Economic growth in Austria remains weak for the fourth consecutive year with a low growth rate of 0.9% compared to the previous year. This can be ascribed to a low increase in consumer spending, caused by the high unemployment rate, the moderate growth in income and the considerable price increase of rent and services. However, the Austrian national bank is optimistic about the forecast for 2016. Due to a positive influence of the tax reform introduced at the beginning of 2016, the ongoing public spending for asylum seekers and the upcoming effects of the housing initiative, the bank estimates a GDP growth rate of 1.9% for the following year.
The Austrian investment market showed strong vital signs in 2015 with a new record transaction volume of €3.5bn driven by strong demand from new capital sources from North America and Asia. Top yields for shopping centres are now at 4.25% witnessed in the sale of the mixed use complex Wien Mitte – The Mall. The limiting factor throughout 2016 will be the shortage of investment-grade product, pushing yield down even further.
The Vienna office market is expected to be more active in 2016. Several office lettings by reputable tenants in Q1 as well as several concrete negotiations with major future tenants have opened up favourable prospects for the market. Another indication of an upturn is the slight rise in average rents for the first time in years, currently standing at €14/m², after remaining at €13.50/m² in previous years. A further increase in average rents is expected in the medium term, as the new high-quality space coming on the market as of 2017 will be offered for between €15/m² and €20/m².
The Austrian market for retail properties is, as elsewhere in Europe, undergoing a profound transformation: On the one hand, retailers continue to focus on prime locations, where following the trend of “GOOD-BETTER-BEST” demand for space still exceeds supply. On the other hand, the migration of online and brick-and-mortar retail has led to space reductions, and secondary and especially tertiary location owners have to look for alternate usage solutions.
Especially due to the strong development of tourism with more than 14.3 million overnight stays and the stable economy in Vienna in 2015, however, Austria remains among the top destinations for retail expansion within Europe. Rents in prime high street locations remain stable, yet are still rising in the top shopping centre destinations. This trend is expected to continue, as only very limited new shopping centre retail space will come to market in 2016 and refurbishment and modernisation will be the key trends for shopping centres.
Austria‘s historically established role as logistics hub to the CEE and SEE markets is still of particular importance. Against the background of the growing significance of e-commerce, the logistics market is performing well on a relatively low level and hardly meets high demand, not only from an occupier, but in particular from an investment perspective. Prime yields have experienced a further slight decline to shortly below 6.5%, whereas rental levels for top products remain at a stable level.
Despite a number of prosperous new logistics developments, the market is suffering more and more from a lack of suitable product. A considerable share, especially of the older logistics stock, barely meets the requirements of modern, up-to-date logistics facilities. Concentrating especially on Austria’s capital city, new developments are currently planned predominantly in the outskirts of Vienna as the level of land values within the city is one of the most challenging factors for developers.
Hotels have experienced increasing demand from international investors and family offices in Austria. Most of these investors have concentrated on the business hotel sector, especially in Vienna. Some of the reasons for an improving investment attractiveness of hotels include the long-term contracts combined with global standards of international hotel chains as well as continuously better yields of +5% in comparison to top office assets. In addition to existing hotels, developments close to new hubs like the main railway station in Vienna offer the opportunity to widen hotel locations and their average quality. Nowadays, more than 65,000 hotel beds are available in Austria’s capital. The increasing supply is also affected by an increase in overnight stays. This gives from an investors view a better choice if there were not the permanent stronger demand.
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