NEWMARK VLK HUNGARY’S Managing Partner says demand for experienced advisors providing high added value is ever growing, as the alternative – rectifying a poor lease contract after it is signed – is difficult and expensive.

The real estate office market has slowed down, tenants are more cautious. Sadly, it often results in drawn-out decision making as tenants focus on safe solutions, fearing the unpredictability of the future. In consequence, there are more renewals and fewer relocations.

The vacancy rate is rising, slowly but surely. Is this the golden age of tenant representation?

A competent and experienced Tenant Advocate is always a must have, however, tenants are often unaware of the difference we can make. They are optimistic about being able to conclude lease transactions on their own. More often than not, they end up with a less than optimal result that is difficult or expensive to rectify. The current vacancy rate represents a healthy market but is a bit misleading: although the number is higher than in previous periods (a little over 13%), the amount of high-quality office space available did not increase.

Statistics are often misleading. The 13% vacancy rate is true for the whole Budapest office market, but submarkets show a varied picture. The vacancy rate in the periphery is much higher than in popular submarkets. If you would like to rent an office space in the Váci corridor or in the CBD, you care less about available space in Budaörs.

Or if we look at the vacancy rate in modern, new, or renovated buildings that meet the ESG requirements of multinational companies – it will be a single-digit number. This brings us to the great dilemma of today’s office market: what to do with the outdated office spaces that require major renovations? How much will it cost to change them to be marketable?

What will happen to spaces in secondary locations that have been vacant for a long time? Is there any chance to lease them now? To sum up, the vacancy rate in immediately marketable, sought-after stock is no more than 5-6%, which leads to different conclusions about the state of the market.

How flexible is the market? Is it possible to terminate a lease contract that was signed a couple of years ago on outdated terms?

Short answer: yes, but the price will be high. It depends, of course, on the context. Basically, it is very difficult to terminate a lease contract before expiry, and it will most probably be very expensive. There are solutions, but we must know all the circumstances. The market tries to be flexible as there is demand for it regarding both sizes and lease terms, but it is not always feasible. Almost every transaction has its limits.

The market of serviced offices has grown more valuable, especially due to its inherent flexibility. In many cases, serviced offices are a big help for a transitional period, or can be a perfect solution for smaller companies, as well as for divisions or teams within a larger corporation even for longer terms. But there is always a point where the total cost of the serviced office is higher than in a traditional office. Serviced offices offer convenience and quick fix solutions – if you can afford them.

The most sought-after products are still the ESG-compatible, high quality, economical office buildings in prime locations, with flexible financial terms and technical specifications. But this often could be a “too much to ask for” category.

What is the priority for tenants when choosing an office? ESG? Energy efficiency?

Both, for a reasonable price. The market has evolved a lot and so have the tenants, but they remain price sensitive. Tenants look for better and better buildings, with a strong focus on amenities within the building and nearby.

Newmark is dynamically growing despite the current economic environment and has completed several acquisitions. In the beginning of 2023, they acquired Gerald Eve, a leading advisory firm in Great Britain, as well as two smaller, but strategically and professionally equally important firms. These transactions added 6-700 highly qualified and experienced advisors to the European Newmark network. We already feel the positive impact, although the integration is still ongoing. I am optimistic about the future.

This is a turbulent period for every segment of the market, there is no question. It is of the utmost importance that every professional should do their job with discipline, with the least amount of risk taking and focusing on the fundamentals. An experienced, well-prepared advisor can capitalize on the current market conditions. All in all, I am optimistic about the future, but I am aware that challenges still lie ahead of us, to manage in a calm, considered, conscious way.

Contact us should you need any more informations https://nmrk.hu/en/contact/

The efficiency of the Budapest office market could be greatly improved if areas that were sought after by tenants were freed up or built. Currently, hardly any new office developments are built, and the total office vacancy is increasing, but we are seeing enormous densification in certain submarkets. There is no chance that this unhealthy situation will change in the short term – the consulting company Newmark VLK Hungary Kft. commented on the H1 office market data for the year published in the past few days.

