Labour shortage reshaping the Budapest office market
The Budapest office boom remains for the next three years, and by 2022 approximately 600.000 m2 new office space will be added. Though the employment market changes will influence the office market as well: the effect of trying to get the best people, leads to occupiers’ new approach to the office market looking for multifunctional areas instead of the open space office. In addition, office fit-out cost increased substantially with 20-30% to accommodate the new requirements. Despite the increased total modern stock, there is not enough modern office building to meet the Y and Z generation’s employee’s needs, which partly answers the question of office rent increased 25% in Budapest. These are the focus points of VLK Cresa’s recent market outlook.
The significant changes on the Budapest office market are the effect of the employment market changes to a certain extent: companies are competing for the best workforce and in this process beside the salary packages the most effective tool that can be used to attract new talent are the modern, attractive office environments – confirms Valter Kalaus, the occupier focused VLK Cresa’s managing director, in his latest office market outlook. The effort to retain and attract the best workforce leads to an increase in the office space rents, transformed the office developments, and the HR leader’s role by bringing these more to the front. Based on Cresa’s Hungarian market experience today, beside the managing directors and financial directors, the HR directors also get involved in the office space projects. Ten years ago, from 10 projects only 2 times were the HR directors involved, whereas today from 10 transactions 6-7 times HR directors are heavily involved in the process. HR directors not only need to be involved but we see signs that become the leaders of the office projects – affirms Valter Kalaus.
Budapest’s modern office stock increased with 20% in the last 3 years, exciding 3,6 million square meters. The Cresa expert believes that this market growth will last in the next 3 years considering the development pipeline, with a 150.000 – 200.000 m2 new office space to be delivered every year. A total of approximately 600.000 m2 modern office stock increase is expected, which is approximately another 15% increase. With the modern office stock boost thus, there is a significant increase in rents and fit-out costs as well, and a further increase can be expected. Valter Kalaus points out an interesting market contradiction: despite the 25% rent increase in the last 3-4 years, the new modern office spaces are more in demand than the older offices, and despite the additional supply there is not enough good quality new office space available in the capital.
“In an average market transaction, the occupiers are looking for 700-800 m2 office space. 3-4 years ago, occupiers could choose from 6-8 good options, whereas today there is only 3-4 realistic options available and they must compete with another 2-3 potential tenants for it.” – points out Valter Kalaus the challenge. Based on Cresa’s market experience in 2016 on the Váci corridor, one of the most attractive office locations, the average office rent was around 13 EUR/m2 for an “A” category office building. Today this is around 16-17 EUR/m2 which is a drastic change considering all the new supply. There is much more money spent on the new office buildings on the design, and technical background to allow more natural light, more fresh air to increase employees comfort. Office fit-out costs increased 20% in the last three years in order to help employment retention. For example, for an IT company the total office fit-out cost today can reach up to 800- 1.000 EUR/m2 based on Cresa’s experience.
The employment changes have a massive impact on the real estate developments. 5 years ago, from 10 office fit-out in 9 cases open space layout was selected, instead of cubical solution – trying to save space – today from 10 office fit-out in 8 cases the preference is the multifunctional zones. Reason behind this being that the Y and Z generations don’t accept the classic working model, ie sitting behind a desk, and computer working style. Developers need to also accommodate services that match Y and Z generation needs: today the easy accessibility and the cheap canteen in the office buildings are not enough, the trendy cafes and good quality restaurants serving healthy food are a must in the new office projects – says Valter Kalaus.
Based on the expert opinion the HR director’s realised that the office space can be used as an efficient HR strategic tool, and not only the salary packages can help in the employment retention, and recruitment. However, the HR director’s real estate experience is limited. In the past mainly the companies above 200 employees used real estate advisor, today more and more companies with 50-300 employees tend to use external help.
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