The office market remains price sensitive

Office

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 This brings us to the great dilemma of today’s office market: what to do with the outdated office spaces that require major renovations?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 Is it possible to terminate a lease contract that was signed a couple of years ago on outdated terms?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.