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RealEstateCountry Facts

072012

“The Austrian Real Estate Market: an oasis of calm?”

2 | Real Estate Country Facts 07 / 2012

Real Estate

Country Facts

Imprint: Publisher and media owner: UniCredit Bank Austria AG http://www.bankaustria.atEditor: Bank Austria Real Estate Consulting & Investment, Karla Schestauber, Tel. +43 (0)50505-54784Layout: www.horvath.co.at

Dated: 27 June 2012

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

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 and real estate market data and related assessments of real estate market developments. Despite careful research and the use of reliablesources, we cannot assume any responsibility for the completeness, correctness, up-to-dateness and accuracy of information containedin this publication.

The publication has not been prepared in compliance with the legal provisions governing the independence of financial analyses, and it isnot 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 buyor sell financial instruments. This publication serves information purposes only and does not replace specific advice taking into accountthe investor’s individual personal circumstances (e.g. risk tolerance, knowledge and experience, investment objectives and financial cir-cumstances).

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 07 / 2012 | 3

Real Estate

Country Facts

There is still no end in sight to the euro-zone sovereign debt crisis. Europe’spoliticians are trying to avert disaster bymeans of “firewalls” and public spendingcuts. Also steps aimed at stimulatinggrowth in the ailing European economywill need to be taken soon.

Europe’s monetary policymakers are infull-on crisis management mode. Head-

line interest rates are at all-time lows and the European CentralBank (ECB) has already provided injections of liquidity by means oftwo long-term refinancing operations. In spite of this, the bankingsector is still under immense pressure, due to a combination of thefalling prices of bonds issued by crisis-hit governments, tighter regulatory requirements and a challenging economic climate. All ofthese factors have pushed up refinancing costs, which must bepassed on to customers.

Despite implementing a series of austerity measures, Austria’seconomy is currently a relativ model of success, with low unem-ployment and GDP growth which is forecast to reach 0.8 % thisyear. This has also given the country’s real estate market a shot inthe arm. Nevertheless, as in other countries, due to the eurozonecrisis the appetite for risk in Austria has fallen sharply. Commercialproperty investors are mainly targeting core real estate – propertiesin top-quality locations with tenants that have strong credit ratings.

The Austrian real estate market: an oasis of calm?

Prime yields in the office and retail segments have declined signifi-cantly. Many investors are also pursuing a strategy of snapping updistressed properties at bargain prices. Sales of commercial prop-erty were relatively flat in the first quarter of this year, but that wasprimarily the result of limited supply, not weak demand.

Surveys reveal that investors and developers in Austria are up inarms about the reluctance of banks to finance property transac-tions. However, closer inspection often shows that banks’ marginsare criticised as being excessive, even though total interest costs –i.e. Euribor plus the bank margin – remain modest.

Private investors, many of whom do not require bank loans, are crisis driven turning to investments in real estate, and this is drivingup residential property prices. The strong demand for investmentapartments and rental apartment buildings has cut yields signifi-cantly, since such investors are more interested in safeguardingtheir investments than maximising returns.

We remain hopeful that the steps taken to stem the eurozone crisiswill start to have an effect soon. But the longer the crisis influencesinvestor behaviour in the real estate sector, the greater the risk thatthe Austrian property market – which is often labelled as relatively“dull” – could experience one or the other crisis driven exaggeration.

Karla Schestauber


Real Estate

Country Facts

Economy still expanding, but slowly …After the deep crisis of 2009, the Austrian economy posted a sur-prisingly rapid recovery up to mid-2011. GDP growth acceleratedfrom 2.3 % in 2010 as a whole to over 4 % in the first half of 2011,buoyed by strong exports, a moderate upturn in consumption androbust investment activity driven by pent-up demand in the after-math of the crisis. However, during the summer of 2011 the loss ofconfidence caused by the European sovereign debt crisis began todampen expectations. Capacity utilisation, which had almost re-turned to its long-term trend level in the spring, decreased towardsthe end of the year. After a powerful surge that had seen capital investment jump by almost 6 % year on year, Austrian companies’investment confidence was seriously eroded. Private consumptionrose gently but steadily throughout the year, for an average gain of0.6 %.

In the course of 2011 demand for Austrian exports weakened no-ticeably in line with fading global demand. Austria’s export-orientedindustrial sector lost momentum, and towards the end of the year itentered a mild recession. Nevertheless, thanks to the strong up-swing in 2010 and the early months of 2011, real full-year growthin both exports and industrial production was high, at about 7 %,and helped drive overall economic expansion. GDP rose by 3 % in2011 – among the highest growth rates in the eurozone.

Improved business confidence indicators such as orders, and em-ployment trends show that after the stagnation of the second half of2011, the economy returned to growth at the start of 2012. How-

Bumpy road to recovery for the Austrian economy

ever, the nascent recovery remains very tentative. The requisitesupport from exports has so far been modest and unstable, anddomestic demand has been dampened by the effects of stricterpublic spending policies and nervousness about the euro crisis.The stress factors affecting the European economy kept Aus-trian growth in the first quarter of 2012 to 0.3 %.

… due to the adverse environmentDue to the current economic climate, the revival of the Austrianeconomy is bound to be very slow, and it is constantly at risk ofbeing knocked off course by potholes along the way. Negativesignals from industry has depressed business sentiment fromthe start of the second quarter of 2012. Industrial confidencehas taken a significant turn for the worse in almost all Euro-pean countries. The mood in the Austrian manufacturing sectorhas darkened significantly since April due to the negative sig-nals from the eurozone, and confidence slid below the long-term average. However, the position is generally regarded asrelatively favourable for a European economy, and Austrianconsumers are among the most upbeat in the region. Con-sumer sentiment is relatively good. Employment has risensharply since the start of the year, and the drop in inflation hasresulted in real income growth. This has been reflected in thelatest retail sales figures. Following the Austrian economy’s return to growth in the first quarter of 2012, a 0.2 % quarter-on-quarter increase in GDP is expected in the second quarter.Private consumption will take up the running in the comingmonths. Thanks to the stabilisation of the employment market

Austrian economic dataEstimates

2007 2008 2009 2010 2011 2012 2013

Economic growth (real, year on year) 3.7 1.4 – 3.8 2.3 3.0 0.8 1.5

Private consumption (real, year on year) 0.9 0.8 – 0.3 2.2 0.6 0.8 1.0

Investment (real, year on year)* 3.6 0.7 – 8.3 0.1 5.7 2.0 2.8

Exports (visible and invisible) 8.9 1.4 – 14.3 8.3 6.7 2.8 4.4

Imports (visible and invisible) 7.1 0.0 – 13.8 8.0 7.0 2.8 4.3

Inflation rate (CPI) (real, year on year) 2.2 3.2 0.5 1.9 3.3 2.2 2.0

Unemployment rate (national criteria) 6.2 5.9 7.2 6.9 6.7 7.0 6.9

Budget deficit (as % of GDP) – 0.9 – 0.9 – 4.1 – 4.5 – 2.6 – 3.0 – 2.1

Public debt (as % of GDP) 60.2 63.8 69.5 71.9 72.2 74.6 75.1

*) Gross fixed capital formation Source: Bank Austria Economics & Market Analysis Austria


and continued income growth, personal consumption will be themain prop of economic activity. Investment remains subdueddue to the unfavourable international climate, and despite robustgrowth, foreign trade will only make a minor growth contribu-tion. However, the balance should shift back towards foreigntrade later in the year. While the upturn in private consumptionis set to continue, demand is likely to receive more of a lift fromexports in the latter part of the year. Nevertheless, in an interna-tional environment that is only gradually settling down, the out-look is unpredictable, and investment confidence is on course toremain very muted.

