REAL ESTATE - Bank Austria e.pdf · Although real estate cycles do not last for ever, the current, generally upbeat market conditions seem set to support a continuing rally. But what

Austria’s real estate market “A break in the boom”

REAL

ESTA

TE

Country Facts

09/2019

2 I Real Estate Country Facts 09/2019

Real Estate Country Facts

Publication details: Publisher and media owner: UniCredit Bank Austria AG http://www.bankaustria.atEditor: Bank Austria Real Estate, Walter Bödenauer, Tel. +43 (0)50505-55499Layout: www.horvath.co.at

Date: 30 September 2019

A joint publication of Unicredit Bank Austria Real Estate, Economics & Market Analysis Austria and Immobilien Rating GmbH (IRG)

Imprint and disclosure pursuant to Sections 24 and 25 of the Austrian Media Act can be found under http://www.bankaustria.at/en/ legal-information-imprint.jsp

Legal notice – please read this important information: This publication is neither a marketing communication nor a financial analysis. It contains information on general economic data, real estate market data and related assessments of real estate market developments. Despite careful research and the use of reliable sources, we cannot assume any responsibility for the completeness, correctness, up-to-dateness and accuracy of information contained in this publication.

The publication has not been prepared in compliance with the legal provisions governing the independence of financial analyses, and it is not subject to the ban on trading subsequent to the distribution of financial analyses.

This information should not be interpreted as a recommendation to buy or sell financial instruments, or as a solicitation of an offer to buy or sell financial instruments. This publication serves information purposes only and does not replace specific advice taking into account the investor’s individual personal circumstances (e.g. risk tolerance, knowledge and experience, investment objectives and financial circumstances).

Past performance is not a guide to future performance. Please note that the value of an investment and the return on it may rise and fall, and that every investment involves a degree of risk.

The information in this publication contains assessments of short-term market developments. We have obtained value data and other information from sources which we deem reliable. Our information and assessments may change without notice.

Real Estate Country Facts 09/2019 I 3

The ECB’s decision not to raise interest rates, the stable job market and related increases in real wages are supporting the real estate market.

• We have seen a sharp decline in returns on the capital market. For the first time, yields on 10-year German bunds are well below those on Japa-nese government bonds, which is having a significant impact on the real estate sector • The strong economy is promoting investment and consumption• GDP rose by 0.7 percentage points year on year in the first half of 2019 • Banks are offering financing in all segments on historically attractive terms

Prime yields in the office and retail segments, as well as those on newly-built rental apartment properties are between 3% (residential) and 4% (retail). The narrowing of yields has come to a standstill, and returns on retail property are climbing again. Forward deals are – for the time being – still an option, primarily in the housing construction segment, by way of rent guarantees by sellers.

Continued lively demand for real estate in AustriaAsian and German investors are increasingly moving into the Austrian market. In terms of high-value transactions, offices, hotels and residential properties are the most sought-after asset classes. On the whole, there is a shortfall in the supply of investment properties in the core and core+ segments, while demand has remained high.

Project pipelines are being steadily worked off, and companies are taking a flexible approach to renovation of existing properties. However, the capacity to meet demand differs sharply from segment to segment. In the retail sector, existing space is sufficient to satisfy demand nationwide, and the optimization of shopping centers is in full swing, with an emphasis on “retailment”. In contrast, there has been a cyclical slowdown in the completion of new space in the Viennese office market in 2019. On the demand side, the capital’s office market is still robust. The office markets in Austria’s provincial capitals are highly demand-sensitive, meaning that new space construction is tailored to actual needs.

Due to persistently high demand from investors, hotel develop-ments are being implemented by the dozen, with international hotel chains muscling into the market and beginning to squeeze out various private providers in the process. Niche products such as build-to-suit logistics facilities are still popular with buyers.

Real estate cycle plateaus at high levelThere has been a high degree of activity in the construction of privately-financed apartments and student apartments. Dozens of residential towers are currently taking shape in the Austrian capital. Industry experts believe that the supply of residential space in Vienna will be in line with demand for the first time next year. However, this says nothing about the affordability of apartments, and the question of the cost of both rental and owner-occupied homes is increasingly becoming a priority for politicians. Higher prices are still possible for smaller units, but this strategy is also being pushed to its limits. Owner-occupied apartments are remaining on the market for longer, and the number of transactions has fallen slightly, but their value is up. Subsidized residential construction is under way in all the provincial capitals, and is expected to fully satisfy housing needs in the medium term.

The 2018 amendment to the Vienna Building Code, which has made the demolition of existing properties more difficult, and the new ‘subsidized housing construction’ designation will not simplify the process of increasing the stock of land available for building. This is currently driving up the prices of plots already designated as development land.

What can we do for you?We are a dependable partner that is sensitive to our its customers’ requirements and prepared to take risks. Speed and the ability to take quick decisions are particularly important.

Our real estate customers have access to the full range of services offered by UniCredit. We would also like to show you the options at your disposal to hedge against interest rate risks for new and existing loans, which we think represent particularly good value given the currently low rates.

Real estate cycle – quo vadis? The outlook for the Austrian real estate market is still positive, but a lack of availability is putting the brakes on interest from foreign institutional investors.

Due to the imminent market saturation in most asset classes, demand in the building construction industry is likely to tail off at the start of the 2020s, which in turn will keep the lid on construction costs. The availability of affordable development land will be a prominent topic in all urban conurbations.

Although real estate cycles do not last for ever, the current, generally upbeat market conditions seem set to support a continuing rally. But what goes up must eventually come down.

Kind regardsThe editorial team

“THE EXPECTED MARKET COR-RECTION SEEMS TO BE A DISTANT PROSPECT – JAPAN SENDS ITS GREETINGS”



Economic environment in Austria: return to steadier growth

Global slowdown... In 2018, the global economy reached the high point of its current cycle, with growth of 3.6 %. The largely uniform global upturn gradually lost its rhythm and the geographical balance of growth patterns was increasingly thrown off-kilter in the course of the year. In the USA, growth hit 2.9 % on the back of strong fiscal stimulus, while the eurozone’s recovery continued, albeit with GDP rising by a more modest 1.9 %. However, many emerging market economies slowly ran out of steam after the start of the year, and economic performance nosedived in some countries, in particular Argentina and Turkey. In addition to a cyclical slowdown in the pace of growth, the difficulties facing the world economy also mounted, mainly due to political uncertainty, rising protectionism and the gradual tightening of monetary policy in the USA. From spring onwards, Austrian growth also flagged, although the full-year rate of 2.4 % in 2018 represented a fast rise in GDP. World trade remained lively, buoying Austrian exports. Fueled by a domestic economy driven by consistently high investment and the strongest level of consumption for a decade, the country again posted growth above the European average.

The downturn in the global economy during 2018 continued in the first half of 2019. Growing economic uncertainty had an impact on sentiment, resulting in a pronounced slump in global trade. The consequences were felt in emerging markets, with China in particular hit hard by the trade dispute with the USA, as well as in the industrialized countries. The USA has now passed its cyclical peak and has possibly started sliding towards a recession. Growth has also been throttled in the eurozone. After a solid start to the year, uncertainty in the run-up to the European Parliament elections in May, and due to rising protectionist tendencies as well as the UK’s looming exit from the EU, depressed growth, which stood at around 1 % in the first half of 2019.

In Austria, growth dropped to 1.6 % in the same period. The sharp downturn in global trade has seriously impacted on export-driven industries. Following a bright start to the year, when growth was still strong, Austrian industry slipped into recession, which in turn led to slower growth in the economy as a whole. Domestic demand helped to sustain modest growth, which was mainly supported by strong private consumption – this reflected higher employment, rising real wages, and fiscal stimulus such as the introduction of the Familienbonus Plus tax allowance. The slower pace of growth is now having an effect on the domestic labor market. The seasonally-adjusted jobless figure has not fallen month on month since spring, as the growth in employment has tailed off. However, in the first six months of 2019 unemployment

fell year on year to an average of 7.4 %, or 4.7 % according to the Eurostat method.

