Hungarian real estate market in the stage of European integration László Gönczi CEO Metropolis International Ltd Hungary President of the Hungarian Chapter of FIABCI
Summary The Central and Eastern European countries just entered the European Union. After 40 years, in 1990, the countries of the so-called Eastern Block, lead by Hungary, Slovenia, the Czech Republic, Poland,, have changed their planed economic structure to market economy. At the beginning, this change has introduced unemployment, and steep decline in the country s GDP. Despite all this, office developments followed by developments in other branches of the real estate industry increased significantly. Joining the European Union is the second most important event in the recent economic history of the our countries, and will have a strong effect on their real estate market.
Summary The presentation will draw from the experiences of the Hungarian real estate market to analyze the changes that occurred during the economic transformation, and will predict the effects of joining the European Union. Some aspect of Slovenian-Hungarian relationship
Development in different sectors of the real estate market The different branches of the real estate market started to develop in different phases in the following order: Office building market developed first in the early phase of transformation Retail from the mid 90-ies Residential from 2000 Logistic from 2000-2001 Tourism from 2000.
Office market The economic change was based on the working capital arriving from developed countries. Western companies needed offices equipped with modern infrastructure. For this reason, the office sector started to develop first. Rental fees climbed to 22-25 EURO/m2/month, while the return on investment (ROI) was 12-15%, and office space could be leased with ease, even before the end of the construction.
Office market At the end of last century the market matured, the rental fees went down and now they are about 15 EURO/m2/month in the case of the first class office buildings. The average vacancy rate is 18-20% and the ROI fell down to 8,75%-9% 1,800 1,600 1,400 1,200 1,000 800 600 400 200 Office spaces in thousand m2 0 1990 1992 1994 1996 1998 2000 2002 2004
Retail Retail property development focused on three main areas: Brand-name stores, chains with smaller stores Superstores, or mega stores Mall or plaza type shopping centers Home Improvement Stores in 2003 4 5 42 4 0 3 5 3 0 2 5 2 0 15 10 14 5 13 10 5 0 Praktiker Bricostore OBI Baumax Total
Number of units 90 80 70 60 50 40 30 20 10 0 5 6 7 Retail The newly built, large shopping centers have changed the shopping habits Deterred many customers from traditional shopping outlets in town The traditional shopping streets of towns have lost some of their attractiveness Hypermarkets in 2003 M ETRO CORA AUCHAN INTERSP AR TESCO TOTAL 16 48 82
Saturation of the Market The main question is: how saturated is the market after this period of intensive development The proportion of large floor space retail facilities (shopping centers and hypermarkets) grew from 0% in 1990 to 15% in 2003. Still below 20%, the EU average
Factors Affecting the Future Yearly consumption USD/Capita Hungary 2361 Greece Spain France Germany Austria UK 7989 8531 12130 12712 13524 14875 0 2000 4000 6000 8000 10000 12000 14000 16000
Residential In Hungary the situation in the residential sector is particular. More than 90% of the population lives in their own flat. Consequently the progress of the residential sector depends on the long term credit possibilities.
Residential In 2000 a new state supported loan was introduced that changed the market dramatically. The number of new flats grew from 19.287 in the year 1999 up to 35.543 in the year 2003. according to data from the first half of 2004 the tendency is continuing. Flats/year 120,000 100,000 Number of flats constructed Hungary EU average 80,000 60,000 40,000 20,000 0 1950 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Residential Since 2000, foreign investors have been building big residential parks of 500 or more flats, with swimming pool, gym, internal green areas, security service etc. Most of these developments have been focusing on mass production of small sized (45-55m2) studios and one bedroom flats. The target market is the medium class. The prices are at the level of 1100-1300 EURO/m2.
Logistic At the beginning the transformed old stores and factory buildings were used The new logistic centers had been developed near the main roads leading to Budapest The first centers were built to suit types, where the tenant was known More and more speculative type developments. 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1998 1999 2000 2001 2002 2003 2004 m2
Touristy sector Tourism is a traditional sector of the Hungarian economy Budapest is the main target The romantic Puszta - the Hungarian lowland natural park with horses and old forms of agricultural life Balaton, the biggest lake in Central Europe. New Hotels in Budapest in low category and some 4-5 star Hotels. Occupancy rate about 65-70% The thermal water based spa resorts are developed using the fact, that 80% of the territory of Hungary has the natural sources.
Slovenia-Hungary The region of Hungary near the Slovenian border is one of the most underdeveloped area. The neighbor regions in Austria and Slovenia have the same situation EU and the regional development system. Hungarian state supported programs in the region Development of the infrastructure is a key factor The highway to Slovenia is under construction The railway link is developing County Zala (neighbor to Slovenia) is the field of the thermal water based and village tourism.
Slovenia-Hungary Hungarian investors are active in the neighbor countries in the field of real estate Trigranit is constructing shopping centers in Slovakia 8000 flat project in preparation also in Slovakia Investments in Romania Why not in Slovenia?
Slovenia-Hungary Private persons buy resort buildings in Croatia at the seaside Why not in Slovenia? Hungarians buy resort estates in Austrian ski regions Why not in Slovenia?
EU integration and the real estate market Some speculative investors arrived before the entry buying flats in Budapest city center Real estate funds are active they are looking for the big units having long term leases with first class tenants Joining the EU and the real estate prices - Expectations and the reality - Long term changes
The expected future development of the different sectors of the real estate market Office sector 2004 2006 Adsorption of the actual surplus 2007-2010 growing new demand. Logistic Growing demand. This is the sector with the highest shortage. Leisure If the government continue to support the spa based complex recreation developments, it will generate a stable grows in this sector.
The expected future development of the different sectors of the real estate market Retail The demand of the capital and the larger cities will be met, and new developments move to cities or regions of 25,000 to 60,000 inhabitants. The rehabilitation of the traditional shopping areas, including the reconstruction of small stores is a serious challenge and a significant real estate development task
The expected future development of the different sectors of the real estate market Residential sector We can expect that the present growth in this sector will continue. In the 90 s, a significant apartment shortage had developed, falling behind demand by an estimated 20,000 flats per year. This means that the actual tendency will endure and at 2005 the yearly production of flats will be double compared to the year 2000. Later the size of the flats will also grow meaning that the yearly production in m2 will grow even more.
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