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Recovery in the Budapest Office MarketWhat will change?drive
2
Agenda
Supply and Demand in Budapest:Office completions and pipeline
An Occupier’s Perspective:What is driving occupier demand?
Overview of the Office MarketWhat is driving lease renewals?
Hungary’s PerceptionConclusion
3
m2
98,6
00 226,
738
248,
979
255,
754
100,
000
96,4
00 193,
100
140,
000
0
100,000
200,000
300,000
400,000
500,000
600,000
2004 2005 2006 2007 2008 2009 2010 2011
Completions Future completions Pre-Crisis Forecast (Q2 2008)
Budapest: Office Completions and Supply Pipeline
5 YearTake-up Average
Take-up Forecast
Development pipeline has decreased considerably reflecting more realistic levelsDemand is expected to grow gradually from 2010
4
How the Crisis Changed Occupier Demand?
• Today- Tenant property need driven by cost reduction and space optimisation- Using lease breaks & expiries as tools for renegotiating rents- Declining net take-up
• Tomorrow- Oversupply but limited new supply in 2010- Lease renegotiations become increasing share of the take-up- Sub-leases may become more frequent
5
Take Up - 30.0%
2009 Overview2009 forecasts compared to 2008
Effective rents - 10.0%
Vacancy rate + 33%
Supply + 13.0%
6
m2
Structure of Take-up in the Last 5 Years
Source: Jones Lang LaSalle Research , 2009
050 000
100 000150 000200 000250 000300 000350 000400 000
2004 2005 2006 2007 2008 YTD 2009
New Expansion Pre-lease Renewal
5 YearDemand Average
7
m2
Source: Jones Lang LaSalle Research , 2009
050 000
100 000150 000200 000250 000300 000350 000400 000
2004 2005 2006 2007 2008 YTD 2009
New Expansion Pre-lease
Structure of Take-up in the Last 5 Years Without lease renewals
5 YearDemand Average
8
What is driving the renewals?
Limited cap ex for
relocation
Landlords must retain
tenant to cpver interest
payments
Lack of business
confidence
Economic decline
FDs looking for easy
wins
Downsizing not growth
Weakened real estate
market
WHEN WILL CONFIDENCERECOVER?
9
What Will Break the Cycle?
Perception&
Confidence
10
Key Messages for Today
• Tenants are taking a defensive strategy, keeping net take-up volumes low
• Supply is increasing, putting a downward pressure on rents
• Occupiers in winning position
• Oversupply will need two years to be absorbed
Better perception of Hungary is the key to recovery
Thank you!
COPYRIGHT © JONES LANG LASALLE IP, INC. 2009