Country

Facts

Real Estate
The Austrian
Real Estate
Market
icing on the cake

10 / 2013
Real Estate Country Facts

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

Dated: 20. September 2013

A joint publication of Bank Austria Real Estate, Bank Austria Economics & Market Analysis Austria and Immobilien Rating GmbH (IRG)
Imprint and disclosure pursuant to Section 24, 25 of the Austrian Media Act please find 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 and 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 investors 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.

2 I Real Estate Country Facts 10/2013

The Austrian property market
small on scale, but high on quality
The market for commercial property in
Austria is relatively small according to
CBRE, only 430 million was invested in
commercial real estate in Austria during
the first two quarters of 2013, a year-on-
year decline of some 100 million. This
is in contrast to the overall European
trend. Total investment in Europe grew
to 60 billion, and as a result Austrias
share fell to below 1%. However, a string
of positive indicators point to a brighter outlook for the second half
of this and next year.
There has been a noticeable pick-up in demand for real estate
loans. Bank Austria Real Estate reported over 1 billion of new
business in the first six months of 2013 its strongest performance
for several years. This was due inter alia to the ability to finance
also big projects as well as to offer long term retention periods. The
large number of projects still in the pipeline suggests that invest-
ment in property will grow in the second half of 2013 and next year,
leading to an improvement in market performance.
The Austrian housing market has shown dynamic development in
the last few years, with Vienna leading the way. The sharp increase
in prices can be attributed partly to rising demand prompted by the
global economic crisis, as money has flown into gold standard
residential property investments. Last year prices rose by an aver-
age of 12% in Austria as a whole, and by almost 16% in Vienna.
In the first half of 2013 the rise in prices slowed somewhat, which
suggests that economic conditions are returning to normal. Despite
the steep price increases of recent years, housing in Austria is still
relatively cheap by international standards, partly as a result of
government-subsidised residential construction.
*) Source: TU-Wien Institut fr Stadt- und Regionalforschung, OeNB
The slightly downward trend in property yields continued into the
first six months of 2013, with prime yields in the office segment
falling below the 5% mark to around 4.8%. This compares to prime
yields of around 5.5% in the shopping centre sector in mid-2013,
and retail park prime yields around 1%-point higher. The scope for
further reductions is limited, particularly as long-term yields on
government bonds have risen slightly in recent months.
Investors are no longer just interested in prime real estate
properties in excellent locations and subject to favourable rental
conditions but are also on the lookout for projects with value-add
potential.
Economic indicators are moving in the right direction again and the
Austrian economy has returned to a more stable growth trajectory.
Bank Austrias economists expect the country to record slightly real
growth in 2013, while growth forecast for 2014 was recently
revised upwards to just under 2%. This indicates that Austrias
economy is in far better shape than those of other European
countries.
All in all, and in spite of its small size, Austrias real estate market is
well positioned to maintain its reputation for positive performance
and relative stability.
Karla Schestauber
Real Estate Country Facts 10/2013 I 3
Real Estate Country Facts

Austrian economy back on firmer ground

From stagnation
After a promising start to 2012 the Austrian economy ran out of
steam in the middle of the year. The austerity measures aimed
at resolving the EU sovereign debt crisis prompted an economic
slowdown in many countries, and recession in others. The euro-
zone as a whole slipped back into recession, posing serious
problems for Austrian exporters. Demand from the USA and the
growth markets of Asia and South America failed to make up
fully for collapsed demand in Europe. Uncertainty surrounding
the future of the eurozone weighed on producer and consumer
sentiment Austrian businesses scaled back investment and
private consumption faltered. The upshot of this was a period of
stagnation from the second half of 2012 onwards. Nevertheless,
full-year growth in Austria was 0.9% thanks to the solid perfor-
mance in the first half of the year.
The situation deteriorated further in the first few months of
2013, dashing hopes of a spring rebound. Austria remained in
the doldrums and the real economy shrank by 0.2% year on
year. Demand for Austrian goods and services remained muted,
whith emerging markets and China in particular which had
been propping up the world economy looked increasingly to
be struggling. Nevertheless, foreign trade contributed slightly to
Austrian GDP, with exports slowly growing and imports falling.
The decline in imports was a reflection of significantly weaker
domestic consumption. Although progress was made in tackling
the EU debt crisis, with measures including a framework for a
banking union, domestic manufacturers remained cautious
about the prospects for an upturn in business. This led to a con-
siderable decline in investment which the loose monetary policy
pursued by the European Central Bank (ECB) and a cut in inter-
est rates to an all-time low in the first half failed to reverse.
Evidence of weaker private consumption came in the shape of
a real decrease of over 1% in retail revenue. Consumers willing-
ness to spend took another hit in the first half of 2013 as con
ditions on the labour market became bleaker. The growth in
employment slowed drastically from 1.4% in 2012 to only
0.6% in the first six months of 2013, and unemployment
increased. An average of 290,000 people were out of work, an
increase of over 20,000 on the first half of 2012.
to delayed recovery
In mid-2013 the Austrian economy appeared to have turned the
corner, and there were growing indications of a recovery in the
second half. Nevertheless, the economic outlook is mixed. Aus-
trian industry is benefiting as the eurozone economy gradually
picks up steam, but consumers are still rather tentative, mainly
due to the gloomy situation on the labour market, which is likely
to persist beyond the end of this year. Consumer uncertainty is
putting the brakes on the recovery. We predict that unemploy-
ment will rise from 7% in 2012 to 7.6% this year, or 4.8%
under the Eurostat method (2012: 4.3%). In other words,
unemployment will be considerably higher than during the
2009 economic and financial crisis.

Overview of Austrias economic data

Forecast
2008 2009 2010 2011 2012 2013 2014
Economic growth (real, year on year) 1.4 3.8 1.8 2.8 0.9 0.4 1.8
Private consumption (real, year on year) 0.7 0.9 2.0 0.8 0.5 0.8 0.6
Investment (real, year on year)1) 0.7 7.8 1.4 8.5 1.6 1.9 4.0
Exports (visible and invisible) 1.4 15.6 9.4 6.6 1.2 2.3 4.0
Imports (visible and invisible) 0.0 13.6 9.1 7.6 0.3 0.2 3.6
Current account balance (in % of GDP) 4.9 2.7 3.4 1.4 1.8 2.5 2.7
Inflation rate (CPI) (real, year on year) 3.2 0.5 1.9 3.3 2.4 1.9 1.8
Unemployment rate (EU criteria) 3.8 4.8 4.4 4.2 4.3 4.8 4.7
Unemployment rate (national criteria)2) 5.9 7.2 6.9 6.7 7.0 7.6 7.6
Employment (year on year, in %) 1.3 1.5 0.6 1.8 1.3 0.6 1.2
Public-sector balance (in % of GDP) 0.9 4.1 4.5 2.5 2.5 2.3 1.7
Public-sector debt (in % of GDP) 63.8 69.2 72.3 72.8 74.1 75.2 74.8
1) Gross fixed capital formation / 2) excluding maternity leave, military service and training programme
Source: Bank Austria Economics & Market Analysis Austria

4 I Real Estate Country Facts 10/2013

European demand for Austrian exports has started to improve,
and exporters are receiving more new and follow-up orders. This
wind of change from abroad is still more of a gentle breeze, but
it will pick up in due course. Over the next few months exports
will gradually become the driving force behind the Austrian
economy. Thanks to its strong position on export markets,
Austria will increasingly reap the benefits of the upturn in the
European economy in the months ahead. Besides growing
demand from Germany Austrias main trading partner and
Europes economic powerhouse Italys nascent emergence
from recession will also give added impetus to export growth.
This momentum from abroad should be reflected in a rise in
gross domestic product (GDP) of around 0.4% in 2013.
Economic growth
(real change of GDP in %)
3 5
2 3M Euribor
1
0
1 2
2
3
4
5 1
2008 2009 2010 2011 2012
Source: Eurostat, Bank Austria Economics & Market Analysis Austria
Falling inflation and low interest rates
supporting domestic consumption
The decline in inflation which began in late 2012 is likely to pick
up speed until the end of this year. Rates of well under 2% are
expected. Average inflation is forecast to reach 1.9% in 2013,
compared with 2.4% a year earlier, as any upward pressure from
increases in raw material prices will remain weak owing to the
slow pace of recovery in Europe and the slowdown in the emerg-
ing economies. Lower inflation will give a lift to real purchasing
power the Achilles heel of the Austrian economy.
In view of Europes return to growth in mid-2013, further interest
rate cuts by the ECB are now off the agenda. However, the
moderate pace of recovery and lack of inflationary pressures
mean that the ECB can keep rates at record lows for longer in an
attempt to encourage investment. We assume that the base rate
will remain unchanged at least until the end of 2014.
Stronger recovery in 2014
After a modest start in the second half of 2013 following the
improvement in economic conditions, the recovery in Europe
will accelerate markedly in 2014, as fiscal consolidation is
likely to be less of a drag on many countries economies. If the
recovery takes root, domestic demand will make a stronger
contribution to growth than other factors. Lower inflation and a
turnaround on the employment market in 2014 should help to
revitalise private consumption. The prospects for a rise in invest-
ment are also bright. Increased production, greater confidence in
the likelihood of strong business performance, and relatively
low financing costs as a result of the ECBs decision to stick with
its current monetary policy for an extended period will slowly
encourage Austrian companies to invest in 2014.
Ination and interest rate
Eurozone Vienna CPI
Austria 10y Government bond yield
4
3
1
0
2008 2009 2010 2011 2012 2013 2014
2013 2014
forecast
forecast
Source: Thomson Reuters, Bank Austria Economics & Market Analysis Austria
Although weak growth in Europe has dampened demand for
Austrian products, this will change in 2014, thanks in part to
solid economic performance in the US. However, there is the risk
of a sharper slowdown in growth in the emerging economies,
especially China. Although the lack of progress in Europe in tack-
ling the sovereign debt crisis and moving towards a banking
union could stand in the way of Austrias continuing upturn in
2014. But the countrys strong export sector will be the main
contributor to the growth rate of 1.8% expected for 2013.
Domestic investment and consumption will then play an in-
creasingly important supporting role. Nevertheless, growth rates
in excess of 2% will remain the exception in the medium term.
Real Estate Country Facts 10/2013 I 5
Real Estate Country Facts