Many quarters have passed in the Budapest office market, with constantly increasing vacancy, which is at 12.6% in the middle of summer. It seems high but this is still not alarming yet, there was similar and even much higher rate in the previous recession cycles. It is much more of a problem that this indicator does not faithfully reflect how much vacant office space tenants are looking for and how much of it is on the market. Observers can draw wrong conclusions, preventing them from making a well-founded decision regarding their office leases – commented Valter Kalaus, managing partner of Newmark VLK Hungary.

“Even if a tenant occupying, say, 3,000 sqm wants to move to a new, modern office building, it can almost count on one hand the available options. Almost all developers have slowed down their projects, which is understandable. The areas freed up as a result of the downsizing implemented by the public sector are not up-to-date, tenants who are getting close to their lease expiry do not want to move there, so the only option is to extend their lease,” he said.

Companies usually move when they expand or shrink significantly, the latter being the norm these days. Other than that, they move because they want to work in a more modern, better office building with different designs. According to Newmark VLK Hungary, this can be implemented for one year only. In 12 months very few new buildings will be available.

“Companies, willing to move, will easily go from a very old B category to a used A category office building, but a 6-8 years old A category building is unlikely to be an attractive new option.” said the manager.

Mr Kalaus pointed out that the desire to move is growing not only because of the economic conditions but also because the new office buildings operate more efficiently. Due to their high technical standards, the total rental cost including the service charge fees, is also lower, a highly important feature for most of the tenants. Technical efficiency makes also it easier to handle area expansion needs appearing over the lease period. The older buildings fail to meet these challenges.

The motivation to relocate is encouraged also by the fact that companies have to pay more attention to the employees’ needs. The latest vacancy figures (34.8%) show that companies are increasingly willing to move to centrally located offices even if they are in relatively modern buildings in the suburbs. There are more services available in the inner districts and the commute is also faster and easier.

Landlords will suffer more pain in the short term if their property is in an unfavourable location and of poor quality because they have not been renovated over the years.

“Office buildings in which tenants are finishing the first 5-year term can be considered new buildings, but the 10-11-year-old ones are facing even more difficult years than before since the number of environmentally conscious and economically operable buildings have been increased dramatically.” – argued Valter Kalaus.

He expects that the share of relocations among lease transactions may further decrease because these tenants will not easily find an attractive space worth moving to. In addition, there is a good deal of competition for a really good location with a good service environment, many smaller companies are simply pushed out by the stronger competitors, of these locations, say for example from the popular Central-Buda area.

At the same time – albeit invisibly – vacant office areas will be available upon the departure of a large tenant. The areas that “emerge” in a large headquarters building due to the tenant company restructuring and trying to sublet the unnecessary spaces, can be classified in the same category. There will also be cases when the same tenant simply will give back the unwanted area, but this may have significant, not necessarily pleasant consequences for him.

One of the significant challenges for office developers in Budapest is sourcing suitable-sized, well-located development plots with direct public and private transport links that provide visibility. Competition for such space in a relatively compact city is becoming more intense and consequently more expensive.

“Some current territories of the city tend to form a certain architectural look and this is good. I do not think it is necessary to have a united design. We have to protect our historic buildings, but some of them may be turned into modern offices while their facade still shows the original look. Fortunately, the number of these buildings is increasing,” commented Valter Kalaus, managing partner at Newmark VLK Hungary.

To read more visit: https://bbj.hu/shop/real-estate-review-2023

Few office projects are expected to be undertaken in the near future as players are exercising caution in an uncertain market environment. However, despite concerns over tenant demand and office working practices, geopolitical and economic issues, rising development, construction, maintenance, and energy costs, and more expensive debt finance, developers are progressing with their ongoing projects.

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Newmark VLK Hungary – Professional Service Provider of the Year 2022

Valter Kalaus, Managing Partner – Professional of the Year 2022

The CRE Awards celebrate excellence in the commercial real estate sector. Judged via a rigorous evidence-backed process on the success and market excellence of all nominees, these awards acknowledge the contribution of the commercial real estate profession in enhancing the reputation of commercial real estate companies operating around the CEE region.

Major winners of the 2022 CRE Awards included leading market players WING, AFI Europe Serbia, Property Market, Adventum Group, CBRE and Newmark…..

Newmark picked up the Professional Service Provider of the Year, and the company’s Managing Partner Valter Kalaus walked away with the coveted Overall Professional of the Year award.

To read more click on the link below:

https://bit.ly/3eOt7XD