Portfolio.hu: What do you anticipate on the Budapest property market in terms of yield compression?
Norbert Galfusz: I think the yields still have some room to decrease and I believe they will go lower because there is a lot of investment capital on the market that needs to be invested. Therefore there is a great pressure on yields, which is on the one hand good for the developer but perhaps not so good for the market as a whole. What we see now that the market is turning to forward purchases, which was quite unusual 1.5 or even 1 year ago. For several reasons, we never forward sell our properties.
Development activity is huge in Budapest, while the take-up is not bad, but not as rapid as development. As a consequence of this, vacancy rates are likely to increase on the Budapest office market. However, I do not expect rents to go any lower from the current level, since I believe that rents in average are very low in Budapest. They are nearly as low as they are in Vienna, which is really the bottom of the Western-Central European market. It is simply not feasible for developers to decrease the rents.
Portfolio.hu: Do you have plans for regional expansion, to enter markets with higher yields than in Hungary?
Norbert Galfusz: Yes, we will establish a local office in Romania very soon and start commercial and residential developments there Yields in Romania are unhealthily low but Romania is a big country with a lot of potential and a lot of need for office, retail and industrial space. Of course we will start development in Bucharest but we also consider secondary cities.
Our other potential destination is Vietnam; we are investigating investment opportunities there as well. The country has a huge potential, 70% of the 85 million population is younger than 30 years and economic growth is about 8%. The market situation of Vietnam is comparable of what happened 17 years ago is Central Europe. So we are quite confident to start some developments in the next 6-12 months, first hotels and then offices and residential.
For the complete interview, please see Portfolio.hu