lh x cw market report A4_23.03.02 v34 interactive72

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THE HUNGARIAN REAL ESTATE MARKETS

OUTLOOK

CAPITAL

MARKETS

OFFICE

INDUSTRIAL

RETAIL

HOSPITALITY

CAPITAL MARKETS

After an active first half, activity slowed in the second half of 2022

Total investment in the Central and Eastern European markets reached €10.7 billion in 2022, an increase of 6.6% compared to 2021, despite the significant challenges in the post-Covid period. Uncertainty over inflation, increased energy costs, supply chain disruptions and the Russian invasion of Ukraine are just some of the challenges facing investors. The most important of these, however, is an entirely new interest rate environment that changed investor attitudes in the second half of the year, reflected in investment volumes, with transaction activity slowing. Office investment activity continued to dominate the region with a 42% share, followed by retail (26%) and industrial logistics (25%). In retail, four major portfolios changed hands, while logistics remains in high demand, but product shortages are holding back activity. Central and Eastern European domestic capital was the most active, accounting for 35% of total volume. Czech, Hungarian, and Slovakian capital continued to be buoyant in cross-border transactions and there was also significant activity from South African capital.

COUNTRY’S SHARE FROM 2022 TOTAL INVESTMENT VOLUME Source: Cushman & Wakefield Research

Hungary

Slovakia

Romania

Czech Republic

Poland

0%

15%

30%

45%

60%

Capital Markets

4

SHARE OF DOMESTIC & FOREIGN BUYERS

Source: Cushman & Wakefield Research

INVESTMENT VOLUME CEE € 10.7 B

100%

90%

CHANGE YOY + 6.6 %

80%

HUN FOREIGN

70%

{

INVESTMENT VOLUME HUNGARY

60%

€ 994 M

50%

FOREIGN INVESTMENT € 366 M

40%

30%

DOMESTIC INVESTMENT € 628 M

20%

10%

CHANGE YOY - 19 %

0%

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2007

2020

2008

2009

The total volume of investment in Hungary in 2022 was €994 million. Whilst down19% on an annual basis and the lowest level of activity since 2016, this level still represents a higher figure than any year in the 2008-2015 period. There was a notable drop-off in transactions in the office sector, although at 35% of total volume - this was still the largest proportion. The largest office transaction of the year, the sale of Green Court Office, closed in the fourth quarter, bringing the asset class’s annual investment volume to €347 million.

INVESTMENT VOLUMES 2007-2022

Source: Cushman & Wakefield Research

2 000

1 500

1 000

500

0

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2007

2020

2008

2009

HOSPITALITY

INDUSTRIAL

OFFICE

OTHER

RETAIL

Retail investment volume amounted to €280 million, representing 28% of annual investment volume. A major contributor to the high volume was the large cross border retail transaction closed in the second quarter, where Adventum acquired 18 stores anchored by Tesco in Hungary and the Czech Republic. Industrial-logistics properties accounted for 22% of total investment volume, exceeding €220 million. Major transactions include the sale of Airport City Logistics Park, Akácliget Logistics Centre and Europa Center Miskolc.

Capital Markets

6

THE DEVELOPMENT OF HUNGARIAN DOMESTIC FUNDS

Domestic capital has accounted for more than half of all transaction volume for four of the past five years. In a time of global uncertainty, this diversity of capital underpins the market in a way that was not apparent in the days prior to the Global Financial Crisis and so gives reassurance as to the market’s liquidity. The net asset value of domestic funds almost

doubled between 2015 and 2018. 2022 saw a slight decline in total asset value of 3% due to the significant weakening of the forint, although new funds have still been created - indicating continued long-term confidence. Following a period of rapid expansion and acquisition, funds are increasingly active on the sales side, indicating a fully functioning ownership cycle.

€ 4,00

NET ASSET VALUE OF HUNGARIAN FUNDS (EUR BILLION)

Raiffeisen Biggeorge

Source: Cushman & Wakefield, https://www.bamosz.hu/

€ 3,00

OTP

€ 2,00

Diófa

€ 1,00

Erste

€ 0

2015 YE

2016 YE

2017 YE

2018 YE

2019 YE

2020 YE

2021 YE

2022 YE

SIGNIFICANT SALES IN 2022

PROPERTY NAME

TYPE

BUYER

SELLER SIZE (SQ M)

Market

Tesco Portfolio

Retail

Adventum

Tesco

273,400

Hungary

Airport City Logistic Park

Industrial

WING

CPI

46,450

Vecsés

CTPark Budapest North Akadémia Business Center Európa Center Miskolc Akácliget Logisztikai Park Szabadság tér 14

Industrial

CTP

Weerts

47,170

Nagytarcsa

Office

Europa Capital Partners

DWS

12,700

Budapest CBD

Industrial

CGI

OTP RE Fund 32,000

Miskolc

Industrial

M7

End-user

18,420

Gyál

Office

Confidential

LSGI

6,600

Budapest CBD

Andrássy 93

Office

WING

Treehouse

1,800

Budapest CBD

Báthory 12

Office

WING

Treehouse

5,750

Budapest CBD

Green Court Office Office

Groupama

Codic

21,000

Budapest Váci Corridor

Capital Markets

8

PRIME OFFICE YIELD

PRIME YIELDS CEE

9,5%

8,5%

7,5%

10 yr movement

6,5%

5,5%

Current yield level (%)