In light of the relatively good start to the year, the forecast of0.8% GDP growth now looks still more reliable. But the latestindustrial data and the new crisis upheavals point to a bumpierroad ahead for the Austrian economy. The prospects for a strongrebound in the second half of 2012 have lessened markedly,despite the indications of a pick-up in the employment market,

which would bolster domestic demand. After losing steam be-cause of the economic slowdown in the second half of 2011,employment growth has now stabilised at a low level and unem-ployment is steady. Due to current anaemic economic growth,the annual average unemployment rate is forecast to edge up to7.0 % (according to the Austrian definition) in 2012 from 6.7 %last year. According to EU definition, Austria’s current unemploy-ment rate of 4.3 % is the lowest in the area.

Low inflationThe moderate pace of expansion is unlikely to generate any infla-tionary pressures soon. Neither do the ECB’s current monetarypolicies appear to carry any short-term inflationary risks, as theyare exclusively aimed at maintaining market liquidity rather thanboosting the money supply to the real economy. With commodityprices seen flat over the next few months due to the lack of anyglobal demand pull, inflation is likely to hold at around the twopercent mark. In Austria the annual average inflation in 2012 rateis expected to decline to 2.2 % from 3.3 % in 2011.

Austrian fiscal policy mildy dampening economicactivityAction taken in the spring to trim the fiscal deficit from last year’s2.6 % will not fully feed through until 2013, and even then it isunlikely to have a major impact on the Austrian economy. Accord-ing to our estimates it will cut growth by about one quarter of apercentage point, and this should be more than offset by the effect of the anticipated pick-up in global activity. However, whilethe Austrian economy would benefit from a global recovery, thedanger that the crisis of confidence in the European Union willdrag on or even worsen presents a downside risk to our growthscenario. The tightening of the fiscal reins across Europe, and therecessions in some EU peripherals could weigh on the economicenvironment to such an extent that the Austrian economy fallsshort of its trend growth rate in 2013. Unless the European climate improves, GDP growth is likely to be in the region of asluggish 1.5 %, and in the medium term growth rates in excess of 2% will be rare.

Real Estate

Country Facts

Unemployment rate (annual average, in %)

0

5

10

15

20

25

AT

NL LX DE

MT

CZ

BE

RO SE

DK

CY FI UK SI IT FR P

LEU EA HU

BG EE PT

SK IE LV LT EL ES

Source: Eurostat, Bank Austria Economics & Market Analysis Austria

Economic growth (real change of GDP, in %)

2011 2012p 2013p

ViennaAustriaEurozone

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source: Bank Austria Economics & Market Analysis Austria


Real Estate

Country Facts

Average growth prospects for ViennaIn 2011 the Viennese economy posted a strong growth perform-ance relative to the rest of the country, expanding at an estimatedrate of almost 3 %. This was still below the national average, but thegap was much narrower than in 2010. Vienna gained from the increased contribution of the service sector to overall growth. As apurely urban economy, it was fortunate in having the largest tertiarysector in Austria in relative terms. Meanwhile, for the first time sincethe outbreak of the crisis, growth was also supported by highermanufacturing production. However, it was held back by the con-struction industry, which again contracted.

The outlook for the Viennese economy in 2012 is far less rosy. Besides the international slowdown, stringent budget discipline atfederal and provincial level is retarding growth. The building industryfaces another very tough year due to tight public funding. Thanks toits strong bias towards consumer goods, local industry has compar-atively bright prospects, but Viennese manufacturers will not be immune to the decline in export demand. The service sector is stillon the up, and will again be the main engine of growth for the Viennese economy because of its size.

Vienna’s share of Austrian added value (in %)

0 5 10 15 20 25 30 35

Primary

Manufacturing

Construction

Tourism

Trade

Business consulting

Other consulting

Total

–2.3

–2.7

–10.5

17.9

–5.8

–5.3

–0.4

–2.4

current Change since 1995 in %-points

Source: Statistik Austria, Bank Austria Economics & Market Analysis Austria

By international standards, residential space in Austria is high onquality and also relatively cheap. But rising prices on the propertymarket may be an indication that this is about to change. Someparts of the market, which in general has been fairly well balan-ced, could be on the verge of a tipping point due to the expectedslowdown in new construction and the ongoing rise in the numberof households. In the longer term, weakening demand could gosome way to solving this problem, as could housing policies which will presumably still be implemented to counteract supplyshortages.

Adequate supply of residential space thanks tosteady increases in constructionOver the past three decades an average of 45,000 – 50,000 apart-ments have been built in Austria every year. During the period, therate of construction work varied considerably, resulting in frequentshort-term bottlenecks in supply. Especially in the 1980s, demandfar exceeded availability as the decline in the number of residentialnew builds and a rise in the number of apartments being knocked together coincided with the arrival of the baby-boom generation andthe beginning of the trend towards single households. After the surgein residential construction had subsided in the second half of the1990s, the number of new apartments built per year did not reachthe 50,000 mark again until 2007, according to estimates from theAustrian Federation of Limited-Profit Housing Associations.

Living space per capita and the quality of the residential housingstock in Austria has undoubtedly improved in the past few decades.The average usable space per person has risen from 33 m² in 1990to 43 m², and the proportion of non-category A apartments hasdropped from 39 % to 8 % of principal residences, with the numberof sub-standard apartments falling from 6 % to 1.5 % – or 60,000out of a total of 3.7 million principal residences.

Affordable apartments …The supply of residential housing in Austria is good by internationalstandards. However, the success of Austria’s housing policy is not somuch reflected in the size and quality of apartments, but in the factthat housing is affordable for the majority of the population. Housingcosts including energy expenses account for 22 % of private house-holds’ spending. This is below the EU-15 average of 24%, and wellbelow the levels seen in northern Europe – in Denmark, for example,housing accounts for some 30 % of total spending.

Surveys of European households reflect the findings on consumerspending – irrespective of the legal form of residence – the propor-tion of Austrian residents who consider themselves overburdened byhousing expenses is among the lowest on the continent. The propor-tion of such people is highest – at 11 % – among tenants payingmarket rates for their rental apartments, but this is well short of thecomparable European figure of 27 %.

… becoming the exceptionAn international comparison reveals that apartment and houseprices have increased only modestly in Austria. Over the pastdecade, the nominal average national increase was 25 %, com-pared with 46 % in the eurozone. Only Germany and Irelandrecorded slower price rises than Austria, although in the case ofIreland this was due to the bursting of the country’s propertybubble. The average price rises disguise steep increases insome parts of the residential property market, in particular inmajor conurbations and the luxury segment. In Vienna, real estate prices climbed by 8 % in both 2010 and 2011, comparedwith 5 % in the rest of Austria.

According to Oesterreichische Nationalbank and the Vienna Uni-versity of Technology’s Centre of Regional Science, the rise inprices gathered pace in the first three months of 2012, reaching10 % in Vienna and 11 % in the rest of Austria. This jump wasmainly attributable to stronger demand from private investors foralternative forms of investment, in response to the uncertaintysurrounding the financial markets. The real estate sector is reporting sustained high demand for investment properties, soapartment prices could continue to rise in 2012.

Increasingly fragmented residential propertymarket due to higher costsHousing construction subsidies in Austria have been reduced asa result of budget cutbacks. Consequently, significantly fewerconstruction permits are likely to be issued in the next two years– WIFO is forecasting a drop from 43,000 in 2011 to around41,000 in 2013.

Austria’s residential property market is still well balanced incomparison with other countries. However, the upward trend inprices may be an indicator of supply bottlenecks which cannotbe quickly rectified. The low level of new construction and cur-rent demographic trends suggest that the shortfall in supplycould widen in the next few years, with major urban centresworst affected. This in turn will serve to push up prices still further in the private residential property market.

