The View 9

36

Total Leasing Activity Split by Deal Type

Source: BRF, CBRE Research

UNRELENTING VACANCY TIGHTENING SUPPORTS RENTAL GROWTH The limited new supply coupled with persistently strong demand resulted in the average vacancy rate across Budapest declining further by Q4 2019, reaching a new record low of 5.6% (-0.7pp in H2, -1.7pp y/y). The vacancy rate is now decidedly lower than what was forecast 12-18 months ago, and although the sustained strong demand wave has been a positive surprise, the main altering factor has rather been the subdued new supply. The ‘A’ category segment still has by far the lowest vacancy rate at 3.7% as of Q4 (-0.8pp y/y), followed by ‘B+’ assets with 7.2% (-3.2pps y/y) and the ‘B’ category segment with 8.6% (-1.2 pp y/y). Six submarkets saw their vacancy rates decrease in a year, led by South Buda (-7.2pps), the Periphery (-3.4pps), North Buda (-2.5pps) as well as Central- and Non-Central Pest (-2.0pps each). The Váci Corridor saw its vacancy rate decrease marginally (-0.2pp), while slight increases were registered in Central Buda (+0.4pp) and the CBD (+0.8pp). These relative dynamics look the same on a shorter time horizon over the past two quarters. Hence, as of Q4 2019, the lowest vacancy rates were found in Non-Central Pest (1.4%) and North Buda (2.6%), while the high outliers were Central Buda (9.4%) and the Periphery (34.5%). The remaining submarkets all registered vacancy rates between 4-6%.

The ever-tighter availability of space in the existing stock as well as the pipeline has underpinned continued rental growth. The average asking rent across all existing available space in Budapest stood at EUR 13.0 / sq m / month as of Q4 2019 (+6% y/y), while the average across ‘A’ category buildings increased to EUR 15.3 / sq m / month (+4% y/y). The mid-quality ‘B+’ category saw its average asking rent level reach EUR 13.3 / sq m / month (+8% y/y), while the weaker ‘B’ category average increased the most both over the past six months and on an annual basis, to EUR 10.8 / sq m / month (+6% in H2, +8% y/y). Geographically, rents remain highest in the CBD and Central Buda, while Non-Central Pest and the Periphery remain the most affordable, although the latter showed ambitious re-pricing moves in H2, narrowing the gap to the rest of the pack. All the other submarkets also registered increasing average rents over H2, led by the CBD, Central Buda, South Buda and Váci Corridor. New developments in the pipeline continued to raise the pricing bar and the typical asking rent for new ‘A’ category space in a semi-central location now ranges between EUR 15-19 / sq m / month. Typical rental incentives include ca. ½ months’ rent free per committed year, counterbalanced by generous Fit-Out allowances stemming from elevated construction costs, with ca. 500 EUR / net sq m being typical for shell-and-core space, for a straight 5-year term.