The latest DTZ Budapest Office Market Update indicates that over 113,000 m² of office space was delivered to the market in the first half of 2009, of which almost 60% was realized in Q2. It also indicates that a significant amount of office space 190,000 m² is expected to be completed in H2 2009.
Despite this only 25% of the 1.8 million sq m total proposed office developments that DTZ are aware of are currently under construction. Experts of the global property adviser still do not expect asking rents in the central locations and modern offices to fall significantly in the near future.
A total of 65,200 m² of modern office space was delivered to the market in the second quarter of 2009, bringing the total office stock in Budapest to 2.2 million m². Eight buildings were completed in Q2 2009, 70% of which considering their total area were located in the Pest side of the city.
28% of the 190,000 m² pipeline office space expected for H2 2009 is already let by pre-lease agreements. South Buda and Váci út corridor submarkets will experience the highest level of completions. Only 25% of the 1.8 m² office developments in different phases of planning and preparation are currently under construction according to the upcoming DTZ Skyline Tracker research report.
Take-up was 118,100 m² in Q2 2009. Although it was twice as much as in the previous quarter, net take-up accounted for just 27% of the total transactions. 41% of the demand stemmed from lease renewals, 31% from relocations within the stock, while none of which have decreased the amount of vacant spaces. Most of the transactions were realized in the Váci út corridor (31%), while the second best was South-Pest (15% of the total demand). The trend toward smaller office schemes persists as 66% of the transactions during the quarter involved office space less than 500 m².
The vacancy rate has increased by 152 basis points by the end of June, and has reached 18%, which is the highest figure since Q1 2004. 38% of the buildings are fully let, while 90% are more than half occupied. Central Buda has the highest (93%), and South Pest the lowest (60%) occupancy level.
"Downward pressure on rental levels is growing, with landlords being forced to give higher and higher incentives to secure and keep tenants," added Franciska Horváth, Director, Head of Office Agency at DTZ.
"Asking rents in the most modern offices in central locations still range between 12 and 14/m²/month, at the same time some recently offered 9 to 10 rental fees and the ascendant number of sub-lease possibilities coming to the market make tenants negotiating more aggressively. As a result, there is probably a more significant decrease in the effective rental levels, however due to the non-transparency of the market this cannot be clearly demonstrated by statistics."
DTZ expects a significantly lower level of completions in 2010 compared to 2008 and the expected 2009 figures. The number of projects launched in 2009 has been lower than in previous years and even planned developments in possession of a valid building permit have been put on hold, waiting for pre-let contracts to be started. The ratio of net take-up is expected to remain low, while the number of lease-renegotiations will rise. With a large amount of new supply coming to market in H2 2009, the average vacancy rate will most likely be higher early in 2010 than at present.