"Due to a large supply pipeline and less certain demand projections for the next 3-4 years, no rental growth is forecast for that period ... There is no evidence of upward movements in rental levels. Nor are DTZ aware of cases of tenants competing for the same space and bidding rents upwards," says the report.
Prime Class A net headline rents in Budapest remain in the EUR 16-17 sqm-a-month range. Net effective rents, that is rents less various discounts and incentives, are EUR 1-2 below that.
Although one or two exceptional buildings achieve rents in the EUR 17-20 range, the majority of letting transaction are concluded at headline rents of EUR 12-14 and effective rental levels of EUR 1-2 lower, says DTZ. Class B rents at better buildings are in the EUR 10-11 range and in some cases sub EUR 10.
DTZ say that after three years of low supply in the Budapest office market, 2006 is set to see the start of a new cycle of office supply. In 2005 there was 73,000 sqm of new supply in Budapest, while there is 200,000 sqm planned for 2006 and a possible 330,000 sqm for 2007.
Take-up of new office space in 2005 was an all-time record at approximately 237,000 sqm, compared to 230,000 sqm during the previous year. However, take-up in the last quarter of the year was down on earlier quarters. Only 19% of take-up was generated by new market entrants, with a sizable proportion coming from lease-renewals and upgrades, according to the report.