Retail

aAIM to buy Arena Plaza in Budapest from Plaza Centers

Plaza Centers N.V. has executed a binding agreement for the sale of its Arena Plaza shopping and entertainment center in Budapest to UK-based Active Asset Investment Management (‘aAIM’), one of the UK’s fastest growing commercial property investment groups.

In September 2006, aAIM launched a £2 billion acquisition programme for its European Symmetry Fund in partnership with Bank of Scotland. The estimated consideration for the acquisition of the Arena Plaza shopping and entertainment center is approximately €400 million. The purchase price will be finally determined on the completion of the transaction, which is expected to take place within a month of Arena Plaza’s opening date, on the basis of the actual rent levels achieved being capitalized at an agreed yield.

Plaza Centers will remain responsible for the letting of the center’s remaining units for a period of up to one year following the closing, and is anticipated to benefit from further price adjustments reflecting the signing of any additional leases during the two consecutive earn-out periods, which end three and 12 months respectively following the completion.

The company’s management estimates the final transaction price based on actual rent levels will be no less than circa €380 million, with an overall transaction price cap of €400 million, as agreed with aAIM. The final expected transaction price represents a significant upside comparing to the project’s estimated value upon completion at the time of the Company’s Admission to trading in November 2006, which was circa €333 million.

Designed and developed by Plaza Centers following the acquisition of this landmark site by the Company in late 2005, Arena Plaza is Hungary’s largest shopping and entertainment center. It comprises 220 stores located throughout approximately 66,000 sqm of lettable area and is serviced by over 2,800 parking spaces. The center is scheduled to open in the fourth quarter of 2007 whereupon, subject to the fulfilment of certain conditions, the transaction will be completed. Amongst the international anchor tenants of the center are Tesco, the Inditex Group and Peek & Cloppenburg, together with other major retailers such as H&M, Electro World, Hervis and C&A. Additionally, Arena Plaza will accommodate a 23-screen Cinema City complex, which includes Hungary’s first IMAX theatre. The centre is currently over 85% pre-let. The profit from the sale will be recognised mainly over 2007 with adjustments in 2008 and, in part, distributed in accordance with the Company’s dividend policy, announced following its successful listing on the London Stock Exchange last November.

Ran Shtarkman, Chief Executive of Plaza Centers, said: “Arena Plaza is one of the largest and most prestigious shopping and entertainment centers in Central and Eastern Europe, the design and ambition of which has set new standards for the region ever since we first acquired the site in late 2005. In developing Hungary’s largest shopping center, we have provided an exciting new commercial center for Budapest and a compelling destination for national and international tenants and visitors. Upon completion, the project will represent our 25th shopping and entertainment center in the region and our 17th shopping and entertainment center in Hungary. In addition, we have fifteen other projects in our pipeline in different stages of development.

Source: CEE Commercial Real Estate News

Coffee to come – ‘Starbucks’ in Budapest

Though Budapest is rich in caf̩s, many people have been eagerly awaiting the introduction of international caf̩ chains Рnot only those who encountered them during their trips abroad, but the Budapest retail property market as well.

Rumours that a Starbucks (the “mother of all café chainsâ€?, operating 13,000 shops in 39 countries) was going to open in Budapest surfaced a few times, but they proved unfounded. Better late than never, though – Starbucks has signed an agreement with AmRest, operator of KFC and Pizza Hut restaurants in the CEE region, so that in 2008 you should be able to sip from an iconic green mermaid mug in Budapest too.
Eston International examined why this is such an important milestone for the market and the possibility of café chains becoming common in the streets of Budapest.

The concept

The first Starbucks shop was opened in Seattle in 1971, with the brilliant idea of offering Italian-style coffee (espresso, cappuccino, latte) and snacks in the United States, with the added American touch of coffee-to-go. Today, the concept has been broadened to include the sales of special coffee blends, barista equipment, a wide variety of quality sandwiches, salads, pastries, and of course, cakes. In spite of the commonly used ‘quick coffee’ image, more and more time is being spent there, thanks to an endless mania for novelty, which means that the coffee itself is lost somewhere amongst the syrups and froth.
No matter what, the lifestyle represented by these chains generates enormous demand worldwide. Their economic role is increasing; gourmet coffees are the fastest growing segment of the beverage market. Their presence in a country measures the globalisation of the consumer market, which influences, (if not directly), the interest of other international chains and also has an impact on tourism.

