HUNGARY. Country Snapshots. First quarter Please click on the appropriate sector to view. Offices Retail Industrial.

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1 Country s First quarter 2017 Please click on the appropriate sector to view Offices Retail Industrial About & Contacts

2 Office Market The Hungarian office market continued to enjoy healthy activity levels over the first quarter. After a sharp slowdown in GDP growth to 1.8% in 2016, the Hungarian economy will accelerate in This, together with the continued monetary easing, will strengthen positive business sentiment. The Budapest office market continues to be landlord favourable. Only 5,500 sq.m of new space was delivered in Q1 over one building, however, there will be a new supply of 100,000 sq.m released this year. Although Q1 take-up was slightly lower than the trend, we expect 2017 levels of take-up to be similar to 2016 as there are several large occupiers active on the market. Pre-leases and new leases continue to account for the largest transactions, but the lack of quality grade a space available in 2017 will in all likelihood increase renewals, but pre-leases should dominate in terms of deal size. In a continuation of the investment activity trends seen last year, several landmark office buildings were acquired in Budapest. The largest acquisitions were made by OTP RE Fund including the purchase of Atenor s Váci Green s B and the recently handed over Corvin Nokia Skypark, already enjoying full occupancy. hardened over the quarter, standing at 6.25% for prime office schemes. As investor appetite for prime assets strengthens, coupled with the known deals in the latter stages of negotiations, indications are for a highly active year ahead. Overall, the outlook is positive and we anticipate 370,000 sq.m of new supply in Budapest for 2017/18. Given the surge in occupier activity, we expect headline rents will enjoy some growth in the short term. Prime Rents: Headline rents continue to harden and increase for Grade A product as availability continues to diminish. Prime : The interest from regional and local funds remain strong, it is likely that prime yields are to strengthen over the following quarters. Supply: Vacancy to fall slightly as new space in the 2017 pipeline is already 50% absorbed. Demand: Investor and occupier demand are anticipated to remain healthy over Prime Office rents March 2017 LOCATION US$ GROWTH % 1 5 Budapest (CBD) Budapest (Central Buda) Budapest (Váci Corridor) Budapest (Periphery) Prime Office yields March 2017 LOCATION Budapest (CBD) Budapest (Central Buda) Budapest (Váci Corridor) Budapest (Periphery) Yield - Country Average 9.00% Rental Growth - Country Average

3 Retail Market After a slowdown in GDP growth in 2016, the Hungarian economy will accelerate in 2017, primarily driven by consumption, which is expected to rise 4.6% in 2017 after 5% growth in An increasingly tight labour market has resulted in a record-low unemployment rate and in significant wage pressures. High wage growth and subdued inflation are resulting in higher real earnings growth, which is likely to have exceeded 5% in 2016 and is expected to be around 4% in Occupier demand for prime high street and dominant shopping centre locations remains strong and rents are under pressure to rise. This was already reflected through 10% year-on-year rental growth in prime high street retail and 6.7% year-on-year growth for rents in prime shopping centre locations. Whilst rents have remained unchanged over the quarter, prime rental levels are anticipated to increase further as 2017 progresses. Landlords of existing shopping centres are concentrating on modernising or refurbishing their projects. Prime examples include Mammut and Shopmark (former Europark). Shopping centre development activity has remained limited during the last three years, but the significantly improved market conditions has motivated developers to commence a series of new schemes including the 37,400 sq.m IKEA retail warehouse in Budapest (due for delivery in Q2 2017) and the 53,000 sq.m Etele City Centre in Budapest (Q4 2019). Total retail property investment volumes in the first quarter of 2017 were above 210mn, represented by the acquisition of CBRE GI portfolio by CPI. Prime yields currently stand at 5.50%. Looking ahead, investor interest in the Hungarian market is expected to increase further throughout the remainder of 2017, with a number of deals already well progressed through demand from international investors seeking prime shopping centres or retail parks. With investor interest picking up and more product coming to the market, a further hardening in prime yields is anticipated. Prime Rents: Prime : Supply: Demand: Further increase is expected in prime retail rents, with strong upward pressure on Váci utca. Further hardening in prime yields are anticipated across all sectors as activity picks up. Limited new supply, with an IKEA retail warehouse is currently under construction completing in Q Strong occupier and investor demand for prime retail locations is set to persist. Prime Retail Rents - March 2017 HIGH STREET SHOPS US$ GROWTH % 1 5 Budapest (Váci utca) 110 1, Budapest (Andrássy út) RETAIL PARKS US$ GROWTH % 1 5 Budapest Budaörs Prime Retail - March 2017 HIGH STREET SHOPS Budapest (Váci utca) Budapest (Andrássy út) RETAIL PARKS Budapest Budaörs SHOPPING CENTRES Country prime

4 Industrial Market The Hungarian industrial market continued to enjoy healthy activity levels over the first quarter. GDP growth, which is expected to accelerate in 2017, together with continued monetary easing, will strengthen positive business sentiment. Labour shortages, however are putting pressure on the Budapest market in particular. As in previous quarters, the automotive sector, along with occupiers from the logistics and the dynamically expanding e- commerce segments, are the main drivers of demand. Two schemes totaling in excess of 40,300 sq.m of new industrial space were handed over during Q1. Due to the high share of pre-leased space in these units and build-to-suit remaining more or less the only viable way of entering the market, supply still cannot match the requirements of new entrants and expansions. Low vacancy rates and increasing construction costs have started increasing upwards pressure on rents; however, rental levels remained stable in this quarter. The industrial investment market recorded healthy activity levels in Q1, supported by the acquisition of Dél Pesti Üzleti Park by Diófa and M7 s acquisition of Aerozone. Whilst yields remained stable over the quarter, yield hardening is expected as 2017 progresses due to increased competition for the best assets, which are scarce. This may force investors to divert their attention to stable countryside projects. There is around 80,000 sq.m of new space scheduled to enter the market by the end of this year, which should bring some temporary relief to the occupier market. Developers are beginning to assess speculative build options, but this is from a low base, and any schemes are expected to be absorbed with relative ease. Development sites are highly sought after with all ongoing logistics developments remaining Budapest focused. Manufacturing industries however, are focusing on smaller countryside regions. Prime Rents: Prime : Supply: Demand: Very limited available warehouse space is putting upwards pressure on rents for the best units. could sharpen further as investor demand solidifies. Existing new supply is practically fully pre-leased for It is expected that this will be followed by speculative developments breaking ground. Pre-lease agreements and BTS activity is likely to accelerate in 2017 from tenants wishing to secure space for market entrance and expansions. Prime Industrial Rents March 2017 LOGISTICS LOCATION US$ GROWTH % 1 5 Budapest Debrecen Miskolc Győr Székesfehérvár Prime Industrial March 2017 LOGISTICS LOCATION Budapest Debrecen Miskolc Győr Székesfehérvár Yield - Country Average 10.00% 9.00% Rental Growth - Country Average

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