Top Real Estate Executives 2021 – Valter Kalaus

With today’s market conditions tenants are in a more vulnerable position than ever before. You can read some interesting market trends from Valter Kalaus, the managing director of Newmark VLK Hungary.

• What would you recommend to a company who would like to move to a new office within 6-7 months from now?
• I would tell them there are in a very difficult situation. Almost mission impossible. Office buildings are fully let, the market is heavily dominated by landlords. Total vacancy rate is below 6%, on the Váci corridor it is 2-3%, and on the other main submarkets the demand is strong, there are many competing parties for available spaces. Occupiers are in a vulnerable position: the smaller because landlords cannot commit to 300-400 square meters, the larger only because few thousand square meter office spaces area not available on a short notice. Though the latter are in a better position, as there are few hundred thousand square meter office developments in the pipeline. Developers would not commit with a 1.000 square meter tenant need yet but would sign a prelease agreement for a 4-5 thousand square meters for sure. From those the successful ones will be, who requires less compromise and have a quick decision-making process.
• Nevertheless, in case the occupier is successful what are the tenant representative expert recommendations before signing a lease agreement?
• Timing is very important, considering the size, the preparation for a move could start even 2 years ahead. The belief that the real estate market is a slow market. Today, is not true anymore, changes happen fast.
  It’s important to fully understand and appreciate the tasks that are necessary in case of a move or extension. We dedicate tremendous time to understand our client’s business needs, the space that will be needed in couple of years’ times, the special functionality fundamentals and traditional space set up requirements.
• What are the common mistakes?
• For example, when the occupier says: we need 1.000 square meter, and we figure out later the internal space fit-out. We need to think the other way around: first let’s have a look what are the business needs and start planning the internal space fit-out based on the specific requirements. Today the HR department’s involvement in the process is a must. Considering the employment retention, the workspace environment is one of the main active tools. The office space also represents the company, the brand, if the locations and design is good, has an interesting, unique fit-out, then even the business partners recognise it, and employees will talk about how much they like to go to work. We help to find the right location and to create the best internal working environment, if it’s the right choice, we prove that it’s worth paying a 1-2 euro/ square meter higher rent for the right office building and employees are happier to go to work. This way, in case of an office move the employment retention can remain strong, and the recruitment will be easier.
• In previous times the tenant representative success was measured based on how much total cost saving could he negotiate for the occupier. For example, how many benefits were achieved. Should we forget that today?
• We should treat carefully the cost saving, as with today’s lease agreement conditions, it’s almost impossible. Today the best tenant representative is, who can get the office space where the occupier wants to be.
• Why would they need an external help? When they can go online and find the right office building and negotiate themselves the terms.
• We know well the whole market and see the transactional activity. We know 1-1,5 year ahead if an office space will be free and this knowledge gives us the wining advantage. We are not agents but true advisors, and we don’t find a tenant for an office space, but we find the right office space that fits the occupiers need.

• Is it right to say that the occupier alone would not be able to get any benefits?
• Today definitely not, because of the low available space the landlords are comfortable. There are some landlords who give no rent-free period for example. Meantime rents increased with 20-25%, and in some cases after the first proposal, there is even a bid upwards. We can forget the moving contribution, and the extra internal space fit-out contributions.

• Thus, the landlords blackmail potential is high versus the tenant.
• This sentence is somewhat strong but is very unfortunate that we see landlords who abuse their current position. To give you an example: there are cases when landlords charge the multiple amount of the fit-out costs, occupiers find themselves in a position where they have no choice, and this is very unfair. A correct landlord would never do something like that. The market will change again in a couple of years and the occupiers will remember how the landlord treated them. And when their lease expiries they will choose another building.

• This also requires that in the tenant representatives’ team there are technical project managers.
• Obviously, it’s a must – and we have them in our team. Our well qualified technical project managers very often face poor quality fit-out works, with unrealistically high bills. Clearly, without finance, legal and HR team contribution even we would not be able to add value to the occupier.

• So far, we talked only about category “A” office buildings. What is the situation in lower categories? Is there a high internal movement, are lots of companies trading up their apartment offices? How much is the “B” category office market changing.
• The new and the high category will always have its charm. To step up has always a strong message: that the company is strong, growing etc. Between the categories we can find big technical difference. Is much better to work in a WELL certified office building, than in a dilapidated 20 years old building. Obviously in those certified buildings employee’s efficiency increases. However, the property managers of the category “B” office buildings will need to improve, modernize the technical background and the space fit-out as well. There are many and even more items to consider when we calculate if is worth for the occupier to pay 2-3-euro/ square meter higher amount. And this is exactly where we can help the most.
• Will there be a greater functional change in the office buildings? Possibly would some of these buildings be transformed into hotels, like we have seen in some downtown cases.
• We can see those changes as well, but I don’t think it will be a massive impact on the office market. I would rather highlight the coworking or shared offices, as a disruptive factor the serviced office functionality office building, that either can be developed in classic office buildings on a few thousand square meters, or they can be opened in downtown apartment buildings.

