MNB-RICS Commercial Property Market Survey – 2018 H1

In cooperation between the Magyar Nemzeti Bank and RICS, a questionnaire-based survey presenting developments on the Budapest commercial real estate market, has now been performed for the second time. Based on the current answers provided in the survey conducted in July-August 2018, typical rents usually remained constant in most of the commercial real estate segments in the first half of 2018. In addition, according to the responding experts, the typical yield level decreased by roughly 25 basis points, and were around 6 and 7.5 per cent, respectively, in the top sub-segments in the office and industrial-logistics segments. The premium on the secondary office and retail transactions in the countryside is uniformly around 200 basis points, according to the experts. Respondents anticipated an increase in demand for investments in most of the commercial real estate segments for the second half of 2018, particularly in the case of top office and industrial-logistics properties.

In cooperation between the Magyar Nemzeti Bank (MNB) and RICS (RICS), the Market Sentiment Survey, a questionnaire-based survey presenting the developments on the Budapest commercial property market, was restarted at the beginning of 2018. The common objective of the MNB and RICS is to enhance knowledge and awareness regarding commercial real estate market developments and increase the transparency of the market. The MNB and RICS would like to thank survey respondents for their valuable contribution to the steps towards understanding the situation of the commercial real estate market and improving market transparency.

The second survey managed by the MNB and RICS for the first half of 2018 involved 34 experts; and it is envisaged that the number of participants will increase in the future. Among the respondents, financial institution employees engaged in property valuation or property financing (53 per cent) and experts offering consultancy (29 per cent) were in the majority (Annex, Chart 1). 76 per cent of respondents work for local companies while 18 per cent for internationally active companies.

Based on the responses, the typical rents remained constant in most of the commercial real estate segments relative to the second half of 2017, i.e. the previous period under review, in the first half of 2018. According to the survey respondents, there was a decline in the level of rents in the category of the top 5 shopping malls. However, it should be noted that the responses in respect of this category showed higher volatility in the past as well. In addition, the typical rents of the good quality non-central offices and the mall-type retail parks moderately decreased, while in the case of small business units (city logistics) respondents reported a slight increase in rents. On the whole, the level of rents is above the level recorded in 2015 in all segments (Annex, Chart 2).

In the opinion of the real estate experts participating in the survey, a decrease could be observed in 2018 H1 in the office and industrial-logistics segments, while in the retail segment respondents reported a steady yield level (Annex, Chart 3). Based on the responses, the present yield levels in the case of the top CBD offices and the top 5 shopping malls stand at 6 per cent, while in the case of the prime out-of-town logistics centres at 7.5 per cent (Table 1). According to the respondents, a premium between the yields of a top CBD office and a provincial town secondary office transaction is typically 200 basis points, and the same premium was reported when comparing the yield of transactions involving a top 5 shopping mall in Budapest and a mall-type retail park in the countryside.

Table 1: Median values of typical rents and investment yields provided by respondents for the examined property types for the first half of 2018

According to the majority of respondents, demand for commercial real estate investments will increase in most of the segments in the second half of 2018. The largest ratio of respondents, i.e. roughly 73 per cent, indicated an expected increase in demand in the case of the prime out-of-town logistics centres, while an increase in the demand was anticipated by the fewest respondents in the case of the mall-type retail parks and city logistics. In the case of the latter two segments, the majority of the respondents reported constant or decreasing demand (Annex, Chart 4).

As regards the appetite for real estate developments, the majority of respondents anticipated an increase for the second half of 2018 only in the case of the top CBD offices, the prime non-CBD offices and the prime out-of-town logistics centres, while most of the respondents expect no material change in the development appetite in the rest of the segments (Annex, Chart 5).

Looking ahead, as regards the demand for rentable commercial real estate area, the majority of respondents anticipated growth in the case of all office categories, the top 5 shopping malls and the prime out-of-town logistics centres, while most of the respondents expect no material change in the demand for the mall-type retail parks and big box retail space available for rent in the second half of 2018 (Annex, Chart 6).

ANNEX CHART PACK:

Chart 1: Breakdown of survey respondents by activity

Chart 2: Median values of typical rents provided 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 3: Median values of typical yields provided 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 expectations for 2018 H2 related to investment demand

Chart 5: Market expectations for 2018 H2 related to commercial real estate development appetite

Chart 6: Market expectations for tenant demand for commercial properties for rent for 2018 H2

Information on the questionnaire:

The Market Sentiment Survey monitors market processes and sentiment twice a year, and it uses calendar half-years as reference periods. The current questionnaire was completed in July-August 2018, in respect of the first half-year. The survey focuses on the Budapest commercial real estate market and asks respondents to provide data on the typical rents and yields of the various segments (offices, industrial-logistics, retail, hotels). Furthermore, in connection with the market expectations for the next half year of the experts on the subject[1], the survey also includes questions for identifying changing trends in investor and tenant demand and development activity.

Surveys between 2011 and 2015 were conducted jointly by the RICS, Portfolio.hu and ELTINGA Centre for Real Estate Research. Market Sentiment Survey data for the period between 2011 and 2015 included in this Information were processed by ELTINGA.

[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, as well as "external" experts preparing real estate valuations for the banking sector.