Bank Austria Real Estate Country Facts Austria:
Liquidity driving the market
• Austrian commercial real estate market growing rapidly – record volume of commercial real estate investments possible in 2014
• Bank Austria Real Estate aiming for significant increase in new business in 2014
• Viennese office market: new construction at low level – good opportunities for developers
• Viennese housing market slightly imbalanced – is renting more attractive?
• Austrian commercial real estate market one of the most stable according to annual IPD net cash flow return calculation
According to Reinhard Madlencnik, the head of Real Estate at Bank Austria, "Investors searching for yields are driving the market. Austria saw a very substantial increase in investment in commercial property in the first half of 2014, with half of the associated demand coming from abroad. According to data from CBRE, roughly EUR 1.33 billion were invested, nearly three times the volume from the first half of 2013. This made the Austrian market considerably more dynamic than the European market as a whole, which saw an increase in investment in commercial real estate from just under EUR 68 billion in the first half of 2013 to EUR 84 billion. This boosted Austria's market share from less than 1 per cent in the previous year to around 1.6 per cent."
Demand for retail properties remained robust, with the sale of the G3 shopping centre in Gerasdorf and Shopping Center Nord in Vienna contributing substantially. Offices accounted for close to 30 per cent of the market in the first half of the year, followed by housing and hotels at around 7 per cent each, and mixed-use properties at 2 per cent. In contrast to the dynamic growth in demand for logistics properties in many parts of Europe, the sale of logistics properties in Austria is not (yet) playing any substantial role. The overall investment outlook for the second half of 2014 is also excellent (including Millennium Tower/City). All of this could push commercial real estate investments to a new record high in 2014.
Bank Austria Real Estate aiming for significant increase in new business
Competition among banks on the Austrian real estate market has picked up noticeably in recent months, and margins are under pressure. According to Madlencnik, "Bank Austria's real estate division developed very well in the first half of 2014 with new business of over one billion euros. We are working for a further increase in the second half of the year."
Prime yields with further downside potential
Prime yields for Austrian office and retail properties are relatively low. In the office segment, they have fallen well below the 5-per cent mark. Prime yields for shopping centres are around 5.25 per cent according to CBRE, and are about one percentage point higher for retail parks. This makes Austria a low-yield country in Central European comparison. According to Madlencnik, "The strong demand means that prime yields still likely have downside potential." Karla Schestauber, real estate analyst at Bank Austria added: "The projected slight stabilisation of the economy is good for demand. But an interest rate increase at the long end starting in the United States could hamper the impressive growth."
Viennese office market: new construction at a low level
The Viennese office market is still one of the most stable in Europe and has a vacancy rate of 6.5 to 7 per cent, which is moderate compared with other European cities. One reason for this stable development is the low level of new construction paired with comparatively consistent new rental rates. The new construction of office space in Vienna fell from 215,000 m² in 2012 to just under 150,000 m² in 2013.
New construction may be similarly restrained in 2014, and may even reach and new low in 2015. Even though the take-up of new space was below average in the first half of 2014, rentals are expected to reach similar levels as in 2013 by the end of the year. "The geopolitical crises, which are causing uncertainty, generally have a dampening effect while the projected improvement of the economy is helping," noted Schestauber.
Viennese housing market slightly imbalanced
Due to the rapid growth of the city, real estate prices in Vienna have risen by an average of 9.4 per cent every year over the last five years, but freely financed rents have only risen by 5 per cent – a higher rate than the national average and considerably higher than consumer price inflation. Aaccording to an OeNB study owner occupied homes in Vienna were a good 20 per cent overvalued – but owner occupied homes in Austria as a whole were undervalued. "I wonder how the adjustment of the prices and rents will take place, and see good potential that this adjustment will take place in part through rents, which would make the construction of high-quality rental flats considerably more attractive," Madlencnik said.
Commercial real estate market in Austria transparent and stable
Jones Lang La Salle (JLL) assesses the transparency of real estate markets around the world every two years. In its 2014 ranking, the Austrian real estate market was found to be "transparent" and defended its long-time spot among the very well developed European markets. The Austrian real estate index of the Investment Property Database (IPD), which consists of a portfolio of office, retail, commercial/logstics, residential, and other properties shows that the total return on the reviewed Austrian portfolio was 5.7 per cent for 2013 as a whole (0.8 per cent in capital growth and 4.9 per income return). The annual series shows that the income return in Austria has fluctuated relatively tightly around the 5 per cent mark over the last ten years. This substantiates Austria's image as a stable market. "Should interest rates remain at their extremely low levels for some time to come, the Austrian market could experience a certain degree of overheating, however," Schestauber noted.
Enquiries: Bank Austria Press Office Austria
Martin Kammerer, tel. +43 (0) 50505 - 52803
E-mail: martin.kammerer@unicreditgroup.at