Where we can already have our cuppa

McDonalds introduced “McCafésâ€? to Budapest in 2003, followed by other foreign Starbucks clones such as Stardust, which operates four shops under its suggestive name, the California Coffee Company, with one shop on the Ring Road (Nagykörút) and another in the Premier Outlets Center on the outskirts of the capital, and the Coffeeshop Company on Múzeum boulevard. The biggest name is Gloria Jeans, an American chain that found success in Australia. They are active in 20 countries with 470 stores, and chose the Mammut Shopping Center for their first Hungarian outlets. Plans call for more openings, since typical regional franchise or license agreements require 5-15 stores to be opened in 5-10 years.
gloria j

Potential newcomers

Besides Starbucks, a number of other chains may decide to come to Budapest. For example, Coffee Republic, the number one café chain in London, which has already opened two stores in Bulgaria, intends to open more in the region. Barcelona’s Jamaica Coffee Shop is also interested in international expansion. Le Pain Quotidien from Brussels, which is not a real café but a superb alternative with top quality organic coffee and homemade bread and pastry, has not directly targeted the CEE region, but is already present in Moscow and Istanbul.

Cultural differences

The reason Budapest is lagging might come from fundamental differences between Anglo-Saxon and Hungarian coffee cultures. A similar justification is behind the well-founded decision of not opening Starbucks in Italy or Portugal, since the whole concept was (successfully) based on cultivating Mediterranean coffee culture in Anglo-Saxon markets.
The area’s first café opened in Buda back in 1579 thanks to a strong Turkish influence (Buda was occupied by Turks between 1541 and 1686), while London saw its first café almost 70 years later. However, drinking Vienna-style coffee became widespread in the country, with a flourishing world of classic coffee houses by the turn of the twentieth century. Italian-style became dominant starting in the 1930s, with the advent of espresso machines. These machines kept the passion alive during the years of communism, going semi-clandestine in bars and patisseries. In the mid-1990s there was a renaissance of almost exclusively Italian-style cafés, when numerous small, 40-60 sqm shops with a terrace opened all over the city.

Will the price be paid?

Another significant doubt from international café chains is uncertainty about solvent demand. Will people in Budapest be willing to pay standard 3 dollar (U.S.) price per mug? Though we should not forget that not only are coffee prices lower than in the U.S., but expenses (labour cost, rental fee, etc.) are too. Thus, selling at a lower price might still be profitable. Currently, the Budapest market apparently accepts a HUF 350-500 (USD 1.75-2.5) price/mug, the level set by McCafés. At this price, however, the demand is huge for both coffee and the lifestyle it represents. Besides strong demand from locals, major international chains would count on a large number of foreign tourists visiting the Hungarian capital conveniently opting for brands they are familiar with.

Dream locations

When a chain enters a new market, one of the most crucial points in the decision-making process is finding the right site for the first store. It usually takes up to 9 months to find a place that satisfies everything on the long wish-list of the licensor. There is a strong focus on the promotional value of the store: it should be located in a high-prestige area, with significant pedestrian traffic and at least a 7-meter long portal. Regarding space requirements, most business models work best on a 100 sqm site, though in some cases this can go up to 250 sqm, or down to 80 sqm if the location is in a shopping centre.
The same models usually allow rental costs amounting to 8-13% of sales. Consequently, with € 25,000 of monthly sales achievable under optimal circumstances and a 100 sqm store, we end up with € 20-33/sqm/month – a rental fee level hardly achievable in high streets or in top shopping centres. Future operators should prepare to pay higher fees, about € 40-50/sqm close to Váci utca or Andrássy út, or € 50-100 in shopping centres.

In that case, where?

Locating an initial flagship store in the vicinity of the special microclimate of Liszt Ferenc square or Ráday utca might be worth the higher rents, though we believe such café chains are better suited to shopping centres. Alternatively, they can find a nice and lucrative niche in the office hubs of the outer districts, or the new office axes that are growing in several parts of the capital, for example along the Hungária Ring. Office buildings and hubs close to universities (Studium at Corvinus University, Millenium Towers at CEU, or Infopark at ELTE and BME) may also be promising locations.
Raday

Looking several years ahead, the planned complete refurbishing of the Nyugati Railways Station, the development of the neighbouring Eiffel Square, or the already-announced new city centres such as the Corvin project or Duna City may also provide good entry points for café chains. Once in Hungary, expansion into other towns, (preferably ones with lots of students) is a clear option.