4,5%

3,5%

Source: Cushman & Wakefield Research

Prague

Warsaw Budapest (5,50%)

Bratislava

Bucharest

PRIME LOGISTICS YIELD

5,00% 6,00% 7,00% 8,00% 9,00% 10,00% 11,00% 3,00% 4,00%

Prague Prague Prague

Warsaw Warsaw Warsaw Budapest (5,75%) Budapest (5,60%) Budapest (6,25%)

Bratislava

Bucharest

PRIME HIGH STREET YIELD

10,00%

9,00%

8,00%

7,00%

6,00%

5,00%

4,00%

3,00%

Bucharest

Bratislava

PRIME SHOPPING CENTRE YIELD

9,00%

8,00%

7,00%

6,00%

5,00%

4,00%

3,00%

Bratislava

Bucharest

Capital Markets

10

OFFICES

BUDAPEST’S OFFICE MARKET - steadily on the road to recovery

The Budapest office market is already reaping the benefits of the full market reopening from Covid-related restrictions, with a total of around 400,000 sq. m of office space leased in 2022, an increase of 7% compared to 2021 and an increase of 16% compared to the low in 2020. 2022 saw the highest level of supply since 2009, although the output was somewhat distorted by deferred completions from the previous year. New supply was the primary contributor in increased vacancy of 11.3% - still below the 10-years average and the current average for European Capitals. Reflecting the healthy fundamentals of the Budapest market, year 2022 saw the second-highest net absorption ever, exceeding the 2019 level. In other words, occupiers continue to focus on occupying the most desirable locations with the best quality space to make flexible working attractive to employees, as their retention and wellbeing remained one of the biggest challenges for senior leaders.

Office

12

DEMAND (SQ M) AND VACANCY RATE (%)

2022’s 13-year-high supply of 267 000 sq m followed a year in which only 44 500 sq m was delivered - and delivery is expected to halve over the coming two years. Supply averaged only 90 000 sq m per annum over the preceding decade meaning that Budapest has a disproportionately large stock of first generation office space.

25%

700 000

Net take-up (sq m)

Renewal (sq m)

Vacancy rate (%)

600 000

20%

500 000

Vacancy rate (%)

15%

400 000

Source: BRF, Cushman & Wakefield Research

300 000

10%

200 000

5%

100 000

0%

0

MEDIAN VACANCY RATE BY BUILDING AGE CATEGORY

2011

2017

2013

2021

2012

2015

2018

2019

2016

2014

2010

2022

2020

2009

18%

In fact, if we look at the last 4 years, we can see that the median vacancy rate for buildings older than 15 years has already reached 16%, while for buildings younger than 15 years the rate is around 7%. The vacancy rate of new stock is a result of the large amount of new supply coming onto the market at any one time, so once this availability can be absorbed by the market, their market advantage becomes

16%

14%

12%

Over 15

10%

8%

10-15

even more apparent. Occupiers are increasingly focusing on stricter ESG criteria, which will certainly accelerate the absorption process. More and more landlords will be forced to upgrade first-generation office buildings to meet new standards and improve their competitiveness as they face rising vacancy rates, falling rents and increasing maintenance costs.

6%

Below 5

4%

2%

5-15

0%

Source: Cushman & Wakefield Research

less than 15 years old less than 5 years old 50% 30% 21% OF THE EXISTING STOCK IS OF THE EXISTING STOCK IS OF THE EXISTING STOCK IS less than 10 years old

350 000

NEW SUPPLY (SQ M) AND NET ABSORPTION (SQ M) Source: BRF, Cushman & Wakefield Research

Net absorption

New supply

300 000

250 000

200 000

150 000

100 000

50 000

0

2011

2017

2013

2021

2012

2015

2018

2019

2016

2014

2010

2022

2020

2009

-50 000

Office

14

BUDAPEST’S OFFICE MARKET - IN CEE COMPARISON

With 4.25 million sq. m of stock the Budapest office market is the largest in Central Europe after Warsaw. Despite this, the stock per capita is the second lowest in the region, indicating growth potential and apparent undersupply.

OFFICE STOCK PER METRO POPULATION IN THE CEE CAPITAL CITIES YEAR-END 2022

TOTAL OFFICE STOCK IN THE CEE CAPITAL CITIES YEAR-END 2022 (SQ M) Source: Cushman & Wakefield Research

Source: Cushman & Wakefield Research

3,5

7 million

3,0

6 million

2,0 2,5 0,5 1,0 1,5

5 million 4 million

3 million

1 million 2 million

0

0 million

Warsaw

Budapest

Prague

Bratislava

Warsaw

Budapest

Prague

Bratislava

Bucharest

Bucharest

Average of Central and Eastern Europe

Demand in 2022 was 392,000 sq. m, showing that Budapest is in a recovery phase, quickly following Warsaw and Prague. Budapest’s vacancy rate is below the Central and Eastern European average, at 11.3% at the end of 2022, making it one of the most occupied markets in the region after Prague and Bratislava.

