Gábor Borbély, Senior Research Analyst CB Richard Ellis International Property Adviser, speaks about playing it safe when it comes to Budapest’s office market. Less equity, restricted finance, no debt – that’s how the property market looks right now from an investment point of view. An abundance of spaces, brand new buildings, reasonable rental fees – that’s it seen through the eyes of occupiers.

So, what’s been happening in 2009? Well, recorded property investment turnover in Central and Eastern Europe (CEE) has slowed. Money invested into cash-generating properties has fallen by two-thirds since the last quarter, and the market across the region has essentially come to a stand-still.  

A lack of liquidity is what analysts observe across the region, in the form of a reduced number of transactions and smaller deals with smaller properties. With such a limited number of transactional evidence, though, who can be sure where the prices are really at? This is the question being posed by most, and because there’s no answer right now, potential buyers (and also potential sellers) are cautious. The interest is still there, though. In fact, there have never been so many analyses done concerning the market, and CEE has never been more in the limelight of experts. The market, however, remains very much frozen.

As a result of the current climate, a so called “fly to quality” has become the common practice of investors. The majority of all 2009 investment activity has so far occurred in markets which are relatively liquid (i.e. large and/or mature). Buyers haven’t opted for new locations, instead remaining in the countries they know best – which has meant local buyers have became increasingly important. So, it seems the days when people were eager to buy into risky assets at lower prices are over. Yields are increasing, so property values are decreasing, and the same money can purchase a better investment product than a year ago.  

Declining rents mean a one-time opportunity for occupiers. Those large tenants who are aware of their negotiation power (and for whom moving is an affordable option) can reach exceptional conditions on the rental market. In fact, in early months, Budapest didn’t see significantly less transactions than in previous quarters, and leasing demand remained strong. What comes next, though? Well, we don’t know yet. The summer months will be quiet, what with holidays, and October will be the market’s next period of action. Let’s keep our fingers crossed that we can report more good news then!

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