RETAIL MARKET

OVERVIEW HUNGARY
YEAR-END 2014

A Cushman & Wakefield research publication

JANUARY 2015

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OVERVIEW 2014

ECONOMIC SNAPSHOT Q4 2014

ECONOMIC SUMMARY DECEMBER 2014

ECONOMIC INDICATORS*
GDP growth
Consumer spending
Industrial production
Investment
Unemployment rate (%)
Inflation
HUF/ (average)
HUF/US$ (average)
Money market rate (%)
Interest rates 10-year (%)

2012
-1.5
-1.9
-1.4
-4.2
10.4
5.7
289.3
225.1
7.0
7.9

2013
1.6
-0.1
1.4
5.2
9.8
1.7
297.0
223.7
4.3
5.9

2014F
3.2
1.5
7.8
14.9
7.6
-0.2
308.4
231.8
2.4
4.8

2015F
2.5
3.1
3.7
3.5
7.3
0.7
308.6
249.9
1.9
3.9

2015F
2.6
2.9
3.4
3.0
7.2
2.6
304.1
251.9
3.2
5.0

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast

Source: Oxford Economics Ltd. and Consensus Economics Inc

THE HUNGARIAN ECONOMY IS PERFORMING STRONGLY

MARKET
OUTLOOK
GDP GROWTH

is moderate but remain above-average in

2015

INFLATION

Is likely to stay negative until mid 2015

INTEREST RATE

cuts are likely in HI 2015

EMPLOYMENT

conntinues to improve gradually

aided by accommodative monetary policy, low inflation and rising consumer spending. Consumer
confidence is now at levels last seen in 2006, helped by the robust recovery in the labor market, which
has seen the unemployment rate falling.

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FORECAST

FORECASTS FOR THE HUNGARIAN ECONOMY HAVE BEEN

UPGRADED FURTHER,

growth of 3.2% is now expected for 2014 (the best performance since 2006) followed by 2.5% in 2015.

THE 2014 PERFORMANCE IS EXPECTED TO EXCEED

the Slovakian, the Czech and the Romanian performance.
GDP GROWTH

CONSUMER SPENDING

3.2

1.5

2.3

1.4

3.4

3.1

CONSUMER
SECTOR GAINS
MOMENTUM
Consumer prices are falling on the
back of a plunge in global oil prices,
sharp falls seen in unemployment and
low interest rates continue to boost
households disposable incomes.
Private consumption is estimated to
have grown by 1.5% in 2014 and is set
to accelerate to 3.1% in 2015.

Given the INCREASINGLY CHALLENGING EXTERNAL CONDITIONS and

a tighter fiscal policy, the consumer sector is anticipated to come to the fore later in 2015.

THE LONG-TERM OUTLOOK FOR THE ECONOMY IS BRIGHT as the

countrys GDP remains below its 2008 peak, implying ample scope for catch-up.

SIGNIFICANT DOWNSIDE RISKS remain, including further anti-business policies and a

resulting erosion in the countrys competitiveness as well as an escalation of the crisis in Ukraine and
sluggish growth in the Eurozone.

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COUNTRY OVERVIEW

DEMOGRAPHICS

HUNGARY with a population of

9.9 million (2013) and a land area of
92,340 sq km, is bordered by
Slovakia to the North, the Ukraine
and Romania to the East, Serbia and
Montenegro and Croatia to the
South and Slovenia and Austria to
the West. The country is situated in
the centre of the CEE region
connecting Western to Eastern
Europe.

BUDAPEST is the economic and

political capital with some 1.7 million
inhabitants. This constitutes 17% of
the countrys population which is
proportionately high compared to
the capitals of Poland (5%), Slovakia
(8%) and the Czech Republic (12%).
Hungary has only nine towns with a
population over 100,000.

TRANSPORT

AIR: There are two passenger

terminals at Budapests Liszt Ferenc
International Airport, which is 16 km
south-east of the capital.

ROAD: Hungary is well served by a

Motorway network that is still being
extended, with the M1 leading to the
west of Hungary and on to Vienna,
the M7 to the tourist destination of
Lake Balaton, Croatia and Slovenia.
The M5 leads to the south to Szeged
then Serbia, while the M3 leads to
the east, and Romania and the
Ukraine. The Hungarian motorway
network is Budapest-centred.

RAILWAY: Budapest is the hub of

the Hungarian railway network, with
three large stations. From Budapest a
7,607 km network radiates through
the country with various connections
to the larger towns. Whilst many
domestic lines are dated,
international connections such as
from Budapest to Vienna are efficient
and comfortable.