Although consumption kept economic growth stable, investment slowed in spite of the favorable financing terms on offer. In the construction sector, investment remained very lively thanks to well-stocked order books, but investment in equipment dropped. Nevertheless, against the backdrop of low interest rates, growth in corporate loans and continued strong demand for housing construction loans drove a sharp increase in borrowing in Austria in the first few months of 2019. The volume of housing construction loans has increased by about 5 % year on year for almost four years, while consumer lending has been stagnant at best. The flip side of the strong domestic economy is higher inflation in Austria. In the first half of 2019, eurozone inflation stood at 1.4 %, compared with an average of 1.7 % in Austria over the same period.

...and heightened economic woes in mid-2019The prospects for the global economy became bleaker once again around the middle of 2019. The smoldering trade conflict between the USA and China exacerbated economic uncertainty. The downturn in economic sentiment has continued, and financial markets have become increasingly volatile. As a result, the world economy is now expected to grow by only 3.1 % in 2019, compared with 3.6 % a year earlier. This is mainly attributable to developments in the USA, where growth is falling short of potential in the second half of this year. The approach-ing end of fiscal stimulus programs, a tight labor market and muted investment due to simmering uncertainty, in combination with the consequences of the trade dispute, all point in this direction. In the eurozone, the ability of the region’s economy to carry on fueling growth will come under threat as long as

–1.0

3.0

0.0

–0.5

2.0

1.5

1.0

0.5

2.5

Source: Thomson Reuters Datastream, Statistik Austria, UniCredit Research

Inflation and interest rates

Euribor 3M10y Government bond yieldCPI

forecast

2015 2016 2017 2018 20202019


at the beginning of November; for the first time, no expiry date has been set.

In our view, the ECB will have little room for maneuver in terms of interest rate policy in the coming years, and we stand by our assumption that the repo rate will remain unchanged until the end of 2020, especially in light of the ECB’s opinion that interest rate cuts will have stronger side effects for the European economy than other monetary policy instruments. In the lead-up to the last round of monetary policy measures, economic uncertainty pushed yields on European government bonds down to all-time lows, and yields on ten-year Austrian federal bonds moved into negative territory for the first time. In parallel, low interest rates and a return to loose monetary policy have been a boon for stock markets – the Vienna Stock Exchange’s ATX index has added almost 10 % since the start of this year. The flow of liquidity into other sectors of the real economy has also increased. Low interest rates have led to a

adverse global influences persist. Euro area growth will remain subdued, particularly as a result of the downturn in the United States. GDP growth is expected to stabilize at 1 % in 2019. Following the sharp deceleration in the first half of this year, the Austrian economy appears to have settled into a phase of more modest growth. Over the coming months, growth is expected to remain at roughly the same level as at the start of this year, thanks mainly to domestic demand, and consump-tion in particular. GDP growth for 2019 as a whole is expected to come in at 1.5 %.

Looser monetary policy Austrian inflation averaged 2% in 2018. Flatter oil prices have kept the lid on inflation since the start of this year, and this looks set to continue in the next few months, with only minor changes in the oil price expected. At the same time, upward demand-side pressure on prices is likely to trend higher in the coming months as a result of the significant rise in employment and increased wages. These factors will largely offset one another, so inflation will remain moderate in the second half of this year. As a result, average inflation should fall year on year in 2019, to 1.6%. This means Austrian inflation will exceed that of the euro area, which is expected to record an average rate of 1.4%, for the 11th year in succession. This is also below the European Central Bank’s inflation target of just under 2%.

In late 2018 the ECB took the first step towards normalizing monetary policy by ending its asset purchase program, but, as expected, low inflation forecasts and economic uncertainty have prompted it to change strategy. In autumn 2019 the ECB cut its deposit rate from – 0.4 % to – 0.5 %, although it left the main refinancing rate and the marginal lending rate unchanged at 0 % and 0.25 % respectively. In addition, the bank improved the conditions for targeted longer-term refinancing operations (TLTROs), which it announced in the spring, in order to encourage uptake. Furthermore, the asset purchase program will restart

0.0%

3.0%

1.0%

2.0%

Source: Eurostat, Statistik Austria, UniCredit Research

Economic growth (real change of GDP in %)

2016 2017 2018 2019 2020

forecastEurozone ViennaAustria

Overview of Austria’s economic dataForecast

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Economic growth (real. year on year) 1.8 2.9 0.7 0.0 0.7 1.0 2.1 2.5 2.4 1.5 1.1

Private consumption (real, year on year) 1.0 1.3 0.5 –0.1 0.3 0.5 1.6 1.4 1.1 1.7 1.3

Investment (real, year on year) 1 –2.6 6.6 0.9 1.6 –0.4 2.3 4.1 4.0 3.9 3.3 1.3

Exports (real, year on year) 13.1 5.9 1.4 0.6 2.9 3.0 3.1 5.0 5.9 3.1 2.0

Imports (real, year on year) 12.0 6.0 0.9 0.7 3.0 3.6 3.4 5.1 4.6 3.1 2.4

Current account balance (in % of GDP) 3.3 1.6 1.5 1.9 2.5 1.7 2.5 2.0 2.3 1.9 1.9

Inflation rate (CPI) (yearly average) 1.9 3.3 2.4 2.0 1.7 0.9 0.9 2.1 2.0 1.6 1.8

Unemployment rate (national criteria) 6.9 6.7 7.0 7.6 8.4 9.1 9.1 8.5 7.7 7.4 7.5

Unemployment rate (EU definition) 4.8 4.6 4.9 5.3 5.6 5.7 6.0 5.5 4.9 4.6 4.7

Employment (year on year, in %) 2 0.6 1.8 1.3 0.5 0.6 0.9 1.5 1.9 2.4 1.6 0.8

Budget balance (in % of GDP) –4.4 –2.6 –2.2 –2.0 –2.7 –1.0 –1.6 –0.8 0.1 0.5 0.2

Public-sector debt (in % of GDP) 82.7 82.4 81.9 81.3 84.0 84.7 83.0 78.2 73.8 71.1 68.81) Gross fixed capital formation / 2) excluding maternity leave, military service and training programmesSource: Statistik Austria, ÖNB, UniCredit Research



surge in real estate borrowing and stronger demand for property, in particular residential property. According to the Oesterreichische Nationalbank, there are now signs that residential properties are overvalued in Austria, and especially in the Vienna area, as a result of the rapid increase in real estate prices.

Still no signs of growth stimulus from abroad in 2020 There is a now a greater risk that the weaker global economy, and in particular a potential recession in the USA, will prompt a slowdown in the European and the Austrian economy in 2020. However, in Austria, domestic demand driven by private consumption should help to push growth above the 1% mark. This means that Austrian growth would continue to outpace that of the eurozone, where we anticipate a 1% increase in GDP. Private consumption will maintain its role as the main pillar of the domestic economy, bolstered by the continuing rise in wages – for the time being at

0 15105 20 25 30 35

1) Agriculture and forestry, mining, energy and water supply2) Hotels and restaurants3) Business-related services in the broad sense: transport, banking and insurance, real estate4) Public services, education and health, private servicesSource: Statistik Austria, Bank Austria Economics & Market Analysis Austria

Vienna’s share ofAustrian added value (in %)

Trade

Tourism2

Construction

Primary sector1

Manufacturing

Total

Business-related-services3

Other services4

Current Change since 2000 in %-points

–1.6

–0.4

0.5

0.8

–5.5

–1.5

–2.8

–4.3

least – and the growth in employment, which is only expected to slow slightly. This is likely to result in an uptick in inflation. On the other hand, we can assume that investment, especially in equipment, will tail off due to the high level of uncertainty. The construction boom triggered by the strong demand for residential space – a reflection of demographic trends – will also run out of steam in 2020. Weaker growth will put the brakes on the drop in unemployment: the rate is expected to rise a little in 2020, to 7.5%, or 4.7% under the Eurostat method.