What’s next for the office market? What do occupiers want? What effect would an economic slowdown have on development? Heads of the European offices of real estate advisory firm Cresa talked about business opportunities and risks, and the global political uncertainty at their annual conference in Warsaw.

A slowdown, but no slump

Europe is already experiencing the first signs of an economic slowdown that has so far had a limited effect on the office market, say several heads of Cresa’s European offices commenting on the situation in their respective countries. After Germany, this trend is most pronounced in the Netherlands. “Some companies, especially in the automotive sector and suppliers in the high-tech industry, are seeing their order books starting to run empty. As a result, some of our clients are preparing for a downturn in the market,” says Johan Martens, Director of Cresa in the Netherlands. “In the past year we have experienced strong growth in the office market. However, in certain parts of the country this has been restricted by the limited supply of new construction. The focus of growth is primarily on areas of the Randstad: Amsterdam, Rotterdam, The Hague and Utrecht, with a run-out towards the medium-sized cities outside the Randstad.”

Poland and Spain appear the most resilient to the wider economic slowdown, which has had no impact on their office markets. Office demand stays strong in France. “2018 was still a very good year with take-up at around 2,5 million sqm, which was 230,000 sqm above the ten-year average. There were as many as 81 large lease transactions of spaces over 5,000 sqm. The vacancy rate across the main market of Île-de-France is currently at 5.3%, and 1.8% in Paris, the lowest level in ten years. Nevertheless we can observe that the office take up had decreased by 15% in the first half of 2019, due to the scarcity of office supply in particular,” says Thibault de Gueltzl, Managing Director, Cresa France.

A landlord’s market

According to the heads of Cresa in Central and Western Europe, the regional office market still has a big potential. Most say that their respective markets are either balanced or skewed towards the landlord. This is very pertinent for the office market in Hungary. Its average vacancy rate is just 6.5% and office rental rates are soaring, whilst lease incentives are being scaled down. “There is a large amount of construction going on and major pre-lets are being signed. Larger tenants start exploring the market two or three years prior to lease expiry in order to secure the desired space, in the selected building. Today it is not a question of how good of a deal you can get for your client, but whether you can get them the desired space at all,” says Valter Kalaus, Managing Partner, Cresa Hungary.

 In Spain, high-quality office spaces in central locations are clearly favoured. “That’s why in Madrid there is currently a strong imbalance between supply and demand. Tenants want top quality buildings in prime, central locations, but there’s a paucity of such real estate to meet the demand. The same goes for Barcelona. To satisfy that demand, landlords have to upgrade their office buildings,” says Cruz Guijosa, Director of Cresa in Spain. “As Madrid has no vacant sites in the city centre, office development is spreading further away. The delivery of new office buildings is expected to restore the supply demand balance, even though new projects will be developed in non-central locations.”

A quick response to occupiers’ needs
The Belgian office market is a bit different – tenants enjoy the upper hand in a market that has an oversupply of vacant older buildings in some locations. In addition, companies are downsizing their offices. “Office tenants continue to focus on cost reduction and creating a flexible work environment in order to attract and retain employees. On the other hand, landlords are trying to add new services in their business parks such as flexible desks, meeting zones or catering facilities to attract and retain tenants. This will enable tenants to downsize rented offices to make savings, to use such services as required and better align their spaces with their needs,” explains Anthony Huygen, Partner, Cresa Belgium.

An office in the EU

Brexit continues to represent an opportunity for European cities to attract new office tenants. There are many financial firms that are required to have an office in an EU jurisdiction to undertake certain operations – for others it could simply be a more viable business option. The Netherlands has already benefited from these changes: approximately 100 companies have opened branches in the country due to the impending Brexit. The UK’s departure from the EU has also had some impact on the Polish and French office markets. Despite uncertainty that emanates from Brexit, office markets around the UK and in particular the major London market continue to record strong tenant demand.

A move towards flexible leasing
IT and high-tech sectors have been increasing employment for some time and remain key drivers of the office market across Europe. These are leading sectors according to respondents from France, Hungary, Poland and the UK. The latter two have also seen financial institutions very active on their leasing markets. In France, office demand remains boosted by start-ups, whilst in Belgium – it is by the public sector. Whilst office demand has been robust around Europe, the fundamentals of how space is used and leased is evolving with propensity for businesses to seek out more flexibility with their real estate.

