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November 3. 2009. Current Situation and Outlook of the Real Estate Market
(based on surveys in October 2009)
GKI Economic Research Co. has been conducting quarterly surveys since spring 2000 in order to assess the plans, intentions and prospects of businesses, real estate developers, realtors and households on the real estate market. The research project has been supported by the trade magazine Ingatlan és Befektetés (Real Estate and Investment). GKI's Budapest Real Estate Market Index synthesizes the foreseeable situation of individual market segments (residential, office and retail space and warehouse markets), providing an overall picture of the real estate sector. The index and the partial indices reflect the outlook and expectations of market operators.
GKI Budapest Real Estate Market Index, 2002-2009
In October 2009, the GKI's Budapest real estate market index is at -28.6, nearly five percentage points higher than the ?historic' low of July. Having reverted essentially to the level of six months before, the index continues to be very low. It means that while on the level of expectations we are past the lowest point, operators on the real-estate market do not expect a significant improvementt.
Office space market
Office developments are in full swing in the Budapest agglomeration. Investors apparently intend to complete projects in progress as soon as possible. Demand being rather limited to begin with, the new capacities entering the market can only result in the further decline of the occupancy rates. The survey results of the BIEF and the GKI indicate a steady increase of the rate of vacant office area compared to the total floor area. According to the October 2009 survey of the GKI, the decline of occupancy rates has primarily affected ?A' category offices, whereas the indicator for ?B'-category office space has not changed (in Pest) or was set back only slightly (by a single percentage point in Buda).
Occupancy rates on the Budapest office space market
| Type A (%) | Type B (%) |
|---|
| Pest | 73 (76) | 77 (77) |
| Buda | 72 (75) | 76 (77) |
The results of the previous (July 2009) survey are shown in parentheses.
Budapest office space market index, 2004-2009
In East Hungary, average occupancy was 74 percent, compared to 72 and 67 percent in April and July respectively. Nothing has changed in West Hungary: the occupancy indicator has stayed at 71 percent throughout April, July and October.
For the forthcoming twelve-month period, real-estate businesses expect further decline in provincial cities and the persistence of the currently strong buyer's market in and around Budapest.
The retail outlets market
Retail space market index in Budapest, 2004-2009
Between October 2008 and July 2009, there was a steady decline in the expectations concerning the retail space market. However, the average assessment has improved by October 2009. Oversupply continues to be stronger in provincial cities than in Budapest.
On national average, the representatives of real-estate companies participating in the survey have forecasted a slightly worsening market trend for the next twelve months. The forecasts have already indicated sizeable differences between the various regions: stagnation is anticipated in provincial regions, whereas increasing oversupply is expected in Budapest and the surrounding areas.
Warehouse, industrial property and building plots markets
Warehouse market index in Budapest, 2004-2009
On the logistics market, the negative impacts of the economic crisis were felt with some delay (compared to retail space). In this segment, expectations became more pessimistic in April and July only. The current survey indicated certain degree of additional decline as a result of stagnation in the Budapest agglomeration and deterioration in provincial areas.
For the forthcoming 12 months, no changes are expected in the provinces, whereas a slight improvement of the market is anticipated in the Budapest agglomeration.
While, on average, the expectations concerning the market situation of industrial buildings have turned slightly more pessimistic compared to the previous survey, this is, however, the segment with the lowest rate of oversupply. Short-term expectations do not indicate any further decline. The signals from the business sector indicate an existing demand for industrial buildings.
With the sole exception of Budapest, expectations have become increasingly pessimistic concerning the market of building plots. According to the opinion of real-estate businesses, the market situation will not improve to a considerable extent during the forthcoming 12 months. Similarly, responses from the business sector have also indicated a markedly conservative investment approach in the near future.
Residential market
Housing market index in Budapest, 2004-2009
The situation assessments concerning the Hungarian housing market became increasingly negative in each survey between July 2008 and July 2009. Situation assessments tended to be dreadful by mid-summer this year. This is understandable considering the estimated setback of app. 50 percent in the number of transactions on the housing market during the first six months of 2009. Following a period of major decline, market expectations slightly improved in most segments compared to the previous quarter as a result of the recovery of the market by October 2009. A strong buyer's market, however, continues to characterise the housing market in Hungary.