COUNTRY DATA
Population
Top Cities
Budapest
Debrecen
Miskolc
Szeged
Gyr
Currency
VAT - Standard Rate

9.9 million (2013)

1,700,000
204,000
163,000
161,000
129,000
Forint
27%

ECONOMIC & POLITICAL BREAKDOWN

GDP
Public sector balance
Public sector debt
Current account balance
Parliament
President
Prime Minister
Election dates

US$ 130.9 billion (2013)

-2.2% of GDP (2013)
79.2% of GDP (2013)
3.0% of GDP (2013)
Majority government of
Fidesz and KDNP
Jnos der
Viktor Orbn
October 2014 (Municipality)
2017 (Presidential)
2018 (Parliamentary and
Municipal)

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RETAIL SNAPSHOT Q4 2014

PRIME RETAIL VALUES - HUNGARY

Rental Growth - Prime

9,00%

Yield - Prime

20,0%

10,0%
7,00%

5,0%

6,00%

0,0%
-5,0%

5,00%

-10,0%
4,00%

ANNUAL RENTAL GROWTH (y/y)

15,0%

8,00%

PRIME YIELD

MARKET
OUTLOOK

-15,0%

3,00%

-20,0%
dec..04

dec..06

dec..08

dec..10

dec..12

dec..14

The outlook for the retail sector is generally stable, albeit there are some concerns over the
potential impact of increased state intervention in recent months.

A new law was passed in December, which forces non-family owned retail stores that are larger than
200 sq m GLA to shut on Sundays, which may dampen investors appetite and cause some
international occupiers to re-consider expansion plans in the country. This is in addition to an already
approved levy of up to 6% on retail activities and a rule that will revoke a trading license if there are
two consecutive years of trading losses.

PRIME RENTS

Are stable with some upward pressure

for Vci utca

PRIME YIELDS

Forecast to remain unchanged at current

levels in 2015

SUPPLY

Good supply in most locations and

limited development pipeline

DEMAND

Occupier demand is healthy for prime

locations whereas investment demand to
remain selective

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RETAIL SNAPSHOT Q4 2014

PRIME RETAIL RENTS DECEMBER 2014

SQ.M/MTH SQ.M/YR
95
1,140
40
480

SQ.M/MTH SQ.M/YR
7.50
90
7.00
84

HIGH STREET SHOPS

Budapest (Vci utca)
Budapest (Andrssy t)
RETAIL PARKS
Budapest
Budars

US$
SQ.FT/YR
128
54
US$
SQ.FT/YR
10.1
9.4

GROWTH %
1YR
5YR CAGR
0.0
-1.0
0.0
-7.8
GROWTH %
1YR
5YR CAGR
7.1
-3.6
0.0
-4.9

Budapest (Andrssy t)
RETAIL PARKS
(FIGURES ARE GROSS, %)
Budapest
Budars
SHOPPING CENTRES
(FIGURES ARE GROSS, %)
Hungary

OCCUPIER FOCUS

Demand remains healthy, with a growing

number of international mass-market and
luxury operators actively looking for space in
key high street locations and in the best
performing shopping centres.
There is a relatively good supply of retail
units in most locations.

PRIME RETAIL YIELDS DECEMBER 2014

HIGH STREET SHOPS
(FIGURES ARE GROSS, %)
Budapest (Vci utca)

MARKET
OUTLOOK

CURRENT
QUARTER
6.75

LAST
QUARTER
6.75

LAST
YEAR
7.00

7.00

7.00

7.25

CURRENT
QUARTER
8.50
8.50
CURRENT
QUARTER
7.25

LAST
QUARTER
8.50
8.50
LAST
QUARTER
7.25

LAST
YEAR
8.50
8.50
LAST
YEAR
7.25

10 YEAR
HIGH
LOW
8.50
5.50
11.00

6.00

10 YEAR
HIGH
LOW
8.50
6.25
8.50
6.00
10 YEAR
HIGH
LOW
7.50
5.00

With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs
implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used
as a comparable for any particular property or transaction without regard to the specifics of the property.

Prime rents are under pressure in Vci

utca to rise further.

INVESTMENT FOCUS

Investment demand for retail assets is

patchy and the majority of deals tend to be
smaller sized lots, with local investors
dominant in this segment.
International investors are typically only
interested in larger shopping centre and
portfolio deals.