1 000 000

OFFICE MARKET TAKE-UP IN THE CEE REGION (SQ M)

800 000

Warsaw

Source: Cushman & Wakefield Research

600 000

Budapest

400 000

Prague

Bucharest

200 000

Bratislava

0

2018

2019

2020

2021

2022

10% 16% 14% 12%

Source: Cushman & Wakefield Research OFFICE MARKET VACANCY RATE IN THE CEE CAPITAL CITIES (%)

Bucharest

Warsaw

8% 6% 4% 2% 0%

Bratislava Budapest

Prague

2018

2019

2020

2021

2022

Office

16

BUDAPEST - A KEY BENEFICIARY OF THE NEARSHORING OF BPO’S AND SSC BUSINESSES

Hungary is one of the main beneficiaries of nearshore outsourcing, whereby a parent company located nearby or in relatively close geographical proximity outsources its service activities to an SSC centre. History shows that global economic events are accelerating such cost-cutting initiatives, and Budapest continues to attract international companies, many of which are re-evaluating their future needs and looking for opportunities to reduce costs by relocating more service activities. According to HIPA Business Services Hungary 2021 1 , there are 156 SSCs operating in Hungary, employing more than 70,000 people. Both the number of SSCs and the number of people employed by them increased in 2020 and 2021, meaning that the sector continued to grow in absolute terms even during the pandemic and the sector further increased its relative importance in the Hungarian economy. The SSC sector is expected to continue to grow in the future, with nearly three quarters of the firms surveyed by HIPA planning to expand their activities, most often in IT and finance. As a result, Budapest’s economic growth has been particularly strong in recent times, and the strongest among its Central European peers. It is important to highlight that office employment provides a competitive advantage for Budapest’s economy. Global players in finance, accounting, insurance, and business consultancy provide these jobs, and the pandemic has hardly dampened the ICT industry, which has already overtaken wholesale and retail as the city’s largest industry.

1 https://hipa.hu/uploads/insight/6/3/a/3/63a32d8401992212086137.pdf

2021

OFFICE EMPLOYMENT IN CEE CAPITALS, THOUSAND PERSONS

700

2019 2020 2021 2022 2023F 2024F 2025F

600

Budapest

500

Warsaw

400

Bucharest Prague

300

200

Bratislava

100

0

Source: Moody’s Analytics, Cushman & Wakefield Research

OFFICE-BASED EMPLOYMENT (000’S JOBS)

Market

2010 2014

Ranking 2015 2019

Ranking 2020 2022

Ranking 2023 2025

Ranking

Paris

113.2

1

196.7

1

102.0 2

49.8

1

Madrid

41.8

7

143.4 2

102.9 1

39.8

2

Budapest

62.5

3

57.2

7

41.8

6

24.3

3

Source: Moody’s Analytics

Office employment in Budapest has been the highest in the region since 2015 and this trend is expected to continue in the coming years. In fact, Moody’s predicts that Budapest will be the 3rd largest office-based employment location in the EMEA region, with Budapest leading the way in office-based job creation after Paris and Madrid.

Office

18

This trend is also reflected in the demand figures for the Budapest office market, with the ICT, financial and professional sectors - although their share has varied somewhat over the years - holding a stable 75% share of the total demand. In absolute terms, this implied a demand level of 240,000 sq. m in 2022, which is in line with the average of the last 4 years. In 2022, one of the largest financial SSCs renewed its contracts on 2 sites, for a total of 22,000 sq. m and an ICT signed a new contract on 6,500 sq. m. While in the past a lack of new supply has hindered business relocation, the emergence of new stock is expected to reduce the share of renewals in the demand structure from an average of 40% in recent years. Environmental,

Social and Governance (ESG) guidelines are also becoming increasingly important in the leasing decision process, driving tenants towards new stock. The demand data for 2022 also shows two large -scale owner-occupation deals: the handover of the OTP headquarters (28,000 sq. m) and the Bosch II Campus R&D centre (17,000 sq. m). The largest pre-lease transaction was concluded by E-On (16,200 sq. m), which intends to consolidate all its functions on one site. Following recent large pre-leasing transactions, The Pillar (27,500 sq. m), 100% developed for ExxonMobil, and Budapest One P2, in which Vodafone (14,000 sq. m) and BT (12,500 sq. m) are the main tenants, were delivered in 2022.

DISTRIBUTION OF OCCUPIER DEMAND (%)

OCCUPIER DEMAND BY SECTORS (% OF TOTAL DEMAND)

Source: BRF, Cushman & Wakefield Research

Source: BRF, Cushman & Wakefield Research

Share of net take-up from total demand

100%

100%

90%

Financial IT Professional Media Life science Public

New lease Pre-lease Expansion Owner occupier Renewal

80%

80%

70%

60%

60%

60%

50%

40%

40%

30%

20%

20%

10%

0%

0%

2017

2021

2018

2019

2022

2017

2021

2020

2018

2019

2022

2020

Office

20

NEW SUPPLY WILL DECREASE STEADILY FROM 2023 ONWARDS, WITH FEW ANNOUNCEMENTS OF PROJECTS PLANNED FOR 2025

The volume of new supply delivered to the market in 2022 has increased significantly compared to previous years, driven by the significant volume of projects deferred from 2021. In total, 267 000 m2 of new supply was brought to the market, one of the highest levels ever.

