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edition 11 (235)
November 2018
Investment & finance

Knight rides into Budapest

Alex Hayes Interviewer

Knight rides into Budapest
Erika Loska, head of the office department at Knight Frank Budapest
Why is it now that Knight Frank has decided to open its office in Budapest? Have you had any kind of presence on the Hungarian market before?

Erika Loska, head of office division at Knight Frank in Budapest: Budapest has been missing from the Knight Frank map till now, although we have had several deals on the market and continuous requests. As soon as the economic crisis ended, or better said, after the country started its recovery, it became obvious that there was great potential in the Budapest market. The growth was continuous and the market stable, so all the circumstances were ideal. We just needed to find the perfect team to start it off.

Hungary is one of the larger markets in the CEE region where many of your competitors set up earlier than yourselves. How do you intend to now make your presence felt on the market? What advantages can you offer over those who are longer established in the country?

The Hungarian market’s strength does not necessarily lie in its size within the region. Obviously competition is strong on the market and we do not see this as a disadvantage in our sector. Competition is good: it makes you want more and its part of the bigger picture of development. Why are we different? We are independent as a company, not listed, no debts. All our profit goes back into the business directly. It gives us freedom and overall accountability for the team members. This approach gives us a different touch in our everyday work as well, brings synergy to our offices creating a highly effective, proactive and professional network. It may sound sentimental, but we have a long term, personal relationship with our clients. We are not only a big, international agency with over 500 offices, with good CRM, we still have that personal touch with all of our partners.

Do you think that Hungary is a market where all consultancies with international aspirations must be present? How does the opening of your office fit in with your strategy for the CEE region?

I cannot speak on behalf of all the other agencies, but we know that we want and have to be present. Very simply, we have lots of European clients and they require us to be in Budapest as well. The opening of our Budapest office is part of our expansion strategy for the CEE region – we are seeing more and more activities on other markets as well: we supported our clients in several transactions in Serbia and in Bulgaria as well, just as we were doing it with Budapest before.

How do you judge the prospects of the Budapest market, both in the long term and the short term? And how does it differ from other countries in the CEE region? Do you regard the market to be one of the more challenging in the region?

The Budapest office sector is delivering a continuously strong performance. With a stock of 3.4 mln sqm of class A and B office buildings, the vacancy rate stands at 7.6 pct. Prime office yields are showing continuous strength, at 5.5 pct in the CBD, with investor interest remaining active. Markets of a similar office stock size, such as Romania have lower investment volumes than Hungary. While Romania reached an investment volume of EUR 1 bln in 2017, ours stands at EUR 1.8 bln. In terms of actual office transactions, Romania is less of a volume size market, hosting larger tenants with average transaction size of app. 1,700 sqm, while ours are approximately a third of the size. Romania is also experiencing strong office demand and stock growth for secondary and third tier cities, a model Poland is very well known for. The Polish office stock level is the highest in the region. The vacancy level is also higher, with a lot more speculative constructions going on than in the other regional countries, such as Bulgaria, where the investors are more cautious - preferring built to suit models, such as the one delivered last year for Telus, large international BPO company. Bulgaria is also very strong on the retail sector, as well as Belgrade in Serbia, where 60% of the total investment transactions were in this sector. The latter market (Serbia) has been on the regional spotlight with increased leasing activity in 2017, with a take-up reaching app. 97,000 sqm, 25 pct higher than in 2016. The Czech office market experienced a record yield of 5.5% with a total investment volume surpassing considerably the Hungarian one, even though the stock level is similar.

Looking beyond Budapest, I understand that you also see the potential for growth in the country’s regions. Where and in which sectors is this most apparent?

We’re concentrating on the capital at the moment. If we talk about investment or industrial transactions, then obviously we’re looking beyond Budapest, but the main focus still remains here.

Is there room for further entrants on the market?

There is always room in a flourishing market, of course it depends what service lines we are talking about. The more diversified the market is, the better the service it offers. And obviously, there is always room for new investors, developers, production or SSC’s considering the good quality workforce base that Hungary has.

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