All in all, we expect that more café chains will enter Hungary in the coming years, with their first stores opening downtown or in shopping centres, and subsequent expansion into office hubs and new city centres.

The analysis has been published in the freshest issue of Property Watch.

Great investors came early to Agria Park

Two days after laying the foundation stone, the larger retail spaces in Agria Park have already all been leased out – announced its developer. The number of rental agreements for Wallis Ingatlan’s new 20,000-plus square meter trade project is rapidly increasing.

After laying the foundation stone, a third part of the entertainment, service, and shopping center in Eger has been rented out. Based upon the contracts which have been signed, it can be said that many well known and popular brands are to be represented in the future regional shopping center. Among the shops confirmed are clothing shop C&A, shoe stores Humanic, Office Shoes and Sebastiano, Libri book store, opticians Vision Express, the perfumery Douglas, sportswear shops Adidas, Nike, Budmil and Players Room, jeweler Gold Design and clothes shops such as Dockyard Island, Levi’s, Lonsdale, Persona, Mona Lisa, Calzedonia and Intimissimi. The Agria Park supermarket will also be a real novelty on the Hungarian market, as Tesco is brings an additional department store concept to the Eger mall. The shopping complex has a total available rental area of 21,800 square meters spanning three levels, able to accommodate 18,000 square meters of shops, 1,600 square meters of office space, and 1,400 square meters of warehouse space.

Source: ReSource

Retail outlets – Market Report 2006/2

In 2006 on the market of Budapest retail properties the most dynamic development activity was seen in the core of the city as well as on its outskirts; while there was no significant movement on the market of shopping centers, which are in fact responsible for bulk of retail sales.

Downtown developments have got a new impetus in the past months. There is practically no retail space available in the Northern Váci street – what however cannot be stated about the neighboring streets – while busy construction is going on at its both ends. Though parking capacity enlargements are by far not in line with current developments, in this pedestrian area it might not be that critical a factor. ING’s project on Vörösmarty square is expected to be launched – after some delay – in 2007. Its 6,000 sqm retail capacity has already been taken by tenants like H&M and New Yorker. In the adjacent Deák Ferenc street finishing touches of Immobilia’s Fashion street are in full stream. 90% of its 9,000 sqm has been let at a price level of 30-40€/sqm, significantly below the level seen in Váci street). Benetton, S. Oliver, Sisley, Puma and Tommy Hilfiger are expected to open their shops from spring 2007 next door to Boss and Max Mara.

At Vörösmarty square the previously announced overhaul of Luxus department store is seen to suffer further delay, while Orco plans to open an 18,000 sqm department store – resembling to Harrods or Lafayette – in the former Stock Exchange building. Another high-end project of Orco, the Paris Department Store in Andrássy Avenue is expected to open in 2008. This development is in line with strengthening expectations to greet more luxury brands in the area after Louis Vuitton’s 2006 debut. Despite its transportation and parking problems during the day, the high prestige, special marketing value Avenue with its street portals and attractive 33-45 €/sqm rental fee level is a favorite place for just entering or expanding restaurant and cafe chains.

Leaving the city center we find significant new developments including retail space in district VIII, such as the mixed-use Europeum of Ablon (6,000 sqm retail) on the place of the former press HQ on Blaha Square and Corvin Atrium (30,000 sqm) of Futureal to be started in early 2007. A smaller scale shopping centre is Sybil Holding’s New Buda Centre in district XI., its first 15,000 sqm phase opened in December with tenants like Tesco, Office Depot, Jysk and DM. Savoya Park was enlarged with a two-storey, 9,000 sqm building, where next to an Office Depot store, the first Hungarian store of Turkish home improvement chain, Asko has opened.
In the second phase of Premier Outlets Center in Biatorbágy 30 new shops were delivered in summer 2006, and further 20 of the third phase are getting ready in early 2007. Ablon opened two Buy Way strip malls in 2006: one in Soroksár, the other in Dunakeszi. Around year end AIG Lincoln started to develop a 44,000 sqm commercial park, Ferihegy Market Central, next to the airport, where Tesco and Praktiker will be the magnet tenants.
PO C

German DIY chain, Bauhaus is building two 20,000 sqm stores in the outskirts of the capital, before moving to the country. Hard-discount chain Aldi is also busy building its country-wide coverage. Demand for city stores should arrive from expanding drugstore, Schlecker, as well as from the new strategy of Tesco and Office Depot to open around 300 sqm stores in town centers.

