Following the market trends of increases in value seen in recent years, the COVID-19 pandemic unexpectedly hit both the domestic and global CRE markets in early 2020. The consensus among market experts is that the most vulnerable segments include the hotel and retail markets, but non-performance of contractual payment obligations may be typical for companies (tenants) in all segments. The moratorium on repayments initiated by the MNB as a precautionary measure and ordered by the Government on 18 March 2020 helped to prevent the risk of immediate financial instability and the potential spillover effects resulting from this situation in Hungary. The outlook for the duration of the pandemic and the extent of the economic consequences likely to affect the CRE market remain uncertain. After the short-term changes in work and consumption in the epidemic, such as the spread of working from home and online shopping, the long-term effects are surrounded by uncertainty, which must be considered on the demand and supply side. This uncertainty also has a negative effect on the market.

Following the trends from past years, 2019 was typically characterised by a high level of rental, investment and development activity in all segments of the domestic CRE market. Demand continued to be met by sluggish supply, leading to decreasing vacancy rates and rising rental rates. The appearance of new supply on the market fell short of expectations for all types of real estate, and late completion remained a constant factor. Strong development activity characterised the Budapest office market as well as the hotel sector on a national level. Vacancy ratios remained historically low in all market segments throughout the year, with the average vacancy rate of modern Budapest offices falling to 5.6 per cent and that of the Budapest and agglomeration industrial-logistics market to 1.9 per cent by the end of 2019. The end-of-year development data projected a significant increase in supply for the next 2-3 years, representing 16 per cent of the current existing stock of Budapest office and nationwide hotel capacities. However, the coronavirus pandemic which spread to Hungary in March 2020 could lead to a standstill, further delays and increased vacancy rates in ongoing projects. In the short run, the consequences of the situation will include reduced or postponed rental demand, as well as rental discounts and substantial revenue losses in all segments during the pandemic. Hotel revenues dropped to zero in a matter of weeks, and several hotel developments may be suspended or cancelled. The extent to which these sectors will change, due to factors such as a potential lasting impact on consumer behaviour, employment trends and supply chains, remains a question for the longer term.

Investment volume on the commercial real estate market reached EUR 1.8 billion in 2019 again, with 75 per cent of the investments attributed to Hungarian agents. The coronavirus pandemic will have a negative effect on investment activity as well, potentially shifting focus towards prime real estate with long-term stable income. The decrease in liquid instruments in Hungarian public real estate funds observed in Q3 2019 stopped by the end of the year, but the redemption volume of investment fund shares increased again in early March 2020. Despite the capital outflows in March 2020, the liquidity of the funds remained stable, further assisted by the MNB by making way for Hungarian open-ended public investment funds in the central bank’s new longer-term collateralised loan tenders from the beginning of April. In addition, in March 2020 the MNB granted relief for credit institutions from the Systemic Risk Buffer (SyRB), which took into account problem-free foreign exchange project loan portfolios from 2020. In its Financial Stability Report in May 2020 MNB will survey the coronavirus impact on the financing of the sector relying on updated bank questionnaires.