As a result lower-income groups will also find themselvessqueezed out of the property market more quickly. Although theresidential property supply indicators point to a balanced marketfor the population as a whole, they conceal the increasingly po-larised demand currently found in some segments. The burdenon the incomes of households just under the poverty line is stilltwice as high as in less vulnerable households – the median figure of 28 % is only slightly lower than the EU-15 figure of31%. The situation facing such households has deteriorated inrecent years. Based on the EU definition, the proportion of “at-risk-of-poverty” households in Austria with unaffordable housing


Real Estate

Country Facts

Austrian living standards are relatively high


Real Estate

Country Facts

Over the past two decades, forecasts for the size of the Austrian popu-lation and the number of households have been continually revisedupwards. The latest estimates suggest that there are currently 3.6 mil-lion households in the country, and the total is expected to reach thefour million mark by 2030. However, demographic forecasts indicatethat the demand for residential space will run out of steam in the next20 years. The number of households is expected to grow by an aver-age of 20,000 or 0.5 % a year until 2030 – this represents a slow-down compared with the past decade, when an average of 32,000new households were set up in Austria each year, an annual rise of0.8 %. Over the same period 47,000 new apartments were built eachyear. The sharp rise in prices in the past two years suggests that thelevel of new builds was not high enough. In the short term, the de-mand for new apartments will be somewhat higher in major conurba-tions, as the demand overhang of recent years is still to be reduced. In the medium term, figures from the Research Institute for Housing,Building and Planning indicate that the number of new apartments required in Austria will stabilise at 45,000 per year. In the long run,that figure may decline as the number of 25- to 44-year-olds – whoare most likely to set up new households – falls. That means it shouldbe possible to satisfy the need for residential new builds, provided thatAustria’s housing construction finance system, and in particular thesystem of subsidies, is not severely affected.

costs rose from 51 % in 2008 to around 60 % in 2010. Accord-ing to the definition, housing becomes unaffordable for suchhouseholds when housing costs account for more than 25 % oftotal disposable income after deduction of social transfers(source: EU Statistics on Income and Living Conditions [EU-SILC]2010). Smoothing regional and segment-related imbalances isprobably the most pressing need currently facing the Austrianresidential property market.

Future demand at around 45,000 units per year According to the Austrian Conference on Spatial Planning,around half of the number of new builds required each year isdetermined by changes in the number of households, one thirdby the need to replace properties taken off the market due todemolition, conversions or knocking together, and the remainderby demand for holiday properties and the stock of vacant apart-ments. Assuming that the number of buildings and apartmentsrequiring renovation declines thanks to the high quality of thebuilding stock, and the demand for second homes is driven byconsumer desire rather than the urgent need for a place to live,the number of newly established households will take on agreater significance when determining housing constructionneeds.

Trend towards smaller households in Austria

Average annual change in number of households, 2010–2030 in %

Households with more than 2 persons1–2 person households

–0.4

–0.2

0,0

0.2

0.4

0.6

0.8

1.0

1.2

VorTSbUACStyBgLAV

Av.AUT

Av.AUT

Source: Haushaltsprognose 2011, Statistics Austria; Bank Austria Economics and MarketAnalysis Austria

Housing construction in AustriaConstruction permits and completions, ‘000 apartments

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 1330

40

50

60

70

Completions Construction permits issued Construction permits issued, latest figures

2005 –2011 Estimated, 2011 –2014 ForecastSource: Statistics Austria, GBV, Euroconstruct; Bank Austria Economics


Real Estate

Country Facts

The Austrian commercial property market – small inscale, but relatively stable performanceAustria’s commercial property market is benefiting from the rela-tively strong performance of the country’s economy. And althoughfairly small by European standards, the market stands out for its relative stability.

Investment in commercial property (EUR billion)Europe CEE Germany Italy Austria

2005 141.7 5.8 20.0 5.0 1.9

2006 227.0 12.7 51.0 8.5 2.4

2007 246.0 14.2 57.5 10.0 2.8

2008 120.0 9.8 19.7 8.0 2.1

2009 69.7 2.5 10.5 5.1 1.3

2010 105.1 5.0 19.1 4.3 1.6

2011 118.1 11.1 22.8 4.3 1.6

Q1 2008 40.5 2.9 7.5 2.5 0.1

Q2 2008 29.0 3.1 4.6 1.9 0.8

Q3 2008 30.0 3.1 3.8 0.9 0.4

Q4 2008 20.5 0.7 3.8 2.6 0.7

Q1 2009 11.6 0.3 1.7 0.7 0.7

Q2 2009 14.2 0.2 1.6 1.4 0.2

Q3 2009 18.3 0.7 2.7 1.3 0.1

Q4 2009 25.7 1.3 4.4 1.7 0.5

Q1 2010 20.5 0.7 4.7 0.5 0.2

02 2010 24.6 1.0 4.0 1.3 0.8

03 2010 24.2 1.6 3.7 1.1 0.3

04 2010 35.8 1.7 6.8 1.3 0.3

Q1 2011 29.0 2.6 5.6 1.1 0.3

02 2011 26.2 2.5 5.6 0.8 0.3

03 2011 28.5 3.2 5.7 1.3 0.4

04 2011 34.4 2.9 5.8 1.0 0.6

01 2012 23.8 0.9 5.1 0.5 0.3

Source: IRG, CBRE

Some EUR 1.6 billion was invested in commercial property in Austria last year, meaning that the country’s share of total invest-ment in Europe dropped to 1.4 %. Investment declined to aroundEUR 300 million in the first quarter of 2012, bringing Austria’sshare of the European total down further, to 1.3 %. According toCBRE, about 51% of investment was accounted for by retail proper-ties, with office properties and hotels accounting for 22 % each.Austrians were responsible for 59 % of investment, with the remain-der attributable to German investors.

The eurozone debt crisis has dampened commercial property in-vestors’ appetite for risk. This in turn is pushing up demand for corereal estate – in other words, properties in high-quality locations with

tenants that have strong credit ratings – which is seen as crisis-proof. But despite this high level of interest, an undersupply of corereal estate has curbed investment activity. Due to strong demandprime yields in the office sector have declined to 5.2 %.

Prime office yields%

Frankfurt 5.00

Vienna 5.20

Milan 5.50

Warsaw 6.25

Prague 6.50

Budapest 7.25

Bratislava 7.25

Istanbul 7.75

Bucharest 8.00

Zagreb 8.30

Moscow 8.75

Sofia 9.00

Belgrade 9.50

Source: CBRE

Investors appreciate the Austrian real estate marketIn late 2011 Ernst & Young surveyed corporate and other investorsthat had been active in the Austrian real estate market in recentyears, in order to obtain their assessment of the country’s invest-ment property segment. More than half of those surveyed ratedAustria as an attractive location for property investors in Europe. Investors also agreed that green building certification will play amore significant part in property investments in future. However,there was scepticism about whether the volume of investment willrebound in 2012 and surpass last year’s level.

Strong demand for core real estate among investorsin commercial property

Investment in commercial property(Q1 2012)

Rest of Europe 71.6%

CEE 3.8%

Germany 21.4%

Italy 1.9%

Austria 1.3%

Source: IRG, CBRE

Real Estate

Country Facts


nancing costs, which are passed on to customers, are seen asan obstacle to obtaining funds. Weaker bank ratings, changes inthe regulatory framework such as the Basel III standards, andthe continuing uncertainty in the eurozone have combined tobring about an increase in bank risk in Europe. CDS spreads onEuropean banks are still above the highs seen during the 2008 /09 financial crisis. However, since the European Central Bank(ECB) is keeping headline interest rates extremely low on ac-count of the current crisis, the overall interest cost burden (i.e.Euribor plus the bank margin) remains modest.

