Investment properties-Market Report 2005/1

Investor confidence increased significantly after Hungary joined the European Union and due to the number of investment opportunities that entered the market last year.

The investment property market, with its historically narrow supply, has long been dominated by investor competition, as becomes apparent when checking the dynamically decreasing yield-forecasts for the various submarkets. In accordance with global trends, fuelled by changes in the yield levels for other investment alternatives, investment capital streams into the real estate market in a massive scale.

The extent of capital that has been invested in property has grown by 10 % in Europe and by 33 % in the United States. A similar phenomenon can be noted in the Hungarian market, where the aggregated value of property investments was close to 1 billion euros. Massive demand pushed down the time period required for transactions. Transaction values climbed further in 2005; statistics for the first six months suggest that the scale of investment exceeded the critical limit of 1 billion euros.

Open-ended Hungarian real estate funds hit record growth figures one after the other; the value of assets had doubled by this June compared to last year’s respective figures. The popularity of real estate funds is rooted in the widening gap between the expected yield levels of bank savings and these funds’ proven interest rates. At the same time, the dynamics of property transactions could not keep pace with the accelerating progress in capital growth and thus the property-representation in their asset portfolios significantly decreased. In the middle of the year, Raiffeisen (252 million euros) leads the pack of Hungary-based property funds in terms of the extent of their assets, followed by OTP (184 million euros) and fast-growing Erste (116 million euros).

REIT investments focused primarily on shopping centers and retail chains in the first half of 2005. As a result of last years’ negotiations between Plaza Centers and Dawnay Day, 4 regional shopping centers located in major urban areas (Pécs, Sopron, Szombathely, and Veszprém) have been sold, representing a combined leasable area of 70,000 sqm and a value of 56 million euros. The other major deal is tied to Immofinanz, which purchased the Stop.Shop chain 120,000 sqm GLA. Out of 12 units, 6 yet await the launch of development. Bayerische Landesbank sold MOM Park, a mixed-use project in South Buda, to the PBW Real Estate Fund for the sum of 71 million euros.

Raiffeisen also purchased office projects in the first six months of the year: the West Point Office Building (3,200 sqm, 6 million EUR) and the ECB Dévai Center (9,000 sqm, 12.5 million EUR). CA Immo is the new owner of Bartók House (12,000 sqm, 40 million EUR) and Canada Square (8,500 sqm, 13 million EUR), while CIB Bank acquired Skanska Properties’ latest inner-Buda project for headquarters use (13,000 sqm, 29.9 million EUR). The acquisition of Harbor Park, the highly-regarded industrial project from top investors Lehman Brothers, Heitmann International, Crow Holdings International, and Wallis Real Estate was almost signed-over by the middle of the year.
Hungexpo, a major center with significant development prospects, was purchased by a consortium that included international giant GL Events and regionally influential TriGránit. Two CBD properties situated at Vigadó tér were sold by the Ministry of Economy and Transport. The tender regarding the MTV headquarters in Szabadság tér was rejected, but negotiations continue.

Expectable yield levels have been further reduced due to heavy investor attraction. The most significant drop in yield-expectations by this June was experienced in the submarket of class “Aâ€? office building developments: to the level of 7.3 – 7.5% from last year’s 8+ %. According to forecasts, transaction yields are due to be pushed down beyond 7% by the end of the year, though this approach is not expected to set a trend for the coming 12 months. Specific yields regarding shopping center (and other retail unit) transactions average at 8 – 8.5%, while modern warehousing facilities’ yield-levels were at 9 – 9.3% in the first half of the year.
Further large-scale transactions are expected to be realised in the upcoming months, especially Roosevelt tér 7/8 and the Optima office buildings, for which the negotiations are well-advanced. A by-now old rumour may be fulfilled in the remaining part of 2005, if international retail giant Wal-Mart enters the market. The market assumption is that this decisive event will take shape through the acquisition of the Cora chain.