Viennas stable economy
The lively performance of the Viennese economy at the start of
2012 was in step with that of Austria. Expansion was driven by the
manufacturing sector, which recorded above-average growth in the
first half. Due to its strong focus on consumer goods and the do-
mestic market, the Austrian capitals manufacturing cycle lags
behind that of the country as a whole. As the year went on, the
Viennese economy increasingly suffered as the deterioration in
international conditions left its mark. Manufacturing contracted, in
part due to one-time effects, as company relocations. Energy com-
panies and other utilities were instrumental in keeping the manu-
facturing sector on an even keel. The construction industry was the
mainstay of economic growth in Vienna in 2012. Civil engineering
contracts from the public sector played a significant role in the
building sectors strong performance, although this trailed off to-
wards year-end. The service sector also lost its way in the course of
2012, owing to the challenging economic climate and its negative
intake has declined, especially from the public sector. The service
industry will remain the key driver of growth in the Viennese
economy, but the sector faces difficult conditions owing to the
unfavourable s ituation on the job market. After its decline at the
start of 2013, the Viennese economy is seen as slowly returning to
modest growth this year. As a result, economic performance for
the year as a whole will remain stable. The prospects for growth in
the Viennese economy should brighten in 2014 as foreign demand
picks up and the shoots of domestic recovery appear.
Viennas share of
Austrian added value (in %)
current Change since 1995 in %-points
Primary sector1) 0.8

impact on the labour market. The slowdown in services was more Manufacturing 0.1

moderate, and as a result the industry became an increasingly Construction 2.1

important pillar of regional growth as the year went on. Viennas Tourism2) 0.2
economy paid a hefty price for the collapse in worldwide demand. Trade 4.1
According to the WIFO, growth slid from over 2% in 2011 to 0.3%, Business related 0.3
services3)
below the 0.9% recorded for Austria as a whole.
Other services4) 0.4

The outlook for the Viennese economy in 2013 is clouded by a

Total 0.4
number of factors. Viennese industry stuttered in the first six
months of this year and owing to its strong domestic focus, the 0 5 10 15 20 25 30 35 40 5 4 3 2 1 0 1

sector will only slowly respond to the rebound in global growth,
leaving it unlikely to contribute to growth in the remainder of 2013.
The construction business is not likely to repeat its strong per
formance of 2012. The mood in the sector is downbeat and order
1) Agriculture and forestry, mining, energy and water supply
2) Hotels and restaurants
3) Business related services in the wide sense: transport, banking and insurance, real estate
4) Public services, education and health, private services
Source: Statistik Austria, Bank Austria Economics & Market Analysis Austria

Viennese economic data

Average of federal provinces
(or Austria total)
2008 2009 2010 2011 2012 2013s 2013s
GDP per capita () 43,887 42,855 44,267 45,806 46,548 47,054 37,180
GDP per capita (as % of Austria) 129.4 129.8 129.7 127.8 127.1 126.6 100.0
GDP (real, year on year) 1.5 3.2 2.6 1.9 0.3 0.1 0.4
Unemployment rate (%) 7.8 8.7 8.8 9.2 9.5 10.1 7.6
Employment (year on year) 1.9 0.8 2.3 1.7 1.2 0.6 0.6
Exports ( mn) 14,687 12,466 17,420 17,889 18,393 18,600 128,000
Exports (as % of Austrian exports) 12.5 13.3 15.9 14.7 14.9 14.6 100.0
Exports (as % of GDP) 21.1 18.4 23.1 22.7 24.4 23.6 40.9
Public debt per capita () 869 1,108 1,800 2,339 2,517 2,703 3,015
Source: Statistik Austria, Bank Austria Economics & Market Analysis Austria

6 I Real Estate Country Facts 10/2013

Affordable living space:
still an option for the majority of Austrians

The right to housing is codified under the United Nations
Universal Declaration of Human Rights. It is a basic need and
usually the largest single expense for private households.
Living space has a fixed location and is utilised for very long
periods, normally over generations characteristics that
justify significant public-sector involvement in residential
construction.
In Austria, the provision of sufficient affordable housing of
acceptable quality is enshrined in the Raumordnungsgesetz
(Regional Planning Act) and the Wohnbaufrderungsgesetz
(Housing Subsidies Act). Until now, the subsidy and regulatory
systems have proven effective in implementing the legisla-
tive provisions on residential construction. But changes in the
housing market and in living costs in recent years are a sign
that these systems need to be recalibrated.
Affordable housing in Austria
Regardless of the data source and segmentation criteria,
international surveys show that housing in Austria is rela-
tively cheap but has rapidly become more expensive in the
past few years, and that there have been significant variations
in the impacts on owner-occupiers and rentpayers.
Two-speed development in rental and
owner-occupier apartment prices
Private households in Austria spend a total 36 billion on
living costs each year, of which 17 billion is accounted for
by the imputed rent for property ownership, 5.3 billion by
actual rent (including subletting), around 7 billion by service
charges and maintenance, and 6.6 billion by energy costs.
(The relatively low share of actual rent is due to the fact that
only about 40% of the population lives in rented accommoda-
tion, and that the imputed rent category also includes second
and vacant apartments, garages and a proportion of mainte-
nance costs.)
However, the encouraging situation on the Austrian housing
market in comparison to other countries should not distract
attention from the pressure of rising demand, the widening
gap in supply and rapidly rising prices. For many years now,
housing expenditure has increased more quickly than overall
consumer spending between 2007 and 2011, the former
rose by a nominal 16%, compared with 13% for the latter.
The jump in rental costs has been above average (25% since

Living expenses form a relatively small proportion of total

household budgets, which reflects the effectiveness of
Housing expenses in Europe
Percentage of total consumer spending, 2011
Austrian government housing policies. 22% of the average
Austrian households consumer spending goes on housing, in %

compared with 24% in the EU-27 countries and 29% in 30

Housing and energy
Denmark. 25
Imputed rent for owner-occupiers
Rent for main-lease apartments

29 27
The European Union Statistics on Income and Living Condi- 20 27 27 25 24
24 22
tions (EU-SILC) underline the favourable housing situation 24 24 22
22
22
20
24
in Austria. The proportion of the population that feels over- 15

burdened by housing costs is one of the lowest in Europe, 10 13 12

16
13
irrespective of income group and the legal framework for 12 14 10 13 11 13
10
14
12
11
residence. Around 19% of Austrian residents in the lowest 5
7 8 7 7 6
income quintile, compared to the EU-27 average of 36% and 4 4
1
4
5 5
2 1 3 3 2
some 11% of tenants in the fairly expensive private rental 0
DK S FIN CZ F D PI B GB NL I HU A IRL E
apartment segment claim to be overburdened while the EU Source: Eurostat; Bank Austria Economics & Market Analysis Austria
average is 26%.