On the market of Budapest supermarkets, celebrating its tenth anniversary in 2006, the jubilee year passed without major events. Dominance of the triumvirate – West End, Ã?rkád and Mammut – has not been jeopardized. Some urge older supermarkets to go on a rejuvenating cure, similar to the one Sugár – built back in 1980 – will be over soon. While no new openings took place in 2006, the total stock of almost half a million square meter modern shopping center area will be enhanced by 65,000 sqm with the Q4 2007 opening of Aréna Plaza. In addition, by end of 2008 a new shopping and entertainment center will emerge where Skála Buda stands now. Some pre-lease agreements for its space were already signed in late 2006. The relative silence of the capital was more or less offset by developers’ activity in the countryside: Vértes Center in Tatabánya and Győr Ã?rkád opened. Ã?rkád’s developer ECE is going to build its next shopping center in Debrecen but already plans its Miskolc and Szeged shopping centers too.
Looking at rental fees no major movement was seen in 2006. High-end downtown rates were at 100-120 €/sqm, however one can find halving fees within 50 m vicinity.
Shops of Andrássy Avenue and the Ring were usually let at 30-40 €/sqm, but in the most demanded category of 100-300 sqm spaces higher rental fees were recorded.

Retail outlets – Market Report 2006/1

In 2006, the expansion of smaller area shopping malls continued, built under the so-called strip-mall concept. The advantage for such malls, consisting usually of shops arranged in a U-form with direct access from a central parking area, is that as a result of their layout they can be operated more efficiently than shopping malls under a single roof. Therefore, retailers offering goods at more favourable prices enjoy more favourable maintenance costs and attract a larger stratum of customers.

An indication of the success of such shopping parks is that after the completion of the second (4,800 sqm) phase at Premier Outlets Center, where the first phase was completed at the end of 2004, the construction of the third phase shall start next year, with up to 7,000 – 8,000 square meters of shopping area to be built. The 20 shops opened in the second phase will be followed by another seven in the third quarter of the year; the typical monthly rental for outlets here is about 25-30 €/sqm. Ablon, earlier known for its office building developments, opened its second Buy Way shopping park at Dunakeszi where, since April, visitors to the Tópark Commercial Park can browse goods within an overall area of twenty thousand square meters. A further expansion is planned at the Stop.Shop chain, sold in 2005, as well; the next shop to be opened in Gödöllő (8,000 sqm) will be followed by five new openings in the countryside in 2007. The cornerstone was laid for Új Buda Center, to be built at the Cable Works Southern Buda site. The investor, Sybil Holding, also decided to use the strip mall concept (with 15,000 sqm for retail outlets and 11,000 sqm for an entertainment and recreation centre).

retail kicsi
On the shopping mall market, several large projects will be implemented, including the projects by ECE in Transdanubia (Ã?rkád Győr, 35,000 sqm, where completion is planned for the autumn of 2006) and the Vértes Center in Tatabánya, with the involvement of the Európa Property Fund (30,000 sqm, completion in the fourth quarter of 2006). The cornerstone was laid also at the shopping mall and entertainment centre with the largest useable area: the 180,000 sqm Arena Plaza which is being developed by Plaza Centers, who hold considerable experience in this market segment. At the Forum Commercial Park, an expansion of Savoya Park, the developer (GRC) is implementing a first phase two-level department store with 9,000 square meters; the first lessees include Office Depot and Asco.
The fight for market share continues among retail chains. Tesco is expanding with the opening of small-area proximity shops in the cities. Accordingly, it rented six outlets (formerly operating as Domus stores) from the Fotex Group, and it also plans to open one at the Új Buda Center. In doing so, the British trading company may generate problems for local retail chains that are also facing competition from discount chains moving into the cities as well. There was a strengthening in the market positions of the discount shops during the last five years: their previous market share of about 15% increased to 17% in 2005 (according to forecasts, this share may peak at around 20% in the mid-term). The fast growth of discount chains is shown by the fact that in addition to Penny Market, Plus, and Profi stores, newcomer Lidl, which entered the market at the end of 2004, opened 51 shops within a year. In 2006, Aldi will enter the hard discount market, the construction of its department store and own logistics base has already started at Biatorbágy. The competition among drugstores is heating up as well: Schlecker, which like Aldi has a German parent company, opened three city shops in March and, with the acquisition of the Fotex Group’s premium Azúr shops, it also appeared in shopping malls (such as the Duna Plaza). Schlecker, which plans to open ten shops before the end of the year, is a competitor of Drogerie Markt and Rossman.