Nevertheless, the new stock has been brought to market with a high occupancy rate of almost 80%, or 67% on average if owner-occupied buildings are excluded. This is particularly high in the current economic headwinds, reflecting the demand for new, modern buildings. The largest projects were:

SUBMARKET SCHEME

GLA (SQ. M)

DEVELOPER SPEC / OO

VÁCI CORRIDOR

H2O Phase 1

25 900

Skanska

Spec

VÁCI CORRIDOR

The Pillar

27 500

GTC

Spec

VÁCI CORRIDOR

OTP M12

28 000

OTP

OO

VÁCI CORRIDOR

Green Court Office

19 000

Codic

Spec

SOUTH BUDA

MOL Campus

50 000

MOL

OO

SOUTH BUDA

Budapest One Phase 2 & 3 37 900

Futureal

Spec

SOUTH BUDA

Office Garden 4

20 000

GRT Group

Spec

NON-CENTRAL PEST Bosch Campus II

17 100

Bosch

OO

CENTRAL PEST

Millennium Gardens Phase 1

20 000

Trigránit

Spec

There are currently 320 000 square metres of office space under construction across Budapest, which are currently scheduled for completion by 2024. Meanwhile, hardly any projects have been announced for 2025. A new trend is that 60% of the office space under construction is currently in the Central Pest and Non Central Pest submarkets, with the former top ranked Váci corridor now only accounting for 4% of developments under construction.

350 000

ANNUAL OFFICE SUPPLY 2009-2024 F (SQ M)

Source: BRF, Cushman & Wakefield Research

300 000

Annual office

supply (sq m) 2006-2009

350 000

200 000

CONFIRMED PIPELINE BY SUBMARKETS (THOUSAND SQ M)

2023

2024

250 000

Source: Cushman & Wakefield Research

Váci Corridor

8 7 6 5 4 3 2 1

Annual office

200 000

North Buda

supply (sq m) 2010-2016

Central Pest

150 000

Central Buda

100 000

Non Central Pest

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2020

2009

South Buda

2023 F

2024 F

Office

22

OCCUPIER’S PERSPECTIVE

2020 has disrupted old operating models, and new habits have emerged, notably with the widespread adoption of the home office. Companies have recently begun to consciously assess their options and revalue their real estate to create a place for returning employees to be productive. These spaces need to be highly functional and sustainable, offering a high-quality experience to encourage engagement while balancing costs. Only 28% of SSCs surveyed by HIPA plan to downsize their offices. In other words, the new employment impact of the home office will have a more fundamental impact on office use than office size. According to the survey, the proportion of collaborative spaces and individual workspaces will increase in the future, but hot desking will become more common. In the Budapest market, neither headline rents are falling nor lease periods are shortening - although hand back options are more common in new developments and break options in second-generation projects. The projected increase in subletting has not materialised.

SUBMARKET PRIME RENT AS AT Dec-22 (Euro / sq. m / month)

Y/Y growth

3yr CAGR

5yr CAGR

10yr CAGR

CBD

24.5

0,0%

-0,7%

0,4%

1,6%

Central Buda

20.0

14,3%

4,6%

4,6%

2,9%

Central Pest

18.0

5,9%

2,9%

2,4%

1,5%

Váci Corridor

18.0

2,9%

2,9%

3,4%

2,4%

NC Buda North

17.5

12,9%

5,3%

4,2%

2,6%

NC Pest

15.5

6,9%

1,1%

3,2%

1,8%

NC Buda South

18.0

5,9%

2,9%

5,2%

3,7%

Periphery

11.5

4,5%

1,5%

2,8%

1,4%

BUDAPEST OFFICE SUBMARKETS

THE SUBMARKETS IN CONTEXT With 4.25 million sq m of office space, Budapest’s office markets are usually divided into eight submarkets. Each submarket has different characteristics and attracts different types of occupier. The Váci corridor is the largest submarket exceeding 1,000,000 sq m in stock. Larger occupiers tend to gravitate along a north/ south line running down the Váci corridor, then south of the CBD along either side of the Danube.

Office

24

BUDAPEST SUBMARKETS MAP

Non-Central Buda North: Primarily a high-end residential area, Districts III, II, XII has delivered isolated buildings in addition to small clusters and even a campus development in the form of the IT focussed Graphisoft Park.

Central Buda: As with the CBD, this is a historic core and there are limited institutional grade buildings or opportunities to develop in this zone. This area is popular amongst SME’s.

North Buda

Váci Corridor

CBD

Central Pest

Central Buda

Non-Central Buda South: This area saw a lot of development, as developers sought to create an alternative back-office destination to Váci corridor. Much of the area has poorer communication links compared to the Váci corridor, although it benefits from the substantial District XI workforce and central locations benefit from proximity to universities.

South Buda

Non Central Pest

Periphery: Comprising buildings outside the city borders (practically Budaörs, Törökbálint, Biatorbágy, Vecsés), these areas were delivered pre-crisis and are not popular amongst occupiers.

Váci út corridor: This is Budapest’s “office corridor” and has seen substantial development having available sites, work good communication links through the metro line, Danube bridges and the substantial Váci út. It is the primary “back office” location for international tenants.

CBD: A historically protected area; there are few class A products meaning the CBD is effectively the smallest in the region, and there are few opportunities to develop further. Popular amongst SME’s and professional service providers.

Non-Central Pest

Non-Central Pest: This is a general area encompassing “everything else” in Pest and is a mixed bag of product but is one of the most dynamically developing submarkets of the city. The area has seen scattered developments along Hungária krt and Könyves Kálmán krt. These focal points have emerged typically along fixed-track public transport. Central Pest: Covering a large area to the east and south of the CBD, Central Pest has seen development in consolidated pockets, particularly along the river. Southern parts benefit nearby residential developments and proximity to universities.