Real Estate Country Facts 10/2013 I 7

Real Estate Country Facts

2007), while imputed rent for property ownership went up by
only 14% over the same period; maintenance and renovation
costs, and energy bills increased by 1215%.
Austrian microcensus results, which are available up to 2012,
highlight the discrepancy between the housing cost burden for
rental households and that for owner-occupiers. According to
the figures, in the 20072012 period rents climbed by 17%,
but spending on owner-occupier apartments actually fell by
10%. The drop in costs is explained by segmentation differ-
ences and may reflect the growing proportion of apartments for
which only maintenance expenses are payable, as well as the
increase in partly self-financed housing purchases, which is
reflected in the reduction in repayments and annuities revealed
in the microcensus (source: Statistics Austria).
Improvements in fixtures and fittings, and the increased size of
apartments explain part of the above-average growth in hous-
ing costs in the rental market. In 2012, around 92% of main-
lease apartments in Austria were category A properties, up
from 37% in the mid-1980s. The average size of apartments in
this segment rose from 60 m2 to 69 m2 in the same period.
Although the rental apartment market is heavily regulated, in-
creases in rents in Austria have been well above inflation for
several years (and far higher than the rises seen in Germany,
which is most likely the result of the modest price increases on
the countrys property market). Of the 1.5 million main-lease
properties in Austria, only 320,000 are rented by private indi-
viduals on the open market. Around 300,000 are subject to the
benchmark rent value system, 280,000 are local authority
apartments and some 600,000 are housing association proper-
ties with regulated prices. Rents went up by 4.4% in 2012,
although inflation was only 2.6%. Prices are not expected to rise
as quickly in 2013, although the increase in rents forecast at
3% will continue to outpace that of consumer prices, with
inflation at 2%.
The Austrian rental apartment market:
facts and figures
The average rent for main-lease apartments in Austria was
6.60/m2 in 2012; monthly rent including service charges, re-
lated annuities and annuities to property managers was 417.
Rents in new main-lease apartments built after 2001 was
7.20/m2; the lowest rents, 6/m2 on average, were charged
for apartments built between 1919 and 1960.
Tenants of newly let older apartments paid rent of 8.30/m2;
the average for newly let properties, which make up around 9%
of all main-lease apartments subject to rental agreements of
less than one year, was 7.90/m2. Monthly costs can be as
low as 5/m2, depending on the duration of the rental agree-
ment.
The average rent under fixed-term tenancy agreements was
8.40/m2, compared with 6.20/m2 under open-ended
agreements. Around 263,000 or 18% of rental agreements are
currently for fixed terms, most of which (about 207,000) were
concluded with private landlords.
Newly built apartments subject to fixed-term agreements are
the most expensive properties on the Austrian rental market, at
10/m2; there are 26,000 such apartments in the country.

Housing expenses in Austria Apartment rents

Monthly, excluding garage costs, EUR/m2 HICP, year-on-year change
7 5%
Apartment owner Total
Tenant +17 % Austria
6 Germany
4%
5
2007 2012
4 3%
10 %
3
2%

2
1%
1

0 0%
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
estimate
Sources: Statistics Austria microcensus, and Bank Austria Economics & Market Analysis Austria Sources: Statistics Austria and Bank Austria Economics & Market Analysis Austria

8 I Real Estate Country Facts 10/2013

What factors are driving up rents?
There are several reasons behind the relatively sharp increase
in rents, but the most important is the significant higher
demand than supply for reasonably priced rental apartments.
Since 2009 the number of subsidised residential development
projects in Austria has dropped by nearly a quarter, as meas-
ured by the number of subsidy approvals. Grants have also
been directed towards upgrades, leading to a shortfall in
funds for new developments. The resulting boom in renova-
tion projects has pushed up prices, especially in the rental
apartment segment, and benchmark rents have risen as a
result of the high and often illegal surcharges imposed on new
letting (source: Austrian Chamber of Labour (2010), Praxis des
Richtwertmietsystems). Housing prices have also surged as a
consequence of investment-driven demand for residential
properties, and rents have followed suit, at least in some parts
of the market.
Austrian residential property prices have risen sharply in the
last few years, bucking the European trend. Prices in the coun-
try as a whole have jumped by an average of 31% since 2007,
with even heftier increases in the main urban centres and in
certain luxury segments. During that time prices rose by 52%
in Vienna and by 22% in the rest of the country (source:
Centre of Regional Science, Vienna University of Technology).
Although property in Austria has not generally been overval-
ued, and the rise in property prices will continue to run out of
steam in 2013, the trends in recent years are an indication of
market imbalances, in particular a shortfall in supply which
cannot be bridged in the near term.
four million mark by 2030. At the same time the number of
single-person households is rising by 0.8% a year, resulting in
considerable additional demand for new apartments. In view of
demographic changes and the low level of new construction
expected in the short term, the current undersupply may wors-
en according to the WIFO (2013), the number of approvals for
planning permission plummeted in 2012 and is likely to fall
further in 2013. In the long run, demand will decline as the
number of 25- to 44-year-olds who are most likely to set up
new households falls. That means it will certainly be possible
to satisfy the need for residential new builds, provided that
Austrias housing construction finance system, and in particular
the system of subsidies, is not severely affected.
A major burden on low-income households
The statistics do not paint a complete picture of the urgent
need for affordable living space. But they do show that more
and more Austrian households are having trouble paying their
housing costs.
The average Austrian rentpaying household spends 34% of its
net income on rent, service charges and energy, while 25% of
owner-occupiers household income goes on loan repayments
and other housing expenses. In the lowest income quartile, the
figure is 51% for rentpayers and 44% for owner-occupiers. So it
comes as no surprise that in 2011, around 8% of rental house-
holds over 100,000 were in arrears at least once with their
housing costs (source: Oesterreichische Nationalbank (2012),
Wohnkostenbelastung der sterreichischen Haushalte).

There are currently 3.7 million households in Austria, and with

annual average growth of 0.5%, that figure is set to pass the Expenses1 for main-lease apartments
by building owner
Percentage change, 20082012; ave. cost, 2012

Sharp increase in property prices 25 %

Austria Vienna
2000=100 7.5/m
20 %
190
Vienna +52 % 7.4 /m
Austria 15 %
160
6.6 /m
10 % 5.8 /m 6.2 /m
5.9 /m
130
5%
+ 22 %

100 0%
ity

te

ity

e
cia ng

cia ng

at
n

n
iva
tio

tio
or

or
so si

so si

iv
th

th
as Hou

as Hou
Pr

Pr

2007 2012
au

au
l

l
ca

ca

70
Lo

Lo

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Austrian data available from 2000 only 1) Data comparable from 2008 onwards
2) Data comparable from 2008 onwards
Sources: OeNB, Statistics Austria and Bank Austria Economics & Market Analysis Austria Sources: Statistics Austria microcensus and Bank Austria Economics & Market Analysis Austria

Real Estate Country Facts 10/2013 I 9

Real Estate Country Facts
The growing burden of housing costs is putting the most
vulnerable families in an increasingly precarious situation, as
is clearly shown in the EU-SILC findings for at-risk-of-poverty
households. Such households earn less than 60% of the re-
spective national average net income; for single-person house-
holds this is equivalent to less than 12,800 including all
social security benefits and housing benefits. According to this
definition, around 12% of the population or 1.1 million people
are at risk of poverty. Of those, roughly one third a figure
which is rising pay above-average rents on private apart-
ments, compared to 15% in the other income groups. The
main reasons for this are a lack of money to buy owner-occupier
properties and the low level of construction of council housing
in recent years. According to the EU-SILC definition, the propor-
10 I Real Estate Country Facts 10/2013
tion of at-risk-of-poverty households in Austria rises from 12%
to about 26% after deduction of housing costs (2007: 24%).
The EU-SILC findings also reveal that housing costs place a par-
ticularly heavy burden on the incomes of 20- to 40-year-olds
(many of whom are just entering the housing market) and sin-
gle parents. In these two segments, 24% and 49% respectively
claim to face an unreasonable burden, compared to a national
average of 19%. The most urgent challenge facing Austrias
housing market is probably the correction of segment-specific
and regional imbalances doing so will ensure that those
sections of the population threatened by poverty are not mar-
ginalised further.
Stable performance on the commercial
real estate market
Austrian commercial property market
on the right track
Investment in commercial real estate in Austria fell to 430 mil-
lion in the first half of 2013 a significant decrease on 2012 and
in contrast to the overall trend in Europe, where total investment
jumped from 48 billion to 60 billion over the same period.
As a result, Austria accounts for less than 1% of European invest-
ment in real estate. But a pick-up in the demand for loans coupled
with improving economic indicators point to more activity in the
second half of this and next year.
Customer feedback confirms that Austrian real-estate investors and
developers are generally satisfied with bank lending policies. Some
even welcome the more restrictive conditions than before the crisis
as protection against market overheating. A CBRE survey shows that
European investors largely share these sentiments. Only 14% of
those questioned saw restrictive lending policies as the main threat
to the recovery in the European property market. Almost 50%
thought that recession was the greatest danger. Improvements in
the latest economic indicators in both Austria and the rest of
Europe are fuelling hopes of an upturn in confidence.

