Bank Austria Real Estate Country Facts:
Austrian real estate market: a small market in good shape with potential
- The Austrian real estate market is a small, stable market with net cash flow returns of around 5 percent in the last nine years
- Austria is considered a low-yield country in Central Europe: investors are becoming more willing to take risk, real estate with development potential is becoming more appealing
- Viennese office property market: new lettings are slowly picking up momentum – new construction volume of 205,000 m² expected in 2013
- Shopping centre market – old and less attractive models under increasing pressure from online trading
- Austria offers good and affordable residential housing by international standards – but strong price gains in 2012
According to Reinhard Madlencnik, Head of Real Estate at Bank Austria, “there were two sides to the first half year of 2013: on the one hand, only EUR 430 million was invested in the small Austrian real estate market according to data from CB Richard Ellis (CBRE), bucking the European trend. This amounted to approximately EUR 100 million less than in the same period in the previous year. On the other hand, demand for real estate loans has picked up. In the first half-year of 2013, the Real Estate division at Bank Austria recorded new business of more than one billion euros, the best result for years: the pipeline is well stocked and we assume that investments in real estate will rise in the second half of 2013 and 2014”. Liquidity costs in the Austrian banking sector have fallen markedly from their crisis peaks, but are still sitting at an elevated level. Nonetheless, the very low key interest rates in the eurozone mean the overall interest burden on customers remains relatively low. “Our customers confirm to us that Austrian real estate investors and developers are largely satisfied with the lending practices of banks. The lending structures, which are still more conservative than before the crisis, are even welcomed to a certain extent as they prevent an overheating of the market”, stressed Madlencnik.
Austria has a relatively stable real estate market – small but in good shape
The Austrian property index of the Investment Property Databank (IPD) comprising a portfolio of office, retail, commercial/logistics, residential and other property shows that the overall return of the examined Austrian portfolio in 2012 was 6.2 percent (1.2 percent capital growth and 4.9 percent income return). The annual data series reveals that income returns in Austria over the last nine years have been relatively stable at around 5 percent. This means that the Austrian market is living up to its image of being a relatively stable market. Karla Schestauber, real estate analyst at Bank Austria: “The expected improvement in the economy is paving the way for the Austrian real estate market to continue performing well. The economists at Bank Austria have revised their 2014 GDP forecast for Austria up to just under 2 percent. This means the Austrian economy is performing much better than the European average, which will benefit the Austrian real estate market too.”
Austrian commercial real estate market on right track
Prime yields in Austria are relatively low in the office and retail sphere. The 5-percent mark was breached to the downside on the office market with roughly 4.8 percent. As for shopping centres, prime yields are sitting at around 5.5 percent, with DIY stores roughly one percentage point higher. By Central European comparison, Austria therefore numbers among the low-yield countries. Madlencnik adds: “We can thus assume that real estate with development potential offering higher yields will become attractive for investors again. Investors are becoming more willing to take risks, and increasingly seeking not just prime properties, i.e. ones in excellent locations with very good rental contracts. Real estate with development potential is becoming more appealing too.”
“We can still see potential for a reduction in yields”, added Schestauber, “but the increase in interest at the long end of the curve is limiting this potential”.
Viennese office property market: new lettings pick up momentum
The Viennese office property market is still one of the most stable office markets in Europe, and in comparison to other European countries boasts a moderate vacancy rate of 6.5 to 7 percent. New lettings in the first half of 2013 rose by nearly a quarter in comparison to the same period in the previous year. At the same time, the production of new space is stagnating at a level slightly below the previous year. The volume of new construction is expected to rise to about 205,000 m² in 2013. The majority of office space to be completed in the Austrian capital in 2013 is located in DC Tower 1 in Vienna’s “Danube City”. Alongside hotel space, approximately 44,000 m² of office space will also be created here.
Shopping centre market – old and less attractive models coming under increased pressure from online trading
Roughly 40 percent of Austrian sales space is located in Vienna and the surrounding area. Around the middle of 2013, Vienna had 31 shopping centres with a total lettable space of around 940,000 m², of which about 730,000 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. This means the Vienna market is well supplied with shopping centres. Vienna’s Main Station is the last shopping centre project under construction for the time being. This is to bring a further 20,000 m² of sales space to the market in 2014. Yet shopping centres are not just competing with each other, they also have to face the internet. “Online trading is intensifying the already fierce competition in retail. This is only heightening the pressure on shopping centres with unattractive brand mixes and/or locations”, said Schestauber, analysing the situation. “There is still demand for good shopping centres that are appealing for their entertainment value too.”
Austria offers good and affordable residential housing – strong price gains in 2012
Rising demand triggered partially by the crisis prompted a robust increase in residential property prices, which peaked last year with average growth in Austria of 12 percent, and in Vienna of nearly 16 percent. The pace of the price hikes slowed in the first half year of 2013, which suggests that general conditions are increasingly returning to normal. Despite this marked price growth, it must not be forgotten that subsidised housing construction contributes to keeping housing costs relatively low in Austria by international comparison: housing costs account for 22 percent of private households’ spending, while the figure for an average EU-27 household is 24 percent. Nonetheless, housing expenditure overall for the population is rising more quickly than total consumer spending: growing by 16 percent in nominal terms from 2007 to 2011 compared to 13 percent. “There is a myriad of reasons for the relatively high rent growth. In recent years the share of subsidised new building has fallen in Austria, down by almost a quarter since 2009 relative to the number of granted subsidies. At the same time, subsidies flowed into redevelopment, funds that were lacking in new construction”, summarised Madlencnik.
Enquiries: Bank Austria Press Office Austria
Matthias Raftl, Tel. +43 (0) 50505 - 52809