Vienna performing well The Viennese economy posted slightly stronger growth in 2018, at 2 %, compared with 1.8 % a year earlier. However, the city was unable to capitalize on the favorable global economic environment owing to the relatively small share of exports and industry – which account for only 9 % of output – and posted the lowest growth of any of the country’s provinces. There was better news from the corporate services sector, which covers the likes of employment agencies and transport; the sector benefited from positive external conditions. Tourism made a key contribution to growth – overnight stays reached another new record – as did the energy sector. The building engineering and construction sectors put in a strong performance as well.

Vienna’s economy maintained its growth trajectory in the first six months of 2019, but the pace of growth may have slowed slightly. Nevertheless, in the current environment, the minor role played by industry is proving to be an advantage, and the slowdown in global trade as a result of increased protectionism has not hit the capital as hard as other federal provinces. As a result, growth is seen reaching 1.7% in 2019, compared with an average of 1.4% for Austria as a whole. The construction industry may be on track for a return to growth thanks to new civil engineering projects and the continued healthy order situation in the building construction segment. Above all, the large services sector will benefit tangibly from the sustained high level of private consumption, posting comparatively strong growth. This will prompt another noticeable increase in the number of people in work, resulting in a drop in unemployment to below 12% for the first time since 2014.

Viennese economic dataAverage of

federal provinces(or Austria total)

2012 2013 2014 2015 2016 2017 2018s 2019p 2019pGDP per capita (EUR) 47,500 47,400 47,600 48,100 49,200 50,000 51,300 52,900 44,861

GDP per capita (as % of Austria) 125.7 124.1 122.1 120.6 120.6 118.8 117.4 118.0 100.0

GDP (real, %-chg.) –0.1 –0.5 –0.5 0.8 2.9 1.8 2.0 1.7 1.5

Unemployment rate (average, %) 9.5 10.2 11.6 13.5 13.6 13.0 12.3 11.8 7.4

Employment (%-chg.) 1.2 0.6 0.6 0.8 1.5 1.9 2.4 1.8 1.6

Exports (EUR mn) 18,338 18,641 18,995 18,642 17,847 19,497 19,502 20,300 156,000

Exports of goods (as % of Austrian exports) 14.8 14.8 14.8 14.2 13.6 13.7 12.4 13.0 100.0

Exports (in % of GDP) 22.4 22.4 22.4 21.4 19.6 20.8 20.1 20.2 39.3

Public debt per capita (EUR) 3,039 3,216 3,273 3,549 3,753 3,882 3,984 4,112 3,267Source: Statistik Austria, Bank Austria Economics & Market Analysis Austria


Demand for commercial real estate remains high

According to CBRE, commercial property investment in Austria in 2018 did not exceed the previous year’s record high, although at around EUR 4 billion the total volume of transactions was among the highest in recent years. Last year the majority of investors came from Austria, while in 2017 German investors dominated the market.

Besides office and retail space, there was exceptionally strong demand in the residential segment in 2018, with record levels in both halves of the year.

Boom in hotel investmentsThis year, investment has been somewhat more subdued – CBRE reported investment totaling around EUR 1.7 billion in the first half of 2019, a slight year-on-year decrease. This is primarily

down to the limited availability of suitable investment options, and has less to do with flagging interest among investors. Almost three-quarters of investors in the first six months of 2019 were from outside Austria. However, another trend is expected to gain momentum on the investment market by the end of this year, as the conclusion of many high-volume transactions has been put back to the second half, although negotiations are already at an advanced stage according to EHL.

A notable feature of the first half of 2019 was the large proportion of hotel transactions in Austria and particularly Vienna; these amounted to almost EUR 500 million. One of the stand-out hotel transactions was the sale of the Hilton Vienna by Stadtpark in Vienna’s third district to a South Korean fund for more than EUR 330 million (other source: EUR 370 million).

Construction activity in the office segment has been relatively modest in recent years, but large quantities of new space came onto the market in 2017 (190,000 m²) and above all in 2018 (almost 300,000 m²). However, construction of new space has been stagnant this year, dropping to 40,000 m², although this figure could change slightly depending on whether projects cur-rently under construction are completed.

This means there are hardly any new options open to investors, and they are still under pressure to find suitable properties in which to invest the large volumes of capital at their disposal.

Prime yields down sharplyThis situation has also had an impact on yields. In the office category, top yields have slipped to just under 3.7 %, while those for shopping centers are around 4 %. However, the yield curves for the various asset classes are increasingly leveling off, and in some cases have already flatlined.

0

6

4

3

5

Source: CBRE

Investment in commercial real estate in Austria (in EUR bn.)

2

1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1. HY2019



For several years, housing construction in Austria has reflected significant pent-up demand on the housing market. In 2018, new completions reached the highest total for decades, at an estimated 66,000 units. It is safe to assume that this spike in construction activity was sufficient to cover average nationwide demand. How-ever, there are still sizeable shortfalls in individual segments of the market, primarily in the affordable housing sector. As evidenced by the slight decline in the proportion of households facing unmanageable living costs, social housing construction has been highly successful in recent years. However, a long-term comparison revealed that there was no significant drop in the burden of living costs for either younger households or those most at risk of property; both segments are largely dependent on the rental property market.

Housing stock and changes in composition There are a total of 4.7 million residential units in Austria, around 2.5 million of which were in buildings with three or more flats, 2.1 million in detached or semi-detached houses and the rest in other non-apartment buildings. Housing construction activity over recent years has increasingly focused on buildings for multiple families, a category in which the stock has risen by 7 % since 2011, compared with a 5 % increase for the detached and semi-detached segment.

Just 3.9 million of the 4.7 million homes registered in Austria are used as primary residences. The 800,000 units registered as

“additional” residences or for which no use is specified are second homes or secondary residences, or empty units that are either earmarked for sale or currently under renovation, and apartments intended for short-term rental.

It is not possible to calculate vacancy rates for this segment as the lack of a registration as a residence does not necessarily indicate that the property is not being used. That said, in light of the slightly slower growth in the number of secondary residences and other apartments for which no usage is indicated compared to main residences, it can be assumed that vacancy rates have fallen over the past ten years (special analysis of registration data for the period 2006–2013 shows that a significant number of newly registered secondary residences could be accounted for by persons who have their main residence abroad and maintain a secondary residence in Austria).

Of the 4.7 million main residences in Austria, 52% are rental apartments or homes and 48 % owner-occupied homes and apartments. The proportion of owner-occupied properties has declined slightly over the long term, having stood at 51% in 2008. The change in this segment’s share is primarily explained by the sharp rise in rental property construction during this period, comparatively weak growth in apartment ownership and the virtually unchanged number of owner-occupied homes. This, in turn, is a result

Housing construction in Austria: Imbalances on housing market lessening

0

50

30

10

20

40

Source: Statistik Austria; UniCredit Research

Strong growth in single-person households Changes in single-person and multi-person households in Austria; in 1,000 units

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Ø 23–32

Ø 33–52

Multi-person households Single-person households

Housing stock and unit sizeUnits Avg. unit size

in 1,000 2008–18 in m² 2008–18

Housing stock 4,714 9% n.v. n.v.of which:Main residences 3,916 10% 100 2%

Owner-occupied houses 1,457 0% 142 9%Owner-occupied apartments 429 19% 86 4%Public housing 278 –2% 61 –2%Housing association apartments 655 27% 70 1%Private main lease 712 21% 70 –2%Other apartments* 386 9% 95 25%

Secondary residences, etc. 798 5% n.a. n.a.*) Sublet, company and rent-free apartmentsSource: Statistik Austria, UniCredit Research


30

80

50

70

40

60

Source: GBV, Statistik Austria, UniCredit Research

estimated

Housing construction in Austria Permits and completions, 1,000 apartments

Permits Apartments completed

83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

of the significant drop in subsidies granted for owner-occupied homes, which were down by more than a third on the ten-year average.