A breakdown of investment by property type reveals that retail

space remains in relatively high demand. So far, online retailing Investment in commercial property
which is also experiencing strong growth in Austria, did not have (H1 2013)
any negative impact on investment in bricks-and-mortar retail
property. However, online retailing is intensifying competition on
what is already a hotly contested market. As a result, shopping
30 % Mixed use and other
centres which are unable to offer an appealing brand mix or/and 30%
Office
an attractive location are increasingly coming under pressure. Hotel
Housing

Dedicated office properties accounted for a surprisingly small 8%

Retail

share of the total market in the first six months of this year, while 15%
the proportion of mixed-use properties jumped. Although the 17 %
growing importance of online retailing could make logistics space
a more attractive investment in the medium term, no transactions Source: CBRE
for this type of property were concluded in the first half of 2013.

Investment in commercial property Which of the following poses

Which of the following poses
(in billion) the greatest
Which of thethreat to the
following European
poses
the greatest threat to the European
Europe CEE Germany Italy Austria
property
the market recovery?
2005 141.7 5.8 20.0 5.0 1.9 property market recovery?European
greatest threat to the
2006 227.0 12.7 51.0 8.5 2.4 property market recovery?
Economic recession
2013
2007 246.0 14.2 57.5 10.0 2.8 2012
2013
Economic recession
Inability of investors 2012
2008 120.0 9.8 19.7 8.0 2.1 Economic
to source recession
2013
Inability of new debt
investors 2012
2009 69.7 2.5 10.5 5.1 1.3 to source new debt
Break-up of
Inability of investors
theBreak-up
euro
new zone
2010 105.1 5.0 19.1 4.3 1.6 to source debt
of
the euro zone
Government
2011 118.1 11.1 22.8 4.3 1.6 Break-up of
austerity
the policies
euro
Governmentzone
2012 119.7 7.1 25.2 2.5 1.8 austerity
Rising interestpolicies
rates
Government
and/or threat
Rising of ination
austerity
interestpolicies
rates
Q1 2012 25.6 0.9 5.1 1.4 0.3 and/or threat of property
ination
Perception that
Rising interest rates
Q2 2012 24.3 1.5 4.3 0.4 0.3 has
and/orbecome
threat
Perception over-priced
of property
that ination
hasIncrease
becomeforced
over-priced
Q3 2012 28.4 1.7 5.1 0.4 0.6 Perception sales
that property
by banks
hasIncrease
become or others
over-priced
forced sales
Q4 2012 41.5 3.0 10.7 0.4 0.7 by banks or others
Increase forced sales 0% 10 % 20% 30% 40 % 50 % 60 %
Q1 2013 30.7 3.2 6.8 0.6 0.2 by banks or others 0% 10 % 20% 30% 40 % 50 % 60 %
Source: CBRE
Q2 2013 32.6 1.5 5.9 1.4 0.2 Source: CBRE 0% 10 % 20% 30% 40 % 50 % 60 %

Sources: IRG, CBRE Source: CBRE

Real Estate Country Facts 10/2013 I 11

Real Estate Country Facts

Five-year CDS spread on Austrian banks Government bond yields

(average) (10J)
500 5.5
Austria
450 5.0 Germany
400 USA
4.5
350
4.0
300
3.5
250
3.0
200
2.5
150
100 2.0

50 1.5

0 1.0

01 04.07
01 07.07
01 10.07
01 01.07
01 04.08
01 07.08
01 10.08
01 01.08
01 04.09
01 07.09
01 10.09
01 01.19
01 04.10
01 07.10
01 10.10
01 01.10
01 04.11
01 07.11
01 10.11
01 01.11
01 04.12
01 07.12
01 10.12
01 01.12
01 04.13
.0 3
13
01 04.07
01 07.07
01 10.07
01 01.07
01 04.08
01 07.08
01 10.08
01 01.08
01 04.09
01 07.09
01 10.09
01 01.19
01 04.10
01 07.10
01 10.10
01 01.10
01 04.11
01 07.11
01 10.11
01 01.11
01 04.12
01 07.12
01 10.12
01 01.12
01 04.13
.0 3
13

01 01.0
01 01.0

7.
7.

.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.

01
01

Source: Thomson Reuters Source: Thomson Reuters

Austrian banks liquidity costs remain elevated, although they are
well off their peak. Extremely low key ECB rates have helped to keep
customers interest burdens relatively low.
Prime property yields have declined
Prime yields in the office and retail segments are relatively low.
In the office market they have fallen below the 5% mark to 4.8%,
compared with about 5.5% for shopping centres and some 6.5% for
retail parks. Consequently Austrian property yields are among the
lowest in Central Europe.
The increase in yields on European government bonds amid con-
cerns about an end to the USAs exceptionally loose monetary policy,
inter alia reduces scope for further reductions in real-estate yields.
Nevertheless the positive spread between the two yields still makes
property an attractive proposition. Properties with strong develop-
ment potential which hold the promise of higher returns should
become more desirable to investors.
Stable performance on the Austrian property market
The IPD Austria Annual Property Index tracks the performance of a
portfolio of office, retail, industrial/logistic, residential and other
properties. In 2012 the total return on the portfolio was 6.2%, of
which capital growth accounted for 1.2% and income returns 4.9%.
The average annual total return stood at 6.1% over three years, 5.2%
over five years, and 5.5% over nine years.

A year-by-year analysis reveals that income returns in Austria have

grown steadily at around 5% a year over the last nine years. In other
Office prime yields words, Austria has lived up to its reputation as a stable location for
Q2 2013 real-estate investors. And the improving economic outlook for 2014
Market Prime yield Change on qtr Change on yr bodes well for continued solid performance.
in % in bp in bp
Frankfurt 4.80 10 20
Vienna 4.80 5 30
Milan 6.00 0 0 IPD Total return
Warsaw 6.15 10 10 8
Income return
Prague 6.25 0 25 7 Capital growth
Total return
Bratislava 7.25 0 0 6
5
Budapest 7.50 0 0
4
Istanbul 7.75 0 0
3
Bucharest 8.25 0 25
2
Zagreb 8.30 0 0 1
Moscow 8.50 0 25 0

Belgrade 9.50 0 0 1
2
Kiev 13.00 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: CBRE Source: IPD

12 I Real Estate Country Facts 10/2013

Viennese office property market:
gradual pick-up in take-up

Moderate vacancy rates
Viennas office property market is still one of the most stable in
Europe. In contrast to other European cities, vacancy rates in the
Austrian capital have remained modest. There are growing indica-
tions that the Viennese office market has shaken off most of the
negative effects of the global economic and financial crisis, and
that 2013 will bring an end to the trend of sluggish increases in
take-up seen in recent years.
The upturn in demand for space in the premium price segment is
a clear sign that new letting is on the rise. This is confirmed by
data from EHL, which show that new rentals jumped by nearly a
quarter year on year in the first half of 2013. Construction of new
space is stagnant and is down slightly on the like period of 2012.
This should help to hold vacancy rates which had increased
slightly in check.
The stock of office space in Vienna is currently around 10.7 mil-
lion m2. In terms of office space per capita, Vienna is close to the
average for West European capital cities and has retained its sig-
nificant lead over the capitals in the eastern half of the continent.
Although the proportion of new office space attributable to
renovations and conversions has fallen compared to last year,
refurbishments, redevelopments and extensions still account for
a significant proportion of new space creation.
Stagnation in lettings apparently over
The take-up of office space has been weak in recent years, and
reached about 260,000 m2 in 2012 a massive decline compared
to new lettings in the boom years before the global financial melt-
down. A slight increase is anticipated this year, and in the first six
months lettings of new space had reached somewhere in the region
of 110,000 m2 according to EHL. Experience shows that new let-
tings tend to pick up in the second half, giving cause for optimism
that 2013 will see the end of the barren spell of recent years.
In addition, demand for larger spaces is gradually picking up mo-
mentum, and a number of agreements for spaces of 5,000 m2 or
more were concluded in the first half of this year. However, large-
scale new rentals remain the exception, and relocations, space
optimisation and the knocking together of smaller units still
account for a substantial proportion of new lettings.

Modest rise in construction of new office space
in 2012
In 2012 the construction of new office space in Vienna increased
slightly year on year, to around 215,000 m2 (2011: 180,000 m2).
The figure for 2013 is put at 205,000 m2, although it remains to
be seen how many projects will be completed by the end of this
year, and how many will be postponed until 2014.
Wien Mitte station: the largest office
construction project of 2012
The largest single addition to Viennas stock of office space in 2012
was the 60,000 m2 Wien Mitte project in the citys third district.
The development also includes a shopping centre, The Mall. In
Viennas second district, the Green Worx office complex added an-
other 20,000 m2, while work on the Raiffeisen Holding office tower
on Obere Donaustrae was also completed.