Office

26

THE PRIMARY OFFICE LOCATION FOR SSC / BPO TENANTS The Váci corridor office submarket is Budapest’s “office corridor”, the primary office location for international tenants looking for large contiguous office space. With strong occupier activity seen in recent years, demand for the Váci corridor accounts for about a third of total demand. THE VÁCI CORRIDOR

VÁCI CORRIDOR SHARE OF TOTAL BUDAPEST DEMAND

Cushman & Wakefield Research

100%

90%

LARGEST OCCUPIERS (SQ M)

80%

70%

Cushman & Wakefield Research

30 000

60%

50%

40%

25 000

30%

20%

Exxon Mobil

10%

20 000

0%

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2020

The key drivers of its success have been the availability of development sites, proximity to workforce (as District XIII has seen the most intensive development of residential units), and excellent communications through the metro and one of the city’s key arterial roads, which links the Danube bridges and the city centre.

15 000

KEF

Raiffeisen Bank GE

Budapest Bank

10 000

Roche

Magyar Posta Diageo

Blackrock KPMG

5 000

Citibank

RailCargo

Medicover

Idomsoft Zrt

0

THE CBD

THE MOST UNDERSUPPLIED CBD IN THE REGION

The CBD is Budapest’s historic core. As a UNESCO World Heritage site, the CBD is historically protected, which severely limits the potential to develop. Genuine class A offices are very limited and only a handful of assets are of sufficient scale or have suitable floorplates to cater for large scale or headquarter buildings.

CBD SHARE OF TOTAL BUDAPEST DEMAND

Cushman & Wakefield Research

100%

90%

PUBLIC OCCUPIERS VS OTHERS (SQ M)

80%

70%

Cushman & Wakefield Research

16 000

60%

50%

40%

14 000

30%

20%

12 000

10%

Ministry of Agriculture inistry of Agriculture

0%

10 000

KEF

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2020

Typical occupiers of the CBD are professional service providers and state bodies, rather than the largescale BPO’s that are found in other locations. The limited supply and intense demand have enabled rents to grow at a much faster rate than other Central European Capitals. With CBD supply being the lowest of any major capital city, this is trend is likely to continue.

8 000

6 000

PWC

4 000

MKIK

2 000

HIPA

Mito

REGUS

Sberbank

KDB Bank

Klebelsberg Központ LogMeIn

IBM Labs

Medicover

Diligent Corporation CHBC /Cloudera

0

Magyarország Zrt.

Office

28

INDUSTRIAL

THE STRONG CREDENTIALS TO LOGISTICAL AND

INDUSTRIAL BUSINESSES HAVE BEEN MAINTAINED

Hungary retained its leading position in the world rankings in 2022, according to the annual Manufacturing Risk Index (MRI) survey by Cushman & Wakefield, which assesses criteria such as operating costs, labour, economic and political risks. Hungary was ranked 11th out of 45 countries in the world with the best manufacturing conditions. Eastern European competitors and one of the lowest labour costs in the region, Hungary is particularly well placed to benefit further. Hungary has a comparative advantage over Poland in terms of quality and skilled labour, over the Czech Republic mainly in terms of rental costs, and over Slovakia in terms of price advantage in local currency. These offer a number of opportunities for tenants, landlords/developers and agencies alike. With a more extensive transport infrastructure than its main Central and

Industrial

30

16

The Hungarian car industry is one of the country’s leading sectors in every respect. This is shown by the fact that, according to the Hungarian Investment Promotion Agency (HIPA), around 92% of the industry’s production is exported, meaning that 20% of Hungary’s exports come from the automotive industry. At European level, this means that around 3% of total EU car production takes place in Hungary. The German automotive industry employs around 50,000 people in Hungary and generates 2.5% of Hungary’s GDP. The Hungarian car industry is built on German premium OEMs, as Hungary is the only country in the world where all three car manufacturers (Audi, BMW and Mercedes-Benz) are present alongside Germany and China. The global pandemics and the difficulties caused by the subsequent economic and energy crises have highlighted the vulnerability of offshoring and nearshoring has come to the fore. Many automotive suppliers see our country as an advantageous location and are relocating major work functions. From the industry’s perspective, we can expect to see an even stronger emergence of environmentally conscious technology trends in the near future. The more than €1 billion investment in the Mercedes Kecskemét plant gave the factory a new direction, creating more than 2,500 jobs. NIO completed its €15 million investment in 2022, the first battery pack exchange station in Hungary. This makes Hungary the third largest battery manufacturer in the world, and investment incentives are attracting more foreign companies from the industry to Hungary. With a strong Chinese and Korean presence, demand from Western European companies is also growing.

LABOUR COST LEVEL (EURO PER HOUR) *

12

8

4

POLAND

HUNGARY

SLOVAKIA SLOVAKIA

ROMANIA

CZECH REPUBLIC

0

200

DENSITY OF HIGHWAYS IN CEE COUNTRIES (KM/1000 SQ KM)

100

POLAND

ROMANIA

CZECH REPUBLIC

HUNGARY

0

*Labour cost for LCI (compensation of employees plus taxes minus subsidies) published by Eurostat

C&W Research, http://eugo.gov.hu/, https://ec.europa.eu

Industrial

32

REGIONAL LOGISTICS AND MANUFACTURING IN HUNGARY

Regional logistics in Hungary is driven mainly by the German automotive industry and generates a continuous demand for industrial space throughout the country.

The industrial hotspots of car manufacturing and parts supply are Győr (Audi), Kecskemét (Daimler Mercedes) and Debrecen (BMW), but the automotive industry is also represented in Esztergom (Suzuki) and Szentgotthárd (Stellantis). Existing locations are a magnet for automotive suppliers and this demand is likely to continue in the coming years.