Assessment of the various housing market segments and expectations for the forthcoming 12-month period*
| Situation assessment | Expectation | Expected change |
|---|
| July 2009 | October 2009 | Change |
|---|
| Budapest |
| Non-prefab condominium homes |
| Buda, green belt | -49 | -48 | - | -36 | up |
| Buda, other areas | -48 | -48 | - | -36 | up |
| Downtown Pest | -57 | -41 | upup | -33 | up |
| Pest, green belt | -55 | -45 | up | -38 | up |
| Pest, other areas | -55 | -45 | up | -36 | up |
| Prefab housing estates |
| Pest, North | -61 | -55 | up | -48 | up |
| Pest, South | -56 | -50 | up | -48 | - |
| Buda | -51 | -45 | up | -48 | - |
| Single family homes |
| Pest | -37 | -41 | - | -41 | - |
| Buda | -33 | -35 | - | -33 | - |
| Eastern Hungary |
| Non-prefab condominium homes | -75 | -48 | upup | -52 | - |
| Prefab housing estates | -80 | -55 | upup | -59 | - |
| Single family homes | -59 | -53 | up | -59 | down |
| Western Hungary |
| Non-prefab condominium homes | -53 | -53 | - | -46 | - |
| Prefab housing estates | -63 | -48 | up | -42 | - |
| Single family homes | -40 | -52 | down | -52 | - |
*/ balance indicators: weighted difference between the indices indicating the rates of oversupply and excess demand, with 0 reflecting balanced market conditions, negative values indicating a supply surplus and positive values signalling excess demand.
In provincial areas, real estate developers and realtors have forecasted that there will be essentially no changes on the market during the forthcoming twelve months. In Budapest, stagnation is expected for prefab condominium homes and single family homes and a slight improvement for non-prefab condominium homes.
According to the findings of the October 2009 survey, the overall expectations of the population concerning the construction and purchasing of homes have not changed compared to the previous quarter. In October, the collective proportion of households intending to build or to purchase a new home remained below 1.5 percent of the total population. Similarly, there has been no notable change, on an overall basis, in the proportion of households planning, with varying degree of certainty, to remodel their existing home in comparison with the previous quarter.
Households' plans to build, purchase or remodel homes
(4-quarter moving averages, thousand households)
| Quarter | Home construction or purchase | Home remodelling |
|---|
| Certain | Likely | Certain | Likely |
|---|
| 2002. 01. | 28 | 101 | 147 | 487 |
| 2002. 02. | 39 | 114 | 159 | 523 |
| 2002. 03. | 51 | 123 | 158 | 518 |
| 2002. 04. | 56 | 132 | 172 | 517 |
| 2003. 01. | 58 | 141 | 174 | 503 |
| 2003. 02. | 59 | 140 | 159 | 474 |
| 2003. 03. | 57 | 134 | 152 | 451 |
| 2003. 04. | 54 | 127 | 139 | 430 |
| 2004. 01. | 61 | 103 | 134 | 392 |
| 2004. 02. | 59 | 94 | 120 | 359 |
| 2004. 03. | 55 | 84 | 125 | 355 |
| 2004. 04. | 51 | 79 | 117 | 339 |
| 2005. 01. | 52 | 97 | 123 | 380 |
| 2005. 02. | 50 | 98 | 119 | 402 |
| 2005. 03. | 53 | 99 | 125 | 396 |
| 2005. 04. | 52 | 109 | 123 | 407 |
| 2006. 01. | 49 | 108 | 122 | 413 |
| 2006. 02. | 55 | 116 | 138 | 414 |
| 2006. 03. | 51 | 130 | 116 | 422 |
| 2006. 04. | 53 | 128 | 118 | 413 |
| 2007. 01. | 50 | 122 | 112 | 391 |
| 2007. 02. | 39 | 128 | 97 | 371 |
| 2007. 03. | 36 | 111 | 95 | 344 |
| 2007. 04. | 32 | 100 | 84 | 317 |