No weakening was observed in the market positions of the city centre outlets (the ones in busy pedestrian areas), in spite of the abovementioned restructuring of the retail trade sector. In connection with the shopping mall construction in progress, we might witness an increase in the quality offer of this segment – after several years of increased demand from lessees. Outlets will be opened in the apartment hotel to be implemented in Klotild Palace and, in addition to the Vörösmarty tér project by ING, the BSE building, now in Orco’s ownership, will also be refurbished to become a classic downtown shop.

The fees for traditional city centre outlets did not change significantly in the first half of the year; typically they are at a monthly level of 80 – 100 €/sqm in the premium pedestrian zones. The shops on Nagykörút and Andrássy út are mostly leased for 33 – 45 €/sqm; at the same time, in the category that is most in demand (100 – 300 square meters) we have recorded higher rents as well.

To read our entire market analysis, click here.

Take it or leave it? – Property Watch 2006/2

It is well-known that demand for retail outlets in the city centre – in prime locations – substantially exceeds available offer, since years. This provides the grounds for a veracity of rentals well above the average, on the one hand, and it reduces the time required finding tenants for the owners, on the other hand. Still, we can find unrented shops – even in the zone of the prime pedestrian areas. Is this only a temporary situation or do we have to do with property speculation? According to an Eston International survey, a conscious property selection of the traders is in the background.

Take it or leave it?Or: does excess demand create an exigency for property tenants?
As we already outlined in an earlier report, the vendibility of downtown shops did not reduce with the building up of the shopping plaza market, and this is supported, in addition to the increase is sales volume observed by our company, also by a large number of new outlets opened. This year, for instance, Schlecker, having opted for an aggressive market entry strategy, typical for discount shops, appeared in Petőfi Sándor utca, while from among luxury brands, Louis Vuitton made its début on Andrássy út. Developers also believe in the future of the city’s heart: Orco Property Group plans to open shopping malls with the reconstruction of two buildings of historical importance (the former Divatcsarnok – Fashion Hall – and the building of the Budapest Stock Exchange). In addition to that, according to the latest news, on Vörösmarty tér, vis-à-vis the retail and office centre, to be implemented in an investment of ING, Skála also made the decision to fully refurbish Luxus Ã?ruház (the Luxury Department Store).

According to queries registered at Eston, the most vivid interest shows itself towards the shop-front retail outlets in District V and VI, first of all in the category of 100–300 square meters. A characteristic feature of the offer is that whilst finding an appropriate premise may take up to half a year, the rental rights of vacant shops can be sold quite often within two weeks. Characteristic for the market segmentation is that monthly rentals for tenants in Váci utca and Vörösmarty tér may amount to 80–100 EUR/sq. m, but Andrássy út and the premium portion of Nagykörút (from Nyugati tér to Oktogon) is positioned at a far lower level (in the case of Andrássy út, 35–50, on Nagykörút, 35–45 EUR/sq. m/ month). The opening of more significant shops and the on-going refurbishments have a favourable effect on the development of a certain area, because the pedestrian traffic generated this way creates the emergence of further shops.
At any rate, one can still find unused properties (typically in the side streets), where we can see, sometimes for months, only empty shopwindows and locked-up entrances. The ratio of the empty shops is considered disadvantageously high by the city leaders – recently, upon invitation from the Deputy Mayor, the leaders of five districts of the city centre reviewed the potential solutions for this situation. Some people suspect property speculation behind the reasons for that, where part of the lessors try to achieve extra profits by artificially limiting the offer and pushing up rentals. The efficacy of the consultation, given its endeavour to obtain government regulation, can be judged probably only in a few years from now. According to preliminary information, a realistic alternative could be to charge a penalty on closed shops, based on certain examples from foreign countries.

