UniCredit Bank Austria Real Estate Country Facts:
Austrian real estate market remains stable
- The outlook for the Austrian real estate market remains positive
- Despite the crisis, the market for commercial real estate in Austria is stable
- Housing: New residential construction loses momentum
- The office market in Vienna can benefit from its stable basic orientation despite crises
- Shopping centres: Hardly any increase in space compared to the previous year
"The outlook for the Austrian real estate market remains positive despite the current challenges. Changing framework conditions usually lead to winners and losers, but it can be assumed that the real estate sector will ultimately be one of the preferred asset classes again. Real estate projects are currently being evaluated more closely again and, if necessary, put on hold. Institutional investors are selecting more carefully and will buy at reasonable yields," says Reinhard Madlencnik, Head of Real Estate at UniCredit Bank Austria.
In addition to the increasing ecological relevance of the real estate sector in the wake of the ESG trend - i.e. in terms of the environment, social issues and sustainable corporate governance - the availability of affordable building land will remain the predominant issue in all urban agglomerations.
Investments in commercial real estate remain stable
The investment market in commercial real estate in Austria proves to be comparatively stable even in times of crisis. After the transaction volume of investments in commercial real estate had already risen in the previous year, a strong performance could be achieved again in 2022, even if the achievable total investment volume is expected to be below the previous year by the end of the year. The forecast transaction volume of approx. 3.5 billion euros corresponds roughly to the average annual total investment of the last 10 years.
The prime yields achievable with real estate in the office sector continued to fall in 2021 and have again fallen slightly to around 3 per cent by mid-2022. In the shopping centre sector, on the other hand, no significant changes in prime yields were observed at around 4.5 per cent at the end of the first half of 2022 compared to the end of 2021. Yields in all asset classes are expected to increase by the end of this year, which can be considered realistic against the background of the changed interest rate environment and high inflation.
Residential construction in Austria: demand is met
In recent years, residential construction in Austria has largely accommodated the strong increase in demand for housing. Driven by high excess demand, massive price increases in many segments and very favourable financing conditions, an average of 61,000 new flats per year were built in Austria from 2011 to 2019. This compares to 47,000 units per year in the three decades before.
In 2020, the market for residential construction also declined only briefly, which was a remarkable result against the backdrop of the strongest economic crisis in decades. In 2021, housing production is expected to have reached its previous record level of around 75,000 units. Due to the still missing data, completions can only be estimated based on the high building permit figures of recent years and the development of the construction production value.
In 2022, housing completions will again increase slightly. This is supported by the fact that the number of new building permits was still at a high level at the end of 2021, despite the average annual decline of 8 percent in the last two years. However, the residential construction focus will shift further towards single-family house construction in 2022. Last but not least, the prices for single-family homes outside Vienna have already risen the most in comparison to all other residential real estate segments in Austria in the previous year, even by 16.1 percent in the first quarter of 2022.
From 2023 onwards, new residential construction in Austria is expected to lose significant momentum. The demand for new housing will grow more weakly, assuming that household forecasts do not change significantly.
Vienna office market: solid despite crises
In an environment of various negative influences such as the pandemic, the war in Ukraine, high inflation and massively rising energy prices, the Vienna office market is able to benefit from its solid and stable basic orientation and thus counter the challenging market conditions encountered in the office market of the Austrian capital this year. In any case, the lively investor interest this year once again confirms the unbroken appeal of Vienna's office market, even if the total investment volume in 2022 could possibly be slightly below the previous year's value.
However, against the backdrop of the current market situation, the unabated pressure on office locations away from the established office axes is not abating and outdated office space that no longer meets the evolved requirements of changed usage habits is no longer competitive. It has already been observed in recent years that such spaces are being taken off the office market, replaced by new buildings or, in some cases, even larger stocks of space are being refurbished.
The coexistence of home office and on-site presence has also changed the technical and communication-related requirements of office space for many employers. In times of Skype and Teams, personal contact, which has been greatly reduced in the pandemic, is also taking on a new significance, and it is precisely to this that employers and developers must also react when designing new office space in order to bring employees back to the office internally in the long term.
Rents for office space in Vienna remained largely unchanged in the first half of 2022. Top rents for Class A office space in good locations reached approx. 26 euros/m²/month in mid-2022. Interest in space in the mid-price segment remains high, with energy efficiency and the lowest possible operating costs, in addition to location and accessibility, being among the most important criteria for potential tenants when deciding for or against a location.
Shopping centres: hardly any increase in space
In Austria there are currently 122 shopping centres with a lettable space of around 2.9 million square metres. There was no extensive increase in space compared to the previous year.
The last smaller SC openings in Austria already took place in the first half of 2021. What they all have in common is that they follow the trend towards inner-city locations close to the city centre. Currently, only two smaller SC projects are under construction outside of Vienna.
Trade in search of sustainable ways
The Corona pandemic has changed people's shopping and mobility behaviour. With climate change and at the latest since the energy crisis that began this year, the ecological sustainability of shopping centre locations has come even more to the fore. The need for a basic supply of all goods and services for daily and higher-value needs in the vicinity of the centre of life has risen sharply. The distances to the shopping location should be short, ideally accessible by public transport, bicycle or on foot.
The era of new shopping temples on greenfield sites is thus definitely over. Today's trend is towards mixed-use and/or hybrid models in the form of inner-city department stores, town centres and neighbourhood or campus developments. The modern shopping centre is to be seen as an integral part of the urban space, with the focus of lettable space increasingly on flexibility and multifunctionality. In addition, the trend towards modernisations/relaunches and expansions of existing established shopping locations remains unchanged.
The prime yield for high-quality shopping centre properties in top locations is currently around 4.5 - 4.75 per cent. Compared to the value before the start of the pandemic, it has risen slightly by around 0.35 - 0.5 percentage points due to the current uncertain developments in the asset class. A stable to slightly increasing trend is expected until the end of the year.
The UniCredit Bank Austria Real Estate Country Facts are available on our homepage.
Enquiries:
UniCredit Bank Austria Press Office
Franziska Schenker, Tel.: +43 (0) 5 05 05-51417;
E-mail: franziska.schenker@unicreditgroup.at