Total investment volume were 193 mn in

2014, which is better than in recent years
but still below the peak annual volumes of
946 mn in 2007.
Prime yields were unchanged across the
country.
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Highstreet
Retail

OFFICE
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OVERVIEW 2014

HIGHSTREET RETAIL

The Main Streets Across the World 2014/2015 Cushman & Wakefield Research Publication identified 31
high street locations in the CEE region. Budapest Vci utca is the third most expensive retail location in
the region, just after Prague downtown areas but outstrips Warsaw and Bratislava high streets.
Source: Main Streets across the World, A Cushman & Wakefield Research Publication http://www.cushmanwakefield.com/en/research-and-insight/

RANK COUNTRY
22.

Bulgaria

RENT
RENT
EURO/SQ.M
Sept 2014
/YR

CITY

LOCATION

RANK

COUNTRY

CITY

LOCATION

Burgas

Alexandrovska

25

300

6.

Poland

Warsaw

ul. Chmielna

25

300

11.

Poland

RENT
RENT Sept
EURO/SQ.M
2014
/YR
70

840

Warsaw ul. Jerozolimskie

47

564

22.

Bulgaria

Plovdiv

Alexander
Batenberg

13.

Bulgaria

Sofia

Vitosha Blvd

44

528

7.

Poland

Warsaw

ul.
Marszalkowska

60

720

18.

Bulgaria

Varna

Kniaz Boris I.

30

360

4.

Poland

Warsaw

ul. Nowy Swiat

85

1 020

6.

Czech
Republic

70

840

14.

Poland

Wroclaw

ul. Swidnicka

40

480

1.

Czech
Republic

185

2 220

14.

Romania

Brasov

Strada Republicii

40

480

2.

Czech
Republic

Ceska Street /
Svobody Square
Na Prikope /
Prague
Wenceslas
Square

Bulevardul
Magheru

50

600

14.

Hungary

45

540

37

444

20

240

20

240

Brno

Prague

Parizska Street

180

2 160

10.

Romania

Bucharest

Budapest

Andrssy t

40

480

12.

Romania

Bucharest Calea Victorei

3.

Hungary

Budapest

19.

Poland

9.

Poland

Katowice

Vci utca

95

1 140

15.

Romania

29

348

23.

Romania

ul. 3 Maja

53

636

23.

Romania

Gdynia ul. Swietojanska

Memorandumul
Cluj
ui, Napoca,
Eroilor
Stefan cel Mare,
Constanta Rascoala din
1907
Stefan cel Mare,
Iasi
Cuza Voda

5.

Poland

Krakow

ul. Florianska

75

900

16.

Romania

Timisoara

Victoriei

35

420

21.

Poland

Lodz

ul. Piotrkowska

26

312

14.

Slovakia

Bratislava

Downtown

40

480

8.

Poland

Poznan

660

8.

Slovenia

Ljubljana

Copova

55

660

Poland

Szczecin

ul. Polwiejska
Al.
Niepodleglosci

55

17.

33

396

20.

Slovenia

Ljubljana

Slovenska ulica

27

324

8.

Poland

Warsaw Trzech Krzyzy

55

660

MOST
EXPENSIVE
LOCATIONS
IN CEE

SQM
/M

PRIME
YIELDS
CURREN
T VALUES

185

5.00%

PARISKA
STREET

180

5.00%

VCI
UTCA

95

6.75%

UL.
NOWY
SWIAT

85

7.50%

NA
PRIKOPE &
WENCELA
S SQUARE

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BUDAPEST

Budapests high street shopping area is concentrated in 3

major shopping streets located in the city center.
VCI UTCA is the main shopping street of Budapest, attracting most mass market
retailers. The street is pedestrianised, and generates circa 25,000 pedestrian traffic on a
daily basis. Retailers present include H&M, Promod, Zara, Douglas, Mango, Swarovski,
LOccitane, Salamander, Foot Locker and Deichmann.

FASHION STREET is another shopping destination targetted by middle to highend retailers with current tenants Hugo Boss, Furla, Lacoste, Lloyd, Massimo Dutti,
Starbucks, Zara Home and Oysho. This is located in the vicinity of Vci utca, forming an
L shape shopping area. Footfall is in the range of circa 15-18,000 people per day.

LOOKING AHEAD,

ANDRSSY T (Andrssy Avenue) has become the main destination for luxury

ANDRSSY T

Petfi Sndor Street, running parallel Vci utca is an emerging high street destination since
the street was partially pedestrianised. International retailers are not yet concentrating on
this location.

