The View 9

12 ECONOMY AND REAL ESTATE

DAVID M. JOHNSTON MRICS Senior Director, Head of Advisory & Transaction Services

The strong prevailing economy helped most of the real estate markets perform above expectations in Hungary over 2019. Investment volumes last year surprised us on the upside. Throughout the first half of the year, market sentiment was negatively impacted by the lack of available assets for trade, the fear from potential interest rate rise and the change in legislation of the domestic open-ended funds. By the end of the year, previous concerns turned out to be unjustified: volume matched the average of the previous years, sentiment around real estate turned positive globally as fears from higher interest rates faded and new domestic funds and fresh foreign capital compensated for the lower transactional activity of the large open-ended funds. The Hungarian investment market is highly domestic-driven, similarly to the Czech and opposite to the Polish market. This exposure to local investors is likely to decrease slowly this year on the back of large transactions currently in the pipeline with foreign investors. Economic fundamentals have been very supportive to most businesses and to consumers in general. Starting from the most remarkable: increasing wages

helped households to spend more. While Hungary recorded 5.7% p.a. retail sales growth in 2019, this was a mere 2.3% in the EU. Nevertheless, not all of this growth materialized in the traditional brick-and- mortar schemes - in fact, based on CBRE Shopping Centre Index, average turnover growth in Budapest was just half of this level. Although the online trade accounts for only 5% of the total sales, this is a channel not to miss for any of the retailers of the future due to the accelerated growth of e-commerce. Plaza-ban continues to limit the growth of the overall modern shopping centre volume, therefore many retail owners opt for a refurbishment of varying scope in their schemes - creating an alternative for retailers compared to the new completions. Mixed-use schemes with considerable retail elements are also on the watchlist for brands deciding to expand their network. It is not only consumers who benefited from the economic growth. The service industry in Budapest has proven to be remarkably resilient to the current global economic slowdown andmost of the companies continue to expand their office footprint here. As another core driver in the economy, industrial production (even including car manufacturing) has outperformed all previous expectations.