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29.09.2016

Bank Austria Real Estate Country Facts Austria:
Another record year for the Austrian real estate market, but the risk of a price correction is increasing

  • The Austrian commercial real estate market remains extremely attractive – H1 2016 saw a similar volume to 2015, which was a record year
  • High real estate prices and low yields demonstrate the attractiveness of the Austrian real estate market
  • Housing: After a brief slower period in H2 2015, the increase in real estate prices has regained momentum
  • Housing: With just 51,500 new apartments, construction work is clearly not meeting the demand for 60,000 new apartments every year
  • Office market: New construction activity is at an all-time low – but the pipeline is filling up
  • Trend for shopping centres: Hardly any new openings, instead modernisations/relaunches/total revamps or extensions to existing centres right through to demolition and rebuilding

Reinhard Madlencnik, Head of Real Estate at Bank Austria: "The Austrian real estate market is still on the rise. This is confirmed by the repeated drop in prime yields, which are now just under the 4% mark in the office sector. There is no funding shortfall in the Austrian real estate sector. Banks are financing and competitive pressure has increased. We are making good progress in new financing, but it will not be easy to achieve last year's record volume of 3.7 billion euros again this year."

Karla Schestauber, real estate analyst at Bank Austria, on investor interest: "The fact that investors have a keen interest in the Austrian real estate market is evident not only from the decreased yields, but also the investment volume in commercial real estate. At around 1.3 billion euros, the result of H1 2016 was similar to that of 2015, which was a record year. Since the figures are traditionally higher in the second half of the year and there are some large deals in the pipeline, however, the prospects for achieving at least the same total this year as last year – 3.9 billion euros – are good."

Bank Austria optimistic for the near future, but keeping a watchful eye on potential risks

"With its ultra-expansive monetary policy, the ECB is driving the demand for real estate. In times of extremely low or even negative interest rates, real estate with yields higher than those for instance achievable with government bonds are an attractive option”, says Madlencnik optimistically. "Although, with prime yields in the office sector of around 4% (at the mid-year point in 2016) the scope for further reduction is considerably lower. Both investors and developers must be aware that a substantial argument, namely the real estate cycle, requires a certain degree of caution, even though there are still many reasons to invest in real estate. The longer the high demand for real estate continues for want of attractive alternatives, the greater the risk of a price correction", reports Karla Schestauber. Reinhard Madlencnik elaborates: "Despite all due caution, the Austrian real estate market has gained a reputation over the years for being relatively stable. We expect it to live up to this reputation in the coming years."

Residential real estate price increase regains momentum following a brief slower period

By comparison with the fundamental price indicator of the OeNB, prices on the domestic residential real estate market were overvalued in Q1 2016 by 6.3%. For the Viennese market, the indicator signalled an overvaluation of residential real estate by as much as 23%. Following a brief slower period in H2 2015, the increase in real estate prices has regained momentum and is well above the increase in building costs and consumer prices.

We are currently experiencing a trend whereby the prices in Austria outside of Vienna are increasing rapidly from considerably lower levels than in Vienna. In Q4 2015 and Q1 2016, the price of owner-occupied homes increased by an average of 5.2% in Vienna and 9.3% in the other Austrian states (excluding Vienna).

"According to the representative body for non-profit housing associations, there is a demand for around 60,000 new apartments every year until 2020. With the current output of 51,100 new apartments a year over the last three years, this demand cannot be met", claims Schestauber. "Even if there are signs of a further increase in housing investments – driven by favourable basic conditions such as attractive financing options and, for the first time in years, increasing household incomes – it remains to be seen whether this will be sufficient to iron out imbalances in the Austrian housing market. The demand for affordable housing remains high."

Viennese office market: New construction activity again at a low level

The office market in Vienna is still one of the most stable office markets in Europe, having a low and – in the premium segment – very stable vacancy rate compared with other European cities. The comparatively low production of new office space supports this trend. In 2015, the production of new office space in Vienna fell once again from 144,000 m² in 2014 to around 115,000 m². The volume of new buildings in 2016 is likely to be below 60,000 m² – its lowest ever level. Numerous projects are being planned for the coming years, however, and some of them are already under construction, so from 2017 at the latest a substantial rise in new-building activity is again expected. The pressure on old office space is therefore expected to increase.

Top shopping centres transforming from a "place to shop" into a "place to be"

At the end of June 2016, there were a total of around 125 shopping centres in Austria with rentable space of around 2.7 million m². In comparison to the previous year, this represents a reduction of two shopping centres while the overall amount of space available remained virtually unchanged. "The stagnation in areal growth is essentially down to two things: Firstly, Austria already has a large number of shopping centres, and the 330 m2 of rentable space per 1,000 inhabitants is significantly higher than the EU average of 240 m2. Secondly, the Austrian states are becoming more and more restrictive in granting building permits for new construction and expansion Projects", explains Schestauber.

As of H1 2016, Vienna had over 30 shopping centres with a rentable space of around 963,000 m². The shopping centre density per 1,000 inhabitants was around 520 m² – the same as the previous year. Any increase due to moderate areal growth has been balanced out by an above-average population growth in Vienna (2.8% higher than H1 2015). It is worth noting that all six of Vienna's largest shopping centres have carried out radical modernisations, expansions or relaunches in the past five years, or have been completely rebuilt. The driving force behind this trend is online business and the influence of the new digital consumer society. Getting consumers into shops requires a positive shopping experience. The gap between top shopping centres and those that are not as popular is widening rapidly. Tenants in shopping centres require the capacity of the floor space to be increasingly flexible, ranging from new 'miniature' shops right through to flagship stores in top locations.

 

Enquiries: UniCredit Bank Austria Media Relations

Matthias Raftl, Tel.: +43 (0) 5 05 05-52809;

E-Mail: matthias.raftl@unicreditgroup.at