IS EXPECTED TO SEE NEW ENTRANTS

AND PRIME RENTS WHICH ARE
CURRENTLY MUCH LOWER THAN THE
MAIN SHOPPING STREET IN BUDAPEST
AND RANKED ONLY 14 IN CEE
COMPARISON SHOULD RISE.

retailers since the opening of Louis Vuitton. The avenue is part of the National Heritage
site, and has excellent potentials. Retailers, such as LV, Burberry, Gucci, Max Mara,
Nespresso, Boggi, and Hublot have already opened their flagship stores, and others are
investigating. Footfall at Andrssy Avenue is in the range of 8.000 10.000 people / day.

While there are a select number of luxury brands considering expansion in Hungary,
jewellery and fashion segment were the most active in recent years. Newest openings
include Il Bacio di Stile department store and Breitling on Andrssy t; Oysho, Intimissimi,
Subway, and Zara Home on Fashion Street and Desigual, Pylones, Deichmann in Vci utca.

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Shopping
Centre
Market

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SHOPPING CENTRE MARKET

EVOLUTION OF THE MARKET

The first modern, first generation shopping centres opened in the second half of the 1990s.
Typical examples include Duna Plaza, Plus Center and Mammut1.

The second wave of the evolution happened in the early 2000s when schemes having an

excellent strategic location came on the market. Examples are Westend City Center, Mammut II,
MOM Park, and rkd Budapest; all of them producing outstanding footfall and turnover figures
since then.
The third wave of the evolution started in November 2007 with the opening of Arna Plaza, a
scheme of 65,000 sq m GLA. Its retail concept and unique tenant mix fundamentally changed the
dynamics of the Hungarian market. INGs Allee Shopping Centre, opened in November 2009, is
another prime example where best of class international anchor tenants are present. In Q3 2011,
the locally developed KKI Terminal opened with 55,000 sq m GLA, but is currently in
bankruptcy. The second phase of the rkd Center opened in Q1 2013 (20,000 sq m), and thus
rkd has become the largest scheme of the country.

BUDAPEST IS ONE
OF THE LARGEST
MARKETS IN CEE
SHARE OF MODERN SHOPPING CENTRE SPACE IN
CAPITAL CITIES VS REGIONAL CITIES

Poland / Warsaw
Romania / Bucharest
Czech Rep. / Prague
Hungary / Budapest
Bulgaria / Sofia
0%

20%

GLA open in capital city

40%

60%

80%

100%

GLA open in regional cities

In a CEE context, modern retail stock is far the largest in Poland with 9.0 million sq m GLA,
well above the CEE market average of 3.3 million square metres.

Hungary is one of the smallest markets by country comparison with 1.9 million square metres

GLA, but one of the largest markets by capital comparison with 778,000 square metres. Almost
60% of the Hungarian stock is concentrated in Budapest, which is the highest share in the region.
The highest saturation in the region can be found in Prague and Warsaw, followed by Budapest.

SHOPPING CENTRE SPACE PER 1,000 POPULATION IN CEE

CAPITAL CITIES
Warsaw
Bucharest
Prague
Budapest
Sofia
0

100

200

300

400

500

600

CUSHMAN & WAKEFIELD

700

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STANDARD LEASE TERMS

GENERAL

SERVICE CHARGES, REPAIRS & INSURANCE

DOCUMENTATION No standard form of lease contract is

REPAIRS

available, whilst most modern leases are corresponding to Western

European standards. Landlords generally provide standard format lease
contracts for multi-tenanted offices and shopping centres.

ENFORCEABILITY OF LEASE Leases are enforceable on court,

Tenant Internal repairs only

Landlord Structural repairs - charged back to tenant in the

service charge.

INSURANCE

but not widely tested.

Tenant Internal areas

RESTRICTIVE USER CLAUSES Premises may only be used for the

SERVICE CHARGES Typically covers all operating expenses including management fee, security and cleaning costs, maintenance of

purpose defined in the lease. Any change will require the landlords
prior consent.

LEASE TERMS
DURATION OF LEASE 5-10 years
BREAK OPTIONS Negotiable, albeit generally implies penalty which
amounts to the total gross rent for the remaining lease term.

common areas, elevators, water / electricity / heating / air conditioning systems, snow clearance, property tax and property insurance.

UTILITIES INCLUDED IN SERVICE CHARGE For common areas only.

TAXATION
LOCAL TAXES
Tenant Local Business Tax - the maximum rate is 2% of gross
sales revenue less cost of goods acquired .

RENTAL PAYMENTS
RENT PAYMENT AND FREQUENCY Euro per square metre
per month, due monthly or quarterly in advance. In most cases payable
in HUF.

VAT ON RENTS 27%

RENT DEPOSIT For retail properties a security deposit equivalent

MEASURING CODE

to three months rent plus service charge is usually required or the

equivalent bank guarantee.