Uncertainty will persist unless a solution is found to the euro-zone crisis. This means that banks’ refinancing costs will remainfairly high and investors will continue to focus on core proper-ties. Decisive economic policies will need to be implemented inorder to bring the situation under control. But the longer the crisis influences investor behaviour in the real estate sector, thegreater the risks that the relative stability of the Austrian marketcould suffer.

Stability – the defining feature of the Austrian market The IPD Austria Annual Property Index has been tracking the per-formance of the office, retail, industrial, residential and other realestate segments since 2004. Total return reached 6.3 % in 2011, ofwhich income return accounted for 4.7 % and capital growth 1.6 %.These results were above the European average.

The relative stability of the Austrian real estate market over the pasteight years is reflected in the income return figures, which have remained close to the 5 % mark across all property categories. In other words, Austria has lived up to its reputation as a stable location for real estate investors.

Property investors and developers critical of banks’alleged reluctance to lendRecent surveys have shown that dissatisfaction with Austrian banks’unwillingness to finance real estate transactions is on the rise.Closer examination reveals that in particular the banks’ high refi-

Assessment of the Austrian property investment market in 2012

Agree Somewhat agree Do not agree Strongly disagree Neutral

0% 20% 40% 60% 80% 100%

Expectations of a growth in the size of transactions in 2012

Trading in real estate portfolios will increase in 2012

International investors have returned to the property market

Expectations of a recovery in real estate asset transaction volumes in 2012

The number of new developments will rise again in 2012

In future, green building standards will play a more significant role in real estate investments

Source: Ernst & Young

Total return on Austrian property

Total returnIncome return Capital growth

–2

–1

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008 2009 2010 2011

Source: IPD

Five-year CDS spreads on European banks

0

50

100

150

200

250

300

350

400

bp

2007 2008 2009 2010 2011 2012

Source: Datastream


Real Estate

Country Facts

Although the Viennese office property market is still one of the moststable in Europe, with comparatively low vacancy rates, there aresome clouds on the horizon. Yet again, new letting in the segment isslow. According to CBRE, last year’s take-up reached the lowest levelsince the onset of the global economic and financial crisis in 2008.

At the same time construction of new space – which had declinedas a consequence of the crisis – will increase somewhat. It remainsto be seen whether this will have an impact on vacancy rates andthe overall development of the Viennese office property market.Other important factors include employment trends, changes in pat-terns and concepts for office use, and other future developments inworking environments – all of which will play a significant part inshaping the office property segment in the next years.

The stock of office space in Vienna is currently approximately 10.5 million m². Compared with other major cities on the continent,Vienna is close to the European average in terms of office space percapita, but way ahead of its fellow capital cities in Eastern Europe.

Modest rise in construction of new office space in 2011In 2011 the construction of new office space in Vienna increasedslightly to 180,000 m² (2010: 165,000 m²). The figure is expectedto rise up to 240,000 m² in 2012, although it remains to be seenhow many projects will be completed by the end of this year, andhow many will be postponed until 2013.

Refurbishments, reconstructions and / or extensions will account foralmost half of the office space that comes onto the Viennese marketthis year. The share of refurbishments is likely to rise in the next fewyears. A recent Jones Lang LaSalle study indicates that a large pro-portion of the office space in Europe is old. Therefore, many expertsbelieve that in future, the real estate industry will concentrate on themanagement, revitalisation, reuse and conversion of existing proper-ties, resulting in a decline in the number of new construction projects.

New rentals down again in 2011Last year saw another slight drop in the take-up of office space –according to CBRE, new rentals fell from around 275,000 m² in2010 to some 260,000 m² in 2011. CBRE’s figures for the firstquarter of 2012, when new lettings reached about 65,000 m², givesome grounds for optimism, although rentals for the year as a wholeare expected to remain in step with the modest levels seen in thepast few years. Large-scale take-up is currently the exception, andrelocations still account for a substantial proportion of new lettings.

Media Quarter Marx expansion and Space2Move: the largest projects of 2011The biggest office project completed in Vienna in 2011 was the30,000 m² extension at the Media Quarter Marx in Henneberggassein the city’s third district. The Space2Move project with 26,000 m² inthe 19th district was concluded at the end of last year. The largest of-fice building completed in 2011 and designated for own use was the30,000 m² ÖBB Infrastruktur headquarters located at Praterstern.

Viennese office property market: new lettings remain subdued

Office space per capita, 2011

0

5

10

15

20

25

Istan

bul

Belgr

ade

Kiev

Zagr

eb

Mos

cow

Sofia

Buch

ares

t

Buda

pest

War

saw

Prag

ue

Bratisl

ava

Paris

Vienn

a

Hambu

rgM

ilan

Copen

hage

n

Mun

ich

Fran

kfurt

Genev

a

Source: IRG, Jones Lang LaSalle, Colliers

New construction and take-upOffice space in Vienna, 2001–2012e

Take-up (m2) New construction (m2)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e

Source: IRG, CBRE

Real Estate

Country Facts


Bahnhof Wien Mitte – 2012’s largest officeconstruction projectThe Bahnhof Wien Mitte project will account for the single biggestaddition to Vienna’s stock of office space in 2012. Besides a62,000 m² office complex, the new development at the Wien Mittestation also features 28,000 m² of retail space. In the second dis-trict, Raiffeisen-Holding is currently developing an office building onObere Donaustraße, as well as the Green Worx property. These twosites will each include around 20,000 m² of office space. VZ13 isone of the largest renovation projects scheduled for completion thisyear. The 15,000 m² of office space, which complies with the greenbuilding standard, will open in autumn 2012.

Projected office space for 2012 (selection)Office project Total lettable office space (m²) Status

Bahnhof Wien Mitte office building 61,700 under construction

Raiffeisen-Holding office building 20,000 under construction

Green Worx 20,000 under construction

Silbermöwe 17,500 under construction

VZ13 / Haus an der Wien 15,000 under construction

Source: IRG

Top rents for Viennese offices mostly unchanged in 2011Top rental prices for office space in Vienna remained largely flat in2011. The exception was the premium segment, where rentsslightly rose to EUR 24 / m² per month. However, rental costs canbe higher for exclusive premises in certain premium-quality prop-erties, such as the top floors of office towers.

Demand remains high for space in the city centre and other centraloffice locations. Office space in these locations is being freed upwhen businesses and government authorities relocate, often tosites outside central Vienna. Renovation projects are also addingto the stock of available space in the city center.

Relocations and upgrades still account for the majority of newrentals, and demand for space in the mid-price segment has remained robust. Effective use of floor space and low operatingcosts are among the key decision-making criteria for prospectivetenants. Total monthly or annual costs now play a far more deci-sive role than the rental price alone.

The recent trend of weak demand continued for office buildingswith low occupancy rates, old properties in need of renovation, aswell as for office space in average locations and outside the mostpopular office sites. Rents for such properties are expected todrop further.

A coming attraction and a new landmark for Vienna:DC Tower 1In addition to two new university developments – the 35,000 m² Vienna University of Economics and Business campus at MessecarreeSüd and the 18,500 m² Rossau site for the University of Vienna –the stand-out project due for completion in 2013 / 14 is DC Tower 1.

Designed by star French architect Dominique Perrault, this newlandmark is being built in Vienna’s Donaucity. At 220 metres it willbe Austria’s tallest building. The site will include 44,000 m² of officespace, as well as a hotel. A second tower – DC Tower 2 – is in theplanning stage. Construction is not likely to begin until DC Tower 1is completed.

Projected office space for 2013 / 14 (selection)Office project Total lettable office space (m²) Status

DC Tower 1 44,000 under construction

NEU STADLAU 35,000 under construction

Messecarree Süd / Vienna University of Economics and Business 35,000 under construction

University of Vienna Rossau 18,500 under construction

Source: IRG

Rise in office vacancy rates on the cardsVacancy rates in Vienna are still among the lowest in Europe. Theyare on a par with the level in Warsaw, and slightly higher than thosein London’s West End and in Paris.

