While a number of property experts predicted that 2004 the records for investment activity in Hungary could not be surpassed this year, they would most certainly be wrong, said Colliers International in its 2005 mid-year investment report on Monday. When preparing the market report for year-end 2004 it was obvious that the Hungarian commercial property market had a record year for investment activity. A number of industry commentators predicted a slower year due to limited availability of product for 2005 due to the sellout of the previous year. By all accounts investment activity in Hungary will surpass that of 2004 with ease, Colliers said.
Their database of sales activity which tracks the office, retail and office markets shows some EUR 870 million in transactions either completed or under due diligence at present. Whilst Colliers' figures are considered reasonably accurate there will undoubtedly be further transactions completed by year-end, which will push the figure well over the EUR 1 billion mark, they said.
The normal story of yield compression continues, by the end of 2004 yields for prime A office investments were sitting around 7.75%, today approximately seven months later the market for prime A office investments is at 7.5% and by year end this will be closer to the 7% mark.
One standout transaction under due diligence at present is the sale of the landmark building commonly known as the “Spinach House" located at Roosevelt Square 7. The developer BHG (German) has almost completed a full refurbishment of the building and has pre-leased approximately 40% of the 28,000sqm net lettable area to E.ON for 10 years at a market rental of EUR 21psm. In addition the developer is offering a limited 5-year guarantee on the balance of the vacant space. The property attracted multiple bids with the winning offer rumored to be below 7%. Assuming this transaction closes late 2005 then it is feasible that the 7% yield barrier will be broken.
Other notable sales in the office investment market are DB Real Estates purchase of a new Ablon developed office building on Vaci ut for approximately 7.5%. In addition the well known Vienna based fund CA Immo closed on two office buildings both in Buda. One building known as Canada Square, leased for 15 years to the Canadian government sold for around EUR 13million and another larger office building known as Bartok Haz sold for over EUR 40million, the yields for both circa 7.5%. SKANSKA sold their office development known as Light Corner to owner-occupier CIB Bank for a fraction under EUR 30m. Analyzing this transaction on market rents shows a yield of approximately 7.25%.
The retail sector over the last six months has seen the closing of the 47,000sqm MOM Park retail and office complex to the French fund CDC IXIS. In addition the English based fund Dawnay Day Europe closed on four shopping malls located throughout Hungary for approximately EUR 56m. The largest transaction so far this year (involving a forward purchase element) was the Austrian based Immofinanz purchase of 12 retails centers located in Budapest and around the country known as Stop Shop for EUR 210million. Six of the centers are built or under construction with another six to be built. The yield on this transaction was above 8%.
As mentioned earlier the forecast is to see a continued compression of yields especially so in the office segment whilst the cost of funds remain low and investors from outside (and within) chase the higher returns offered through Central Europe.
Source: Portfolio online financial journal
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30.08.2005