Grafisoft Park SE: Net Profit Up Q1-3, 2024

Office park operator Graphisoft Park SE's pro forma net profit for the first three quarters of 2024 amounted to EUR 6.18 million, up 11% year-on-year, the company announced on Tuesday on the website of the Budapest Stock Exchange (BSE).

According to the executive summary of the report, this growth is partly due to the office park's stable tenant base: there were no vacancies in Graphisoft Park to the extent typical of the Budapest office market, which - despite the decreasing rate of rent indexation - ensured a favorable development of rental revenue. In addition, some tenants who reduced their leased area before the end of the contract paid a one-time compensation, which also had a positive effect on this year's net result, but this will, of course, be absent from the results of the following periods.

Graphisoft Park's occupancy rate at the end of the third quarter was 94%, which is a 1% decrease compared to the first half of the year, but still significantly higher than the Budapest office market average, where the vacancy rate reached 14% in the third quarter. In some cases, the possibility of hybrid working has led to a reduction in office space, but at the same time, it is also experiencing a growing demand for an office presence among several of its tenants.

In the current economic environment, the needs of tenants are constantly changing, both in terms of the size and the function of the rented area. The flexibility of the lessors therefore plays a special role, since not only the expansion of the home office affects the size of the required office space, but also many other market and economic factors. At the same time, it can be stated about the tenants of Graphisoft Park that they are typically committed for a longer period of time compared to the domestic average, on the one hand due to the unique natural features of the park and the milieu provided by the technological and IT focus, and on the other hand due to the ability to adapt flexibly to changing tenant needs.

At the end of the third quarter, the Park renewed its lease contracts with its two major tenants, SAP Hungary Ltd.., for another 10 years, and with software company Graphisoft SE for another 5 years. As a result, the average remaining lease term (WAULT) increased to 5 years. The number that reflects the commitment of the Park's tenants even better is the average lease term in the Park calculated with the starting date of all current tenants’ earliest lease agreements, which is still stable at over 15 years.

In the remainder of 2024, the office park operator does not expect further significant changes in occupancy, so, according to its expectations, rental revenue and pro forma net profit may exceed its previously published conservative forecast by around EUR 300 thousand. As a result, the expected net result of EUR 7.9 million in 2024 may reach the outstanding result of the previous year (which was largely due to the favorable financial result).

By 2025, however, due to the challenges of the real estate market and the effects of the unfavorable economic environment, Graphisoft Park SE is forecasting a certain degree of vacancy and tenant risk, and it is also counting on continuous developments in line with its ESG goals and their cost impact. On the other hand, it does not count on extraordinary compensation to be paid due to early contract terminations, so overall, based on its current estimates, a net result of EUR 7 million is expected, which is less than this year's result.

Although the tenant base of Graphisoft Park is stable, based on current office market trends, a significant increase in demand for offices is not expected in the near future, the company has come to the conclusion - as published on May 13, 2024 - to examine the possibility of developing residential and service units in the southern
development area. Therefore, Graphisoft Park concluded a cooperation agreement with Synergy Construction Hungary Ltd. to investigate the possibilities, which process is currently ongoing. After the conclusion of the investigation, the partner company will - expectedly at the end of this year or at the beginning of next year - have the opportunity to purchase the area or the project company that owns it under the conditions specified in the Cooperation Agreement.