Demand for office space remained strong during the third quarter, contributing to the second highest Q3 year-to-date leasing activity figure on record. Annual-to-date take-up reached 361,000 sq m, showing an increase of 3% on the preceding annual period. However, increased new supply and ongoing consolidations halted any significant vacancy decline and the average rate decreased only marginally, to 7.4%. Asking rents continued on their long-term rising trajectory, which is expected to sustain into early next year.
€ /sq m /month
The average asking rent level across Budapest continued to increase and at quarter end it stood at EUR 12.1 / sq m / month, nearly 7% higher than a year earlier. The shrinking Grade ‘A’ availability is priced at EUR 13.3 / sq m / month on average, almost 10% above last year’s level. We have not registered a downward rent correction in any segment so far.
The anticipated wave of new supply continued and now the majority of this year’s completion volume has already come online. The fourth quarter is now expected to bring another 64,500 sq m to the market across six buildings. In 2019 we forecast 91,400 sq m of new space to be delivered on the market – a drastic decline from earlier forecasts due to several projects seeing delays. However, there is still a sizeable pipeline further ahead, with a total of 480,100 sq m under construction.
Adjusted for Telekom’s upcoming legacy vacancy, the average vacancy rate according to CBRE turned out at 7.4%, which underpins our earlier prediction of the rate plateauing around this level. The average Grade ‘A’ vacancy rate fell back to 6.8%, largely due to the occupation of Vígadó Palota. All submarkets recorded declining vacancy, except for South Buda where it jumped to 15.8% due to corporate consolidations leaving large premises vacant in the area.
Net absorption in Q3 was outstandingly strong, driven by high occupation in the new supply. Correcting for Telekom’s ongoing consolidation into its new HQ, CBRE estimate the quarterly net absorption to 85,200 sq m, the highest figure in seven years. The annual-to-date figure increased by a remarkable 75% to 230,000 sq m. Nevertheless, this was the first quarter since late 2012 when new completion exceeded net absorption on an annual-to-date basis.
The third quarter saw strong demand for office space, yet it brought a 32% decline y-o-y due to the outstandingly strong basis in Q3 2017 stemming from the one-off MOL HQ announcement. Excluding this, the current Q3 reading marked the most dynamic such period since 2011. Take-up amounted to 89,200 sq m while renewals contributed another 22,200 sq m towards the total volume. The largest deal was signed by a public sector entity in the newly refurbished Vígadó Palota in the CBD, followed by a pre-lease agreement by an undisclosed pharmaceutical company in the ongoing Nordic Light Trio project in the Váci Corridor.
The new Telekom HQ – the single largest delivery ever in Budapest – was handed over with 58,800 sq m GLA in Non-Central Pest in Q3. Along with Mill Park (36,000 sq m) in Central Pest, phase 1 of Advance Tower (11,300 sq m) in the Váci Corridor and EcoDome (4,800 sq m) in Central Buda, the quarterly completion volume reached 111,000 sq m, the highest since 2009. The annual-to-date completion level increased to over 250,000 sq m. The four new buildings opened their gates with a 96% combined pre-lease ratio.