| 2008. 01. | 27 | 96 | 71 | 296 |
| 2008. 02. | 26 | 78 | 59 | 247 |
| 2008. 03. | 30 | 83 | 51 | 233 |
| 2008. 04. | 26 | 74 | 45 | 207 |
| 2009. 01. | 27 | 60 | 37 | 164 |
| 2009. 02. | 25 | 46 | 32 | 153 |
| 2009. 03. | 22 | 32 | 37 | 144 |
| 2009. 04 | 22 | 32 | 33 | 147 |
Source: GKI household surveys
Prices
Expectations regarding new property prices over the next twelve months
(percentage changes compared with current prices)
| Budapest | Pest County | Western Hungary | Eastern Hungary | National average |
|---|
| Residential unit | 0 (1) | 0 (0) | 0 (0) | 0 (-1) | 0 (0) |
| Office space | 0 (1) | 0 (1) | 0 (1) | 0 (0) | 0 (1) |
| Retail space | 0 (3) | 0 (2) | 0 (0) | 0 (0) | 0 (1,5) |
| Warehouse | 0 (1) | 0 (0) | 0 (0) | 0 (0) | 0 (0,3) |
The results of the previous (July 2009) survey are shown in parentheses.
The table above is rather simple: prices are not expected to change for new homes in any category. Consequently, developers will be unable to assert even a potential increase of their costs in sales prices.
Expectations regarding the prices of used property over the next twelve months
(percentage changes compared with current prices)
| Budapest | Pest County | Western Hungary | Eastern Hungary | National average |
|---|
| Residential unit | -1 (-2) | -1 (-1) | -4,7 (-5) | -5 (-6) | -3 (-3,5) |
| Office space | -2 (-7) | -2 (-7) | -4 (-10) | -3 (-6) | -2,5 (-7) |
| Retail space | -2 (-5) | -2 (-5) | -5 (-3) | -3 (-6) | -4 (-5) |
| Warehouse | -2 (-4,5) | -1 (-5) | -1,5 (-3,5) | -3 (-6,5) | -2 (-4,5) |
| Building plots | 0 (-3) | 0 (-3) | -1 (-1) | 0 (-2) | 0 (-2) |
The results of the previous (July 2009) survey are shown in parentheses.
As far as the Budapest market is concerned, the companies expressing an opinion on the expected outlooks of the market of used homes essentially do not expect the fall of prices to continue except for prefab homes. On the other hand, prices are expected to decline by 5 percent in provincial regions. Outlooks are similar for business properties, i.e. prices are expected to decrease to a smaller degree in and around Budapest, while more substantial price reduction is forecasted for the provinces.
Expectations regarding existing property prices per square meter over the next twelve months
(percentage changes compared with current prices)
| Non-prefab condominium homes |
| Buda, green belt | 0 (-1,5) |
| Buda, other areas | 0 (-2) |
| Downtown Pest | 0 (-1) |
| Pest, green belt | 0 (-2) |
| Pest, other areas | -2 (-3) |
| Prefab housing estates - Pest, North | -2 (-3) |
| Prefab housing estates - Pest, South | -2 (-3) |
| Prefab housing estates, Buda | -2 (-3) |
| Single family homes - Pest | -1 (-1) |
| Single family homes - Buda | 0 (0) |
| Budapest, total | -1 (-2) |
| Eastern Hungary | -5 (-6) |
| Non-prefab condominium homes | -5 (-6) |
| Prefab housing estates | -6 (-7) |
| Single family homes | -4 (-4) |
| Western Hungary | -4,7 (-5) |
| Non-prefab condominium homes | -5 (-5) |
| Prefab housing estates | -5 (-9) |
| Single family homes | -4 (-1) |
The results of the previous (July 2009) survey are shown in parentheses.
While the rents of office space are not expected to change during the forthcoming 12 months, those of warehouse and retail space may decline at the symbolic rate of about 1 percent.
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