Office vacancy rates in Vienna stood at 6 – 6.5 % in the final quarterof 2011, and could slightly rise througout 2012 due to still only mod-est demand. However, vacancy levels in older properties have in-creased significantly. With modern office space easily available at at-tractive prices, tenants for properties that do not meet the latest re-quirements are becoming increasingly hard to find.

Office vacancy rates in Europe (%), Q4 2011

0

5

10

15

20

25

Paris

Lond

on W

est E

nd

Vienn

a

War

saw

Oslo

Copen

hage

nRo

mBe

rlin

Stoc

kholm

Mad

rid

Istan

bul

Brus

sels

Lisbo

n

Prag

ue

Mos

cow

Kiew

Buch

ares

t

Amste

rdam

Buda

pest

Dublin

Source: IRG, CBRE, Colliers, C&W


Real Estate

Country Facts

Prime yields stable in 2011Prime yields in the Viennese office sector remained flat in 2011,reaching 5 – 5.5 % at year-end. Demand was again strong forpremium core real estate, and this asset class will continue to bethe focus of investors’ attention this year.

Office properties in need of renovation, offices outside thesought-after areas in moderate or poor locations, and office buildings with low occupancy rates will remain subject to marketpressures in 2012. For these properties, a further decline in valueis possibly while yields on class B properties located outside cen-tral Vienna may increase.

Vienna’s office hot-spotsCentral Vienna and the neighbouring districts remain particularlypopular locations for offices. For many companies, a head officein the first district is essential for prestige reasons, and officesand commercial properties are a defining feature of the district.However, in recent years increasing numbers of former officeproperties have been converted for residential use, especially inbuildings dating back to the Gründerzeit era (mid to late 19thcentury). Demand for apartments in such attractive old city-centrebuildings is particularly high among wealthy buyers and tenants.In spite of the significant costs involved, conversion can turn outto be a worthwhile investment for the developer, especially in theluxury segment.

Adjacent to the first district, many attractive locations for officescan be found in the extended inner city, the area within the Gürtelring road. A number of major office complexes are situated fur-ther away from central Vienna, such as Donaucity (VIENNA DC), asite dominated by office towers where Austria’s tallest office block– DC Tower 1 – is currently under construction.

Other important locations for offices can be found on the Handelskai /Wiener Messe axis, and on the site of the former northern railwaystation. The latter site is one of Vienna’s largest inner-city develop-ment zones, where in addition to a large number of apartments, of-fice, retail and service space is under construction.

The area between Erdberg, St. Marx and Gasometer is another keyoffice location in Vienna. It boasts several new office buildings suchas Marxbox, Marximum and the TownTown project, which is beingdeveloped in stages. Units 8 – 10 at the TownTown site were com-pleted last year, and a further extension, CB21, is planned.

The Wienerberg area of southern Vienna is a further attractive officelocation. Extensions to existing properties such as EURO PLAZA areunder consideration. Also at the Wienerberg complex, Microsoft’svision for the office of the future has become a reality. A conven-tional office building was upgraded with the aim of improving theeffectiveness of floor space use, cutting costs, reducing the carbonfootprint, boosting productivity, and promoting creativity and knowledge-based work. Enhancing the company’s attractiveness asan employer – by raising employee satisfaction and motivation, andhelping them achieve a better work-life balance – was another keyconsideration behind the “Future Office” project.

The office of the futureThe office of the future is a hot topic at present. Changes in em-ployment patterns, which are closely related to the overall economicclimate, will have a decisive impact on the office market in the com-ing years. Furdermore, flexible working time arrangements andhome working will influence the amount of office space needed. Of-fice planners pay close attention to details such as room redesignand the amount of space per employee, adapting their proposals inline with the latest trends and market conditions.

Building life cycles are becoming an increasingly important consid-eration. When it comes to disposing of older properties, the ques-tion of whether demolition or conversion / renovation is the best option can be a difficult one to answer. If the owner of an old city-centre office building decides that reuse is the best option, the pre-ferred approach is redevelopment – extensive remodelling givesrise to space that is equivalent in value to a completely new devel-opment. Green building standards and sustainability play a centralrole in virtually every property-related decision.

From green to blueAttitudes to sustainability are also changing, as green buildings arebeginning to give way to their blue counterparts. A more complexand holistic view of sustainability is replacing a limited focus on energy efficiency. Besides economic and environmental considera-tions, socio-cultural factors such as the need to pay special atten-tion to human requirements are gaining in importance. Striking abalance between the quality of life of building users and the efficientuse of natural resources will be one of the major trends in tomor-row’s office property market.

Rents, yields and vacancy rates in the Viennese office market, 2001–2012e

Vacancy rate (%) Prime yields (%)Prime rents per m2 (EUR)

17

18

19

20

21

22

23

24

25

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

e

Source: IRG, CBRE

Real Estate

Country Facts


Vienna: a mature retail marketThe Austrian capital had about 1.5 million m² of sales space atthe start of 2012. Of this amount, about 670,000 m² was ac-counted for by shopping centres, 470,000 m² by retail parks andaround 330,000 m² by Vienna’s shopping streets.

High concentration of shopping centres in ViennaApproximately 40 % of all sales space in Austria is located in Vienna and the surrounding area. At the start of 2012 Vienna had29 shopping centres with a total lettable space of 850,000 m², ofwhich about 670,000 m² was dedicated sales space. These to-tals include Austria’s largest shopping centre, Shopping City Süd,which is located to the south of the capital.

Vienna offers 496 m² of shopping centre space for every 1,000inhabitants. In an international comparison Austria has the eighth-highest density with about 323 m² of lettable space per 1,000 in-habitants.

Vienna has three large-scale shopping centres with more than50,000 m² of lettable space: SCS, Donau Zentrum and Millen-nium City. In total 16 shopping centres, or just over half of allshopping centres in Vienna, have less than 20,000 m² of lettablespace.

Number of shopping centres by sizeNumber Gross lettable area (GLA)

16 Up to 20,000 m²

10 20,000 m² – 50,000 m²

3 Over 50,000 m²

Source: RegioPlan, Standort+Markt

Top 5 shopping centres in Vienna and the surrounding areaName Gross lettable area (GLA)

Shopping City Süd 173,000 m²

Donau Zentrum 130,000 m²

Millennium City 51,000 m²

Huma Einkaufspark 44,000 m²

Lugner City 38,000 m²

Source: Regioplan, IRG

Vienna’s shopping centres are within 30 minutes’ travelling time forsome two million people. The extended catchment area compriseslarge areas of Lower Austria, as well as parts of Slovakia.

Vienna’s retail market – a source of relative stability in uncertain times

Breakdown of individual segments by sales space

Shopping centres 45%

Retail parks 32%

Shopping streets 23%

Source: RegioPlan, Standort+Markt, EHL

Shopping centre space in Europe Lettable space per 1,000 inhabitants (m²)

0

100

200

300

400

500

600

700

Serb

ia

Bulga

ria

Turk

ey

Russ

ia

Hunga

ry

Germ

any

Czech

Rep

ublic

Italy

EU 2

7

Fran

ce

Austr

ia

Irelan

d

Estonia

Luxe

mbo

urg

Swed

en

Norway

Source: Cushman & Wakefield, March 2012


Real Estate

Country Facts

As the Viennese market is saturated with retail space, each newshopping centre development results in cut-throat competition. In thisenvironment it is the older shopping centres that have most to lose.An analysis of the relative ages of the city’s shopping centres clearlyshows that a number of facilities require refurbishment or modernisa-tion in order to remain competitive. Shopping centres without goodpublic transport links are having to redouble their efforts to appeal tocustomers as they come up against intense competition from new,inner-city shopping centres.