Demand for new builds falls below 50,000 Demand for apartments is calculated on the basis of changes in the number of households and in the housing stock. Demand also depends on a number of aspects which are difficult to pinpoint statistically, such as changes in household size, demand for second homes and apartment purchases for investment purposes. In the past, demand for housing in Austria was met with 45,000–50,000 units per year (given an average of 33,000 new households per annum over the past 30 years). However, muted construction activity during the past decade created pent-up demand, which continued to grow in the years that followed as a result of population growth – in spite of the eventual uptick in housing construction activity.

From today’s perspective, demand in Austria is expected to slacken over the next few years. Growth in the number of new households established has been slowing since 2017 and is expected to drop from its current level of close to 30,000 per annum to under 20,000. Assuming that replacements will be needed for the 13,000 units that are demolished, rezoned or merged, and an estimated 5,000 apartments will be additionally needed as investment properties (IIBW estimates), the annual demand for new apartments in Austria is expected to drop significantly below 50,000 a year.

Demographic forecasts reveal variances in population growth by region: from 2018 – 2030 growth of more than 10 % is only predicted for seven of the 35 NUTS-3 regions in Austria (including Rheintal-Bodensee, Tyrolean Unterland, the greater Vienna area and the cities of Innsbruck and Graz; by 2030 growth in the number of households in the city of Vienna will fall slightly short of the national average, at less than 8%).

Housing construction covers ongoing demand High demand for apartments, the sharp rise in property prices and the availability of cheap financing have helped the housing construction sector on its way to new record totals. Between 2012 and 2016, around 56,000 new apartments were built in Austria each year, a figure that passed the 60,000 mark in 2017. The total was up once again in 2018 to an estimated 66,000 units, which is seen as meeting projected annual demand.

Following a continuous rise in the number of housing construction permits granted between 2012 and 2017, there was a distinct decline in 2018. The data point to a slowdown in new construction activity in 2019 – albeit only moderate, as confirmed by the sustained rise in output from the building construction sector up to May 2019. New housing construction projects have been a major driver of the increase of more than 10% in real terms.

Housing cooperatives announced an increase in new construction activity and intend to add a further 17,000 new apartments to the market in both 2019 and 2020. This would be at least 1,000 units more than the ten-year average.

Overall, new building activity in Austria is set to add more than 65,000 apartments in 2019, which will cut the supply deficit on the housing market still further. That said, it does not mean that all gaps will be closed at regional level, particularly in urban centers.

Supply shortages in affordable housing sectorAustria’s housing market has become highly imbalanced in recent years. The reasons for this are much more complex than simply strong population growth in a period of insufficient housing construction activity. The upsurge in new construction activity, particular in major urban centers, is only meeting the needs caused by the fundamental structural changes on the Austrian housing market up to a point. The demands placed on the housing market by an aging population are totally different to those resulting from the increasing pools of younger apartment hunters, which have formed as a result of large numbers of young people moving to cities.

This also means that the sharp rise in housing prices is only one symptom of the imbalances on the housing market. Over the past 10 years, purchase prices for detached homes and apartments have gone up by around 80 % in Austria and almost doubled in Vienna (source: Österreichische Nationalbank [OeNB]). High property prices directly affect house-hunters, for whom increasing difficulty in affording higher-quality housing is a key concern, or those segments where yields from investment properties are being eroded due to rising prices.

Population groups whose basic housing needs are not being sufficiently met face a number of other barriers on the property market. In addition to rising prices associated with taking up new rental contracts – which is also being seen in the lower-priced municipal housing segment – they are confronted with the fact that relatively poorly appointed, and therefore cheap properties, have all but disappeared from the market. In many cases, the amount of equity required by housing cooperatives, which has risen in step with land prices and construction costs, represents a considerable financial burden for this demographic. Estate agent’s



Large differences in rental prices Main leases* in Austria, 2008 and 2018, euros per m²

4

10

7

9

5

6

8

Private main-lease apartments

of which fixed-term

tenancy agreements

Housing association apartments

Public housing Rental agreement< 2 yrs**

Source: Statistics Austria Microcensus; UniCredit Research*) Existing stock and new tenancies; incl. operating costs**) Rental contracts concluded in the last two years

2008 2018

+45%

+33%

+26%+27%

+32%

9.1

10.0

7.06.6

9.2

fees on the private rental market, which have to be paid more often owing to the prevalence of limited-term rental contracts, are also increasingly an issue (source: Vienna Chamber of Labour, Gentrification in Vienna, 2019). At any rate, social housing is only able to meet part of the demand caused by low income or insuf-ficient provision of welfare benefits. A comparison of tenants by income group shows that just 22% of low-income households at risk of poverty live in public housing and just 28% in housing association properties. As a consequence, this demographic is reliant on the private rental market. (Note: households are catego-rized as being at risk of poverty if their equivalent net household income is lower than 60% of the median; in Austria this applies to 1.24 million people living in single-person households with an income of less than EUR 15,100 p.a.; source.: EU-SILC).

Social balance on Austrian housing market slightly improvedAnalysis of the burden of housing costs on households in different income groups is not enough to establish whether the Austrian housing market is ‘socially balanced’ (in 2018 this meant housing costs for the ‘average household’ of EUR 528 per month or 21% of household income including energy and operating costs, as well as interest on the purchase of residential property). Instead, looking at the incidence of overburdening through living costs – in other words, the proportion of households that spend more than 40% of their disposable income on housing – helps to provide a clearer picture. The Austrian average for 2018 was 6.8% for the population as a whole and around 37% for those at risk of poverty. The fact that both shares have improved slightly on average over the past ten years shows that social housing construction is having a positive effect. Younger people in particular tend to be overburdened when it comes to housing costs; in 2018 the total for the 20–29-year-old age group was 10.4%. While this proportion is significantly lower than in each of the three previous years, it is still in line with the long-term average.

A comparison of rental contract durations gives another sign of the disproportionately high cost of entering the Austrian housing or rental market: main lease apartments rented for the first time – or for which a limited-term contract was extended – in the past two

years cost an average of EUR 9.20/m² in 2018, compared with just EUR 7.00/m² for rental contracts concluded more than ten years ago. The rise in rents for new tenancies was above the long-term average.

Prices for ‘young’ rental contracts in the private housing segment are presumed to still be well above the average. Irrespective of the term of the contract, rents for a private main-lease apartment averaged EUR 9.10/m² last year, which is at least EUR 2.00 per square meter more than the cost of renting local authority or housing association properties.

Finally, the majority of house-hunters in the Austrian rental sector are at the mercy of the free market, given that 61 % of all ‘young’ rental contracts are accounted for by private landlords. The average for 2016 and 2017 was 65 % and it was not until 2018 that the number began to fall significantly for the first time in years, as a result of a substantial increase in the number of housing association properties and local authority apartments coming on to the market.


This year, Vienna’s office property segment has further consolidated its position as one of Europe’s most stable markets. Consistently strong investment in commercial real estate in recent years and forecasts of similarly high investment volumes this year underline the attractiveness of Austria’s property market among domestic and international investors.

Over the past few years, new rentals have generally been signifi-cantly higher than the growth in new space, which forms the basis for the stability of the capital’s office market. As in 2016, only a small amount of new space is expected to come onto the market this year, but this does not lead to instability in the market, since it is offset by boom years for construction like 2017 and 2018.

Offices located on sites outside the traditional prime locations have been unable to capitalize on the upbeat sentiment. The same goes for office space that no longer satisfies requirements that have emerged due to changed usage patterns. Such spaces are no longer competitive owing to the ready supply of high-quality space. Numerous spaces that fall into this category will eventually disappear altogether from the office market – they will either be replaced by new builds, or property developers may also look to implement suitable reuse or conversion projects. However, refurbishment will not always be a financially feasible option for such properties, or they may no longer be attractive for office use solely on account of their location.

Due to the strong demand for residential space, efforts are frequently made to convert former offices into apartments, provided they are suitable from a structural point of view and rededication is possible. In many cases, demolition of certain structures or parts of them are necessary in order to fully implement contemporary and sustainable building elements. In the past few years, there has been a trend towards concepts that involve converting former offices into hotels, student accommodation or serviced apartments.

