Rents on the Budapest office market are set to rise according to Cushman & Wakefield, involved with leasing more space than any other agent in the market. The continued recovery is driven by sound economic, demand and supply fundamentals.

According to Oxford Economics, Hungary was the strongest growing European economy in 2014. The increasingly favourable macroeconomic prospects has helped to increase in occupier activity, which Cushman & Wakefield expect to remain relatively robust in the remainder of 2015. With limited development of class A space since the turn of the decade, vacancy rates (currently standing at 14.2%) have steadily decreased and now sit below Central European competitors such as Prague for the first time.

Supported by an outstanding, historical record take up, 12% up on last year’s H1 leasing volume, net absorption currently stands at 40% higher than a year ago. As demand continues to outstrip supply, letting activity will erode further the current overhang of space, increasing absorption further in H2 2015.

All this is expected to revive new office developments in the pipeline - although it will take some time for the new schemes to be delivered.

Commenting on the activity in the Budapest office market, Orsolya Hegedus, Associate, Head of Research at Cushman & Wakefield Budapest, said, “The Budapest office market continued its rally in the first half of 2015: take-up levels reached 280,000 square metres of which Q2 alone has seen 213,500 square metres. This is the highest quarterly figure on record, whilst the high activity was supported by a few significant deals, such as the T-Com’s pre-lease of 55,000 square metres. The outlook for the remainder of the year remains positive, and as demand continues to outstrip supply, the vacancy rate in Budapest will continue to fall further resulting in tenant incentives to continue to shorten for the best space. We expect this will increase the possibility of positive rental growth in the very short term in the most preferred submarkets of large occupiers, and will pave the way for speculative construction."

Mike Edwards, Head of Capital Markets, Valuation & Advisory commented “the real estate fundamentals are clearly in Budapest’s favour. The limited supply over the past five years means we have a shortage of high quality buildings, yet record levels of demand from discerning tenants who recognise that working environment is key to the recruitment and retention of high quality staff. Rents will rise and yields will compress - it will take a couple of years before supply is in a position to respond - so we are clearly at an optimum point in the cycle to invest."