There is an additional risk that with such similar tenant structures atthe various shopping centres, individual branches in the same chainswill end up poaching each other’s customers. Constant expansion bymany retailers has seen shopping centres take on a fairly uniform ap-pearance. At the same time, the centres are facing the challenge ofoffering new attractions to appeal to shoppers. While there are onlyrelatively few international retailers with brand concepts suited toshopping centres, they tend to choose successful, well-establishedshopping centres to enter new markets. This approach makes it increasingly difficult for shopping centre managers to acquire newtenants. For the tenants themselves any decision regarding the selec-tion of a new site is influenced by factors such as location, image andcustomer frequency and footfall, as well as financial considerationssuch as operating costs. Long-term investment is required duringconstruction or refurbishment projects to keep energy costs downand ensure that the shopping centre has a competitive edge.

The fully-let BahnhofCity West shopping centre opened in November2011 with 17,000 m² of space. BahnhofCity West was the first ofthree large-scale railway station redevelopment projects to open itsdoors to the public, giving it additional cachet. The availability of ad-ditional retail space at Vienna’s railway stations is in step with thetrend towards a return to city-centre shopping. Vienna’s Wien Mittestation will open later this year with about 28,000 m². In 2013 /2014 a further 20,000 m² is due to open at Vienna’s new Haupt-bahnhof development.

Austria’s fifth-largest shopping centre, G3 Shoppingresort Geras-dorf, will open in 2012 with about 70,000 m² of space (shoppingcentre and specialist retail park). Due to new planning restrictions inLower Austria, the new shopping centre will be the last to be builton a greenfield site for the time being.

Expected increases in space for the next few yearsE

Shopping centre Gross lettable Status, scheduled area (GLA) completion date

G3 Shoppingresort Gerasdorf 70,000 m² Under construction, opening 2012

Wien Mitte 28,000 m² Under construction, opening 2012 / 2013

Hauptbahnhof 20,000 m² Under construction, opening 2013 / 2014

Source: IRG

9

8 76

5

4

321

29

2832

31

30

27 26

25

24

23

22

21

20

19

18

17

16

15

14

13

1211

10

Shopping Centres Greater Vienna

±

Shopping Centres Greater ViennaLEGEND

Shopping Centre

Existing SC, size (GLA m²)> 50,000 m²

20,001 – 50,000 m²

< 20,000 m²

SC under construction, size (GLA m²)

> 50,000 m²

20,001 – 50,000 m²

< 20,000 m²

1 Ringstrassen-Gallerien2 Steffl3 Stadion Center4 La Stafa5 Hanssonzentrum6 Columbus Center7 HUMA Einkaufspark8 Zentrum Simmering9 Gasometer City10 Auhofcenter11 BZ Meiselmarkt12 Lugner City13 Interspar EKZ Ottakring14 Q1915 Millennium City16 Shopping Center Nord17 EKS Floridsdorfer Spitz18 Ekazent Grossfeldzentrum19 Donau Zentrum20 Kaufpark Alt-Erlaa21 Riverside22 Gerngross City Center23 Trillerpark24 SCS25 EKZ Lutz - Floridsdorf26 Galleria27 BahnhofCity West28 Generali-Center29 Arcade Meidling30 G3 Shoppingresort Gerasdorf31 Wien Mitte32 Hauptbahnhof

Real Estate

Country Facts


Rental costs in inner-city shopping centres have remained stablethanks to ease of access, practicality and a balanced retail mix.

Vacant units are difficult to find.

Shopping centre rentsRange in EUR / m² / month

Anchor tenants 8 – 14

Shops (according to size and location) 14 – 90

Source: IRG

Due to the increased availability of lettable space in city-centre locations, rental prices in less successful shopping centres, particu-larly those with unfavourable transport links, are increasingly com-ing under pressure.

Prime yields for shopping centres were about 5.75 % at the start of2012. Prime yields are not expected to change in the short term.

Sufficient supply of retail parksThe majority of retail parks and retail park agglomerations are lo-cated on the outskirts of the city or in the outlying districts. Accord-ing to Standort+Markt this segment of the market accounts forabout 470,000 m² of sales space in Vienna, and primarily offersgoods in the lower and mid-range price categories. Due to the lowerrents, retail parks attract a higher proportion of discounters: accord-ing to Standort+Markt, Hofer, Kik, dm, Takko and Vögele Mode arethe brands most commonly found at such sites.

Following rapid growth in this segment over the past ten years, themarket for retail parks is now saturated. Virtually no new projectsare planned. Instead, existing facilities will have to expand or mod-ernise in order to remain competitive.

The largest retail park currently under construction is in Gerasdorfon the north-eastern fringe of Vienna. A retail park with about12,000 m² of sales space is scheduled for completion there in autumn 2012, in addition to the 58,000 m² shopping centre projectdiscussed above.

Rental costs for retail park units range from EUR 6 – 14 / m² of salesspace per month.

Demand for premium retail locations in Vienna stillriding highVienna’s top shopping streets include Graben, Kärntner Straße andKohlmarkt (known locally as the luxury “Golden U”), and MariahilferStraße. These prestigious locations are targeted by international re-tail chains looking to enter the Viennese market. Large units are inparticularly strong demand as locations for flagship stores. But dueto the paucity of options, such locations are in short supply. It wasonly possible to accommodate Vienna’s most recent flagship stores,

opened by Peek & Cloppenburg and US young fashion chain For-ever 21, by knocking together numerous smaller units.

Scheduled to open in 2013, the “Goldenes Quart1er” will add11,500 m² of luxury retail space to the Viennese market. Locatedbetween Graben and Tuchlauben, this new development will behome to luxury brands including Prada, Louis Vuitton, Armani andMiu Miu.

The average net rent for category 1A locations is EUR 160 / m² permonth. Rents for smaller units in Kärntner Straße, Graben andKohlmarkt can peak at about EUR 350 / m² per month.

International companies have greater financial resources thanlocal Austrian retailers, and are prepared to pay larger compensa-tion packages and higher rents to acquire prestige locations. As aresult, international chains are continuing to drive rental prices up,making it difficult for small and medium-sized retailers to survive.This ongoing process has seen international chain stores prolifer-ate in Vienna’s shopping streets.

A number of international companies still have plans to break intothe Viennese market. This ensures that demand for prestigious locations continues to run high, and rental prices may also rise accordingly. There are virtually no vacant premises available in any of Vienna’s top shopping streets. Prime yields were about 4 – 4.5% at the start of 2012.

The focus on 1A locations is continuing to ratchet up the pressureon category B and C locations in the Austrian capital, such as Mei-dlinger Hauptstraße, Favoritenstraße and Landstraßer Hauptstraße.Pressure in these locations is intensifying, with rental prices con-tinuing to fall in light of the ample space available.

SummaryThe Viennese market is well served with shopping centres. Inau-guration of the G3 Shoppingresort Gerasdorf shopping centre andthe various retail spaces at the city railway stations will mark anend to the growth in this segment for the time being. The availabil-ity of new space will increase the pressure on less successfulshopping centres.

Over the next few years many retail parks will have to be refur-bished, but there is little prospect of the sort of rapid growth inspace seen in recent years.

Demand for retail space will remain high in shopping streets in 1Alocations such as Kärntner Straße, Graben, Kohlmarkt and Maria -hilfer Straße. However, it will become increasingly difficult to findtenants for vacant units in shopping streets in B and C locations.


Real Estate

Country Facts

were chiefly attributable to a significant rise in the number of largertransactions involving shares of rental apartment buildings. Sales ofthis type increased from an average of around 10 % in the last fouryears to about 25 % in 2011. Last year two shares in apartmentrental buildings on Fleischmarkt and Bauernmarkt, both in the firstdistrict, were sold to property developers in transactions worth acombined total of about EUR 65 million. Around half of the total in-vestment volume of EUR 277 million generated by sales of shares inrental apartment buildings was accounted for by just 15 majortransactions.