The growth of shared office spaces or co-working is a relatively new trend in some parts of Europe, but is gathering pace. In the first half of 2019, co-working operators accounted for approximately 8% of absorption in the Spanish office market. Cities currently leading the co-working drive in Europe include London, Paris and Warsaw. In the first half of 2019, coworking represented 62% of the take up for the largest transactions in Île-de-France.

 “It is not just co-working but a whole range of flexible leasing solutions that has taken the UK market by storm. In London alone there are over 600 operators offering flexible space. Focus for operators is now on other UK cities in order to gain greater coverage. Occupier demand for this type of space is at the moment keeping a good pace, with co-working centres reporting healthy occupancy rates of 80-90%,” says Shaun Dawson, Head of Insights at DeVono Cresa, UK.

What’s next?

How will Poland perform in the current macroeconomic situation? Will it also be hit by the economic slowdown? “We are well aware of the impact of global politics and the economy on our country – yet there are many question marks and uncertainties that remain. What’s next with Brexit and ongoing trade wars? Will the economic conflict between the US and China have a knock-on effect on our biggest trading partner Germany and indirectly on Poland?” asks Piotr Kaszyński, Managing Partner, Cresa Poland. “As it’s difficult to answer these questions specifically, we are focusing instead on Poland’s strong performance – there are no signs of any slowdown. The office market is setting new highs. In the second quarter of 2019, Warsaw’s office take-up topped 265,000 sqm, the highest quarterly volume on record. The business services sector is growing at a rapid pace both in the capital and regional markets. There is a marked increase in the number of mixed-use projects and development activity is being driven by strong investor interest,” concludes Head of Cresa Poland.

At the CEE Property Forum 2019, held in Vienna on 18-19 September, was set as a goal to gather the leading decision makers of the European and CEE property world to discuss the major trends and future of their industry. CEOs, influential investors, bankers, advisors, developers, fast-growing proptech startup founders, architects, valuers from more than 30 countries.

With the boom in tourism, the hotel market in the region offers a wealth of opportunities, while becoming an increasingly attractive asset for investors. Tourist needs are changing rapidly with the spread of low-cost airlines and accommodation services, but the CEE region is by far the best market for hotel developments. The conference provided an opportunity for cross-industry dialogue, panel discussions with European investors and a Central European banker roundtable.

At the two-day conference, Newmark VLK Hungary was represented by Péter Takács, who has a unique experience, combination of opening and operating a hotel chain and having an international real estate consultancy background also. At the roundtable discussion, our partner, based on experience from recent hotel projects, confirmed that the hotel acquisition market is buzzing today in Poland and Hungary the market is very active, everyone wants to buy an operating hotel but it is difficult to find a good product at a fair price. Fortunately, the rental scheme is spreading, which attracts institutional investors and family offices as well, and almost all banks are happy to finance these projects, as the cash-flow is more predictable.

In the hotel development fever, brands have been launched in Hungary that do not yet have a unit in Budapest. They still prefer management-based management contracts and higher risk developers, banks and investors are actively negotiating with them. The burgeoning investment market for office buildings and falling yields are also diverting those interested in the hotel market. Primary the tourist performance indicators, the relatively lower prices and more attractive returns in the region attract customers, but it is just as important for the tenant, the rent to be predictable as for an office or commercial property.

In Hungary, developers also see increasing potential in hotels, both domestic and international players are expanding in this area, but for the time being, the capital is still the target area. Because the number of the good locations is decreasing, we can see it already, and we will see more and more the feature switch in projects, when an office building or a condominium becomes a hotel.

Thanks to our experience in hotel development, Newmark VLK Hungary has been involved in several internationally recognized projects. We are proud that we also contributing to the development of Budapest and Hungary by opening new hotels and catering units.

To find out more click HERE 

a&o Hotels and Hostels, one of the largest European hostel companies is about to establish a strong presence in Budapest, according to Péter Takács, Partner of Newmark VLK Hungary, who said that the chain’s 114-room, 412-bed hostel is scheduled to open in the city center of Budapest in March 2020 in district seven Csengery street.

One or two months of delay could be possible due to the current lack of local construction capacity, but it is certainly not holding back the company from building out a strong presence in the longer term, planning with up to one thousand beds in the Hungarian capital. Their first property is owned by a&o, future properties will most likely be operated on a lease basis.

