Due to the coronavirus pandemic, the Hungarian economy contracted by 5 per cent in 2020 and thus performed better than the EU average. In the second wave of COVID-19, industry and some service sectors (information and communication, finance) proved to be resilient, and according to the MNB’s spring forecast, GDP growth may be around 4 to 6 per cent in 2021. As a downside risk affecting growth and CRE market processes, the third wave of the pandemic hit Hungary in early March 2021, making it necessary to once again introduce tighter restrictive measures. However, depending on vaccination coverage and the related timing of restarting the economy, more vigorous economic growth can be expected from the second or third quarter.

In 2020, demand weakened in every CRE segment except for industrial-logistics, along with deteriorating occupancy/vacancy figures. Nevertheless, so far falling rental rates have only been seen in the retail segment. Annual demand reached a record high in the industrial-logistics segment: e-commerce driven by the pandemic and the changing supply chains simultaneously increased demand for warehousing and logistics capacities, resulting in a low vacancy rate of 2 per cent at the end of 2020. Members of the Housing and Real Estate Market Advisory Board anticipate growth in industrial-logistics developments and a decline in the strong office development activity seen in recent years. At the same time, office market vacancy rates are expected to continue rising in the next 1 to 2 years. Looking ahead, the picture is rather heterogeneous: according to experts, newly completed office space will be occupied, even if this proceeds more slowly, while rental rates for older properties will decrease and their vacancy will increase. Loss of business remains a significant feature for hotels, catering and certain types of retail facilities, with actors having an increasingly difficult time maintaining operations for lack of business due to the restrictions.

In 2020, the volume of investment in domestic commercial real estate fell 41 per cent year on year, however, the value of transactions postponed to 2021 due to travel restrictions and due diligence obstacles reached hundreds of millions of euros. According to the Board, a ‘wait and see’ approach with postponement of investment decisions became typical, and investment activity is expected to accelerate from late 2021 or early 2022. Nevertheless, high-value transactions occurred in 2020 as well, accounting for almost one half of the annual investment volume. 52 per cent of the transaction value was due to Hungarian investor activity, representing a more balanced ratio compared to 65 and 75 per cent in the previous two years. The downward trend in investment yields typical in recent years came to a halt, with yields rising by 50 basis points for offices and 75 basis points for shopping centres compared to the end of 2019, while the prime yield for industrial-logistics remaining unchanged. The liquidity of Hungarian public real estate funds is stable; although the redemption of investment fund shares increased with the outbreak of the pandemic, net capital flows were positive on the whole in the sector in 2020.

Adjusted for exchange rate effects, credit institutions’ loan portfolio secured by CRE stagnated in 2020. The ratio of foreign exchange in new disbursements decreased, largely thanks to the FGS Go! scheme. Banks tightened conditions on commercial property loans significantly, with a simultaneous decline in demand for property loans. The tightening of loan conditions was due to industry-specific risks as well as the banks’ changing risk tolerance. No further tightening is expected by financing institutions in 2021 H1, but priorities across segments changed with a sharper focus on residential development projects and the industrial-logistics segment. 47 per cent of credit institutions’ project loan portfolio secured by commercial real estate was affected by the moratorium at the end of 2020. Within this, at 77 per cent, hotel financing accounted for the highest share of loans covered by the moratorium. With the expiry of the moratorium period, default risk will mostly arise in respect of hotel and retail segment project loans; this portfolio amounted to HUF 305 billion at the end of 2020. The capital adequacy of the banking system is adequate to deal with potential risks arising from the commercial real estate market.