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03.10.2018

UniCredit Bank Austria Real Estate Country Facts:
Continued very high demand for real estate in Austria in 2018

  • All-time record of almost 5 billion euros' transaction volume in commercial real estate investments reached in 2017; 2.3 billion euros in first half of 2018
  • Prime yields generated with real estate have reached new lows
  • New demand in residential construction covered by new construction in both 2017 and 2018
  • Building permits and housing completions remain at record levels, and new construction activity on the Vienna office real estate market has also picked up strongly
  • Shopping centres: Saturation in growth in space has been reached

In view of the still very good underlying conditions for the Austrian real estate market, demand for domestic real estate remains strong in 2018. “The outlook for the Austrian property market remains positive. The interest of foreign institutional investors in a limited number of attractive properties due to market conditions continues unabated, which is keeping competition intense,” says Reinhard Madlencnik, Head of Real Estate at UniCredit Bank Austria. Interest rates remain low, which means that real estate continues to rank high among investors. The good economic situation supports both investments and consumption. “We finance good projects with acceptable risk and are also able to offer long-term leases and cope with high volumes,” says Madlencnik.

In the first half of 2018, the degree of saturation in the various market segments differed somewhat. “While hardly any new retail space is being developed, the office market in Vienna has recorded a noticeable increase in space in 2018, and this is already putting pressure on the market for existing office space,” says Walter Bödenauer, Real Estate Analyst at UniCredit Bank Austria.

Demand for commercial real estate reaches all-time high
In Austria, an all-time record for commercial real estate investments was reached in 2017, with a total transaction volume of almost 5 billion euros being achieved. “Investment activity is lively again this year and has reached 2.3 billion euros after six months, although suitable properties are becoming increasingly scarce. This positive trend on the investment market is expected to continue until the end of the year, although based on how things look today, we don’t expect the previous year’s figures to be exceeded,” says Bödenauer.

Prime yields generated with real estate have reached new lows. In the office segment, the prime yield has slipped below 4 per cent, while this is around 4 per cent in the shopping centre segment. However, the yield curve for the individual asset classes is increasingly flattening out.

Residential construction: New demand covered in 2017 and 2018
Driven by the high demand for housing, the sharp rise in prices and the favourable financing conditions, building permits and housing completions have come close to setting new records in recent years: Around 56,000 apartments were built in Austria each year between 2013 and 2016.

As the data available to date shows, more than 60,000 apartments were completed in 2017, covering the forecast demand for new construction. For 2018, the continued sharp rise in the number of building permits as well as the currently very strong increase in production output in new residential construction of over 10 per cent in real terms through April point to a further recovery. 

In total, new construction in Austria can be expected to reach more than 62,000 new apartments in 2018, which would also reduce the existing excess demand on the domestic housing market. This does not mean that all supply gaps can be closed at a regional level, especially in metropolitan areas.

Affordable housing market in international comparison despite price increases
Since 2011, residential property prices have risen by an average of 6 per cent per year throughout Germany. After only a brief cooling-off period during the previous year, the price increase accelerated again towards the end of 2017 to over 7 per cent in the first quarter of 2018. 

“Despite the price increases, Austria’s housing market has remained relatively cheap by international standards, and more affordable for the average household than in other similarly prosperous European countries. While housing costs in Austria account for 18 per cent of household income, the figure in the eurozone is more than 21 per cent. And the profit for Austrian households has even increased in recent years,” says Bödenauer. 

Vienna office market: Production of new space increases significantly
The Vienna office market remains one of the most stable markets in Europe. The record investment in commercial real estate of almost 5 billion euros in the previous year highlights the strong interest on the part of domestic and international investors in the Austrian office real estate market, which was by far the most popular asset class in the previous year.

The production of new office space in Vienna fell to an all-time low of just under 60,000 m² in 2016. In 2017, new construction activity picked up strongly and reached around 190,000 m². This year, the supply of new space will increase significantly again and will reach a total of 320,000 m² by the end of the year. The majority of the space will be new construction, with only a smaller part coming from conversions and refurbishments. The projects Austria Campus and THE ICON VIENNA alone will increase the supply of office space in Vienna by more than 230,000 m².

In the past year, around 190,000 m² of new office space were leased, below the level of 2016. In the first half of 2018 around 120,000 m² were newly leased, and by the end of the year experts expect the volume of new leases to exceed the previous year’s level.

Rents for office space in Vienna remained largely stable in the first half of 2018. Rent costs in the premium segment have risen slightly in the past. Prime rents for Class A office space in good locations reached around EUR 26 per m² per month in mid-2018. 

The prime yields in the office sector in Vienna fell slightly again in 2017, and there was a further slight decline in the first half of 2018, resulting in prime yields for absolute top properties in prime locations of around 3.8 per cent. No significant changes in yields are expected by the end of the year.

Shopping centres: Standstill in new construction activity
By European standards, Austria is one of the countries with the highest levels of supply of shopping centres, but saturation in terms of space growth now seems to have been reached.
“Blank spots” with an urgent need for new shopping centres have almost completely disappeared from the Austrian market. As a result, the market is exhibiting high levels of competition and an increasing tendency towards concentration. Against this background, no new openings or construction starts are to be expected.

In terms of lease development, the gap between 1A shopping centres and B and C locations continues to widen. Well-run shopping centres are showing stable rental cost trends, while the pressure is increasing for other shopping centres, where price reductions are often granted when letting empty shop spaces.

At the end of the first half of 2018, rents in shopping centres in Vienna were between EUR 8 and EUR 120 per m² per month, depending on the size of the shop. The prime yield in the shopping centre segment is still at a historic low of around 4 per cent. The continued strong demand for retail properties is offset by a limited supply of large-volume top properties that has not increased in size. As a result, the pressure on yields – against the background of the prevailing low interest rate environment – remains unchanged and a further slight decline cannot be ruled out.

The UniCredit Bank Austria Real Estate Country Facts are available for download on our website.

Enquiries:    
UniCredit Bank Austria Press Office
Franziska Schenker, Tel.: +43 (0)5 05 05 51417
Email: franziska.schenker@unicreditgroup.at