Austrian property market: investments battle sluggish economy

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Investments into Austrian commercial property have been growing steadily since 2014. With €586 million invested in Q2 2015, the market saw a 62% rise against Q1 2015 and an inflow of €948 million in total from January to June.

Although this figure is lower than during the same period in 2014 (€1.3 billion), analysts expect a number of significant deals to be closed by the year end that will set a new record for investments.

Ranking	Property type	Share of total investments	Transaction volume, EUR million
1	Office space	63%	311
2	Retail	14%	82
3	Residential	14%	82
4	Mixed use	6%	35
5	Hotels	3%	18

German capital stimulates growth

Austria’s commercial property is highly dependent on foreign investors and German capital in particular. Germans were responsible for 55% of this quarter’s investments in comparison to Austrians who only invested 37% against 53% in Q1 2015.

The biggest purchase of the second quarter was the sale of a city centre office building owned by Raiffeisen Property International GmbH to Germany Union Investment for €185 million.

Slow GDP growth

Slowing investments into Austrian real estate can be traced back to lacklustre forecasts for its economy as real GDP growth remains relatively low compared to other EU countries. In the first quarter it was 0.1% and only 0.2% in the second. At the same time, unemployment has been rising slowly and steadily over the last three years from 4.6% to 5.4%.

Stable yields

Despite the universal downward trend observed since 2009, Austrian commercial property offers relatively stable yields. According to CBRE, prime yields on new office space is 4.55% on average while shopping malls and warehouses brought in the highest rates in the retail sector at 4.90% and 5.90% respectively. Hotels yields brought in 5.50% on average.

Outlook

rents to remain stable
gradual decrease of yields
investment volume to pick by end of year
increased interest on the part on international investors

Despite growing investment activity in the office segment, the market is hindered by the country’s sluggish economic results, which do not show much promise of improvement over the short term.

Ivan Chepizhko, Tranio