Hungary is an important location for battery manufacturers and their suppliers, with the main manufacturers being Samsung SDI (Göd), SK Innovation (Komárom) and Inzi Controls (Komárom). In Debrecen, CATL is setting up a huge factory which will be operational in five years at the latest.

These brands operate mainly from owner-occupied schemes, and their presence catalyses build-to-suit developments in their surroundings. These hotspots are usually occupied by direct suppliers to the main plant. Manufacturing plants in Hungary are scattered throughout the country, often encouraged by state subsidies and attracted by significantly lower labour costs than in Budapest. As a result, most manufacturing brands are owner-managed and not part of the Hungarian institutional stock.

CZECH REPUBLIC HELSINKI CORRIDORS AND TEN-T NETWORK IN HUNGARY

UKRAINE

SLOVAKIA

Miskolc

Nyíregyháza

M15

M3

M3

Esztergom

AUSTRIA

Győr

ROMANIA

Budapest

M3

Debrecen

M1

M0

M35

element of TEN-T network

Székesfehérvár

M5

Kecskemét

Port

SLOVENIA

Helsinki corridors

HUNGARY IS SITUATED AT THE CENTRE OF THREE TEN-T CORRIDORS

M60

CROATIA

SERBIA

Industrial

34

MODERN LOGISTICS IN HUNGARY

The vast majority of Hungary’s modern logistics space is concentrated around Budapest, along the M0 ring road. Around 70% of the total stock of around 4.6 million sqm built for rent is located in the Greater Budapest region. The overall Hungarian market is one of the smallest in the region, with one of the lowest per capita stock levels and well below the regional average in Central Europe. This indicates growth potential for Hungarian regional markets around major logistics centres such as Debrecen, Győr, Székesfehérvár and Kecskemét. The Greater Budapest region is 3.1 million square metres in size, which compares well with the

markets of Prague and Bucharest. Looking at demand levels, Budapest has the third highest demand levels in the regional capital market, ahead of Prague. Looking at the Hungarian developer market, we see that before the Global Financial Crisis, the market was dominated by Prologis. Their competitors were mostly relatively small, independently owned schemes. This near monopoly has been broken in recent years with the emergence of other global players such as Logicor and GLP, and domestic and regional competitors such as CTP, WING, GLP and Hello Parks.

TOP 10 LOGISTICS DEVELOPERS IN HUNGARY SHARE FROM TOTAL STOCK (%)

Cushman & Wakefield Research

OTP 2%

NIPÜF 2%

Hello Parks 3%

Prologis 21%

BSZL 4%

Logicor 5%

BILK 6%

GLP 7%

CTP 20%

WING 9%

1200

1 400 000

LOGISTICS DEMAND IN THE CEE COUNTRIES (SQ M) 2022 Cushman & Wakefield Research

TOTAL LOGISTICS STOCK TOTAL COUNTRY / 1,000 POPULATION

1 200 000

Cushman & Wakefield Research

1000

1000 000

800

800 000

CEE Average saturation

600

600 000

400

400 000

200

200 000

POLAND CZECH REPUBLIC

SLOVAKIA

HUNGARY

ROMANIA

POLAND Warsaw

ROMANIA

Bucharest

HUNGARY Budapest

CZECH REPUBLIC Prague

SLOVAKIA Bratislava

0

0

Industrial

36

RECORD HIGH DEMAND AND ABSORPTION LEVELS IN THE BUDAPEST MARKET The average annual demand was around 350 000 sq. m per year between 2008 and 2018, but since 2019 it has increased significantly, averaging 570 000 sq. m over the last 4 years. In fact, since 2021, the Budapest market has been setting new records, with 635,000 sq. m and 680,000 sq. m last year, which is due both to the expansion of existing players and to new market entrants. By contrast, annual supply in the period of 2009-2020 did not exceed 130 000 sq. m - an average of 65 000 sq. m per year - pushing vacancy rates to record lows by 2020 and making the post-financial crisis peak of 22.8% a distant memory. Demand in 2022 reached 680,000 square metres, a strong 7% increase on 2021, which was the record year for the industrial market. The development market has become active from 2021 onwards, responding to the local opportunity and the global logistics focus, with 349,000 sq. m of new space coming on to the market in 2021 and 333,000 sq. m in 2022. The new supply has been absorbed by the market mainly on a BTS basis and therefore new supply has come to the market at high pre-let rates. This trend is clearly visible in the extraordinary net absorption figures: 320 000 sq. m in 2021 and 303 000 sq. m last year, less than 60,000 sq. m of speculative space was put on the market in two years, which only slightly increased the vacancy rate. At the end of 2022, the vacancy rate was 3.83%, which is in line with the regional average. 78% of the total leasing activity was net take up, showing that tenants are navigating to new, modern spaces. The buoyant development

market is now dominated by new leases (44%) and BTS leases (30%). Contract renewals accounted for only 22% of demand. The market is driven primarily by logistics, but last year a record contract was signed with a major retailer, which pushed the usual occupier demand numbers. Recently we have seen an expansion in online sales and in response we are seeing increasing interest from e-distribution centres, fuelling a structural increase in demand and a growing need for new types of logistics schemes. Tenants are gradually being encouraged to request renewable and energy efficient solutions from landlords, thereby organically improving the ESG outlook for existing and new stock.