In terms of sales of entire rental apartment buildings, the total for2011 declined by 6.8 % to about EUR 811 million, falling short ofthe record EUR 1 billion set in 2009. This development is also attributable to the fact that there is an ever increasing scarcity ofentire rental apartment buildings on the market. 2009 saw a largenumber of fire sales and an unprecedented shift by investors to-wards tangible assets.

The number of transactions was evenly divided between sales ofrental apartment buildings and shares of rental apartment buildings.While sales of rental apartment buildings declined by almost 20 %year on year to just 376 transactions in 2011, the number of transac-tions involving shares of rental apartment buildings almost doubled,with 375 new entries made in the real estate registry during the year.The average transaction volume per sale jumped by 17 % from aboutEUR 1.84 million to EUR 2.15 million. The average for shares in rentalapartment buildings surged 36 % to about EUR 739 million.

Rental apartment buildings as guard againstinflation?The old Austrian adage of “Grundbuch statt Sparbuch” (bricks andmortar, not savings accounts) continues to hold true. Real estatemarkets are still considered a safe haven for investors and a pru-dent guard against inflation. This is confirmed by an analysis of theaverage prices of rental apartment buildings* since 1995. The priceof these properties has almost doubled over the past decade. Infla-tion as measured by the harmonised index of consumer prices(HICP) has risen by only 20 % in the same period.

Due to the relatively good economic situation and despite encourag-ing statements indicating that inflation will not accelerate in thenear future, demand for buildings constructed during the Grün-derzeit era will remain high. Availability will become ever scarcer asthere is only a finite number of buildings in this category.

Demand still buoyant in 2011The total volume of investment in rental apartment buildings (wholebuildings and parts of buildings) in 2011 was up 12.3 % year onyear, reaching a total of about EUR 1 billion. Increased volumes

Rental apartment buildings – demand continues to soar

Rental apartment buildings price index, average price/m2 HICP 1995–2011

Harmonised index of consumer prices (HICP)Rental apartment buildings price index, ave. price/m2

100

120

140

160

180

200

220

240

260

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Subprimecrisis

Dotcom crisis

9/11attacks

Second Gulf War

Source: Preisentwicklung der Wiener Zinshäuser, Vienna Chamber of Labour, 2008;Statistics Austria; IRG calculations

*) Our definition of a rental apartment building (Wiener Zinshaus) is as follows: built between1848 and 1914 (the Gründerzeit era) in historicist style (including neo-gothic, neo-renaissanceand neo-baroque), including articulated facades, high ceilings and stucco detailing. The buildingsare covered by the provisions of tenancy law and were built for the purpose of generating rentalincome. The criteria apply to standard rental apartment buildings (categories A-C) and sub-stan-dard buildings (category D). It should be noted that the definition applies exclusively to rental-onlyapartment buildings, i.e. those without any privately-owned apartments (e.g. mixed-occupancyapartment buildings).

Transaction volumes 2007–2011 | EUR million

2007 2008 2009 2010 20110

200

400

600

800

1,000

1,200

Shares of rental apartment buildings Rental apartment buildings

38

310

64

720

95

1,006

99

870

277

811

Source: IRG, Immounited

70 % of sales inside the Gürtel outer ring roadBroken down by location, the first district (Region 1) benefited mostfrom buoyant demand during 2011. Total transactions for Region 1rose by EUR 125 million to EUR 233 million in the period under review (2010: EUR 108 million). Put another way, one in every fiveeuros invested in rental apartment buildings in the capital was accounted for by transactions in the prestigious first district. Thisdevelopment was driven by a small number of major transactions,each with a transaction volume in excess of EUR 10 million.

The three largest single transactions were the disposal of a first dis-trict property on Graben by UNIQA Personenversicherung AG forEUR 34 million, and the sale of two rental apartment buildings onElisabethstraße by Luxury Liegenschaftsentwicklungs GmbH, a Conwert company, for EUR 19 million each. The groups of investorsthat purchased properties in the first district in 2011 were primarilycomprised of insurance companies, private foundations and real es-tate-related enterprises.

Transaction Share Transaction Share Change 10 / 11volume (%) volume (%) (%)

2011 (EUR m) 2010 (EUR m)

Region 1 233 21.4 108 11.1 115.8

Region 2 560 51.5 528 54.5 6.1

Region 3 295 27.1 333 34.4 –11.5

Vienna 1,088 100.0 969 100.0 12.3

Key: Region 1: 1st district; Region 2: 2nd –9th, 18th and 19th districts; Region 3: 10th –17th and 20th –23rd districts Source: Immounited Datenbank; IRG calculations

In 2011 Region 2 recorded a 6 % increase in transactions to aboutEUR 560 million. Rather than being attributable to a greater numberof individual transactions, this rise reflected the higher prices incentral districts. Taken together, districts inside the Gürtel outer ring road accounted for about 73 % of all sales of rental apartmentbuildings. Transactions for Region 3 amounted to about EUR 295 million in 2011, a year-on-year decline of about 11 %.

Transaction size by district Transaction volumes for Region 1 advanced to some EUR 11.6 mil-lion per rental apartment building, up from EUR 8 million a year earlier, reflecting the increased number of major investments in the first district. The ninth district in particular recorded a sharpyear-on-year jump in transactions during the period under review.The average transaction size for this part of the city rose to morethan EUR 1.9 million in 2011.

Average Average Change Change transaction size transaction size 10 / 11 10 / 112011 (EUR ’000) 2010 (EUR ’000) (absolute) (%)

Region 1 11,651 8,036 3,615 45.0

Region 2 1,872 2,164 –292 –13.5

Region 3 735 882 –147 –16.7

Vienna 1,449 1,479 –30 –2.0

Key: Region 1: 1st district; Region 2: 2nd –9th, 18th and 19th districts; Region 3: 10th –17th and 20th –23rd districts Source: Immounited Datenbank; IRG calculations

A breakdown of transactions by region reveals that the averagetransaction size has slipped slightly in Region 2 and Region 3. On average, rental apartment buildings changed hands for aroundEUR 292,000 less in Region 2 in 2011 than in 2010, and aroundEUR 147,000 less in Region 3.

Demand from private investors still riding highPrivate investors are still an important target group for the rentalapartment building market. In 2011 more than half of all transac-tions were made by private investors. Of the 751 sales of rentalapartment buildings completed last year, 385 were to private in-vestors – a year-on-year increase of 8.1 %. However, their share ofthe total in 2011 was down on the previous year by 3.1 percentagepoints to 51.3 %, due to an high number of transactions by the realestate sector during the period. As in 2010, the size of the averagetransaction was roughly EUR 1 million. In terms of total value, theirshare edged back to 33.4 %.

Real Estate

Country Facts


Number of transactions 2007–2011

2007 2008 2009 2010 20110

200

400

600

800

Shares of rental apartment buildings Rental apartment buildings

175

290

293

500

231

439

183

473

375

376

Source: IRG, Immounited

21.

19.

18.9.

1.

3.

2.

4.5.

10.12.

15.

16.

17.

14.

13.

23.

6.7.8.

22.

11.

226–500

501–750

751–1000

1001–1250

1251–1750

1751–2250

2251–11651

20.

Average transaction size by district (EUR million)

In early 2011 institutional investors and real estate companies(such as real estate agents, developers and investors) were par-ticularly active in the market. The number of transactions jumped31 % on the previous year, taking the total to 238. In terms ofvalue, the increase was just 11 %, a 0.4 percentage point fall inthe group’s share of the overall transaction volume. However, thisgroup was still the largest, accounting for 39.1 % of transactionvolume in 2011.

