers delivered just three new office buildings in Budapest, with a combined floor area of 23,000 sq m, according to the Budapest Research Forum (BRF), which compiles data supplied by Hungary’s principal real estate agencies.

As the BRF admits, that represents a 74 per cent drop on 2011, when the new build was 86,000 sq m – but compared to the good times of 2008-9, it is a tiny, one might say skiny, fraction: in 2009, the sector delivered a record 300,000 sq m of spanking new office space, says Eanna Maksay, of the agency DTZ in Budapest. That was before the boom expired

Chris Bennett, director of Europa Emerging Europe Fund and long-time regional property guru, cautions not to read too much in the plummeting figures.

“The very low volume of new build in 2012, 13 and 14 is due to the considerable overhang of space built in previous years,” he says. Yet he admits that subsequent take up has been “relatively low” and that there is a “lack of finance for almost anything.”

“Demand is, to put it mildly, muted, and mainly from existing tenants who are nearing the end of a lease and taking the opportunity to reduce costs,” he says.

A few cowboy developers, seeking fast bucks in the 1990s, were not quite as smart as they thought and have also contributed to the poor overall picture.

“It is fair to say that the overall vacancy figure for Budapest is pretty dire, but if one looks at where the vacancy actually is it is not so bad. There are some buildings in very unpopular locations, or which are very poorly specified, which make the total worse than it might be,” Bennett says.

Other factors, such as the demise of Malev, the Hungarian airline, have reduced the attractions of Budapest as a regional hub.

The good news – at least for those capable of founding or expanding businesses – is that rents remain low, though given the continuing imposition of special sectoral taxes, few new rentals will be from the banking, utilities or telecom sectors.

Certainly commercial property in Hungary is performing badly on a regional comparison, Bennett says.

“Poland, in particular, is doing much better, partly because it is a much bigger economy. Capital values and the investment market generally continue strong there and are not too bad in Czech, either, [but] there is no market to speak of in Hungary.”

And with the economy in recession, Bennett, one of those rare real estate professionals who publicly warned of the central European property bubble long before it burst, says he sees little hope of any quick turnaround in the industry.

“I see no reason why this should change, at least before the next election. And even after that the office market will quite probably remain difficult.”

* Beyondbrics did ask Cushman & Wakefield, the exclusive retail leasing agent of Market Central Ferihegy, for the current occupancy rate of the retail park, but received no reply by publication time.