Ofce space in m2 per capita 2013 New construction and take-up

Ofce space in Vienna 20012013p
25

550,000
New construction in m2
20 500,000
Take-up in m2
Ofce space in m2

450,000
400,000
15
350,000
300,000
10
250,000
200,000
5 150,000
100,000
0 50,000
an va

nh ch
M gen
M h
n
m is
V rg
at na
Pr va
W gue
da w
So t
Ta a
ch nn
M rest
Za ow
eb
Vi iga
s
lg v
Ist de

l
Co Z rt

bu
s

iu
Be Kie
ic
ila
Ha Par

0
Bu sa
pe
bu
u
Fr ene

a
pe uri

gr

a
Br ien

Bu lli

ln
c
un

an
kf

isl

r
a
a

a
ar

os

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p
G

Source: CBRE, Immobilien Rating GmbH Source: Immobilien Rating GmbH, EHL, CBRE

Real Estate Country Facts 10/2013 I 13

Real Estate Country Facts
This years biggest office project DC Tower 1
The DC Tower 1 project in the Donau City area will account for the
single largest addition to Viennas stock of office space in 2013. The
plans for the building came from top French architect Dominique
Perrault. The property includes a hotel and some 44,000 m2 of
office space. DC Tower 1 has 60 floors the hotel occupies the
lower floors, with offices extending the floors above, and the very
top floors are taken up by a bar and restaurant, and an observation
deck. A second skyscraper, DC Tower 2, is due to be built nearby and
is currently in the planning stage.
Projected office space for 2013 (selection)
Project Total lettable office Status
space (m2)
DC Tower 1 44,000 under construction
Campus WU 35,000 completed
Euro Plaza Construction phase 5 35,000 under construction
STAR22 29,000 under construction
2nd Central 15,000 under construction
Source: Immobilien Rating GmbH
The 90,000 m2 Campus WU, the new home of the Vienna University
of Economics and Business which includes around 35,000 m2 of
office space, is completed. The 1,500 or so staff began relocating to
the new site in mid-August. At Euro Plaza the latest extension
construction phase 5 will add a further 35,000 m2 of office space.
Work is scheduled for completion by the end of this year, but could
yet be delayed until the middle of 2014.
Top rents for Viennese offices up slightly in 2012
Premium office rents in the Austrian capital rose moderately in
2012, and were around 25/m2 per month in mid-2013. However,
rental costs can be higher for exclusive premises in certain premi-
um-quality properties, such as former mansion houses or the top
floors of office blocks. Rents in the premium segment may increase
again slightly by the end of this year, but are expected to remain
fairly stable on the whole.
Demand remains high for space in the city centre and other key
office locations. Office space is being freed up as businesses and
government authorities relocate, often to sites outside central
Vienna. After refurbishment measures this space becomes available
again on the market. Premium rents are often charged for such
spaces in the citys first district.
Relocations and optimisation of space still account for the majority
of new rentals, so demand for space in the mid-price segment has
remained robust. Effective use of floor space and low operating
costs are among the key decision-making criteria for prospective
tenants. Total monthly or annual costs now play a far more decisive
role in selecting office locations than the rental price alone.
14 I Real Estate Country Facts 10/2013
The recent trend of weak demand has continued for office build-
ings with low occupancy rates, old properties in need of renova-
tion, as well as office space in average locations and outside the
most popular office sites. This has resulted in falling rents and
rising vacancy rates, as well as a growing need to find alternative
uses for these spaces.
Erste Campus and UniCredit Bank Austria
Campus: innovative office projects
In the next few years Erste Group and UniCredit Bank Austria will
both bring together employees from various locations across the
city in new head offices. The new premises are better suited to
contemporary employment models, and reflect the experience of
new office spaces that are specifically designed with the needs
of tomorrows workers in mind. Austria Campus on the area of
the former Nordbahnhof is expected to be completed in 2017.
Work on the Erste Campus is currently under way on the site of
the former Sdbahnhof railway station and is scheduled for com-
pletion in 2016. The new Austrian Federal Railways (BB) head-
quarters, with some 46,000 m2 of office space, is also taking
shape at Viennas Hauptbahnhof station. Completion is sched-
uled for 2014. The 34,000 m2 Gate 2 office complex, situated
opposite the Gasometer towers and the underground station of
the same name in the third district, is also due for completion
next year.
Projected office space for 2014 (selection)
Project Total lettable office Status
space (m2)
BB headquarters 46,000 under construction
Gate 2 34,000 under construction
silo 12,000 under construction
Source: Immobilien Rating GmbH
Office vacancy rates largely stable
Vacancy rates in Vienna are still among the lowest in Europe.
They are on a par with those in London, which remains one of
the worlds leading financial centres, and in the up-and-coming
city of Istanbul.
In mid-2013 vacancy rates in the Viennese office market were
around 6.57%, and they are likely to remain virtually un-
changed owing to the modest increase in new office construction
and the upturn in new lettings. On the whole, vacancies are higher
at older properties with modern office space easily available at
attractive prices, tenants are becoming increasingly hard to find
for locations that do not meet the latest requirements. As a re-
sult such spaces are often taken off the market altogether before
being converted for other uses.
 Viennas office hot-spots
Ofce vacancy rates in Europe Central Vienna and the neighbouring districts remain particularly
(%) 2013
popular office locations. Offices and retail spaces dominate the city
25 centre, and the number of residential properties has fallen gradu-
ally in recent years. However, there has also been a trend towards
20 converting former offices into apartments, in response to the strong
Vacancy rates in %

demand for high-quality flats and luxury living space in the centre
15 of Vienna. The creation of expansive living spaces is a particularly
attractive option for historic buildings dating back to the Grnder-
10 zeit in the mid to late 19th century.

5 The districts bordering the city centre, inside the Grtel outer ring
road, are home to numerous office properties, mainly as a result of
0 their location and ease of access.
Co ckh ls

Ce e
M bon
da e
Am Du t
st blin
m
ch v
Lis st

Pr w
M ue
Br rid

nh m
W gen

Be w
Pa R lin

Ist tral
on Vie ul
es a
nd
lo
s

ris om
Bu Kie
Bu rad

W nn
o e
co

sa
pe

Os
b
da

pe ol
St uss
ag

tE
ad
ar

an
n
a
ar
os
lg

er

Further away from central Vienna, Donau City has become a popu-
Be

Source: Immobilien Rating GmbH

nd

lar office location. The skyline is shaped by several office towers,

Lo

including the tallest in Vienna, the DC Tower 1, which is currently

under construction. This project will further enhance the standing of
the Donauplatte area.
Rents, yields and vacancy rates
in the Viennese ofce market 2001 2013p New office blocks have sprung up in the areas around Handelskai
and the Messe Wien exhibition centre, and close to the site of the
Prime rents per m2 ()
30
Prime yields in % 8.0 former Nordbahnhof and Nordwestbahnhof stations. The area
Vacancy rate in %
7.5 around Praterstern is still one of Viennas largest development
25
zones.
7.0
20
6.5
New office developments such as Marxbox, Marximum and Town-
15 6.0 Town have turned the Erdberg, St Marx and Gasometer areas into
5.5 key office locations. The gradual expansion of TownTown will con-
10
5.0
tinue over the next few years with the addition of the 80 meter high
5 ORBI Tower.
4.5

0 4.0 Wienerberg in southern Vienna is now a well established office

01

02

03

04

05

06

07

08

09

10

11

12

location. Extensions to existing properties at the site are under con-

13
20

20

20

20

20

20

20

20

20

20

20

20

20

Sources: Immobilien Rating GmbH , CBRE

sideration, including at Euro Plaza, where phase 5 of construction
will see the creation of an additional 35,000 m2 of office space.

Shorter life cycles: effective reuse of older

Slight fall in prime office yields
Top yields in Viennas prime segment are according to figures
from CBRE trending slightly downwards and stood at around
4.8% in mid-2013. No significant changes are expected until the
end of this year.
Office properties in need of renovation, offices outside the
sought-after areas in moderate or poor locations and office build-
ings with low occupancy rates will remain subject to market
pressures. For these properties, a further decline in value remains
a distinct possibility, with the result that yields on class B office
space outside central Vienna may increase.
office space
Over the coming years, Viennas office market will be influenced by
a number of factors, including changes in employment levels and,
on a wider scale, by fundamental shifts in the use and design of
office space. This raises the question of how old office spaces, many
of which have been vacant for some time, can be put to more effec-
tive use, especially in light of the ready availability of high-quality
office properties. There is no single solution, and a detailed analysis
of each individual property will be required before decisions are
taken on the continued utilisation of space after the end of the life
cycle. Due to the evolving demands placed on office properties, life
cycles are becoming shorter and the topic of reuse will gain in im-
portance in the next few years.

