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19.10.2009

Vienna's real estate market has high long-term development potential

  • Bank Austria Real Estate presents new study about Austria's capital
  • "Unspectacular" office market proves to be asset in crisis
  • Shopping centres concentrate on high-sales segments, moderate price development for apartments

Vienna is one of the most prosperous cities in Europe. The standard of living in Austria's capital is 125 per cent of the national average and over 180 per cent of the EU average, and is rooted especially in the city's highly successful services industry. Over 300 multinational companies have set up head offices in Vienna to manage their activities in the region. "Vienna profits especially from its very good infrastructure and a high level of security and social stability," stressed Reinhard Madlencnik, head of Real Estate at Bank Austria.

Slow moving office market – an advantage in the crisis
The Viennese office market is one of the most stable office markets in Europe. In contrast to other western European metropolises such as London, Vienna saw no dramatic decreases in top rental rates. And its rather slow and unspectacular pace of development has proved to be an advantage in the current situation. Nevertheless, the crisis had a noticeable impact in the construction of new office space and new rentals in the first half of 2009. "Even though Vienna's office market has not been immune to the effects of the international economic crisis, it has been hit much less severely than many other European capitals," noted Madlencnik.

Vienna currently has in excess of 10 million square metres of office space. According to CB Richard Ellis, roughly 250,000 square metres of newly built space came onto the market in 2008, and only about 180,000 new square metres are expected this year. At the same time, new rentals are expected to fall from 400,000 square metres in 2008 to less than 300,000 square metres this year. "More space was rented to new tenants than was built in recent years, which caused a slow and relatively constant increase in rental rates," explained Bank Austria real estate analyst Karla Schestauber. Vacancies in the premium office space segment are currently at around 5 to 6 per cent, which is very good in European comparison. The vacancy rate is expected to increase more rapidly in 2010, however, because considerably more new space will be coming onto the market. "As in any market economy, the increase in supply will put pressure on the rental rates, especially at less attractive locations and for lower quality classes," said Schestauber.

Peak yields increased slightly in the first half of 2009 compared to 2008, and were at roughly 5.5 to 6 per cent depending on the specific project. As things stand now, yields are expected to stabilise at their current high levels, but a further moderate increase is also possible.

Competition heating up further in the retail segment
With a total of roughly 1.3 million square metres (including Shopping City Süd), Vienna claims roughly 37 per cent of Austria's total shopping centre space. Roughly one fourth of all shopping centres in the country are located in the federal capital, and they are clearly dominated by fashion outlets. According to RegioPlan, fashion retailers occupy 30 per cent of Vienna's shopping centres, followed by food retailers with a share of roughly 20 per cent. The larger the shopping centre, the greater the share of space occupied by clothing retailers in general. "The shopping centres are trying to replace DIY outlets and furniture stores, which have low levels of sales per square metre. When space becomes free, they try to attract tenants with significantly higher levels of sales per square metre," said Madlencnik. Peak yields in the shopping centre segment were roughly 6 to 6.25 per cent and rising slightly as of the middle of 2009.

The premiere shopping boulevards in Vienna such as Kärntner Straße and Mariahilfer Straße have roughly 200,000 square metres of retail space in total. Because of the relatively limited supply of new space, rents at premiere locations are expected to remain stable. Peak yields are currently between 4 and 4.5 per cent.

Affordable housing also makes Vienna attractive
Need for new housing is driven primarily by demographic trends, especially the changes in the number of households. The current economic crisis is having little impact on demand for housing. The purchase of flats as primary residences is being postponed in some cases, but there is still strong demand for well equipped buildings in densely populated areas.

One particular feature of Viennese housing development is the dominance of non-profit development associations, which build two thirds of the residential buildings in Vienna overall. In Austria as a whole, such associations account for well less than half of the new housing that is built. The success of Vienna's housing policy can also be seen in the relatively moderate development of rents, though there are high differences in price depending on the location, as is the case in most large cities.

The Vienna housing market has remained relatively stable in recent years despite a below-average level of construction and an above-average increase in the number of households. This means that most of the demand for apartments was absorbed by the available supply, and that there were no market-distorting levels of excess demand. "The role played by the government in housing construction in the form of non-profit builders and its subsidy programmes most certainly plays a stabilising role," summarised Schestauber. However, in order to remain attractive, Vienna will need to begin building greater numbers of new apartments than it has in recent years.

The full version of Real Estate Country Facts "Vienna's real estate market – conservative taste sets the tone" can be downloaded  here.

Enquiries: Bank Austria Press Office Austria
 Tiemon Kiesenhofer, tel. +43 (0) 50505 ext. 52819
 E-mail: tiemon.kiesenhofer@unicreditgroup.at

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