RENT REVIEWS No rent reviews, only indexation is common. For

retail properties a lock-up clause is common whereby turnover rent is

payable if is higher than the base rent.

INDEXATION Rents are indexed annually to HICP 27 or MUICP

index of Eurostat, generally at the start of the calendar year, or at the

anniversary of the lease commencement date.

SECURITY OF TENURE No automatic renewal option is defined

by law, whilst negotiable. Not common in Hungary.

PREMIUM/KEY MONEY Premiums are common in high street

Landlord Main structure

Landlord Property Tax - for buildings is based on GLA

(maximum HUF 1,821/sq m pa), or on the market value

(maximum 3.6%). For land, the tax is based on size (maximum
HUF 331/sq m pa), or on the market value of the land (maximum
3%).

MEASUREMENT PRACTICE
Gross Internal Area

LEGISLATION
LEGISLATION IN RELATION TO LEASE CONTRACTS Hungarian Civil Code.
PROSOPECTIVE CHANGES TO LEGISLATION None.

DISPOSAL OF LEASES
ASSIGNMENT AND SUB-LETTING Leases generally do not allow sub-leasing or assignment, but it is negotiable and subject to
the landlords written consent. The majority of the office leases allow sub-letting or assignment to an affiliate company.

retail only.

EARLY TERMINATION Not allowed if the lease is concluded for definite term.

TURNOVER RENTS Turnover rents are common and subject to

TENANT LIABILITY The tenant is generally responsible for reinstating the premises to their previous state, with the exception of

the actual retail profile. Usually are in the 3-12% range.

wear and tear. No further liability after lease expiry.

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SUNDAY TRADING BAN

On 16 December 2014, the Hungarian Government

voted to restrict retail trade on Sundays effective from
15 March 2015. The ban applies to most shops with very
few exceptions such as pharmacies, bakeries, retail at
international airports, railway stations, bus terminals,
hospitals, petrol stations, hotels, entertaining and spa
facilities, shops located within the World Heritage zone,
and family businesses of less than 200 square metres.
In 2015, 38 Sundays will be affected considering the
Advent period (four weekends before Christmas) will
not be banned. which corresponds to a decrease of 10%
in trading hours per annum. If calculating this figure for
the whole year, the decrease in trading hours is
equivalent to 13% per annum, which is almost
three times higher than the loss caused by public
holidays.
Studies of trading liberalisation have confirmed the
presumption that larger retail schemes benefit to a
greater extent from the Sunday trading than their smaller
counterparts or high street retail, therefore with an
opposite regulation one would expect larger shopping
centre schemes and out-of-town retail warehousing
including big boxes, retail parks, outlet schemes will be
more hit.
Studies suggest that Sunday trading is important in fields
where time intensive search has importance. These are
the products where there are high consumer loyalty. We
consider that strong property fundamentals such as incity location, public transport links and tenant mix could
counterbalance the loss in trading hours.

Our investigations amongst core retailers reveal

that they are expecting a decrease in turnover
of 7-9% in the short-term. The impact of the new
regulation will be different amongst retailers and some
(e.g. cafes in shopping centres) will likely to be more
dramatic. Those who will likely be less affected will
move to alternative days or e-commerce or will seek to
open for longer hours, although the Government is
restricting retail trade beyond 6 am-10 pm on weekdays.

Studies also suggest that confectionery, tobacco and

drinks being goods with little consumer loyalty to
particular outlets, therefore here the Sunday closing
might have impact that is more significant. The view
however, of a prime FMCG retailer is that the regulation
will not affect the FMCG market, since they sell
essentials. Shops with 200 square metres or less GLA,
or those, which are family-owned will only be allowed to
open, meaning that large supermarkets / hypermarkets
will have to shut, losing a strong sales day and sending
customers towards smaller rivals. We consider in
situations like this, alternatives such as e-shopping and
delivery services are likely to be developed further, albeit
the government intends restricting Sunday delivery as
well.

Most retailers
believe that these
measures will not
last the ICSC is

currently preparing for

the public voting against
the regulation. Main
arguments include the
treat of significant staff
redundancies and lower
revenues through VAT.

The above will definitely

be a hot issue in the
coming months and will
emerge to cause
uncertainty on the
market. We are
continuously talking to
market players and will
keep you posted.

CUSHMAN & WAKEFIELD

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ORSOLYA HEGEDS MRICS
RICS Registered Valuer
Head of Research Hungary
Associate Valuation and Advisory
orsolya.hegedus@eur.cushwake.com