Real Estate Country Facts 10/2013 I 15

Real Estate Country Facts
There are a number of options for upgrading and converting
offices. Fully renovated city-centre properties can be let as
premium office space in prime locations, usually on excellent
conditions. Conversion into luxury apartments is another
alternative, in spite of the significant investment involved
such properties are in high demand and can fetch prices
partially above to 10,000/m2. Developers in the prime
segment often have a choice of several options.
The reuse of space in less attractive locations, and of proper-
ties where the number of options is limited on account of the
building fabric, poses a more difficult challenge. In the case
of buildings dating back to the 1960s, 70s or 80s, structural
design limitations may mean that renovation or conversion
into apartments or hotel accommodation is either unfeasible
or in some cases simply impossible. Low ceilings and the
16 I Real Estate Country Facts 10/2013
load-bearing requirements for modern office properties
frequently cause problems. Many of these properties were
designed purely with functionality in mind, and as a result
they are unable meet the requirements of modern-day offices
for flexible layouts. If these factors apply, also in combination
with escalating costs, refurbishment may not be an option. In
such cases, the most sensible alternative could be demolition
and redevelopment, coupled with the necessary authorisation
for rezoning.
Decisions regarding the upgrade of older office properties
must be taken on a case-by-case basis. The increasing short-
age of residential space in booming urban centres, soaring
rental costs, and an undersupply of new residential properties
all represent an opportunity to breathe new life into old and
commercially non-viable office locations.
Viennas retail market
online trade intensifies competition

Vienna: a saturated retail market
The Austrian capital and its environs had more than 1.7 million m2
of sales space in mid-2013. Of this amount, about 730,000 m2 was
accounted for by shopping centres, 690,000 m2 by specialist retail
parks and around 340,000 m2 by Viennas shopping streets.
Importance of individual segments
as measured by sales space
south of the capital. Vienna offers 545 m2 of shopping centre space
for every 1,000 inhabitants. In a European comparison Austria has
the eighth-highest density with about 333 m2 per 1,000 inhabit-
ants. Nevertheless, Austrians purchasing power of 36,400 calcu-
lated at gross domestic product per capita puts the nation in the
European elite, ahead of Germany, which according to Eurostat has
GDP per capita of 32,600.
Vienna has four large-scale shopping centres with more than
50,000 m2 of lettable space: SCS, Donau Zentrum, G3 and Millen-
nium City. In total 16 shopping centres, or just over half of all shop-
ping centres in Vienna, have less than 20,000 m2 of lettable space.

20%
Shopping centres
Retail parks
41%
Shopping streets Number of shopping centres by size
Number Gross lettable area (GLA)
16 Up to 20,000 m2
39%
11 20,00050,000 m2
4 Over 50,000 m2
Sources: RegioPlan, Standort+Markt, EHL Sources: RegioPlan and Standort+Markt

High concentration of shopping centres in Vienna

Approximately 40% of all retail space in Austria is in Vienna and the Top 5 shopping centres in Vienna
surrounding area. In mid-2013 Vienna had 31 shopping centres with and the surrounding area
a total lettable space of 940,000 m2, of which about 730,000 m2
Name Gross lettable area (GLA)
was dedicated sale space. These totals include Austrias largest
Shopping City Sd 173,000 m2
shopping centre, Shopping City Sd (SCS), which is located to the
Donau Zentrum 130,000 m2
G3 Gerasdorf (shopping centre only) 58,000 m2
Shopping centre space in Europe Millennium City 51,000 m2
Leasable area in m per 1,000 inhabitants
Huma Einkaufspark 44,000 m2
700 Sources: RegioPlan and Immobilien Rating GmbH (IRG)

600

500
Viennas shopping centres are within 30 minutes travelling time
400
for some two million people. The extended catchment area com-
300 prises large areas of Lower Austria, as well as parts of Slovakia.
200
The largest amount of new space to come onto the market in 2012
100 was accounted for by the opening of the G3 Shoppingresort Geras-
0
dorf just outside Vienna, with the combined shopping centre and
retail park contributing an additional 70,000 m2. Half of the total
m ay
Sl urg
th nia

itz ds

Au d
EU F ria
av e

Cr e
Po ia
nd

Cz Sl aly
Re ia
Ge blic

Hu ny
Ro ary

Ru a
Tu ia
Bu ey
ia
7- nc
ag

i
n

h ak

an
ss

ar
rk
Lu Norw

Sw rlan

a
st
la

la
oa

It

ng
Ne ove
bo

-2 ra

pu
er

rm

lg
ec ov

m
er

shopping centre space at the new The Mall development (about

e
xe

15,000 m2), part of the Wien Mitte project in Viennas third district,
Source: Cushman & Wakeeld, May 2013 opened to the public in 2012. The remainder opened in spring
2013.

Real Estate Country Facts 10/2013 I 17

Real Estate Country Facts
Viennas new Hauptbahnhof central railway station develop-
ment also includes a shopping centre project which is currently
under construction. Upon completion in 2014 the new centre
will add a further 20,000 m2 of retail space.
As the Viennese market is already saturated, each new develop-
ment intensifies cut-throat competition in the city, and older,
less well situated shopping centres have the most to lose.
An analysis of the relative ages of the citys shopping centres
clearly shows that a number of facilities will require refurbish-
ment or modernisation in order to remain competitive. The
intervals between modernisation projects are also shortening
as retailers attempt to keep pace with shoppers rapidly chang-
ing requirements. Shopping centres with a well-established
presence (such as SCS) are at a distinct competitive advantage,
as are those that are easily reachable by public transport. Shop-
ping centres need to differentiate themselves in the market a
conventional tenant mix is no longer sufficient. Operators have
to provide customers with a pleasant atmosphere where they
will want to spend time. More and more recreational spaces
and leisure facilities are being added to the mix, and food halls
are constantly growing to accommodate high-end restaurants
in addition to the fast food outlets traditionally associated with
shopping centres.
Shopping Centres not only have to contend with increasingly
fierce competition from their own ranks; online trade is also
gaining importance in Austria. According to the latest studies
around 10% of all retail sales are accounted for by online pur-
chases, and the proportion is increasing. Bookshops, electronics
specialists, footwear and clothing stores are the hardest hit by
the trend. In the face of unrelenting pressure from online com-
petitors, a number of operators of larger branches are taking
steps towards reducing their floor space in a bid to save rent.
Many chains with a shopping centre presence also offer their
products on the internet to ensure that they are able to partici-
pate in the online market outside standard opening hours and
maintain contact with consumers. Others are increasingly
linking their physical retail operations with their web-based
activities. Customers who purchase online can collect or return
orders at their stores. This has the added advantage of allowing
customers to place spontaneous orders. A number of business-
es have also started offering a home delivery service.
In some cases empty retail units have been snapped up by
brands for monostores, as they increasingly look to market
their own products via separate flagship outlets, bringing them
into direct contact with their target audiences. Examples in-
clude Lego, Lindt & Sprngli and Krcher.
18 I Real Estate Country Facts 10/2013
Many chain stores have expanded heavily in recent years, lead-
ing to lower sales for individual branches as a result. One out-
come has been the closure of unprofitable branches, which has
heaped even more pressure onto struggling shopping centres as
competition among operators continues to intensify.
Rental costs in inner-city shopping centres have remained stable
thanks to ease of access, practicality and a well balanced retail
mix. There are virtually no empty stores.
Shopping centre rental prices
Range (/m2 /month)
Anchor tenants 815
Shops (according to size and location) 15 90
Source: Immobilien Rating GmbH (IRG)
Nevertheless, rental prices in less successful shopping centres
particularly those which have failed to invest in keeping pace
with changing consumer behaviour and have less favourable
transport links are increasingly coming under pressure.
The prime yield for shopping centres was according to CBRE
about 5.5% in mid-2013. They are not expected to change in the
short term.
Sufficient supply of retail parks
The majority of retail parks and retail park agglomerations are
located on the outskirts of the Vienna. According to
Standort+Markt this segment of the market accounts for about
475,000 m2 of sales space in the Austrian capital, with the figure
rising to over 690,000 m2 once the retail park in nearby Vsen-
dorf (Lower Austria) is added to the equation. Retailers in this
sector primarily offer goods in the lower and mid-range price
categories. Due to the lower rents, retail parks attract a higher
proportion of discounters. According to Standort+Markt, Hofer,
Kik, dm, Takko and Vgele Mode are the brands most commonly
found in retail park agglomerations.
Following rapid growth in this segment over the past ten years,
the market for retail parks is now saturated and virtually no new
projects are planned. In some instances the rapid pace of expan-
sion has had a detrimental effect on the quality of properties.
Many of these retail parks fall short of the standards made pos-
sible by contemporary building technology and are unable to
meet the needs of discerning contemporary consumers. As a re-
sult, existing facilities will have to expand or modernise in order
to remain competitive.
Viennas 22nd district is home to an extended large-scale retail
park zone: in addition to the Stadtlau development close to
Breitenleer Strae, other options in the immediate vicinity
include Rautenweg Ost, Rautenweg West and Hirschstetten.
According to Standort+Markt the wider locality offers a total of
almost 260,000 m2 of retail park space.
Rental costs for retail park units range from 615/m2 of sales
space per month.
No sign of crisis for the Golden U
Viennas top shopping streets include Graben, Krntner Strae
and Kohlmarkt (known locally as the Golden U), as well as Maria-
hilfer Strae. These prestigious locations are targeted by inter
national retail chains looking to enter the Viennese market. Large
units are in particularly strong demand as a location for flagship
stores. But due to the paucity of options, such locations are
in short supply. The Goldenes Quartier development added
11,500 m2 of luxury retail space to the Viennese market when it
opened in late 2012. Stretching between Graben and Tuch
lauben, this new development contains premium luxury brands
such as Louis Vuitton, Prada, Armani, Miu Miu, Roberto Cavalli
and Bottega Veneta.
The average net rent for category 1A locations is 170/m2 per
month. Rents for smaller units in Krntner Strae, Graben and
Kohlmarkt can peak at about 370/m2 per month.
International stores account for a particularly high proportion of
the tenant mix in luxury locations. These companies have greater
financial resources than local retailers, and are prepared to pay
larger compensation packages and higher rents to acquire pres-
tige locations such as these. As a result, they are continuing to
drive rental prices up, making it difficult for small and medium-
sized retailers to survive. This ongoing process has seen interna-
tional chain stores proliferate in Viennas shopping streets.
Demand from international chains for suitable properties in
prestigious shopping streets could fuel further rent increases.
Prime yield was about 44.25% in mid-2013.
The focus on 1A locations is continuing to ratchet up the pres-
sure on category B and C locations in the Austrian capital, such
as Meidlinger Hauptstrae, Favoritenstrae and Landstraer
Hauptstrae. Steps are currently being taken to identify alter
native and creative uses for empty high-street properties. In
addition to art projects, short-term projects such as pop-up
stores, and bike garages, a new hotel concept has also emerged
whereby the operator lets out empty retail spaces as hotel
rooms. Although promising, it should be noted that these kinds
of approaches are only suitable for individual units rather than
entire shopping streets.
Increased competition to separate the wheat
from the chaff
The Viennese market is well served with shopping centres.
Inauguration of the shopping facilities at the Hauptbahnhof
development in 2014 is seen as marking an end to the prolif-
eration of retail space in the Austrian capital for the time being.
Less successful shopping centres have been particularly hard
hit by the intensely competitive market environment.
Virtually no new space is being added in the retail park sector.
A number of existing parks have been obliged to refurbish or
modernise in order to keep pace with the demands of modern
consumers.
Demand for retail space is extremely high in shopping streets
in 1A locations such as Krntner Strae, Graben, Kohlmarkt and
Mariahilfer Strae. However, vacancy rates in shopping streets
in B and C locations remain high.
Real Estate Country Facts 10/2013 I 19
Real Estate Country Facts