Even though a parallel existence of significant demand for city centre properties and the presence of closed shops may actually represent a contradiction, in the opinion of Eston’s salesmen, the reason for unused premises mostly is not a languidity of the lessor or property speculation. As with all properties, location is the most important criterium for retail outlets as well (location, location, location…). Nevertheless, an appropriate property in this market segment shall meet a set of several criteria that are simply impossible to be ranked. Expectations towards a ground-floor retail outlet mostly refer to large pedestrian traffic, proximity, if possible, of a crossing point for pedestrians or of a public transport junction, location on a main road (within that, corners are preferred), the availability of a large and visible shop-front and proper layout (such as one-level stores). An additional requirement is the availability of the related warehouse and parking possibility, provision of easy access for the delivery of goods and, subject to the business, the approval, availability of permits from the local community and from the authorities. For the implementation of the business goals of the tenants, these aspects often are considered equally important, therefore they might prefer not to take obligations, if the retail outlet is not fully satisfactory. From the point of the lessor, decision-making is frequently difficult when it is about the split of a larger to-be-rented property into smaller units or about some major technical realignment in connection with the lease. Eventually, these steps could allow a faster contentment of the current market needs, but the expense requirements connected therewith or the preliminary concept and business policy of the lessor might substantiate a different approach: a wait-and-see approach regarding the lease.

That is, according to the data of Eston, a narrowness of the offer in the historical city centre does not necessarily result in a higher readiness for compromises on behalf of the tenants; rather the contrary: in respect of the property, they rather attempt to minimise the risks. In addition, lessors are also reluctant to give up their concepts for the sake of short-term goals, whether or not there is an enhanced interest for a refurbished version of the property, alien to its basic characteristics. Due to the normal market circumstances, it is expected that there will be further on shops kept closed, for their maintenance and an upkeep of the cityscape, a policy stricter than the present one would be actually welcome. Nevertheless, in respect of an alternative utilisation of unused properties, as well as for the purpose of bringing closer the views (requirements, expectations) of lessors and lessees, it is worthwhile to seek counsel from property advisors.

Beáta Kákosy, Senior Advisor – Research&Analysis Division

Downtown Renaissance

Is the market saturated or ready for development? According to Eston, the Budapest shopping mall market is capable of renewal. However, this does not imply an expansion in the supply of large shopping and entertainment centers. Instead, specific new market niches need to be filled, which could bring about a re-adaptation of the classic forms of downtown shopping. When was the last time you went shopping in the heart of Pest?

When we think about shopping centers, we most often think of plazas with tens of thousands of square meters, where numerous retail outlets are supplemented by entertainment facilities and other services. This is the market segment that developed more dynamically than any other sector in the field of commercial properties. Year after year, in spite of a gradual decline in new developments, spectacular growth was observed in the shopping mall market; mall properties currently amount to a total of 1.75 million square meters. According to a number of publications, the shopping mall market in the capital city is saturated, and newcomers should expect major entry barriers. Recent years have shown that about one-fifth of retail traffic occurs in plazas and hypermarkets, typically located in the outskirts of the city. In comparison with our neighbour, Austria, this indicator can be qualified as a high one, though the ratio of French consumers who select this convenient form of shopping is even higher. Shopping mall floorspace per capita is slowly approaching 0.18 sqm, which, though far from the highest indicator of 0.55 sqm observed in Sweden, is close to the average figure for the European Union ( approx. 0.2 sqm). Thus, the experts speak about a continuing decline in shopping mall construction and a shift of investment target toward the countryside. That said, it makes sense to study the shopping mall market in detail and examine plaza-type projects in particular. According to an Eston survey, there are several factors that support a more detailed picture of the summary statements above.

For instance, the question arises whether the `consumer habits or the general indicators of a given market (such as the degree of market saturation) can be easily compared to international data. Consumer habits, for example, are strongly dependant on the local social setup, as well as on the cultural and historical background, and said habits have a profound influence on the emergence of saturation. In order to recognise the validity of an individual valuation, one should keep in mind that in our country, the readiness of inhabitants to move is very low on a global scale, and that home-ownership is dominant on the housing market. These are also factors that determine consumer needs. Accordingly, shopping habits and the resulting expectations towards shops are largely dependent on local specificities. It would be worthwhile, for instance, to study in detail the turnover generated per square meter. This indicator would increase the understanding of local consumer habits, and it would enable the establishment of shops and locations where quality issues dominate over a quantity-oriented approach.

Shopping mall floorspace at year end (sqm)Furthermore, in our view, the Budapest shopping mall market is far from being saturated, even though the development and maturation process can clearly be seen. Instead of an oversupply, segmentation is taking place, witnessed by the emergence of specialist trading centers for different product groups (e.g. The Material Construction and Design Center, specialising in interior decoration and furniture sales) or outlet centers and strip mall projects developed under a new sales concept or new architectural solutions. In addition to all this, there is another sign that the process of building more shopping malls will not stop, even though there will be changes.