In the meantime, another new trend has emerged: outdated office properties in attractive locations are being refurbished and divided into small units suited to an alternative form of office use, namely co-working spaces.

Viennese office property market: new construction down sharply in 2019 after two strong years, but numerous projects still in the pipeline

Vienna currently has around 11.3 million m² of office space. This includes older locations and space that no longer fully meet modern office standards, as well as small offices, and spaces in schools and at universities.

In terms of office space per capita, the Austrian capital ranks below the European average. But compared to its East European counterparts, Vienna still leads the way, although cities such as Prague and neighboring Bratislava are slowly but surely gaining ground.

Construction of new space at record lowIn 2016, new office construction in Vienna fell to an all-time low of 60,000 m². However, there was a surge in new construction activity in 2017 and 2018, to 190,000 m² and 300,000 m² respectively, including properties for own use, such as company headquarters. This year, the amount of new space is expected to fall drastically, and current forecasts put new construction at around the 40,000 m² mark. To a certain extent, this depends on whether projects currently under construction are actually finished this year or are pushed back to next year, or in many

0

2

20

4

6

8

18

10

12

14

16

Source: IRG

Office space in m² per capita 2019Of

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spac

e in

m2

Zuric

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Geneva

Frankfu

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Munich

Copen

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Milan

Amsterda

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Hambu

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Warsaw

Budap

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cases whether projects slated for completion in 2020 are brought to a conclusion this year. As a result, the total amount of space completed by year-end could still change.

New builds will account for the majority of the new space, with only a small proportion resulting from conversions and renova-tions. The projects due to come onto the market also include a number of co-working spaces. Other projects are now under construction or at the planning stage, so in the coming years it will be necessary to keep a closer eye on how this increase in the construction of new space affects vacancy rates.

New rentals roughly unchanged year on year in 2019The take-up of office space reached around 230,000 m² last year, up slightly on 2017. About 110,000 m² was newly let in the first half of 2019, and property experts are confident that new rentals will come in just above the figure for 2018 by the end of this year.

Rental of new space is generally characterized by a shift away from older towards more up-to-date offices, and the consolidation of several locations at a new, modern and often architecturally appealing office building. The amount of office space per employee has gradually declined, mainly as a result of developments such as shared desk and home office solutions.

HoHo – timber high-rise adds to Seestadt Aspern’s cachetIn contrast to last year, when massive projects such as the Austria Campus and The Icon Vienna were completed – adding a combined 230,000 m² of new space between them – no such large-scale projects are under construction this year.

Among the office developments scheduled for completion in 2019 and currently under construction is HoHo in the Seestadt Aspern area, a mixed-use, 24-storey tower built chiefly from timber. Besides office space, the building also includes a hotel, apartments, bars and restaurants, and a fitness center covering a total of 17,000 m². This year’s largest pure office project is the expansion of the silo park site close to the Perfektastrasse underground station; the project will see the addition of around 11,000 m² of space.

Further projects planned or under construction at the Hauptbahnhof siteMore projects at the Hauptbahnhof site are scheduled for completion over the next few years. The QBC 1 and 2 units at Quartier Belvedere are currently under construction, with completion due in 2020. Signa is building additional office, hotel and residential space at the Bel & Main project.

A string of projects are under way in Seestadt Aspern, including Seeparkcampus Ost and the mixed-use Am Seebogen project where new office space is also planned.

At Biotope City on the former Coca Cola site on Triester Strasse, work is progressing on Wienerberger’s new head office, known as The Brick, and on hotel, office and commercial space. The Soravia Group is aiming to complete the project by 2020. The location’s attractiveness has grown thanks to the planned extension of underground line U2 to Wienerberg.

New buildings are also taking shape once again at Vienna International Airport. The development of unit 4 at Vienna Airport Office Park will add about 20,000 m² of office space, as well as co-working areas, conference rooms of various sizes, an event and showroom area, and catering outlets. The project is also due to be concluded by 2020.

In addition to developments either under construction or at the planning stage, there are plenty of office projects in the pipeline. How-ever, in many cases the construction schedule and the exact proportion of office space is still to be determined. Such space could still be con-verted for other uses, where permitted under the zoning regulations.

0

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

Source: IRG, CBRE, EHL

New construction and take-upOffice space in Vienna 2001–2019p

Take-up in m2New construction in m2

20012002

20032004

20052006

20072008

20092010

20112012

20132019p

20162018

20172015

2014

Projected new office space in 2019 (selected developments)Project Total usable office space (m²) Status

silo plus 11,000 under construction Technology Centre Seestadt phase 2

5,600 completed

Campus Talent Garden 5,000 completedHoHo 4,300 under construction Mischa 3.900 under construction Source: IRG


Top rents generally holding steady on Vienna’s office property marketOffice rents in the Austrian capital remained largely stable in the first half of 2019. Top rents for class A office space in attractive locations were around EUR 26/m²/month in mid-2019.

However, rental costs can be higher for certain spaces in premium properties, such as the top floors of office blocks, and for highly exclusive premises with custom amenities, fixtures and fittings, although such prices are the exception. In spite of the low level of new construction, top rents are expected to hold at their current level until the end of the year.

Demand remains strong for space at upmarket addresses in Vienna city center, as well as at central office locations and popular office clusters. Newcomers such as Viertel Zwei and – particularly over the last few years – the area around the Hauptbahnhof main railway station have also joined the ranks of sought-after locations.

Demand for space in the mid-price segment remains strong – in the current era of desk-sharing solutions and with an increased trend towards working from home, optimized use of space still has a significant influence on demand for offices. Besides rental costs, the most important criteria for prospective tenants when choosing a site include location, accessibility, energy efficiency and the lowest possible operating expenses. Total costs per employee play a more decisive role than the rental cost alone.

Certification according to standards such as DGNB, ÖGNI, LEED and BREEAM is now a vital and self-evident requirement. Global blue chips are unlikely to rent space without the appropriate certifica-tion. This is due to a combination of environmental protection crite-ria, potential for cost savings, and company policies. Certification for renovation and conversion projects in accordance with sustain-able building standards is also becoming more common as a means of safeguarding competitiveness. Research has shown that the risk of vacancies at office properties classed as green buildings is measurably lower than at conventional buildings. Sustainability-

related and environmental considerations are also reflected in the new world of work: efforts are being made to strike a better balance between work commitments and leisure time; and for many employees, as well as for employers, the work-life balance is just as important as ethical and ecological factors.

There is still pressure on office buildings with low occupancy rates, old spaces in need of renovation, and premises in unattractive areas outside the most popular office sites, without suitable amenities and links to the public transport network. Space in this category that becomes vacant often never comes back onto the market and is converted to other uses, provided this makes financial sense and is permitted under the zoning regulations. Sometimes, the best option is to demolish the existing building or parts of it, and redevelop the plot instead.

Office vacancy rates down slightlyCompared to other European cities, Vienna has low vacancy rates, but over the past few quarters many office markets across the continent have seen office vacancies fall sharply. The rate in the Austrian capital has fallen slightly, to about 5.0% at the midway point of the year, and could drop further by the end of the year in view of the lower volume of new space under construction. However, it is hard to predict how the level of vacancies on the city’s office market will evolve as projects in the pipeline gradually come onto the market.

Unsurprisingly, vacancies at older properties are higher than at sought-after, centrally-located offices. Vacancy rates are also above average in some office towers, especially older developments.

Another small drop in prime yieldsThere was a modest fall in prime yields in the Viennese office sector during 2018 and in the first six months of 2019, to about 3.7% for top-of-the-range properties in premium locations at the end of the first half of this year.

