City Centre in Motion

Those who wished to make use of their Budapest downtown retail outlets in the summer of 2005 had no reason for complaint, as the spring boost in demand persisted throughout the summer. In terms of market transactions, the expectations of those in the hospitality industry, as well as retailers and property owners, continue to be positive; following a restructuring of the retail trade map, Budapest’s business centres are taking shape (or being transformed) at an increasing pace.

Two major purchasing waves make up the dominant portion of traffic in downtown street-front retail outlets: the “rushâ€? in the spring and the rush before Christmas. A similar seasonality can usually be observed in the retail property market, but not in 2005, when the staff of Eston International experienced a high wave of demand throughout the summer. Earlier, several publications sketched a worrisome forecast of depopulation in the downtown business district, but recent market trends, resulting from a combination of several factors, prove that this theory was incorrect.

Favourable trends
There has been a continuous upward trend in tourism to Hungary and Budapest since the end of 2004. This year, the total number of guest-nights in commercial accommodations exceeded 7.8 million, for the first time ever. The emergence of discount airline companies has had a favourable impact on both the competitive environment and on tourist traffic, and as a result Malév carried 13% more passengers in July than it had a year earlier. The improved tourism trends are also confirmed by the 27% volume increase in motorway passes sold by the National Motorway Company.

The city rehabilitation projects, already completed in a number of sections of downtown Pest and launched in several other areas, have also had a beneficent impact on the retail outlet market. Here, in addition to the oft-cited reshaping projects for certain city districts (such as Ferencváros and the just-launched Corvin-Szigony programme), we would like to note some smaller, but equally important area-development measures. These include the transformation of Szabadság tér, the demolition of the bazaar at City Hall, and the preparations for the redevelopment of the Várkert Bazaar (formerly Ifjúsági Park) on the Buda side. In addition to a more pleasant, renovated environment, parking regulations were reformed this year in several regards, making the inner city more attractive: during weekends, parking is free in public areas and, when prepaid parking hours are over, a grace period is applied prior to charging a penalty.

Concentrated demand, narrow supply
According to Eston International’s sales data, the greatest interest emerged in city areas where supply was already narrow. It is well-known that in the old (northern) portion of Váci utca, there are practically no remaining outlets for sale; and if such a property does manage to be placed on the market, the transaction takes place almost immediately – within a few days, if there are several bidders. This also applies to the transfer of rental rights. Deák tér and its environs (the triangle of Deák tér – Vörösmarty tér – Kristóf tér), and the portion of Andrássy út between Erzsébet tér and Oktogon will also be in a similar position within a short time. In connection with the already-launched or planned development projects, we can count on increased expectations from buyers and tenants in the short run on the kis körút where, following the demolition of the bazaar, the emergence of mixed-profile commercial facilities is expected, as well as along Kossuth Lajos utca – Szabadsajtó út, after the completion of the planned sale of the Klotild Palace. The prestige value of the southern part of Váci utca continues to increase; even though retailers and chains that rent several thousand square meters each have not yet appeared here in large numbers, both the number and the quality of the hospitality facilities and antique shops have increased considerably.

This year’s big hit is, in the case of street-front retail outlets, properties usable for hospitality activities or other activities based on city tourism. According to data on registered demand and on the transactions that took place, special requirements are primarily found in hospitality facilities being launched. As is the case with any property, location is of prime importance in the case of these storefronts as well, but in addition to easy access and adequate parking, good visibility and a large (primarily pedestrian) catchment area are also considered to be basic requirements. Premises with a terrace are in high demand, and it is usually an advantage if there are several hospitality facilities operating in the neighbourhood (preferably with different profiles). Another critical factor for the shaping of a given type of business is the time factor, because hospitality activities are strictly regulated. For instance, whether the plan is to operate a full kitchen or just a warm-up kitchen is a critical detail, since this can result in a difference of several months when obtaining a permit. Even if the seasonal changes in city tourism are relatively moderate (as opposed to Lake Balaton, for example), the appropriate timing for opening and popularising a retail outlet still requires cautious planning, as well as professional and property market knowledge.

Can this momentum be sustained?
According to traffic data, the Budapest downtown (street-front) retail outlet market saw an upswing in 2005. But will this strong interest persist in the coming months? Eston International’s forecasts confirm this assumption. Experience gathered to date shows that a renewed city environment promotes an appreciation of (and demand for) smaller street-front retail outlets. The already heralded large-volume retail projects, (such as a new complex to be built at the press headquarters site on Blaha Lujza tér, or the already-mentioned renovations of the Klotild Palace), support the favourable expectations of professional investors and, as a result, different parts of the city will not only be restructured, but we can count on the development of new retail trade centres. This year’s turn on the market has been strengthening both the justification for downtown shops and their market positions.

Beáta Kákosy, Head of Consulting Division