This loss of share is not necessarily attributable to institutional investors’ and real estate companies’ reluctance to invest in themarket in the face of increased prices for rental apartment build-ings. Instead, this development reflects the fact that it is becom-ing increasingly difficult for investors to identify and purchasesuitable properties inside the Gürtel. In 2011 the average trans-action volume declined year on year – from EUR 2.1 million toabout EUR 1.8 million per transaction.

Demand from foundations remained virtually unchanged duringthe year under review. With an average transaction size of aboutEUR 2.7 million, this investor group accounted for 8.3 % of totalvalue in 2011. Developments in the financial sector were particu-larly worthy of mention: while the number of transactions halvedto just 11, these major transactions (including investments by in-surance companies) contributed to a moderate increase of 0.2percentage points, taking this group’s share to 9.3 % of the total.

Yields still under pressureExperts disagree on whether the sharp price increases of recentyears will continue. Even making predictions for the medium termis fraught with difficulty. However, it is clear that prices for goodand average locations continued to rise sharply in 2011. Rentalapartment buildings inside the Gürtel are becoming increasinglydifficult to find, and as such, price increases are above average.

As a result, higher acquisition prices are putting pressure onyields. At the moment the market is delivering yields of between1.5 % and 6.7 %

The yields shown above are indicative of possible performanceover time. The values of most properties are affected by a varietyof factors such as location, condition, rental costs, vacancies, upgrade and conversion potential, length of tenancies and subdivision.

Yields and prices by district, spring 2012Region District Yield (%) Price range per m2

of usable space (EUR)

Region 1 1st 1.5 –3.6 3,200 –5,200

Region 2 2nd 2.7 –4.8 1,000 –2,350

Region 3 3rd / 4th 2.4 –4.1 1,020 –2,450

Region 4 5th / 6th / 7th 2.7 –4.3 980 –2,400

Region 5 8th / 9th 2.5 –4.2 1,050 –2,550

Region 6 10th / 11th 4.5 –6.4 450 –1,150

Region 7 12th / 14th / 23rd 4.2 –5.8 520 –1,300

Region 8 15th 3.8 –6.1 550 –1,350

Region 9 16th / 17th 4.1 –5.2 650 –1,800

Region 10 13th / 18th / 19th 3.1 –4.5 1,000 –2,200

Region 11 20th 4 –5.9 490 –1,250

Region 12 21st / 22nd 4.7 –6.3 400 –1,000

Source: Otto Zinhausbericht spring 2012, IRG

There are no longer any rental apartment buildings to be found inthe first district for less than EUR 3,200 / m², with prices peaking atEUR 5,200 / m². Yields have dropped by twenty basis points to 1.5% in the course of a year. Broken down by district, locations inside


Real Estate

Country Facts

Transaction volume (%)

Number of transactions (%)

2008 2009 2010 2011 2008 2009 2010 2011

Private Foundation Real estate Financial Other

9.84.8

40.4

31.9

6.5

38.5 32.0

17.8

28.4

11.2

10.6 8.0 9.9

9.3

39.1

8.3

33.4

9.1

39.5

8.1

35.3

10.11.0

3.9

53.1 51.9

6.1

30.1

3.38.5 9.6 11.2

1.5

31.7

4.4

51.3

3.9

27.5

4.6

54.4

Source: Immounited database, IRG calculations

Rental apartment building yields high – low | 2001–2011

LowHigh

0

1

2

3

4

5

6

7

8

9

10

01 02 03 04 05 06 07 08 09 10 11

Source: Otto Zinhausbericht spring 2012, IRG

the Gürtel – not including the first district – generate yields of 2.5– 4.8%. Outside the Gürtel, 90 % of all transactions generateyields of between 4 % and 6.4 %.

Yields losing importance in decision-makingprocessesThere was no material change in investors’ principle considera-tions when purchasing property in 2011. Location continues to bethe leading concern. This is followed by the condition of the build-ing and the apartments inside it. Private investors in particular areless likely to commit to complex and expensive renovation proj-ects. This type of investor is primarily concerned with ensuring asecure rental income with a minimum of administrative work anddisruption.

A survey of potential and actual private buyers of rental apartmentbuildings revealed that the size of projected yields was deemed tobe “less important”. Development potential, such as prospectiveincreases in rents, and upgrading and conversion options, wasalso a lower priority – although, of course, always welcome.

These factors chiefly apply to rental apartment buildings in inner-citylocations and very good locations elsewhere with excellent infrastruc-ture. Desirable inner-city locations require less development potentialto make them an attractive financial proposition than equivalent prop-erties outside the Gürtel, where development potential is likely to bethe primary focus.

Summary and outlook for 2012The rental apartment building sector continued to be a pure seller’smarket in 2011. Looking solely at sales of entire rental apartmentbuildings, the market slowed slightly during 2011, contracting by2.5% to EUR 848 million. But this was not due to a collapse inprices. On the contrary, prices edged up by 1.2 % year on year andremained consistently high throughout 2011. The contraction insteadreflects dwindling supply. Private owners are not required to publishquarterly results and as a result are less susceptible to the pressureto sell. In general, owners of rental apartment buildings are highly re-luctant to part with them in the current climate. The bottleneck on themarket led to a sharp increase in sales of shares in rental apartmentbuildings in 2011, and this segment now accounts for 25 % of thetotal (rental apartment buildings and shares of rental apartment build-ings taken together) of EUR 1,125 million.

More than half of all buyers are private investors. Their main motiva-tion for making a purchase is the security and protection against inflation that rental apartment buildings offer. Demand from privatefoundations remained virtually unchanged in 2011. The financial sec-tor benefited from a number of major transactions during the year. It is interesting to note that increasing numbers of non-real-estate- related companies are entering and investing in the rental apartmentbuilding market. 16 % of the total volume was accounted for by build-ings that cost less than EUR 1 million, and 30 % was attributable tosales of buildings with a value of more than EUR 10 million.

Changes in real estate taxation are expected to stimulate the marketin 2012 and lead to an increased incidence of property “flipping”.Speculation tax on real estate was scrapped in April 2012, meaningthat vendors only have to pay capital gains tax of 25 % on propertydisposals within 10 years instead of the previous rate of 50 %. Therewere no signs that banks and insurance companies were clearing outtheir property portfolios in the first quarter of 2012. All in all, demandfor rental apartment buildings is not expected to diminish at all owingto the dearth of attractive alternative investment opportunities. Themarket is set to remain highly competitive.

Real Estate

Country Facts


Importance of various criteria for private purchasers of rental apartment buildings

2007 2011

0 1 2 3 4 5

Yield

Good location

Good condition of building

Good condition of apartments

Advanced age of tenants and any successorsto tenancy agreements

Small proportion of old open-endedrental agreements

Development potential forconversions/additional floors

Cost of compensation for earlytermination of rental agreements

High yields expected from subdivision

Key: 0 = not at all important, 5 = very importantSource: SRZ survey of potential and actual buyers on the Viennese rental apartmentbuilding market, 2011


Real Estate

Country Facts

ContactsBank Austria

Real Estate Consulting and InvestmentKarin Schmidt-MitscherTel: + 43 (0)50505 – [email protected]

Franz UngerTel: + 43 (0)50505 – [email protected]

Subsidised and SME Real EstateGünther NeuwirthTel: + 43 (0)50505 – [email protected]

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

Commercial Real EstateGünter HofbauerTel: + 43 (0)50505 – [email protected]

Werner ZimmelTel: + 43 (0)50505 – [email protected]

AuthorsBank Austria

Real Estate ResearchKarla SchestauberTel: + 43 (0)[email protected]

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

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

Immobilien Rating GmbH (IRG)

Market ResearchDoris TomschizekTel: + 43 (0)[email protected]

Alexander StögbauerTel: + 43 (0)[email protected]

Helmut Schneider Tel: + 43 (0)[email protected]

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