Forecast new space, 2020ff (selected developments)Project Total usable office space (m²) Status

Quartier Belvedere, QBC 1 und 2

36,000 under construction

Office Park 4 21,000 under construction Biotope City, THE BRICK 19,000 under construction Bel & Main 17,000 under construction Seeparkcampus Ost 9,000 planning stage silo next 9,000 planning stage Source: IRG

0

2

10

12

14

16

4

6

8

Source: IRG

Vaca

ncy

rate

s in

%

Office vacancy rates in Europe in % 2019

RomeMila

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MoscowMad

rid

Warsaw

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Brussel

s

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Centra

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Stockh

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Belgrad

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Yields are not expected to move significantly for the rest of this year. Sustained investor demand for top-quality real estate means that a further decline in prime yields in Vienna’s premium office segment cannot be excluded, even though any changes are likely to be very small.

Vienna’s office hotspotsCity centerCentral Vienna and the city’s inner districts remain the most popular office locations, and demand there is still strong. Offices and numerous retail spaces dominate the city center, and over the past few decades the large number of residential properties has fallen steadily.

However, in recent years, as a result of strong demand for large apartments and luxury residential space, former offices in some parts of the city center have been reconverted into apartments. Former offices in city center properties dating back to the Gründerzeit era in the mid-to-late 19th century are particularly popular for reconversion into residential space with generously proportioned floor layouts, as these cater to the demands of wealthier clients for expansive luxury living space.

The property at Postgasse 8 – 12 in the first district, the former headquarters of Österreichische Post AG, is currently being remodeled. The original plans included stylish apartments and a hotel, but following the resale of the property, a mixed-use revitalization project to create a hotel, rental apartments, offices, catering outlets and a gym is now planned.

Inside the Gürtel outer ring roadNumerous office properties are located in this section of the city. Location and ease of access are key to the popularity of

the districts bordering the city center. However, new builds are rare in these areas – new space occasionally comes onto the market as a result of conversions and refurbishments like Telegraf 7 in the sixth district, which features modern offices and co-working areas on the site of a former telegraph office. Two new co-working spaces opened in the first half of 2019: Campus Talent Garden in the ninth district and The Base in the fifth district. Additional spaces inside the Gürtel are scheduled to open in the future.

Donau CityThe Donau City area (Vienna DC) has grown to become one of the capital’s most important office locations, alongside the city center. A number of imposing office blocks dominate the skyline, including the tallest office tower in Vienna, DC Tower 1, which has further enhanced the standing of the Donauplatte area. A slightly smaller second tower – DC Tower 2 – is at the planning stage. The planned DC Tower 3 will be built before Tower 2. Construction work is already in progress, although the property will not include any office space; instead, about 700 student apartments will be built on the 20,000 m² of usable space.

Prater / Messe / HandelskaiIn the past few years, new office hotspots have sprung up in the areas around Handelskai and Messe Wien, and close to the site of the former Nordbahnhof and Nordwestbahnhof railway stations. The area around Praterstern, the site of the Austria Campus, remains one of Vienna’s biggest urban development zones. Construction work is under way again at Viertel Zwei. The heritage-listed former stands at the Trabrennverein harness racing track are being fully refurbished for conversion into office space, and a modern extension will also be added. Further projects are planned at the location. In the near term, city planners will have a host of options for creating a leafy district suited to a variety of uses at the Nordwestbahnhof site, which is still used as a rail freight station.

Erdberg / St Marx / GasometerIn recent years, new office properties such as Marxbox, Marximum and the multi-phase TownTown project have shaped the Erdberg, St Marx and Gasometer office location. The TownTown complex was completed in 2017 with the construction of Orbi Tower. At present, the large-scale, primarily residential TrIIIple project is taking shape on Schnirchgasse; office space is also planned at the site. Nearby, Austro Control is currently building the Austro Tower, its new headquarters.

WienerbergWienerberg in southern Vienna is another firmly established office location. Completed in 2017, phase 6 of the extension of Euro Plaza created additional office space at the site. The

0

30

25

20

15

10

5

2.0

3.5

3.0

2.5

4.0

8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

Source: IRG

Rents, yields and vacancy rates in the Viennese office market 2006–H1 2019

Prime rents per €/m2/month

Vacancy rate in %Prime yields in %

20062007

20082009

20102011

20122013

2014

H1 20192018

20172016

2015


amount of office space increased further with the expansion of the Inno Center, which involved construction of the Inno Plaza. Mixed-use project The Brick, the site of Wienerberger’s new head office as well as additional office space, a hotel, commercial space and restaurants, is also under construction at the Wienerberg site.

North Vienna / Heiligenstadt / MuthgasseA number of office developments have taken shape on Muthgasse close to Heiligenstadt station in the 19th district in recent years. These include the existing space2move office block and the two-unit Square Plus, phase one of which was completed in 2017.

Western ViennaThe west of Vienna is one of the city’s less developed office locations. A few years ago, a significant amount of office space was built as part of the Forum Schönbrunn project. However, no large-scale developments are planned in this area at present.

Seestadt AspernAspern IQ (Technology Centre Seestadt) was the first office property built in the new Seestadt Aspern urban development zone; the site was expanded this year with the completion of phase two. Additional office space will also be built this year at HoHo – a spectacular, predominantly timber high-rise – and at the Mischa and Seehub projects; offices are also part of the plans for projects such as Seeparkcampus Ost and Sirius.

HauptbahnhofVienna’s newest office location has sprung up around the Hauptbahnhof station in recent years. The new headquarters of Austrian Federal Railways (ÖBB) and Erste Bank, as well as The Icon Vienna, a striking ensemble of three office blocks of different heights, are located there. Construction work in the area around the Hauptbahnhof is not yet complete. A number of projects, including QBC 1 and 2 at Quartier Belvedere, as well as Signa’s mixed-use Bel & Main project, are planned or under construction.

The Hauptbahnhof site has rapidly become one of Vienna’s most attractive office locations. Once completed it will offer a mix of offices, apartments, shops, hotels, bars and restaurants, service providers and health facilities.

Mixed-use concepts – an alternative to conventional office propertiesAlongside the megatrend of co-working, which is now firmly established on the Viennese property market, another trend is emerging, and not just in the Austrian capital. Developers are increasingly implementing mixed-use projects with highly flexible utilization structures, and generally targeting a broader

combination of uses. The aim is to interweave residential, work and leisure concepts, while childcare, education and medical facilities also have an important part to play, as does living space for the elderly, which is becoming increasingly important against the backdrop of an aging population. This trend is es-pecially pronounced with high-rises: although some properties still exclusively feature office or residential space, the number of mixed-use towers is increasing all the time.

But not all developments start out as mixed-use properties. Two years ago, HoHo in Aspern was in the running as the new headquarters of the European Medicines Agency (EMA), which had been forced to close its London office due to Brexit. However, after the EMA turned down a move to Vienna, the plans were reworked and the current mix of offices, hotel rooms, apartments, catering outlets and a fitness center was developed instead. This was possible because such a concept had been drawn up initially and the structure of the property was suited to a variety of uses.

Investors have also contributed to the strong performance of the mixed-use segment. Some are shying away from acquiring purely retail properties, for example, owing to the growth in online selling. In contrast, demand for real estate with a mix of office and retail space coupled with various residential concepts is on the up. This is not just a reflection of changing times, but also a knock-on effect of contemporary urban development.

Exploring the idea of the city of the future, which will replace urban planning centered on cars, has prompted greater interest in the development of quarters. This will lead to significant changes in urban development, with a focus on mixed-use concepts as outlined above, and on an additional challenge: life in major conurbations against the background of global warming. Especially in new quarters with flexible uses and designs, it is vital that increased thermal stress in major cities is taken into account from the very beginning of the design phase, and that sealing of green spaces, which as a result can no longer serve as sources of humidity and shade, is kept to a minimum. This will pose an interesting challenge for project developers and city planners over the coming decades, especially in heavily built-up urban spaces, where in many cases the only option is to build upwards on small plots.



Shopping centers (SCs) in Austria: market consolidation continuesAs of 30 June 2019 there were around 120 shopping centers in Austria, with a combined gross lettable area (GLA) of 2.8 mil-lion m². Only one new shopping center was added, leaving GLA virtually unchanged year on year. Shopping center spaces con-tinue to be adapted through modernization and / or expansion of existing and well-established locations.

