It remains an open question when investment activity in Hungary and the CEE region will pick up after a subdued period due to concerns over the cost of finance, and the uncertain economic and geo-political environment, says real estate editor Gary J. Morrell. Another worry is how long yield corrections will continue.
This has been a restrained year for development activity in the office and retail fields. That in the industrial and hotel sectors, however, has been more dynamic. Investment activity has reflected the cautious wait-and-see strategy being adopted by investors towards the Hungarian property markets and, indeed, CEE and Europe as a whole.
Development in the various real estate markets in Hungary is impacted by concerns about demand and concluding the preleases that enable a project to go ahead, the availability and cost of financing, the increasingly protracted planning and permitting process, rising construction, maintenance and utility costs, and, finally, the opportunity of an exit strategy with a sale onto an investor at an appropriate time in the business cycle of an asset.
While there are substantial pipelines for the industrial and hotel markets in Hungary, things are more limited for offices, and there are none at all for shopping centers. Questions surround the structure of demand, the ability to source affordable finance, rising construction, energy and utility costs, permitting issues, the need to incorporate ESG features, and the likely availability of an exit through a sale.
In addition to a market correction, with yields moving out from the current 5.25% for office and 5% for industrial, the other major ongoing issue for the investment market is the need for both purchasers and vendors to conclude deals based on ESG criteria in accordance with the EU Taxonomy.