Fierce Battle to Fill Empty Office Premises

After a round-up of the impact of home working on the office market, the financial news portal portfolio.hu asked office market experts about their experience of rent inflation, whether there is still room for rental growth, how much competition there is for tenants and how important energy efficiency is for new tenants today.

The office vacancy rate in Budapest continued to rise in the second quarter of this year, reaching 12.6%, up 0.4 percentage points from the previous quarter and 2.8 percentage points from the same period last year. This means that, with minor interruptions, the growth in vacant office space has been continuing for three and a half years, and has now exceeded half a million square meters.

It also means that the competition for tenants is becoming increasingly fierce and this is also reflected in rents. Is there still room for rents to rise further? Can they even keep up with inflation?

Gábor Angel, deputy CEO of Wing Plc., responsible for office projects, said that new developments have apparently disappeared from the market, so, rents can be expected to rise for new office buildings, but as always, this is not in line with inflation, with a more moderate price increase starting to take place. However, the moderate demand for space from the new coronavirus epidemic period is counteracting the inflationary effect, so no meaningful increases are evident for existing office buildings for the time being.

Valter Kalaus MRICS, Managing Partner of Newmark VLK Hungary, pointed out that the Budapest office market is the first to suffer from significant euro-based inflation. The importance of the almost routine clauses in leases to this effect will be appreciated. Rents also track inflation, of course, but what is equally important is that the inflation tracking of operating costs is also significant.

According to Gábor Angel, there is a big competition for tenants, especially on the issue of staying vs. moving. So, it is less a fierce competition between potential new tenants than between an existing landlord and a new landlord. Flexible assumptions (expansion and contraction needs) can be used to rent effectively.