One of the reasons behind the virtual standstill in the amount of new space coming onto the market is the already high de-gree of saturation. With a shopping center density of approx. 324 m² of lettable space per 1,000 inhabitants, Austria is among the front runners in Europe. The EU average is 259 m² per 1,000 inhabitants.

As a result, the majority of attractive sites for shopping centers are already occupied or their prospective catchment areas are un-able to sustain any further SC projects. The different retail formats often end up cannibalizing one another, inspired by the notion of “better is the enemy of good” – not only in inner city locations but also among themselves as they chase the same tenants.

Bricks-and-mortar retail is coming under increasing pressure from online competitors. In response, many of them are targeting

qualitative growth at their branches, putting any expansion strategies they may have had on hold and focusing on their top locations instead. Strict planning rules and lengthy and costly application processes are also hampering the construction of new shopping centers.

The 11,000 m² HEY! Steyr shopping center, one of only a handful of recent new openings, confirms the status quo outlined above. It took a total of ten years before all of the official permissions were granted for the development, which is on the site of a former barracks, and the center finally opened to customers in April 2019. Some of the new major tenants (e.g. Thalia and Müller) moved from the City Point shopping center close to the town center, leaving it with considerable vacancy issues. Following a change of ownership, the anemic City Point shopping center is now foreseen as a mixed-use project (department store with retail spaces, hotel and service companies).

In 2018, the LCS shopping center in the center of Leoben was expanded by around 4,000 m², and the Murpark in Graz by about 6,000 m².

At present, there are no shopping center projects under construction.

Shopping centers – interest from investors but virtually no new projects

0

900

600

500

400

300

200

100

700

800

Source: C&W European SC Development Report May 2018, Michael Bauer Research

0

5,000

10,000

45,000

40,000

15,000

20,000

25,000

30,000

35,000

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Shopping Center Space and Purchasing Power in EuropeLeasable area in m² per 1,000 inhabitants

Norway

Luxem

bourg

Sloven

ia

Netherl

ands

Switz

erlan

dAust

ria

CroatiaPola

ndFra

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EU-28-av

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Slovak

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Czech Rep

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Hunga

ry

Roman

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Ø EU-28: EUR 17,439,–

Austria (excl. Vienna) Selected SC openings, 2018/H1 2019Shopping center Gross lettable area (GLA), m² Opened

EKZ “HEY! Steyr” approx. 11,000 H2 2017LCS Leoben City Shopping (expansion)

approx. 4,000 H1 2018

Murpark Graz (expansion)

approx. 6,000 H2 2018

Sources: IRG, Standort+Markt

Austria (excl. Vienna) | Selected SCs under construction and projects Shopping center Gross lettable area (GLA), m² Scheduled

opening

Kampcenter Zwettl approx. 15,000 ProjectShopping Quartier Lienz approx. 13,000 ProjectEKZ Mattighofen approx. 10,000 ProjectEKZ Bad Ischl (relaunch and renovation)

approx. 8,000 Project



Six mega-malls in the greater Vienna areaThe greater Vienna area has six mega-malls – large-scale shopping centers with more than 50,000 m² of lettable space. For many years, Shopping City Süd and the Donauzentrum have led the rankings by a considerable margin – and are now followed by the newly expanded Auhof Center in third place for the first time.

The top six mega-malls now account for around 52 % of Vienna’s total SC space. Smaller centers with less than 20,000 m² – of which there are 14 – together make up 18 % of total area.

Online retail leads to shifts in space rental – ‘retailment’2 trend continuesIn 2018 around EUR 8 billion was spent on online shopping in Austria, which is equivalent to about 11 % of all consumer spending in the country. The product segments with the highest proportion of online sales are media and technology, sport and leisure, and fashion and lifestyle. The home furnishings, DIY and gardening and, in particular, the groceries and health and beauty segments are seen as having great potential. Online retail has grown more slowly over the past 10 years. Contributing factors include a slowdown in growth rates in established industries with a high proportion of online sales and the fact that online grocery retailing is still a niche market. Challenges that have yet to be satisfactorily addressed (e.g. last-mile logistics, a large number of different payment systems, networking of online and offline worlds) are preventing online trade from growing any faster.

Vienna’s SC market: Construction of new space expected to come to a standstill in 2019In mid-2019 Vienna and the surrounding area had close to 1.9 million m² of retail space1. The market shares of the individual segments were as follows: 41.5% shopping centers, 42.6% retail park agglomerations (incl. retail parks) and 15.9 % key Vienna shopping streets.

At the end of June 2019, Vienna’s shopping center market comprised around 992,000 m² of lettable space spread across 30 locations. Compared to the start of the previous year, this represented a relatively small increase of around 9,000 m². The density of shopping center space per 1,000 people declined slightly year on year to around 516 m².

The approx. 9,000 m² expansion of the Auhof Center, taking total space to around 59,000 m², was the sole highlight of last year. Around 50 % of the newly added space was rented by non-retail operations including a 2,000 m² indoor action play area and restaurant chain L’Osteria.

Otherwise, the shopping center pipeline in the Viennese market is almost empty. Expansion projects at existing and well-functioning sites are usually only undertaken given a correspondingly high degree of advance sales, or if sufficient advance rental agreements are put in place. As a result, the majority of new retail spaces are local grocery stores built as part of larger office and residential developments.

Number of shopping centers in Vienna and the surrounding area by size

Number Gross lettable area (GLA), m²

14 < 20,000 10 20,000–50,000 6 more than 50,000


Vienna | SC openings 2018/H1 2019Shopping center Gross lettable area (GLA), m² Opening/closure

Auhof Center (expansion)

approx. 9,000 H2 2018


Importance of individual segments in Viennaas measured by sales space

Source: IRG, Standort+Markt, EHL

Shopping centres 41.5%

Retail park agglomerations 42.6%

Shopping streets 15.9%

Top six shopping centers in Vienna and the surrounding areaName Gross lettable area (GLA), m²

Shopping City Süd approx. 173,000 Donau Zentrum approx. 130,000Auhof Center approx. 59,000G3 Shopping Resort Gerasdorf * approx. 58,000Millennium City approx. 51,000Huma Eleven approx. 50,000*) excl. retail park Sources: IRG, Standort+Markt

1) Pure sales space for statistical purposes. 2) Retailment: a portmanteau of the words ‘retail’ and ‘entertainment’.



In the digital age, online retail is fundamentally changing the way people shop and the retail landscape, and has a huge influence on the structure and design of sales spaces in shopping centers.

Retailment is still a major trend. Beyond purely meeting demand, this involves creating shopping experiences and building in a convenience factor for visitors. A greater emphasis on lifestyle and entertainment offerings and the digitalization of shopping centers should lead to an increase in the amount of time people spend there and increase their attractiveness.

A shift in the proportion of space accounted for by different industries is also apparent. Traditional tenants from the clothing, accessories and footwear segments are in some cases occupying less space, while the likes of F&B, service providers, gyms and health facilities are steadily gaining ground and claiming greater shares. Online-only retailers are increasingly inquiring about the availability of shopping center spaces as they work to build trust and increase customer loyalty through bricks-and-mortar presences.

In terms of large-scale projects, there is a distinct trend towards neighborhood solutions – i.e. mixed-used concepts rather than single-purpose developments. This development is driven by high real estate prices and a lack of availability in urban areas, which necessitate multi-use solutions (e.g. supermarkets integrated into residential, hotel and office projects) from a commercial point of view. In some cases, planning permission can be conditional on the implementation of a mixed-use concept.

Stable top yields and rents at shopping centersIn mid-2019 monthly rents at shopping centers in Vienna ranged from EUR 8–120/m² depending on store size. Prices at premium shopping centers are holding firm. The growing influence of online retailing is exerting pressure on rents, with category B and C locations often confronted with high vacancy rates and the need to reduce rents as a result.