Rental apartment buildings

still an attractive prospect
No sign of price corrections on the horizon
Demand for rental apartment buildings1 in Vienna continues to
run at a high level, outstripping supply by a considerable margin
as most potential sellers are adopting a wait-and-see approach
due to a lack of attractive investment alternatives. The market is
continuing to dry up, and as the supply is finite these premium
properties are becoming increasingly scarce. When making pur-
chasing decisions, buyers are for example increasingly being
forced to compromise in terms of location or tenant structures.
2012 was a strong year for the rental apartment
building market
Total investment in rental apartment buildings (whole buildings
and parts of buildings) was up 10.9% year on year, reaching about
1.2 billion. This was the highest annual total for this segment of the
real-estate market since Immounited started collecting electronic
sales price data in 2007. The main drivers behind the increase are not
higher sales prices per se, but higher square-metre prices. The aver-
age transaction volume per rental apartment building sale advanced
from 1.5 billion to 1.8 billion, a jump of about 23%.

Rental apartment buildings price index, Transaction volumes

average price/m2, HICP 1995 2012 2008 2012 | million
260 1,400
Rental apartment buildings price index, average price/m2
Rental apartment buildings
Harmonised index of consumer prices (HICP)
240 Shares of rental apartment buildings
1,200
220 221
95
1,000
277
Volume in million

200 99
800
180 64

600
160
1,006 986
870 811
140 400
720

120 200

100
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 0
2008 2009 2010 2011 2012
Source: Vienna Chamber of Labour (2008), Preisentwicklung der Wiener Zinshuser
Statistics Austria; Immobilien Rating GmbH calculations Sources: Immobilien Rating GmbH, Immounited

The average square metre price for a rental apartment building in
Vienna reached 2,000 at the end of 2012, a year-on-year in-
crease of around 3%.
There are no signs of a drop in prices, owing to the present imbal-
ances on the market, even though rises are expected to plateau at
some point in the future. While rental apartment buildings are not
necessarily going to make anyone rich, they do safeguard inves-
tors assets, so in these times of inflationary worries and political
and economic insecurity, many potential buyers can scarcely wait
for a reversal in the price trend so that they can extract their capi-
tal from the financial markets and invest it in real estate instead.
Adjusted for whole rental apartment building sales only, the
numbers reflect a spike of around 22%, taking the total transaction
volume to 986 million. Meanwhile, sales of shares in rental apart-
ment buildings declined by 20% to 221 million.
In terms of total value, the largest rental apartment building sale
during the year was that of Palais Schottenring 18 in the first dis-
trict. The vendor, Erste Bank, disposed of the property to a consor-
tium led by the investor Leopold Spann for around 51 million.
Another two properties, both sold to banks at Rosa-Jochmann-
Ring 4654 (eleventh district) and Babenbergerstrae 7 (first
district) exceeded the 20 million mark.

A clear distinction between sales of whole buildings and shares in

buildings should be made when monitoring the number of trans
1) Our definition of a rental apartment building (Wiener Zinshaus) is as follows: built between 1848 and 1914
(the Grnderzeit era) in historicist style (including Neo-gothic, Neo-renaissance and Neo-baroque), including actions made in the Austrian capital in 2012. While sales of rental
articulated faades, high ceilings and stucco detailing. The buildings are covered by the provisions of tenancy law
and were built for the purpose of generating rental income. The criteria apply to standard rental apartment apartment buildings were up by almost 15% to 432 transactions in
buildings (categories AC) and sub-standard buildings (category D). It should be noted that the definition applies
exclusively to rental-only apartment buildings, i.e. those without any privately-owned apartments (e.g. mixed-
2012, the number of transactions involving shares of rental apart-
occupancy apartment buildings). ment buildings declined by 32%, with just 243 new entries made

20 I Real Estate Country Facts 10/2013

 district in 2012 were primarily composed of institutional investors
Number of transactions and companies with close connections to the real-estate sector
20082012 (such as property developers, investors, brokers and consultants).
1,000
900
Shares of rental apartment buildings Rental apartment buildings
In terms of its proportion of total value, Region 2 remained virtually
800
unchanged in 2012, accounting for about 50%. This was due to the
5.4% decline in the number of individual transactions in 2012 and
Number of transactions

700
600
293 the rise in prices in central districts. The largest year-on-year gains
231 183 375 243
500
in Region 2 were delivered by the second, third and seventh dis-
400
tricts, which saw a combined year-on-year increase in investment of
300
120 million. Taken together, districts inside the Grtel outer ring
200
500
439 473
376
432 road accounted for about two thirds of all sales of rental apartment
100 buildings. Transactions for Region 3 amounted to about 404 million
0 in 2012, a year-on-year increase of some 5%, which clearly shows
2008 2009 2010 2011 2012 how prices are rising in apparently less desirable locations outside
Sources: Immobilien Rating GmbH, Immounited the Grtel.

Recovery for locations outside the Grtel

in the property register during the year. This development was
chiefly attributable to the fact that the proportion of all transac-
tions accounted for by sales of shares in buildings returned to the
long-term average of 3040% after reaching an exceptional 50%
of the total a year earlier. The number of transactions recorded in
2012 slipped by about 10% year on year to 675.
Broken down by price category, sales of rental apartment buildings
in 2012 reflect a clear shift towards higher priced properties com-
pared with the previous year. Around 15 transactions exceeded
the 10 million mark, while every second disposal was in the
13 million bracket. In 2011 this second category accounted for
38% of the total for the year.
Average sales prices were up year on year across all three regions.
In the first district, the average price of a rental apartment building
climbed to 12 million, around 4% more than in 2011.
In Region 2, average prices ranged from 1.2 million to 2.7 million,
with the seventh district proving the exception. A number of major
transactions in the district saw the average price rise sharply year
on year to more than 4 million in 2012.
Average transaction size by district
in thsd.

Two thirds of sales inside the Grtel

outer ring road
21.

