HUNGARIAN INVESTMENT SENTIMENT SURVEY

HUNGARIAN INVESTMENT SENTIMENT SURVEY

2019

“WHAT IS YOUR BACKGROUND IN REAL ESTATE?”

We had over 60 respondents across a wide range of the industry.

REAL ESTATE BACKGROUND GEOGRAPHIC COVERAGE

CBRE has been carrying out the Global Investors Sentiment Survey for a decade now and our Hungarian team also has measured the local investment sentiment each year since 2011. The Hungarian survey was circulated among the most relevant decision-makers on the market, reaching out both domestic and international players. As a result, the 60 responses received, covered a wide range of representatives from the local commercial real estate community.

“HOW IS YOUR GENERAL BUSINESS SENTIMENT COMPARED TO 2018?”

93% of the respondents expect 2019 to be at least as successful as 2018 was.

70%

60%

60%

50%

40%

32%

30%

20%

7%

10%

2%

0%

0%

Much worse

Slightly worse

Same as last year

Slightly better

Much better

2018 was a very strong year on the Hungarian investment market with a turnover of ca 1.7 billion EUR and increasing capital values across all sectors. Based on Q1 figure, GDP growth has accelerated further – the economy expanded by 5.2% in a year. In line with sustainably high general economic sentiment and a GDP forecast well above the EU average for rest of 2019, it is understandable that the local investment community expects a similarly strong year like in 2018- with 60% anticipating 2019 to be as successful as last year. A third of the responders are even more optimistic, expecting 2019 business sentiment to be even stronger than last year.

“COMPARED TO 2018, YOUR ACTIVITY IN 2019 WILL BE…”

Sales side is also likely to be more active this year – matching increased demand .

Compared to last year, both purchasers and vendors have higher transactional willingness.

This is a remarkable contrast when compared to the Global Investors Sentiment which suggests that 35% of investors are likely to the reduce their transactional activity – while in Hungary this ratio is under 15%. Over 40% of the local players are likely to increase their activity throughout the year. The growing purchasing sentiment is matched by an increase in sales intention – it is fair to assume that many owners feel today’s pricing now offers them option to exit at a lucrative price.

“WHAT ARE THE MAIN CHALLENGES ON THE MARKET OVER THE NEXT 12 MONTHS?”

Product availability and politics are among the biggest threat to the Hungarian market in 2019 .

While globally the fear of a general economic slowdown has emerged as clear no. 1 threat to the investment markets (marked by 35%), in Hungary only a minority has expressed anxiety about a deteriorating economic environment (only 8%). Fear of unforeseeable politics is the rise both globally and in Hungary, while worries about rising interest rates seems to have faded compared to 2018 (marked by 16% globally and 10% locally). Domestically, the lack of available product coupled with with strained pricing seems to be the main issue for 2019 – 39% have marked this challenge as critical for the market evolution.

“WHAT WILL BE THE TOTAL INVESTMENT TURNOVER IN HUNGARY IN 2019?”

Despite stronger planned activity, investment volume in Hungary is not expected to rise in 2019.

40%

33%

32%

30%

27%

20%

10%

5%

3%

0%

< EUR 1.4 billion EUR 1.4 - 1.7 billion EUR 1.7 - 1.8 billion EUR 1.8 - 2.1 billion EUR 2.1 billion <

The forecast of the market turnover in the survey depicts an interesting picture. On one hand, strong transactional willingness (both from vendors and purchasers) point to the direction of elevated investment turnover. On the other hand, many think that current volumes are close to the potential maximum on the market simply because there is nothing left to trade. These two sentiments contradict and result in a wide range of forecasted volume (EUR 1.4-2.1 billion) and a high degree of uncertainty.

CBRE have a rather conservative view and foresee ca 1.5 bln EUR trade volume in 2019 on the Hungarian commercial real estate market.

“COMPARED TO 2018, WHOWILL INVEST MORE INTO HUNGARIAN REAL ESTATE?”

Hungarian buyers are expected to maintain dominant position on the market.

It is a well-known now that the Hungarian investment market is dominated by the domestic investors – mostly by the large local open- ended funds, who have continued to increase their exposure year-on-year and now account for a significant share of the local investor volume. Hungarian investors reached a 65% share in 2018 volume with 1.1 bln EUR invested into commercial real estate. Despite the uncertainty around the further regulation of the open-ended funds, they are

expected to remain the main buyers on the market – followed closely by traditional core EU investors (mostly German losed- ended funds). New equity is likely to come from across various sources, including new capital inside and outside of Europe and also stemming from new and emerging Hungarian closed-ended vehicles. The current pricing levels are too high to attract the opportunistic money - most of which has already been and gone in this cycle.

“WHICH ASSET CLASS / RISK PROFILE WILL BE MOST POPULAR IN HUNGARY IN 2019?”

POPULARITY BY ASSET CLASS

shouldbe carefully watched, CBRE expect a clear increase in investment volume here – together with 10% of the respondents. Based on risk-profile, low risk core and core-plus assets are clearly preferred to investment opportunities linked with higher risk. Looking at the market of distressed and vacant properties, very few feel the momentum to be strong to enter here in 2019.

While globally office, industrial and residential are neck-to-neck in the race for most popular asset class, in Hungary offices remain the clear favourite for investors. Industrial has now overtaken retail in investment preferences (22% vs 10%) and multi-let assets are always preferred to single-tenant opportunities. Alternative assets remain off radar for most investors – mainly because of the immaturity of the Hungarian market. However, hotel investment

“WHERE DO YOU SEE HUNGARIAN PRIME YIELDS GOING IN 12 MONTHS FROMNOW?” Prime yields are expected to move to 5.47%, 5.56% and 7.16% for office, retail and industrial, respectively.

Based on the consensual forecast of the investors’ community, prime yields in Hungary will reach 5.47%, 5.56% and 7.16% for office, retail and industrial, respectively. This represents a minor (3bps) compression for office – from the current 5.50% and a somewhat stronger (9bps) move for industrial – from today’s 7.25%.

However, it is important to note that the majority of respondents don’t expect any change in yields across all of the three major asset classes. 38% expect no change in office yields, 53% anticipate retail yields to remain constant and 48% expect no movement with the prime industrial yield.

Sources: Hungarian Investment Sentiment Survey 2019

CONTACTS

GÁBOR BORBÉLY MRICS Director | Head of Business Development and Research

M +36 30 547 5870 gabor.borbely@cbre.com

TIM O’SULLIVAN MRICS Senior Director | Investment Properties

M +36 30 534 1744 tim.osullivan@cbre.com

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