The top yield for shopping centers remained stable year on year, and stood at about 4% in mid-2019. The lack of new construction activity at the top end of the market meant that pressure on yields was less pronounced for shopping centers than for the office and residential sectors. No major changes in yields are expected by the end of this year. Due to ongoing pressure for

suitable investments from Austrian and international funds, a drop in yields to a historic low cannot be ruled out.

Retail parks in Austria: ‘shopping world’ cen-tered on Parndorf continues to grow – other-wise space growth is modestThe market in Austria is well served with retail parks3 and retail park agglomerations4, with a concentration of 609 m² per 1,000 people. Total space in this segment amounted to around 5.4 mil-lion m² as at the end of June 2019, about 20 % of which was accounted for by retail parks.

The standing of retail parks has improved significantly among investors and retailers alike in recent years. Since the turn of the century, the number of such developments has increased five-fold to more than 100, while the amount of lettable space has doubled over the same period. Around 40 % of retail parks are smaller than 10,000 m² and close to 30 % of all locations are larger than 20,000 m².

The only new retail park opening in 2019 was the Vorum Voits-berg retail park with around 8,000 m² in Voitsberg in Styria. Last year the Intro Shopping Center in Siegendorf was completed and the SC Merkur-City-Süd expanded to include a retail park directly opposite.

The addition of a retail park strip to an existing shopping center is a move that has been adopted on multiple occasions in recent years (e.g. dez in Innsbruck, EO in Oberwart and Shopping Nord in Graz). This development is also driven by a tendency for new retail parks to take on an increasing proportion of what would traditionally be shopping center tenants. As result, a number of new and / or refurbished locations are adopting hybrid forms (e.g. retail-park-oriented shopping centers).

Projects currently under construction include the Frunpark development in Parndorf and K2 Shopping Kittsee. Both retail parks are scheduled to open in 2020 / 2021.

Shopping center rents Range (EUR/m²/month)

Anchor tenants 8–15Shops (depending on size and location) 15–120

Sources: IRG

Selected retail park/ factory outlet center openings, 2018/H1 2019Retail park Gross lettable area (GLA), m² Opened

FMZ Vorum Voitsberg approx. 8,000 H1 2019 FMZ Merkur-City-Süd approx. 6,000 H2 2018 Intro Shopping Center Siegendorf*

approx. 8,000 H1 2018

Fashion Outlet Parndorf (renovation and expansion)

approx. 8,000 H2 2018

*) shopping center by name, but structurally arranged as a retail park Sources: IRG, Standort+Markt

3) Retail park agglomeration: retail park locations that have grown organically and are not managed by a single operator. 4) Retail parks: are let and managed by a central body; planning is uniform.


The rest of the project pipeline mostly contains smaller retail parks with less than 15,000 m², which only cater to smaller catchment areas due to the saturation of the market. Similarly to the situation at shopping centers, use of space by service providers, F&B and leisure companies to help increase attrac-tiveness and quality of stay at larger, established retail parks is becoming increasingly prevalent.

The largest upcoming space additions can be expected in the agglomeration centered on Parndorf. Current projects include the Outdoor Center and expansion of the Pado Galerien development. Utilization of a 23,000 m² plot with shopping center planning approval (formerly the SC Neusee project) is still to be finalized. There are no major changes in the pipeline at any of the other members of the top five.

Demand for rental space at retail parks in good and very good locations is healthy, with stable or slightly increasing rental prices (in category 1A locations) for smaller retail spaces the result. Retail park rents ranged from EUR 7 – 16 / m²/ month as at the end of June 2019.

Retailers rediscovering city centers – rising demand for retail spaces on prime shopping streetsVienna’s most expensive shopping streets include the high-end Golden U (consisting of Graben, Kärntner Strasse and Kohlmarkt), the luxury Goldenes Quartier shopping district (Tuchlauben, Bognergasse, Seitzergasse) leading off Kohlmarkt, as well as Mariahilfer Strasse.

At present, Austrian and international retailers are increasingly rediscovering city center locations. Demand is primarily con-centrated on retail spaces in prime shopping streets. Scandinavian fashion chain &Others opened its first Austrian branch on Kärntner Strasse, following on from Apple and Huawei, both of which opened flagship stores in this prime location.

Positive changes are also under way on Mariahilfer Strasse, which is increasingly regaining its old cachet following its partial pedestrianization, as well as the introduction of traffic calming measures and a pedestrian priority zone. Sports fans would be well advised to pay a visit, following the grand opening of XXL-Sports in the Gerngross department store, where JD Sports and Hervis also have their flagship stores. Asics and Nike both opened large stores on Mariahilfer Strasse last year. In September 2019 a huge 3,500 m² branch of H&M, including the H&M Beauty and H&M Home concepts, opened its door to shoppers.

The first city center IKEA close to Westbahnhof will add to Mariahilfer Strasse’s appeal (construction is scheduled to start in early 2020). At the other end of Mariahilfer Strasse, property developer Signa is planning to remodel Leiner in 2021 as a luxury 24,000 m² department store with hotel and F&B spaces in the mold of Berlin’s KaDeWe.

The average net rent for category 1A locations is EUR 170 / m² per month. Rents for smaller units in the Golden U (Kärntner-strasse, Graben and Kohlmarkt) and the Goldenes Quartier can peak at about EUR 370 / m² per month. The top yield for the high-street segment was about 3.3 % – 3.75 % in mid-2019.

Demand for category B and C locations in the Austrian capital is in decline. Steps are currently being taken to find alternative uses for empty high-street properties. In addition to short-term tenancies (pop-up stores), doctor’s surgeries, kindergartens, self-storage spaces and parcel collection points, there are also hotel, co-working and F&B concepts (e.g. Andy’s Hub neighbor-hood accommodations). A comprehensive effective solution for the – in some cases rising – vacancy rates has yet to be found for these locations.

Top 5 retail park agglomerations incl. FOC in Austria

Name Gross lettable area (GLA), m²

Vösendorf Nord/Brunn am Gebirge approx. 239,000Rautenweg West & Ost – 1210/1220 Vienna approx. 155,000Klagenfurt Ost – Carinthia approx. 154,000Parndorf – Burgenland* approx. 100,000Graz – Webling approx. 83,000*) incl. Designer Outlet Parndof, Fashion Outlet Parndorf, PADO Shopping Park, Pannonia Shopping Park, XXX-LutzSources: IRG, Standort+Markt

Retail park rentsRange (EUR/m²/month)

Shops (depending on size and location) 7–16Sources: IRG

Selected retail parks/FOCs under construction and projects Retail park Gross lettable area (GLA), m² Scheduled

opening

Funpark Parndorf approx 20,000 under construction FMZ K2 Shopping Kittsee (expansion)

approx 10,000 under construction

FMZ Oberwart approx 13,500 ProjectFMZ Outdoor Center Parndorf

approx 12,000 Project

Pado Galerien Parndorf (expansion)

approx 11,000 Project




Shopping centers Vienna and the surrounding area


UniCredit Bank Austria AG

Real Estate Walter BödenauerTel: + 43 (0)50505 – [email protected]

Economics & Market AnalysisWalter PudschedlTel: + 43 (0)50505 – [email protected]

Günter WolfTel: + 43 (0)50505 – [email protected]

Immobilien Rating GmbH (IRG)

Market ResearchAlexander StögbauerTel: + 43 (0)50601 – [email protected]

Helmut SchneiderTel: + 43 (0)50601 – [email protected]

Authors:

Unicredit Bank Austria Real Estate

International Real Estate FinanceAnton HöllerTel: + 43 (0)50505 – [email protected]

Subsidised Real EstateGünter NeuwirthTel: + 43 (0)50505 – [email protected]

Commercial Real EstateChristian WiesbauerTel: + 43 (0)50505 – [email protected]

Contacts:



Contact: UniCredit Bank Austria AG Commercial Real Estate: Christian Wiesbauer, [email protected] Real Estate Finance: Anton Höller, [email protected] Subsidized Real Estate: Günther Neuwirth, [email protected]

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