The View 9

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PRIME SPACE HAS NOT BECOME ANY CHEAPER

Prime rent levels for 100 sq m units on the prime pitch of a Tier-1 Budapest shopping centre are quoted in the range of EUR 80-105, indicating no decline on previous year. Nevertheless, retailers are becoming more conscious of the cost of labour and fit-out, as the store-based turnover growth moderated somewhat compared to recent years. This is increasing the awareness of occupiers and reducing landlords’ negotiating power regarding lease terms. The prime shopping centre rental range narrowed further over the year, with F&B and Speciality Retail brands pushing the lower rent threshold up by ca. 10-15% y/y. Tier-2 schemes in Budapest did not see their rent figures change drastically over the past year. The current rental range for a 100 sq m unit on the prime pitch of these schemes is between EUR 30-50. However, due to some significant refurbishments scheduled for 2020 renovated schemes will become pricier than those relying on the status quo, likely reaching reach top rents of EUR 50-60 following refurbishment. Meanwhile, regional shopping malls already registered some further rent increases to a range of EUR 40-65, which is likely to be maintained this year as well. On the Budapest high-street, the rental gap between the historical core prime pitch and other central locations is narrowing. Rents on eg. Fashion Street now rival or exceed those on Váci utca and this prime rental range is now quoted between EUR 80-140. Minimum rents also grew most rapidly in the prime segment, as units in the busier streets are no longer accessible at the rental levels of recent years. Increased tourism has also spurred interest from brands not yet present on the Hungarian market, whose main focus for market entry is the high-street. Leases have been signed with several significant tenants who will open in 2020 and 2021. OUTLOOK Positive retail economic fundamentals are likely to be sustained in 2020 and Hungary will remain a top performer in Europe in terms of retail sales growth, while e-commerce will keep biting into store-based turnover across the country. The weak HUF is inducive to retail demand from tourism, yet it is harming retailers who earn their income in HUF but pay their rents in EUR. Therefore, a stabilization in the FX rate would be desirable for the industry. Retailers’ demand proved to be stable last year on the back of intense activity by established brands, but new tenant interest is once again expected to result in higher new entry figures in 2020.

This year’s new supply of 18,600 sq m will remain largely below the desired level, as the market anticipates the next large handover in Q1 2021.

Prime rents hold upside potential mainly amongst assets set for refurbishment or repositioning and with higher growth at the low-end of the rent scale, the gap can narrow somewhat between quality categories.