New paths – the target is the traditional downtown area
Increasingly often, we hear of shopping mall development projects where the refurbishment of an existing downtown location is the target. Sometimes this involves a building with high prestige and historic value in the inner city. The reconstruction of the Klotild Palace will make 5,500 sqm available for retailers, and there was already serious interest for two-thirds of this space in 2005. The Orco Property Group became the owner of Divatcsarnok (“Fashion Hallâ€?) and the Budapest Stock Exchange buildings. According to the developer’s plans, there will be department stores in the heritage building on Andrássy út and on the three lower floors of the Exchange Palace, adding another 25,000 square meters of retail space to the downtown market, which has been experiencing extraordinary demand. These buildings are protected (or partially protected) historical buildings, the creation of parking lots and large-scale renovation entails major costs. The launch of these projects indicates that the investors are serious and, at the same time, that they have high confidence in the success of the area. Another major investment project is the redevelopment of the former ORI office building on Vörösmarty tér and of the Press Headquarters recently demolished on Blaha Lujza tér (retail shops will be part of both projects).

The future market viability of these centrally located properties will be influenced by the number of parking spaces available. Furthermore, these projects are typically more expensive (due to the demolition/reconstruction costs) than construction on a vacant lot. A partial solution for the parking problem was introduced last year when the Budapest Municipal Parking regulations were improved (free parking extended to cover the entire weekend). In spite of the higher total costs, these project plans support the favourable expectations of the investors who have every reason to be confident. The increase in the rental fees of downtown retail outlets in 2005 (9-13%) was higher than in any other segment of the retail property sector, partially thanks to strong demand from tenants, parallel to a scarcity in supply.
Essentially, the customised reconstruction of properties with a historical background provides a competitive advantage to those projects and, in connection with the gradual improvement of the inner city, the heart of the city continues to appreciate in value as the rebuilt retail areas attract more customers and the owners of the properties in the region are inspired to invest more. A return to the old splendour of the inner city would be welcomed by more than investors and retailers; with these projects, we can maintain important architectural values while at the same time broadening the selection of retail choices through the addition of high-prestige downtown shopping.

Beáta Kákosy, Head of Consulting Division

Mall construction down

The dynamics of mall construction are slowing and the focus of development is shifting towards the countryside; downtown shops are swinging back in popularity, according to the latest survey of real estate market analyst Eston International.

At the moment, there are 1.75 million sqm of mall in Hungary, which is 0.18 sqm per capita compared to the EU average of 0.20 sqm per capita, lagging behind the average 0.55 sqm/person in Sweden. While downtown real estate is growing in popularity, parking difficulties and the increase of rent negatively influences investors’ attraction.

Source: Hungary AM

Retail units – Market Report 2005/2

The segment for commercial retail properties is highly differentiated due to the peculiarities of shopping habits, with new project concepts further enhancing this diversity. The trends of 2005 imply further dynamic advances in the sector.

The expansion of hypermarkets and department stores has continued over the year. The Tesco chain already operates fifty units and twenty gas stations, and the number of their smaller (less than 2,000 sqm) shops is also growing. Sporting goods manufacturer and retailer Decathlon opened three units (in Budaörs, Dunakeszi, and Csömör). Ten of Praktiker’s fifteen shops in Hungary were sold in a major investment transaction in 2005; though the company has not excluded the possibility of further expansion. New units were opened in the Stop.Shop chain; Center Invest opened their 11,500 sqm center in Érd (among the main tenants are Deichmann, C&A, New Yorker, and Plus).

