Property investment: Hungarian market has doubled its share in the region

European property investment activity slowed to €25bn in the second quarter (Q2) of 2011, reflecting growing uncertainty in Europe as a result of the continuing sovereign debt crisis, according to the latest data from CB Richard Ellis Group, Inc (CBRE). The strongest growth in property investment activity was in the more robust economies, such as the Nordics. Finland in particular saw a significant boost in activity in the second quarter of the year.

Real estate investment turnover in Central and Eastern Europe (CEE) also increased and reached €5.3 billion in H1 2011 after continued growth registered in June, according to the latest data from CBRE. This figure brings the year-to-date investment volume in the region close to the full year level reached in 2010 (€5.6 billion). Hungarian market has doubled its share in the region; €300 million turnover was registered in Hungary in H1 equalling to a share of 6% in CEE volume. The most liquid markets have remained Warsaw and Moscow.

Patrick O’Gorman, Director of CEE Capital Markets, CB Richard Ellis, commented: “Recovery of liquidity in CEE’s property investment markets has been variable; however, markets with strong prime fundamentals have seen a significant uptick in activity. Notably in Warsaw and Moscow, but also in Czech Republic some large transactions have been closed. The level of activity we are currently registering is close to that registered in H1 2006 and H1 2008 and remains around 30-35% below the peak achieved in the period H2 2006 – H2 2007.”

Tim O’ Sullivan, Head of Capital Markets in Budapest added: “The increased investor activity across the region now presents a clear opportunity for the Budapest market. While volumes are back to 2006 levels, investors have adopted a different attitude compared to 2005/6. Potential buyers insist on best-in-class properties. Due to the lack of available supply, some investors are now being priced out of the Polish market and are once again exploring other CEE markets. Czech Republic already benefited from this trend in 2010 and Hungary’s investment volume is expected to follow this year.”
 

The credit crunch and ensuing economic crisis in 2008 had a major impact on office development activity and reshaped development pipelines across Europe. Investment markets will be clearly impacted by the lack of quality developments coming to the markets. New office completions in major European markets could fall by over 30% in 2011 compared with 2010 and could decline further in 2012 as the low level of construction starts during the economic crisis feeds through into reduced levels of new office space. As a result, new office completions in major European markets will experience a sharp contraction in the next two years and will remain subdued throughout 2013.
 

“In our region new supply has never been this low as in the first half of the year.”-commented on CEE Gábor Borbély, senior analyst at CEE Research and Consultancy. Only half a million sq m of office space was completed in the ten CEE capitals (compared to 1.1 million sq m in H1 2010) and more than 60% of this space was handed over in Moscow. “Office completion fell across all markets compared to last period and reached in many cities an all-time low in H1 2011. Warsaw and Prague are slowly turning around the corner with active pipelines increasing there. On the other hand, real estate development especially in South-East is also highly dependent on Greek bank finance which can negatively impact the already low growth potential of these markets.” – added Borbély.
 

Judit Varga, Head of Office Agency in Budapest commented on the local trends: “Budapest pipeline is also much reduced with only some 60,000 sq m of available space being under construction at the moment. Although vacancy level has stuck at 20-21% for a year already, some developers already see potential on the market. Quality and location sells again. This can be the reason why in H1 2011 three office developments started on a purely speculative basis.”