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The Hungary real estate report examines the commercial office, retail, industrial and construction
segments throughout the country in the context of continuing domestic and regional economic weakness.
With a focus on the principal cities of Budapest, Gyor and Debrecen, the report covers the rental market
performance in terms of rates and yields over the past 18 months and examines how best to maximise
returns in the commercial real estate market, while minimising investment risk and exploring the impact
of government austerity on a market already characterised by a static supply and demand dynamic.
Hungary's real estate market, like so many others, was seriously damaged by the global financial crisis.
An uptick in demand for office and retail space, as well as industrial property will only arise in tandem
with a broader economic recovery. Nevertheless, this is once again under threat as Hungary's economy
continues to struggle as a combination of slowing economic activity across Western Europe and severe
financial stresses at home weigh heavily on all components of GDP by expenditure.
In spite of the weak economic backdrop, and a construction sector which continues to be under pressure,
our latest data collection from Hungary - covering the first six months of 2012 - has revealed a
cautiously optimistic outlook over the medium term. While our indicators were not unanimously positive,
the landscape represents a fairly steady start to 2012 as the numbers have remained broadly constant, with
Gyor holding the most promise in terms of annualised performance. We do not anticipate an immediate
change in fortunes for the sector, but believe that by 2013 the country will see a much improved pipeline
and real estate outlook.
The continued deterioration in economic activity in the eurozone, and the failure of the
government to thus far reach an external financing arrangement with the IMF/EU continue to
weigh on all areas of the economy. As it stands, net exports will provide some degree of support
to headline growth this year given how weak import demand has been, however, risks to our
growth medium-term growth forecasts lie firmly to the downside.
The Hungarian construction sector will become a victim of the country's poor macroeconomic
conditions and register yet another year of sharp contraction in 2012. In line with our
increasingly pessimistic outlook for macroeconomic growth in the country, we have revised
down our forecast for the construction sector in 2012 from a marginal 0.2% year-on-year (y-oy)
contraction to a 5.5% y-o-y decline (in real terms). However, we expect the sector to tread on
a positive growth territory during the rest of our 10-year forecast period, helped by favourable
base effects and investments in infrastructure and non-residential construction projects.
We expect the infrastructure segment to increase its contribution to the construction industry
value to 48.4% by the end of our 10-year forecast period in 2021, compared with its estimated
share of 46.4% in 2011. The use of EU co-financed infrastructure investments will be the key
driver of growth in the sector. Meanwhile, growth in the residential and non-residential subsector
will average 2.5% y-o-y between 2013 and 2021, primarily helped by private sector
investments in non-residential buildings.