THE SUMMARY CHART OF THE BUDAPEST INDUSTRIAL MARKET

700 000

BRF, Cushman & Wakefield Research

20%

600 000

Take-up volume (sq m) Vacancy rate (%)

500 000

15%

New supply (sq m)

400 000

10%

300 000

200 000

5%

100 000

0%

0

2011

2017

2012

2021

2013

2015

2018

2019

2016

2014

2010

2022

2020

2008

2009

OCCUPIER DEMAND BY SECTORS (%)

ANNUAL DEMAND STRUCTURE - BUDAPEST

BRF, Cushman & Wakefield Research

BRF, Cushman & Wakefield Research

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%

2017

2021

2015

2018

2019

2016

2014

2017

2022

Net take-up share 2022 2021

2015

2018

2019

2016

2014

2020

2020

BTS

New lease Expansion

Service

Pharmaceutical

Manufacturing

Renewal

Wholesale, e-commerce

Logistics

3 500 000

1999 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 3 500 000 2001

CUMMULATED NET ABSORPTION AND VACANCY (SQ M) BRF, Cushman & Wakefield Research

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2022

3 000 000

2 500 000

2 000 000

1 500 000

500 000 0

1 000 000

NA cummulated Vacancy

Industrial

38

DEVELOPMENT ACTIVITY IN GREATER BUDAPEST IN 2023 AND BEYOND

More than 600 000 square metres of logistics space is currently under construction in Hungary. The vast majority of this is located in the Greater Budapest area, with a total of 476,000 sq. m and a pre-letting rate of 30%. Development is concentrated in the eastern and southern submarkets.

In the regional markets, development activity is more subdued, with around 136,000 sq. m currently under construction, 44% of which is already under pre-lease. Development is concentrated in Kecskemét, Miskolc and Tatabánya. In terms of developers, HelloParks is currently the most active developer focusing on the Greater Budapest area, followed by CTP and VGP. In the regional markets, InfoGroup and Cordys Capital are the most active developers. Faedra Group, Biggeorge and White Star are the newest players in the logistics development market.

DEVELOPMENT PIPELINE IN U/C STATUS, GREATER BUDAPEST AREA (SQ M)

Cushman & Wakefield Research

North

South

South

Pre-let Pre-let Pre-let GLA GLA GLA 0 0

North

2024 2023 2023

DEVELOPMENT PIPELINE BY DEVELOPERS AND LOCATION

South

South

Cushman & Wakefield Research 250 000

North

North

Greater Budapest Countryside

South

East

200 000

North

North

West

South

South

East

150 000

20 000 20 000

80 000 80 000

60 000 60 000

40 000 40 000

120 000 120 000

160 000 160 000

140 000 140 000

100 000 100 000

DEVELOPMENT PIPELINE IN U/C STATUS, COUNTRYSIDE (SQ M)

100 000

Cushman & Wakefield Research

Western Transdanubia ntral Transdanubia outhern Great Plain Northern Hungary Western Transdanubia ntral Transdanubia outhern Great Plain Northern Hungary

Central Transdanubia

Western Transdanubia

50 000

Southern Great Plain Northern Hungary

Western Transdanubia Central Transdanubia Southern Great Plain Northern Hungary

0

CTP

VGP

WING

NIPÜF

Prologis

Panattoni

Infogroup

WhiteStar

Faedra Group Biggeorge

Hello Parks

Cordys Capital

Industrial

40

LOGISTICS SCHEMES IN BUDAPEST

Budapest North Budapest East Budapest South Budapest West

City-logistics /Mixed use Logistics Park

BUDAPEST NORTH Aquincum LogisztikaiPark Bravos Business Park East Gate

BUDAPEST WEST Prologis Park

VGP Park Aerozone

BUDAPEST SOUTH Akácliget

Budapest - Harbor Mile Logistics Center

Logisztikai Központ BILK

C-Moll Logisztikai Központ DAN Business Park

Business Park East Gate PRO

Budapest Dock Szabadkikötő InNove Business Park

Login Business Park MTH 7 V95 Logisztikai Központ Gentraco

Euro-BusinessPark

citypoint9

Prologis Park Budapest - M1 Prologis Park Budapest - Budaörs Mapletree Budapest Batta CTPark Budapest West Tulipan Park

Dél-pesti Üzleti Park

LOG CENTER Dunaharaszti Prologis Park Budapest - Sziget Prologis Park Budapest - Sziget II GLP Gyál Logistics Centre M5-GYÁL

Antal Raktárak

HELLO Parks Fót

LogStar Park Budapest

LogStar Park West Gate West Base Tesco DC Herceghalom Inpark Páty

BUDAPEST EAST AIRPORT CITY Logistic Park

Business Park Prologis Park Budapest - Gyál Logis Raktárak

JT Ross Aerozone Business Park GLP Üllő Logistics Centre Mapletree Üllő Budapest Airport Business Park BUD Cargo City

Delta Park M0

Újbuda One

Tesco DC Gyál

Budafok One Logisztikai Park HELLO Parks Páty

VGP Park Alsónémedi

CGL Dunaharaszti

Logicube

CTPark Nagytarcsa

Logicor Fehérakác

Park 22

CTPark Budapest East

CTPark Budapest South GLP Sziget Logistics Centre Panattoni Park Gyál

Panattoni Park Budapest West Növény utcai raktárbázis Faedra22 Park

HELLO Parks Maglód

CTPark Vecsés

CTPark Ecser

CTPark Sziget

Industrial

42

RENTS AND GROWTH

Both the significant amount of new supply coming onto the market and the high proportion of pre-let transactions show that the market remains attractive to developers and tenants. Prime rents in Greater Budapest have increased by 15.1% year-on-year and currently stand at €5.35 per square metre.