To find out more click HERE 

There is a rapidly spreading new buzz on the real estate market: proptech. The Budapest Proptech Forum conference had a high interest which proves that we have to seriously consider this subject. The Newmark VLK Hungary leaders participated at the conference and they reflect on this topic.

How much does the market understand what proptech is?
Valter Kalaus: This is a hot topic now for tenants, developers and landlords. Everybody is trying to understand what it means exactly for them, when and how much it would influence and change their areas in the near future. For most is not crystal clear yet what kind of applications and new technology-driven solutions exist and how these could benefit them. The conference provided a platform to discuss these topics and the various different views.

How Newmark VLK Hungary can help clients with proptech?
Valter Kalaus: At Newmark VLK Hungary we are prepared for this new challenge. We help our clients to navigate and find the potential right solution among the various proptech options available. After understanding their specific needs we propose available and suitable options and tools, based on international innovation examples. It is important to propose solutions that fit our clients’ business goals and interest the best way.
Using the right proptech tools in the workplace can clearly help to be more attractive to employees – and the new generation is demanding this – but too much of it can easily backfire.

How open is the Hungarian market to this innovation?
Valter Kalaus: I think Hungary is somewhat behind compared to other mature, mostly Western European markets, but we can definitely feel the wind already. People want to know more and more about proptech in general and about the various available options. We are still in the learning phase, but the interest is growing fast. Proptech will definitely play an important role in the real estate sector, it cannot be ignored. The Hungarian market generally is price sensitive, therefore the price-tag can play an important role in the selection process of the desired solution. It seems, however, that we will need another year or two until the various proptech solutions will be commonly used on the Hungarian real estate market.

What was new on the Budapest Proptech Forum conference?
Péter Takács: Proptech is a buzzword – the market players are trying to discover what they could use property technology for in their respective field so that it benefits them. From the presentations it was clear that there are advanced efforts in all areas but there are not many solid solutions yet that can be widely adopted. Proptech can certainly have a significant impact on our sector, however property is a long term investment product, and we do not yet see its direct impact. But if we consider how the internet and mobile phones changed all aspects of our lives, proptech can be a similar milestone, and even if concrete cannot be digitised, the property sector needs to adopt tech solutions.

How does Newmark VLK Hungary help clients with proptech?
Péter Takács: We follow the trends, new proptech products and services, we test them from our clients point of view, so that we can deliver the best solutions that fit their business interests and objectives. We introduce all the interesting new solutions to our clients, and often they turn to us whether a certain product, or solution would be beneficial for them. Up till now companies have been mainly interested in increasing operations effectiveness and to optimise cost, and only recently they have started moving towards creating a more attractive and efficient workplace  environment. We believe that only those proptech solutions will be successful that will service both these areas.

What are companies interested in ?
Péter Takács: Most of the clients are very much return-on-investment oriented, therefore proptech solutions will need to demonstrate solid ROI track record numbers in order for customers to engage with them, especially if they promise optimizing property costs. However we see more openness towards proptech solutions related to the workforce, because the value of competent and loyal workforce has increased significantly and as HR costs are still higher than property related costs, a lower return in investment in the prior represents more significant effect on the latter. And we are happy to see that HR managers who previously failed to successfully lobby with top management regarding workplace improvements are now more successful because ownership and management both understand that investing in the workforce is a must, and as they produce their added value in the office environment it is more important now how the workplace supports them, and this is where proptech can help the most.

Is proptech more advanced in the hospitality sector?
Péter Takács: Ultimately the hotel business is also a real estate business, however the internet and technology brought noticeable impact and simplified searching, booking and paying for a room earlier than in other property businesses. Leasing or buying an office for hundreds of people is a much higher value transaction and a more complex process than booking a weekend trip, however good proptech solutions should help in simplifying this complexity. Serviced and co-working offices show good examples, especially since not only startups and freelancers are using them but also larger corporations – exactly because the providers have standardised their offering enough to make searching, booking and paying more simple.

How long can be the protech learning phase?
Péter Takács: The learning phase is probably long, but it also depends on an organisation’s agility. If you are good with things staying as they are and do not invest now, and do not try new things, you save on the short term but you could fall behind in the long term. So it could take years, but it can also happen that a developer, an investor, a tenant or an advisor will bring a new solution tomorrow which gets adopted widely and will spread quickly. One thing is for sure: an attitude change is needed. In my opinion everybody will soon realise, that it is better if you try to develop or test new technology solutions, instead of waiting for everything to change by itself and hope this to be good for you. If we compare the learning curve to that in the hospitality sector then everybody should engage with technology as quickly as possible because in the world of hotels if you did not act or react quickly enough you lost significant competitive advantage. You don’t want that to happen to you now.