According to Hungarian press, Orco won the bid to buy an office building with 6,000sqm in Budapest, Hungary for USD 11.5m (EUR 8.7m) implying price USD 1,900/sqm (EUR 1,450/sqm). The office building is adjacent to a parking garage Orco already owns and near to the Hungarian capital's main shopping street. Orco plans to demolish both buildings and erect new modern office instead. No specification about possible rental space have been provided for the moment.
Our view: It is fair to say that Budapest real estate market is not so favorable as Prague's and Warsaw's, where the rents already started to increase in the 2H2006, while they have been stagnant in Budapest and where the vacancy rates are below those in Budapest (10.6%). Average prime office yields are 6.0%, higher than in Prague (5.75%) or Warsaw (5.5%) and provides slightly higher space for contraction. The location of the property seems favorable and together with Orco's approach towards the design of it buildings it could attract renouned tenants. We see the price for the acquisition as fair.