Rising inflationary pressures and a weak currency are likely to further increase

construction costs, which could lead to a further rise in BTS primary rents. By Central European standards, the Budapest agglomeration is a competitive business location.

SUBMARKET PRIME RENT AS AT Dec-22 (Euro / sq. m / month)

Y/Y growth

3yr CAGR

5yr CAGR

10yr CAGR

Budapest

5.35

15,1%

3,3%

7,4%

4,3%

Debrecen

5.35

18,9%

8,0%

8,9%

4,3%

Miskolc

5.35

18,9%

8,8%

8,9%

4,3%

Gyor

4.80

1,1%

2,2%

5,1%

3,2%

Szekesfehervar

4.50

0,0%

3,2%

5,2%

2,5%

Pecs*

4.50

n/a

n/a

n/a

n/a

Kecskemet*

4.80

n/a

n/a

n/a

n/a

4,0

4,5

5,0

5,5

6,0

6,5

7,0

7,5

8,0

SLOVAKIA

PRIME INDUSTRIAL RENTS IN THE CEE REGION YE 2022 Cushman & Wakefield Research

ROMANIA

HUNGARY

POLAND

CZECH REPUBLIC

* The location is a new addition to our database, so historical data is not yet available.

Industrial

44

RETAIL

RETAIL MARKET TRENDS

Retail macro indicators - retail sales will continue to grow With a metro population of more than 3.3 million inhabitants, which represents over 30% of the country’s population, Budapest is by far the most dominant capital of the CEE region. In Hungary, only six other cities can be considered as metropolises with a population of over 100,000 - the largest (Debrecen) with 200,000. Budapest remains the country’s economic centre, with a per capita household disposable income of €8,620. The largest spending categories remain similar to other Central and Eastern European markets, with food and beverages (26%), housing and maintenance (19%) and transport (11%) dominating private consumption. Real wage growth accelerated in 2021 and became higher than in the pre-pandemic period, but purchasing power has recently started to decline, mainly due to high inflation and a depreciating currency. Average real wages at the end of 2022 were lower than before the start of the pandemic.

Retail

46

The government responded to the strong inflationary pressures by introducing price caps on fuel and food. Moody’s expects the forint to stabilize against the euro and the US dollar as the central bank sharply raised short-term interest rates to combat double-digit inflation in Hungary. The monetary policy rate will peak in the first

quarter of 2023 and the forint will strengthen further against the euro until 2024. Moreover, inflationary pressures are expected to remain high, as in most countries in the region, but have already peaked. However, increased energy costs and soaring food prices have led to a sharp deterioration in the consumer confidence index in the last quarter of 2022. Together with

400 000

a weak currency, these will erode disposable income in the coming quarters until inflation stabilises. The labour market remains one of the tightest in the region, with the unemployment rate falling to pre-pandemic levels in spring 2022 and rising only slightly since then.

LARGEST CITIES IN THE HUNGARIAN COUNTRYSIDE (2021)

Source: ESRI ArcGIS, MBR, 2023, Cushman&Wakefield Research

300 000

200 000

100 000

0

Pécs

Győr

Miskolc

Szeged

population

Debrecen

Nyíregyháza

Population (2021)

30 min catchment

Retail

48

Whilst the overall economic impact of the pandemic was weaker than anticipated and the consumption pattern has somewhat changed, the share of food & beverages sales remained dominant. If we adjust the expenditure figures for inflation, we can see that private spending on household furniture and books is picking up, but was still below pre-pandemic levels in 2022, while spending on fashion, shoes and accessories has already exceeded this level.

Online growth is the most striking, currently accounting for 9% of total retail sales. Total retail sales grew at an average annual rate of 3.2% over the 2020-2022 period, still one of the strongest expansions in the region. Over the next 2 years, inflationary pressures will affect all markets, but retail sales in Hungary are expected by Moody’s Analytics to be the only one in the region not to turn negative, averaging 1.4% per year.

8% Miscellaneous goods and services

4% Catering and accomodation services

26% Food and non-alcoholic beverages

1% Education

6% Culture and recreation

Annual per capita expenditure by COICOP

7% Communication

4% Alcoholic beverages, tobacco

4% Clothing and footwear

11% Transport

19% Housing, maintenance and household energy

5% Health

5% Furnishing, household equipments and routine maintenance

Source: HCSO and Cushman & Wakefield Research

80%

8,00

RETAIL SALES CHANGE % 2019 VS 2022 Source: Moody’s Analytics, HCSO and Cushman & Wakefield Research

RETAIL SALES CHANGE %

6,00

Source: Moody’s Analytics, HCSO and Cushman & Wakefield Research

60%

4,00

40%

2,00

6,00

CZECH

REPUBLIC

HUNGARY

POLAND

SLOVAKIA

20%

-2,00

0%

-4,00

2020-2022 2023-2024F

-20%

-40%

PURCHASING POWER PER CAPITA, IN EURO (2021) (THOUSAND EURO)

Source: MBR and Cushman &

Budapest

Wakefield Research

9

Nyíregyháza

Debrecen

8,5

7,5

Győr

Miskolc

Pécs

Szeged

Retail

50