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06.07.2012

Bank Austria Real Estate Country Facts:
The Austrian real estate market – an oasis of calm?

  • The Austrian real estate market is a small, stable market with income returns of 5 percent in the last eight years
  • Real estate investors focus on core properties resistant to the crisis, leaving some market opportunities untapped
  • "Bricks and mortar, not savings accounts": private investors bank on "concrete gold" and therefore drive prices of residential real estate upwards
  • Budgetary constraints reduce subsidised housing construction in Austria, privately-financed construction thus increases in importance
  • Viennese office market considered one of the most stable in Europe – new builds of 250,000 m² expected in 2012, half of which from upgrades, conversions and extensions
  • Austria has a highly developed shopping centre market: with 323 m² of lettable space for every 1,000 inhabitants, Austria has the eighth-highest density by European comparison

Austria's economy and therefore the real estate sector are suffering under the debt crisis in the eurozone. However, with forecasted GDP growth of 0.8 percent this year and the lowest unemployment rate according to the EU definition, Austria is considered to be a "role model" in the eurozone. This benefits the Austrian real estate market too. Nevertheless, risk appetite in Austria has also slumped considerably. Commercial real estate investors are focusing above all on core real estate, which means properties in high-quality locations – with tenants that have strong credit ratings – that are considered immune to crises. Private investors, who frequently require no banking finance, are fleeing into "concrete gold" and therefore driving the prices of residential real estate upwards. The strong demand for buy-to-let apartments and rental apartment buildings (more than 50 percent of buyers are private investors) has led to a sharp decline in yields as these investors prioritise their original investment over any return. Reinhard Madlencnik, Head of Real Estate Bank Austria, reckons there is no bubble as the Austrian real estate market is principally driven by equity capital. "The Austrian real estate market has an adequate supply of equity capital. The clear dominance of equity capital means that this market is like a balloon which rises slowly – there are no blow-outs here, and the risk of a crash is also low", stressed Madlencnik. Karla Schestauber, real estate analyst at Bank Austria, goes on: "We hope that the measures taken to stem the crisis will soon have an effect at European level. The longer the real estate sector is driven by reflections on the crisis, the greater the risk of one or other such factor disrupting the relatively "boring" Austrian real estate market.

Austria has a stable real estate market – small, but in good shape
At the end of 2011, Ernst & Young surveyed companies and investors active on the Austrian real estate market in previous years about their general views on the real estate investment market in Austria. More than half of them viewed Austria as an attractive location for real estate investments in comparison to other European countries. Calculations by the Investment Property Databank GmbH (IPD) show that the Austrian market has been relatively stable over the last eight years – income returns in recent years have been around 5 percent across all property categories. In terms of 2011 as a whole, the total return amounted to 6.3 percent, whereby the income return was 4.7 percent and the capital growth 1.6 percent. With this result, Austria was above the European average in 2011.

Overall interest cost burden for real estate financing remains moderate by historical comparison
Surveys show that people are complaining in Austria too about the unwillingness of banks to finance real estate transactions. The high refinancing costs of banks, which are passed on to customers, are seen as one of the main obstacles. However, the overall interest cost burden (Euribor plus the bank margin) remains at a modest level by historical comparison. "Uncertainty will persist until a solution is found to the eurozone crisis. This means that banks’ refinancing costs will remain fairly high and real estate investors will continue to be cautious.  "Consequently, counter-cyclical market opportunities are not being exploited", added Madlencnik.

Austria (still) offers good and affordable residential housing
Living space per capita and the quality of the residential housing stock in Austria has undoubtedly improved in the past few decades. The average usable space per person has risen from 33 m² in 1990 to 43 m². All told, the supply of residential housing in Austria is good by international standards. However, the success of Austria’s housing policy is not so much reflected in the size and quality of apartments, but in the fact that housing is affordable for the majority of the population. Housing costs (including energy expenses) account for 22 percent of private households’ spending. This is below the EU-15 average of 24 percent. Surveys of European households reflect the findings on consumer spending: irrespective of the legal form of residence, the proportion of Austrian residents who consider themselves "overburdened" by housing expenses is among the lowest on the continent.

An international comparison reveals that apartment and house prices have increased only modestly in Austria: over the past decade, the nominal average national increase was 25 percent, compared with 46 percent in the eurozone. However, the average price rises disguise steep increases in some segments, in particular in major conurbations and the luxury segment. In Vienna, real estate prices climbed by 8 percent in both 2010 and 2011, compared with 5 percent in the rest of Austria.  Madlencnik adds: "This is why it is particularly important for subsidised housing construction to continue being used as a counter measure, as otherwise, low-income parts of the population will be sorely affected."

Viennese office property market: new lettings remain subdued
Although the Viennese office property market is still relatively stable in Europe, with comparatively low vacancy rates, there are some clouds on the horizon: again, new letting in the segment is slow. According to CBRE, new rentals fell once more from around 275,000 m² in 2010 to some 260,000 m² in 2011. Large-scale new rentals are currently the exception, and relocations still account for a substantial proportion of new lettings. In 2011 the construction of new office space in Vienna increased slightly to 180,000 m² from 165,000 m² in 2010. This figure is expected to rise to 240,000 m² in 2012. Refurbishments and modernisations (Green Building Standard) play a significant role. Upgrades, conversions and extensions will account for almost half of the office space that comes onto the Viennese market this year.

Shopping centre market – old and less attractive models under pressure
Roughly 40 percent of Austrian sales space is located in Vienna and the surrounding area. At the start of 2012 Vienna had 29 shopping centres with a total lettable space of around 850,000 m², of which about 670,000 m² was dedicated sales space. These totals include Austria’s largest shopping centre, Shopping City Süd, which is located to the south of the capital. Vienna offers 496 m² of shopping centre space for every 1,000 inhabitants. In a European comparison Austria has the eighth-highest density with a total of 323 m² of lettable space per 1,000 inhabitants. Madlencnik emphasises that "the Vienna market is well supplied with shopping centres. The growth in shopping centre space will come to a halt for the next few years after the opening of "G3 Shoppingresorts Gerasdorf" and railway station space." "As the volume of available space expands, the pressure on older shopping centres is growing, and they will have to respond with refurbishments and modernisation", concluded Schestauber.

Enquiries: Bank Austria Press Office Austria
 Julia Wegenstein, Tel. +43 (0) 50505 - 52854
 E-Mail: julia.wegenstein@unicreditgroup.at

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