Expert Expects a Downturn
Uncertainty and a wait-and-see attitude currently characterize both the tenant and landlord sides of the Hungarian office market. From next year onward, key market players will already be subject to ESG reporting obligations. While the main principles of the regulations are known, the detailed implementation rules are still pending. Zsolt Kákosy MBA MRICS, Senior Director of Property Management at ICON, believes that the new regulatory framework will further intensify market polarization, and those who prepare for the changes in time will emerge as winners.
The COVID-19 pandemic reshaped office usage habits, creating uncertainty on both the tenant and landlord sides. Unemployment remains low, companies are competing for high-performing employees, and they are well aware that with the spread of home office arrangements, not all employees can be “steered back” to their desks. Companies that have decided to relocate in response to these changes typically lease smaller office spaces than before and no longer plan for 100 percent on-site presence. Many others, however, are still waiting, working on defining the optimal working model and the office environment that best supports it.
Further uncertainty for both tenants and landlords stems from the fact that the detailed rules for preparing sustainability reports based on ESG requirements have not yet been finalized. At the same time, it is clear that meeting the new requirements will require additional investments and developments on the ownership side. Securing the necessary financial resources is currently challenging due to high yields and interest rates, creating difficulties on both the debt and equity sides. Market participants are also affected by changes in property values and generally lower price expectations from buyers. In this more challenging financial environment, it will become clear which players are more capitalized and creditworthy—those who will be able to carry out the investments required by ESG expectations (potentially in cooperation with tenants) and thus gain a competitive advantage over less capitalized or over-leveraged market participants.
“In this period of transitional uncertainty, companies involved in property management are tasked with mediating between tenants and landlords, creating a balance between the expectations of both sides, and coordinating financial, regulatory, and market requirements with technical possibilities. In my conviction, this task can be handled efficiently if property management (PM) and facility management (FM) are integrated under one umbrella and if there is close cooperation with representatives of both sides,”
-says Zsolt Kákosy MBA MRICS, Senior Director responsible for Property Management at ICON Real Estate Management.
He expects that the introduction of ESG standards may primarily lead to a downturn and higher vacancy rates in the less capitalized and lower segments of the office market. At the same time, properties whose owners have already ensured a high level of service through continuous maintenance, refurbishments, the involvement of appropriate expert support, and effective tenant dialogue will gain in value.
According to Zsolt Kákosy, the tightening of sustainability requirements may trigger a wave of refurbishments—potentially carried out jointly with tenants. However, he also pointed out that while such developments are highly visible, their costs over the full life cycle of buildings are significantly lower than ongoing maintenance and operational expenses. Therefore, sustainability and return-on-investment considerations must be carefully balanced even during refurbishment projects. All of this further strengthens the role of PM and FM partners in the near future—partners who are capable of managing these tasks efficiently over the long term and of providing the data required for ESG and sustainability reporting.
