Office Rental Market in Hungary and CEE: The Growing Gap Between New and Older Office Buildings

The office rental market in Hungary and the Central and Eastern Europe (CEE) region has been experiencing a growing divide between new and older office buildings, as reported by the Budapest Research Forum (BRF) in its latest quarterly report. The vacancy rate has risen to 12.2%, while the net absorption has reached negative territory, decreasing by 19,160 square meters.

Gábor Borbély, Research Director at CBRE Hungary, attributes the rising vacancy rate to a rationalization of large tenants’ office portfolios, as they seek more efficient and better-quality office spaces. Demand for centrally located, energy-efficient, and flexible offices continues to grow despite the challenging times. In contrast, cities such as Prague and Belgrade have seen an increase in demand due to new developments and Russian business activities, respectively.

Similar trends can be observed across the CEE region, with an increase in demand for truly ‘A’ class offices, while demand for other categories is decreasing. This divergence will eventually affect valuation levels, creating a premium segment in the market.

Kristóf Tóth, Head of Research at Colliers Hungary, emphasizes that demand remains stable for top locations and modern, energy-efficient office buildings. However, he does not expect any significant change in vacancy rates in the lower categories this year.

Orsolya Hegedűs, Valuation Associate and Head of Advisory & Research at Cushman & Wakefield Budapest, highlights that the Budapest office market is diverse, with varying activity levels across different submarkets. The lack of quality office spaces in North Buda is leading to a remarkably low vacancy rate.

Ohad Epschtein, CEO of Alfa Group, tells us about their commitment to incorporating energy-efficient solutions throughout their warehouses, offices, and retail centers, aiming to decrease overall expenses for their tenants. This initiative began three years ago with the introduction of the “Green Heart” program, which offered a range of tools and resources to help tenants save energy and money. The recent energy crisis validates the company’s ongoing efforts and emphasizes the importance of their approach. Epschtein stresses that both tenants and property owners must work together to reduce office operation costs. As Alfa Group continues to implement solar panels, high-efficiency electrical systems, low-energy lighting, and air conditioning, they also encourage tenants to actively adapt their business practices within the offices to foster a sustainable future collectively.

Key takeaways for property owners and developers:

• There is shared responsibility of tenants and property owners in adopting energy-efficient solutions to lower costs in commercial spaces.
• Focus on providing energy-efficient, flexible, and well-located office spaces to attract tenants.
• Be prepared for a growing divergence between ‘A’ class offices and other categories in terms of demand and valuation.
• Pay attention to the changing preferences of tenants, who are increasingly seeking better-quality spaces.
• Monitor regional trends, as similar patterns are observed in other CEE capitals, to identify potential opportunities and challenges.
• Keep an eye on emerging premium segments within the market, as demand for truly ‘A’ class offices is on the rise.