Budapest, February 1 2011.
Based on the latest investment market report of the Hungarian office of Colliers international, the total investment transaction volume on the Hungarian real estate market is estimated to have been around €185M in 2010, which includes only transparent investment transactions. “This is well below our expectations from the start of 2010. Most of the transactions were closed in the first half of the year, with the second half seeing little activity except for the notable sale of the Vörösmarty 1 prime retail property by ING to Redevco for €44M.” – said Hamish White, partner and Investment Services director of Colliers International Hungary.
The causes for the lower than expected transaction volumes of the past year are mixed. On one hand, investor interest, both foreign and domestic, has increased compared to the previous period, with potential buyers making investment tours and reconsidering market entry, but not yet closing any major transactions. The predictable shortage of prime office space foreseen around 2012 is also an attractive draw for investors who anticipate rental growth. On the other hand, there has been continued weak confidence toward the country since the massive GDP contraction in 2009, now combined with the government’s crisis measures and the state of the European sovereign debt.
At a domestic level, investors have raised concerns over perceived anti-market actions such as crisis taxes on selected industries like banks, energy, telecoms and retail. The main factors hampering the ability to conclude transactions are finance related, such as the very constrained level of debt available and the devaluation of foreign currency loans – in particular the presently weak EUR against the CHF; or the cost of breaking finance (swap) arrangements. Colliers International does not forecast considerable easing in the finance sector in the medium term, which will continue to restrain the investment market in Hungary.
Concerning the outlook, Hamish White said that in 2011 Colliers expects overall investment volume to be higher than in 2010, possibly reaching up to €500M, driven by a strong pipeline of potential deals. Supporting this is the fact that owners’ and buyers’ price expectations are now much more in tune with current values. The strong pipeline is driven by property funds being wound up, bringing assets to market.
Another source of deals is property developers, who see a window to exit developments with a positive gain, in part “encouraged” by shareholders or financiers to dispose of assets. In terms of yields, no significant change has been seen over the past year, and no quick improvement is expected in 2011. Investor interest for prime office and retail projects is currently at around 7.5–8%, and nothing below this level is likely to occur in the upcoming year. Prime industrial yields are above 9%. There is a list of potential buyers considering investments in Hungary, but this won’t create additional pressure on pricing as there is a considerable amount of property that can be purchased.
The focus of interest remains high-class trophy assets in good location, such as A-class modern offices. There is also interest for prime retail centres, but limited interest for prime industrial properties. There is practically no interest for B-class real estate assets unless at absolute give-away prices. Sustainability and green certifications are also becoming essential to attract buyer interest. Colliers International anticipates investors will remain extremely cautious in the upcoming period, indicating that the climb out of the bottom of the market will be a slow and gradual process.
“This also means that sellers will need to have their house in good order if they want to a have a strong chance of closing deals. Lastly, there is a clear preference to purchase assets rather than acquiring property via a company. Investors do not wish to inherit liability, particularly any tax liability. It appears all the elaborate ownership structures previously arranged to optimize value may become redundant in the cautious markets of today.” – summarized Hamish White.
Source: Colliers International