At the end of June 2019, the average vacancy rate of modern offices in Budapest had dropped to another historic low of 6.3 per cent, due on the one hand to the robust rental demand seen in recent years, and on the other hand to the low volume of new completions. Over the next 2-3 years, a large volume of new office space representing a 16-per cent of the existing stock is expected to be completed, which may slightly boost the office market vacancy rate, but still a healthy level is still projected.

The ratio of unoccupied space in industrial-logistics properties in Budapest and environs also reached its lowest recorded level of 2.1 per cent at the end of June 2019. Of the completions expected for the second half of the year 42 per cent was pre-leased, possibly providing greater leeway for tenants which move or join the market as new entrants.

In contrast to previous years, developers are planning new completions in the retail property segment this year, especially outside the capital, and 2020 may see the completion of Hungary’s only new shopping centre under construction in Budapest. In recent years, the lack of new supply and mounting demand resulted in rising rental rates, but this seems to have ended in the shopping streets. With respect to the availability of real estate, the main shopping centres in the capital are operating at full capacity.

According to reports on the first half of 2019, the average occupancy rate of Budapest hotels was second only to their Prague counterparts among the capitals in the region. The volume of hotel room completions in Budapest in the first half of this year was higher than last year’s total. In the next two years more than 5,000 new hotel rooms are slated for completion in the capital.

Up to the end of June, investment turnover on the Hungarian CRE market amounted to EUR 0.6 billion, of which 60 per cent was still linked to office building transactions. Based on transaction amount, 63 per cent of the investments in the first half of the year were linked to Hungarian actors. During the first three quarters, the real estate investment stock of domestic public real estate investment funds rose by 16 per cent in total, in conjunction with a modest decline in the net asset value.

Similar to Hungary, the CRE markets of other countries in the CEE region are also characterised by strong development activity, robust rental demand and generally falling vacancy rates. Compared to Prague and Warsaw, prime office market yields in Budapest offered a premium of 75–125 basis points at the end of June 2019.

In the first half of 2019, credit institutions’ commercial property loans outstanding rose slightly, albeit new disbursements fell short of the volume seen in the same period of the previous year. Slightly more than 80 per cent of the loans outstanding were FX-denominated, but this is far lower than the 2008 figure. To prevent the emergence of related systemic risks, the MNB modified the conditions of application for the systemic risk buffer. Since the crisis, concentration on the CRE market has fallen, and banks’ exposure relative to their regulatory capital is also lower. According to the responses to the Lending Survey, more and more banks are worried about a potential real estate price bubble, which affects the tightening of credit conditions. Consequently, following the gradual easing of credit conditions observed in earlier years, banks indicated tightening, while they see restrained growth in credit demand.