MNB-RICS Commercial Property Market Survey 2017 H2 Magyar Nemzeti Bank and the Royal Institution of Chartered Surveyors relaunched the questionnaire-based survey research on Budapest s commercial real estate market, with the review period of second half 2017. Over the preceding two years the typical rent for commercial properties observed for most property types has increased by more than 15 per cent until the end of the second half of 2017. Prime yields for the office market and shopping centres approached the historical minimum observed in 2007 with 10-25 basis points. Most of the survey respondents expect an increase in demand in both the investment and the tenant markets for commercial properties in the next 6 months, however, with regards the development activity, the majority of respondents foresee an unchanged level or a drop in demand for several types of property. A joint initiative by the Magyar Nemzeti Bank (The Central Bank of Hungary MNB) and the Royal Institution of Chartered Surveyors (RICS), the Market Sentiment Survey, a questionnaire-based survey looking at the developments of the Budapest commercial property market, was recently relaunched for the second half of 2017. The common objective of MNB and RICS is to increase knowledge and consciousness regarding commercial property market developments and improve market transparency. MNB and RICS would like to thank survey respondents for their valuable contribution to better understanding the current status of the commercial real estate market and improving market transparency. The Market Sentiment Survey monitors market sentiment on a bi-annual basis on the Budapest commercial property market. Respondents provide data on the typical rents, lease periods and yields of the various segments (offices, industrial and logistics, retails, hotels). Furthermore, in connection with the market developments for the period under review and real estate experts market expectations for the next 6 months 1, the survey includes questions related to changing trends in investor and occupier demand and development activity. Surveys between 2011 and 2015 were conducted jointly by RICS, Portfolio.hu and ELTINGA Centre for Real Estate Research. Market Sentiment Survey data for the period between 2011 and 2015 included in this Press Release were processed by ELTINGA. The survey relaunched by MNB and RICS for the second half of 2017 involved 43 experts and it is expected that the number of participants will increase in the future. Among respondents, consultants (42 per cent) and property development experts (30 per cent) were in the majority (Chart 1). 51 per cent of respondents work for local companies while 49 per cent for internationally active companies. Since the latest survey covering the second half of 2015, the typical rent for commercial properties observed for most property types has increased by more than 15 per cent until the end of the second half of 2017 (Chart 2). Based on the reports published by international property consultants, the highest possible rent (prime 2 ) achievable in Budapest may well increase by a further 20-30 per cent, compared to the rent of a Top CBD office calculated from the answers given in the survey (Table 1). 1 The survey involved members of the RICS active in Hungary and experts from the banking sector dealing with the valuation and financing of commercial properties. 2 The category prime refers to properties of the best quality and location. 1/6
Compared to the results of the previous survey for the second half of 2015, typical yields 3 significantly decreased in every segment (Chart 3). Prime yields for the office market and shopping centres approached the historical minimum observed in 2007 with 10-25 basis points. Table 1: Median values of typical rents, investment yields, rent periods given by respondents for the examined property types for the second half of 2017 Market Sentiment Survey II Half Year 2017 Typical rent* (EUR/sqm/month) Typical investment yield* (%) Typical rent period* (year) Top CBD office building 18.00 6.00 5.00 Prime non-cbd office building 14.50 6.50 5.00 Good quality non-central office building 12.50 7.25 3.50 One of the top 5 shopping malls 52.50 6.00 5.00 Mall-type retail park 20.00 7.00 5.00 Big box retail 10.00 7.50 7.00 Prime out-of-town logistics center 4.00 7.75 5.00 Small business unit 4.50 8.00 3.50 Five-star hotel in Budapest - 6.63 - Four-star hotel in Budapest - 7.00 - Five-star hotel outside Budapest - 7.63 - Four-star hotel outside Budapest - 8.00 - * Median values calculated from the answers given in the survey The majority of respondents expect a growth in the demand for investment in the next 6 months, especially in the office market (Chart 4). An increase is expected mainly for properties of the best quality and location which mean lower risks and yields for investors. Projections are more balanced when assessing development activity (Chart 5). The unchanged development activity in the retail segment may be explained by the existing regulations, according to which obtaining a building permit for a commercial establishment with an area exceeding 400 square meters requires a specialist authority procedure. Although the office market is already witnessing a large volume of ongoing developments, the majority of respondents expect a further increase in development activity. The opinion of survey participants anticipating an unchanged market in respect of the industrial-logistics segment may reflect a shortage of development plots at appropriate prices and locations, as market fundamentals (demand, vacancy rates, rents) would otherwise justify an increase. This discrepancy might be improved by developing rail and road infrastructures in addition to the already announced projects in the future. Market participants forecast strong occupier demand for each property type, especially for properties of the best quality and location (Chart 6), in particular for Top CBD offices and Prime non-cbd offices. 3 In the case of commercial properties, the yield (investor yield; initial yield) is the ratio of the annual rental income to the property acquisition cost. 2/6
ANNEX CHART PACK: Chart 1: Breakdown of survey respondents by activity Chart 2: Median values of typical rents given by survey respondents for the examined property types Note: Data for years 2013-2015 are derived from previous surveys conducted by RICS-Portfolio.hu-ELTINGA, while for 2016, no survey was conducted. 3/6
Chart 3: Median values of typical yields given by survey respondents for the examined property types Note: Data for years 2013-2015 are derived from previous surveys conducted by RICS-Portfolio.hu-ELTINGA, while for 2016, no survey was conducted. Chart 4: Market experiences and expectations for investment demand Note: In the chart, the 2017 H2 period reflects the experiences, while the 2018 H2 period reflects the market expectations of the respondents. 4/6
Chart 5: Market experiences and expectations for commercial real estate development activity Note: In the chart, the 2017 H2 period reflects the experiences, while the 2018 H2 period reflects the market expectations of the respondents. Chart 6: Market experiences and expectations for tenant demand for commercial real estate to rent Note: In the chart, the 2017 H2 period reflects the experiences, while the 2018 H2 period reflects the market expectations of the respondents. 5/6
MAGYAR NEMZETI BANK Communications Contact information: Tel: +36-1-428-2751 Facsimile: +36-1-429-8000 E-mail: sajto@mnb.hu ROYAL INSTITUTION OF CHARTERED SURVEYORS Contact information: Anna Orcsik Regional Manager RICS CEE (excl. Poland) Tel: +36-20-262-88-91 E-mail: AOrcsik@rics.org 6/6