25 October 2023
In 2023 H2, the indicators for the commercial real estate market shifted towards upside risks as the economy continued to slow. In the investment market, property values fell amid low activity and further rises in yields. Office and industrial-logistics vacancy rates increased. The retail and hotel sectors were negatively affected by the temporarily decline in real wages. At the same time, credit institutions’ resilience to shocks remained strong and their capital provision was at an adequate level, further strengthened by the MNB’s preventive capital buffer requirement.
In 2023 H1, developments in the real economy were not supportive for the commercial real estate market. Inflation-induced declines in real wages were accompanied by falling retail sales and a decrease in domestic hotel guest nights. The contraction of GDP and investment activity suggests a negative outlook for rental demand for offices and industrial-logistics properties. Rising interest rates on EUR loans have further undermined the propensity to invest in real estate, which has been weak across the region for a year now.
The vacancy rate in the Budapest office market increased by 1.3 percentage points to 12.6 per cent in 2023 H1, while the vacancy rate in the industrial-logistics market rose significantly by 4.8 percentage points to 8.6 per cent. Despite these increases, vacancy rates in both of these segments remain lower than the historical peaks, but the high levels of planned completions and the low net market absorption in the first half of the year reinforce the risk of further increases. No significant volumes of new office projects were launched in 2023 H1, and the volume of new developments in the industrial-logistics segment also decreased. However, based on the construction work currently underway and the H1 demand data, oversupply may be seen on the office market within one year and on the industrial-logistics market within two years.
The Hungarian investment market registered turnover of EUR 0.25 billion in 2023 H1, down 60 per cent on 2022 H1. In the first half of the year, 80 per cent of the transaction volume was linked to domestic investors. Most countries in the CEE region have seen a decline in investment turnover and an increase in prime office yields (which applies for the best category properties). In year-on-year terms, capital values calculated on the basis of prime office yields and rents dropped by an average of 10 per cent in the CEE region and by 19 per cent in Budapest by the end of 2023 Q2. While the rate of depreciation is lower than what was seen in the 2008 crisis, current developments in real estate values need to be monitored closely from a financial stability perspective.
In 2023 H1, along unchanged lending standards, banks’ disbursements of project loans secured by commercial real estate was down 44 per cent on the same period of the previous year, with new loan issuance falling for all property types except hotels and housing estates. Exposure of domestic credit institutions to CRE-backed project loans is less than half of the post-2008 crisis level, both in terms of balance sheet total and own funds. At the same time, due to the potential increase in risks, the system risk capital buffer (SyRB) will be reactivated from 1 July 2024 for preventive purposes, after having been suspended indefinitely during the COVID-19 epidemic, which will strengthen the banks' ability to withstand shocks.
MAGYAR NEMZETI BANK
Communications
Contact information:
Phone: 428-2751
Fax: 429-8000
Email: sajto@mnb.hu