The introduction to the market of outlet centers, offering international brands at discount prices, can be considered successful. The first phase of the Premier Outlet Center, opened in 2004, is 100% occupied; the second phase of this project will open in 2006 involving some 30 shops (50% already let to tenants). The first home and interior design thematic shopping center, Max City, opened in the first half of 2005, was followed by a similar project. The Material Construction and Design Center offers 40,000 sqm of shops supplying home improvement goods; the services of a wellness center are also available. The supply of speciality stores has broadened with the opening of the Family Center projects; Manhattan Development, a Meinl European Land concern, entered the market in Budapest (9,600 sqm) and in Szombathely (12,000 sqm).
The Ablon strip mall project in Soroksár was also delivered last year (12,300 sqm), while a similar project in Dunakeszi was still under construction. The tenant list for the Soroksár Buy Way includes Office Depot, Édes Otthon, Drogerie Markt, and Danish furniture retailer Jysk. The number of shopping centers increased with the introduction of Malom Center of Kecskemét, the developer ES Invest spent 6 billion forints on the 43,000 sqm property.
Plans for further expansions in the shopping center and department store segments indicate that developers have positive expectations for this segment, and that there will be an upcoming boom in supply. The former curtain factory, Gardénia in Győr, is set to be turned into a 24,000 sqm shopping center, while construction work on a 36,000 sqm Ã?rkád center has begun in the same town (the developer is ECE). Another market player interested in Győr is Kika; the above-average purchase power of the town played an important role in their decision on the location of its fourth department store. Delivery of the 30,000 sqm Vértes Center in Tatabánya is scheduled for Q4 2006, according to developer Európa Real Estate Fund. Besides shops, a cinema and a new Volánbusz station are going to be included in the project.
Following the purchase of the long vacant Ügető plot in the Capital, Plaza Centers has announced grandiose project plans: the scheme will be named Arena Plaza and it will include 180,000 square meters. The shopping and entertainment center will incorporate exhibition rooms, cinemas, and conference facilities. Construction is planned to last for two years.
The redevelopment of a number of classical buildings is planned in the heart of the city, making it possible to preserve the architectural values of such protected properties and also to restore the former prestige of downtown shopping. Upon the opening of Klotild Palota in 2007, some 5,500 sqm of shops will be available; and further luxury department stores should open soon as Orco Property Group has purchased and plans to refurbish the Divatcsarnok (6,400 sqm) and the Budapest Stock Exchange building (18,600 sqm). Demolition work on the Press HQ at Blaha Lujza tér and the ORI HQ at Vörösmarty tér ended in 2005. The first location will see the opening of a new Ablon project, while the latter will see a mixed-use retail and office complex from ING.
The Skála Group properties were let to new tenants in 2005, and the operation of these shops is as-yet undisturbed (ING Real Estate Developer may commence with a new project in Buda in 2007).

Demand for downtown retail units remained unchanged for the second half of the year, even though the highest rent increase was registered in this area (9-13%). In many cases, shops in Váci utca and its immediate surroundings are let at 80 – 100 €/sqm, while rents vary in the 35 – 40 €/sqm range for the currently appreciating Nagykörút. Street-level shops with large windows may be available at lower rents at the inner section of Andrássy út; still, the lack of supply keeps rental fees around 50 €/sqm.

According to our expectations, the ripening of the retail sector will bring about opportunities to exploit market niches, and we expect the highest value increases to be in downtown locations. Street-level shops and downtown department stores both place high importance on attracting pedestrian traffic in terms of further development. As urban renewal continues, the appeal of a location also improves, and increases in traffic spur property owners towards further development. In our experience, a strong demand exists for large downtown retail units, for which recognised, and already-commenced, projects may offer the proper supply.

Office property market expands slightly in 2005

Property developers signed new leases for 235,000 square meters of new office space in Hungary in 2005, slightly more than the 230,000 square meters peak in 2004, president-CEO of real estate brokerage Eston International Adorján Salamon told a press conference in Budapest on Thursday.

Take-up on the market for modern warehouse space fell, however, to 140,000 square meters in 2005 from 200,000 square meters in 2004. The fall was only temporary, Adorján said, adding that they expect demand on both the modern office and warehouse market to increase this year.

Take-up among hypermarkets and specialized stores grew at an especially fast pace in 2005. The year saw the entry on the market of sports equipment store Decatlon and furniture store Jysk. Family Center also opened two new stores, a 12,000 sqm store in Budapest and a 9,000 sqm unit in Szombathely, and specialty stores Material Design Center and Max City opened stores in the capital as well.

Rental fees for modern office space in Budapest were a monthly €14-€16.5 per square meter for category A’space and €12-€13.5 per square meter for category ‘B’ space in 2005. New office space in a converted government building on the capital’s exclusive Roosevelt tér, however, was going for €20 per square meter.

Rental fees for industrial property continued to fall last year. New space was available for a monthly €4-€4.8 per square meter, and less modern space for between €3.8 and €5.5. Rental fees for retail and catering space were the most varied: on Váci utca, in the heart of the city, rents were as high as a monthly €100 per square meter, and at Liszt Ferenc tér, an area packed with high-priced cafes and restaurants, rents were in the €70-€80 range.

Property developers invested about €1 billion in Hungary last year, one-fourth of the region’s total commercial real estate investments. Although assets in Hungary’s open-ended investment funds tripled last year, the proportion of real estate in funds’ portfolios fell due to a lack of high quality property on the market, Salamon said.

Source: BBJ