Spatial structure of the Budapest office market

Abstract

In this study, the spatial structure of the Hungarian capital’s office market is examined. The authors collected and processed a detailed database covering Budapest’s office market. Our collection of data consists of more than three hundred advertisements concerning office space and covers the whole rental office market of the city. Classic theories highlight the importance of the distance from the city centre in the justification of office rents. More recent research focuses on the phenomenon of clustering. Both ideas are tested in the study.

The logarithm of rents is explained. We allowed the slopes to be different on the Buda and the Pest sides. The regression shows a strong connection between the measured distance from the city centre and rentals, which is slightly smaller on the Buda side.

We also ran a more detailed regression, explaining rents with other observable characteristics. We estimated differently specified models from our dataset, which includes 339 Budapest offices and their features. Out of the explanatory variables, the distance from the city centre showed significant results even after adjustment for other features of the buildings. All other factors being equal, the 23% premium on A-category buildings can also be shown statistically. Although we tried out different specifications concerning ages and rents of the buildings, and although the rents of newer offices are higher (as was to be expected), the category classification determines the connections more strongly. This means that only a difference of a few percentage points is to be expected in the prices of two A-category buildings with only a few years’ difference in age.

The premiums within the various submarkets are difficult to detect statistically, because even though their signs and scales are plausible, due to the small sample size the results are not significant. In the case of the Central Business District (CBD), the most valuable factor is the proximity to the centre, which is already factored into the distance coefficient. However, in the case of the Váci út Corridor an approximately 10% premium is also clearly discernible, although it does not directly belong to the city centre when measured in kilometres. It is evident that in Buda even higher premium values of about 15% can be seen in the popular submarkets: the historical and topographical conditions of Buda do not allow for the construction of tall and modern buildings close to the CBD, therefore other locations increase in price even if they are further away from the centre. No substantial premiums could be found for the Millennium City Centre and the 11th District (Infopark).

Finally, it is worth mentioning that the relationship between rents and vacancy rates can be interpreted as well. Holding all else constant, an emptier office building implies lower rents. This may be explained by economic causality, namely that greater local supply has a downward pressure on rents. It is also possible that other features – not observable in our database – have an effect on both variables: for example both rents and the proportion of rented offices could be lower because the neighbourhood of the office building is very noisy.