The commercial real estate market in Hungary has reached the bottom of the cycle but recovery is expected to be long and slow, according to analysts.

Improvement can be expected in 2011 with the industrial sector leading the way followed by the office market and then the retail sector, a new report from consultants King Sturge International says.

The high vacancy rate in the office market, some 25% in speculative buildings, will decline in 2011 largely because of a drastic decline of new delivery, the report says. This will allow the market to slowly absorb the available space in the next two years, bringing vacancy rate down to 16% by the end of 2012.

A more optimistic scenario may see the vacancy drop to 10%, but that assumes a faultless economic reform and bumper global economic growth. Some sub-markets such as CBD and Váci út corridor, will recover faster, but the further away from the downtown, the longer it will take to see a significant reduction in vacancies.

The major change created by the 2008/2009 crisis is that new developments will have to be pre-leased from 30% to 50% before construction can start, which historically rarely happened in the Budapest office market, the report points out.

The industrial real estate market was faster to adjust to the new economic difficulties. Developers stopped all speculative developments and currently only one warehouse is under construction on a Built-to-Suit (BTS) basis. Vacancy is high at 19.4%. ‘The market is still suffering from the Rynart bankruptcy which saw vacancies jump from 9% to 17% in 2008,’ the report says.

King Sturge believes that from an occupational perspective, the industrial sector will be the first to emerge from the crisis. ‘The Western Europe recovery will support Hungarian exports. In addition, the weak Forint and the excellent road network make Hungary an attractive logistics location. This will contribute to recovering demand for warehouse space,’ the report says.

The retail sector entered the crisis on a more solid footing than the other real estate sectors. Shopping centres are practically never built on a speculative basis and vacancy was always low. However, retailers are suffering greatly from declining consumption and high unemployment. King Sturge does not see any immediate improvements in these two factors.

The report points out that the government reform package will take time to generate jobs and increase Hungarian purchasing power with sectors such as the civil service facing pay cuts of 15%.

‘We are at the bottom of a long cycle, one that since 1992 has seen the emergence of a modern real estate sector. Supply and demand were growing year on year and even if rents were declining, yields were compressing. The global recession ended this cycle,’ the report explains.

‘Historically, all major European cities have experienced the same boom and bust and all have recovered. Budapest is facing its first serious crisis and it will recover, albeit slowly. But in every crisis there are opportunities. Tenants who are planning for growth can secure advantageous lease terms,’ it says.

‘Developments will have to be considered more carefully, with a better understanding of real market demand and not simply the volume of activity,’ it adds.

Source: http://www.propertywire.com/

China overtook Hong Kong as the world’s hottest housing market in the first quarter, with prices rising at more than double the rate of anywhere else, property adviser Knight Frank LLP said.

Values soared 68 percent in China’s main cities from a year earlier, according to a global index compiled by the London- based broker. Gains for Hong Kong, India, Singapore, Australia, Malaysia and Indonesia helped lift average prices in the Asia- Pacific region by almost 18 percent.

China’s real estate market is being fueled by limited investment opportunities available to locals and the migration of rural Chinese to bigger cities, according to economists at Barclays Capital. The gains suggest that government efforts to curb property speculation through such measures as loan restrictions and larger down payment requirements haven’t yet deflated the market.

“The top four positions in our rankings are all occupied by Asia-Pacific locations, whilst Europe dominates the bottom half of the table,” said Liam Bailey, Knight Frank’s head of residential research. Twenty-five of the 47 countries in the index registered house-price growth. Declines slowed in the most depressed markets of the Baltic and Ukraine, he said.

China’s economy grew at the fastest pace in almost three years in the first quarter, boosted by Premier Wen Jiabao’s $586 billion stimulus package.

China’s prosperity has benefited the region. Property values rose almost 31 percent from a year earlier in Hong Kong, and increased 24 percent and 20 percent, respectively, in Singapore and Australia, Knight Frank said.

China’s ‘Bubble’

The “bubble” in China’s property market is going to burst very quickly, with prices set to fall as much as 20 percent in the next 12 to 18 months, Sun Mingchun, a Hong Kong-based economist at Nomura Holdings Inc., said in an interview yesterday.

China’s banking regulator said this week that it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.

Investment in real estate rose 38 percent to 1.39 trillion yuan ($204 billion) in the first five months of this year, according to China’s statistics bureau.

Most of the countries where home prices fell in Knight Frank’s global index were in Europe. Estonia was the worst performer, with a drop of 40 percent in the first quarter from a year earlier, followed by Ukraine with a decline of almost 35 percent.

Values rose 8.8 percent in the U.K. and 2.3 percent in the U.S. In Dubai, which went from the world’s best performer to the worst during the global property slump, prices dropped 8.2 percent in the first quarter.

Source: http://www.businessweek.com/

new global property price index suggests that the real estate market in Dubai is recovering with average prices rising 1.6% in the first quarter of the year.

The latest Knight Frank Global House Price Index shows that the emirate’s real estate sector, which has seen prices tumble more than 50% during the global economic downturn, seems to have turned a corner.

There is further good news for the real estate sector with reports suggesting that fewer units are expected to come to the market this year. There had been fears that property prices could fall again if there was a flood of new properties released for sale later in 2010 and 2011.

The latest report though from Harbor Real Estate suggest there will be 50,000 units, down from its previous estimate of 60,000. The Dubai Land Department is even more optimistic. It had predicted that there would be around 43,880 units released in 2010 but it now expects that there will be a 40% fewer.

Knight Frank said that residential property prices in Dubai were 2.4% up on the figures for the third quarter of 2009 but were still 8.2% down on the year.

It puts Dubai in 38th position on its index which compares 47 property markets around the world, an improvement since the third quarter of 2009 when the emirate was the worst real estate market on the index.

Ukraine and the three Baltic states continue to occupy the bottom rankings with declines of more than 30% year on year. The top performers remain the Asian economies of China, Hong Kong and Singapore, all recording annual growth in excess of 24%.

The index also revealed that prices in the first quarter of 2010 increased in 53% of the locations monitored, with the Asia Pacific region seeing the strongest growth with prices increasing, on average, by 17.8%.

Annual price inflation for all global housing markets moved into positive territory for the first time since the last quarter of 2008, recording 1.6% growth in the year to March 2010, Knight Frank added.

‘A recovery in the global housing market is undoubtedly under way. Even the markets in some of the worst performing markets such as the Baltic States and Ukraine are starting to experience some respite, with prices falling at a slower rate than previously,’ said Liam Bailey, head of residential research at Knight Frank.

Source: http://www.propertycommunity.com/