In terms of location, in 2012 there was a slight year-on-year decline

in the proportion of total sales accounted for by properties in the 19.
20.
first district (Region 1). Total transactions for Region 1 were down 17.
18.
9.
22.

by about 5% from 233 million in 2011 to 193 million in 2012. 14. 16.
8. 1. 2.
This development was primarily driven by a decline in the number 15.
7.
6. 4. 3.
of transactions involving shares in rental apartment buildings, 5.

while scarcity of supply and the slightly smaller number of major 13. 12. 11.

transactions worth more than 20 million also played a significant 10.

role. The groups of investors that purchased properties in the first 23.

Transaction size ZH 2012 in thsd.

500 900 1,601 2,100 4,501 12,100

Transaction volume
901 1.200 2,101 2,600
1,201 1,600 2,601 4,500

2012 Share 2011 Share Change Change

( million) (%) ( million) (%) 11/12 11/12 2012 2011 Change 11/12 Change 11/12
(%) (%-points) ( thsd.) ( thsd.) ( thsd.) (%)
Region 1 193 16.0 233 21.4 17.0 5.4 Region 1 12,088 11,651 438 3.8
Region 2 610 50.5 545 50.1 11.9 0.4 Region 2 2,064 1,872 192 10.3
Region 3 404 33.5 310 28.5 30.2 5.0 Region 3 1,352 735 617 84.0
Vienna 1,207 100.0 1,088 100.0 10.9 Vienna 1,788 1,449 339 23.4
Key: Region 1: 1st district; Region 2: 2nd 9th, 18th and 19th districts; Region 3: 10th17th and 20th Key: Region 1: 1st district; Region 2: 2nd 9th, 18th and 19th districts; Region 3: 10th17th and 20th
23rd districts. Sources: Immounited and Immobilien Rating GmbH calculations 23rd districts. Sources: Immounited and Immobilien Rating GmbH calculations

Real Estate Country Facts 10/2013 I 21

Real Estate Country Facts

Changes in the average price per transaction for Region 3 high- The steady rise in demand from the other transaction partici-
lighted some interesting developments. Average prices in 2012 pants sector is particularly worthy of mention. This investor
almost doubled year on year from 735,000 in 2011 to around group includes individuals and groups with no links to the real-
1.3 million, meaning that the region significantly closed the estate industry, regional and local governments, religious
gap on city centre locations. organisations, and associations. Its share of the total transaction
volume in 2012 jumped by about 60% to 170 million, account-
Private investors concede market share while ing for 14.3% of total value
corporate investors gain ground
Private investors continued to account for the lions share of Lower price limit increasing for rental
transactions despite conceding market share in 2012. Of the apartment buildings
675 sales of rental apartment buildings completed last year, As mentioned above, there is an imbalance between supply and
304 were to private investors. This represented a year-on-year demand in the Viennese rental apartment building market, and
decline of around 20%, causing the share of this particular no signs of prices coming down over the short term. 2012 was
group of investors to fall below the 50% mark for the first time characterised by significant increases in the lower price limit for
in four years. Transactions involving private-sector buyers
accounted for an average volume of about 1.2 million
200,000 more than in 2011. In terms of total value, their share
edged back to about 30% in light of the lower number of total
transactions. Yields and prices by district, 2012
Region District Yield (%) Price range per m2
There were clear signs that institutional investors and real-estate of usable space ()
companies (such as real estate agents, developers, sales agents Region 1 1st 1.43.4 3,3505,510
and investors) were particularly active in the market as early as Region 2 2nd 2.64.6 1,0902,430
2011, and the trend continued unbroken into the following year.
Region 3 3rd/4th 2.44.1 1,0502,500
However, the total number of transactions in 2012 remained
virtually unchanged at 233. In value terms, the total for the year Region 4 5th/6th/7th 2.64.2 9902,500

was up by about 22% thanks to the higher average transaction Region 5 8th/9th 2.54.2 1,0202,750
volume in 2012 ( 2.2 million per sale). With a 43% share of Region 6 10th/11th 4.56.1 6501,170
total sales, this segment extended its lead over all other investor Region 7 12th/14th/23rd 4.25.7 7201,250
groups. Region 8 15th 3.65.9 7501,300
Region 9 16th/17th 4.15.1 8501,700
Demand from foundations dropped slightly during the year
Region 10 13th/18th/19th 2.94.2 1,1902,430
under review. With an average purchase price of 2.6 million in
2012, this investor group accounted for a 5.6% share of the to- Region 11 20th 4.05.7 6901,330
tal in value terms. The decline in major transactions in the finan- Region 12 21st/22nd 4.56.0 6501,100
cial sector despite increased demand led to a reduction in this Sources: Otto Zinshausbericht spring 2013 and Immobilien Rating GmbH
groups share of 2.2 percentage points, taking the total to 7.1%.

Transactionen by buyer Rental apartment building yields

highlow | 20012012
Transaction volume in % Number of transactions in %
8.0 8.5 10.0
10.6 9.9 14.3 9.6 11.2 high low
13.8
9.1 3.3 3.9 1.5 9.0
11.2 9.3 2.8
7.1
8.0
30.1 27.5 31.7
34.5 Other 7.0
28.4 39.5 39.1
42.9 4.6 Financial 6.0
6.1 4.4
Real estate 5.0
3.9
17.8 8.1 Foundation
8.3 4.0
5.6 Private
51.9 54.4 3.0
51.3 45.0
32.0 35.3 33.4 2.0
30.2
1.0
0.0
2009 2010 2011 2012 2009 2010 2011 2012 01 02 03 04 05 06 07 08 09 10 11 12

Sources: Immounited database and Immobilien Rating GmbH calculations Sources: Otto Zinshausbericht spring 2013, Immobilien Rating GmbH

22 I Real Estate Country Facts 10/2013

rental apartment buildings. However, it should be noted that maxi-
mum prices remained stable in many regions during the year. Yields
of between2 1.4% and 6.1% were achievable in the first half of
2013.
The first district operates according to its own rules, with no rental
apartment buildings available for less than 3,350/m2, and a peak
price of 5,510/m2. Yields have dropped by 0.3 percentage points
to 1.4% in the space of a year.
Broken down by district, locations inside the Grtel not including
the first district generate yields of 2.44.6%. Outside the Grtel,
90% of all transactions generate yields of between 4% and 6.1%.
Summary and outlook for 2013
Rental apartment buildings continued to represent an attractive
investment and safeguard against inflation in 2012. Strong demand
was offset by significantly lower supply during the year, with fully
developed properties in premium locations particularly hard to
come by.
The total volume of sales involving rental apartment buildings
reached around 1.2 billion the highest level in the past five
years. A key driver behind this development could be statutory
amendments and changes to the tax code brought about with the
entry into force on 1 April 2012 of the Stabilittsgesetz (Austrian
Stability Act), which abolished speculation tax on real estate,
replacing it with a flat-rate capital gains tax of 25% on disposals
carried out within ten years.
Private investors still accounted for the lions share of transactions
despite conceding market share in 2012. In value terms, institu-
2) The yields quoted below are indicative of possible performance over the period. The values of most properties
are affected by a variety of factors such as location, condition, rental costs, vacancies, upgrade and conversion
potential, length of tenancies and subdivision.
tional and real-estate-related investors led the way, noticeably
stepping up their activities in the rental apartment building market
during the year. Some of them are no longer interested in the prop-
erties for the rental yields, but are instead looking at the returns to
be made on subdivision and the sale of individual apartments.
There was a significant spike in demand from groups with no direct
links to the real-estate industry such as societies, associations and
organisations.
Prices rose across all districts, with yields falling slightly. 2012 was
characterised by the fact that the lower price limit for rental apart-
ment buildings increased significantly across all regions include
locations outside the Grtel.
As this report went to press, it was still too early to make any
meaningful forecasts or statements about transactions in 2013,
since there is a significant time lag between the transactions them-
selves and entry into the property register, with delays of more than
half a year not uncommon. According to the latest data from
Immounited, transactions amounting to just 105 million were
concluded in the first quarter of 2013. By way of comparison, the
figure for the previous year including transactions added retroac-
tively reached 325 million, which is equivalent to a decline of
about 60%, or a transaction volume of between 400 million and
700 million when extrapolated to the full year. This development
could be accounted for by the fact that many potential sellers are
holding on to their properties and prospective buyers are adopting a
more circumspect approach, meaning that transactions are taking
longer to complete. It remains to be seen whether the market will
contract significantly in 2013. However, it can be assumed that de-
mand for rental apartment buildings will remain strong due to a
lack of suitable alternatives.
Real Estate Country Facts 10/2013 I 23
Real Estate Country Facts
Contacts:
Bank Austria
Real Estate Consulting and Investment
Anton Hller
Tel: + 43 (0)50505-55980
anton.hller@unicreditgroup.at
Waltraud Knig
Tel: + 43 (0)50505-54941
waltraud.koenig@unicreditgroup.at
Authors:
Bank Austria
Real Estate Research
Karla Schestauber
Tel: + 43 (0)50505-54784
karla.schestauber@unicreditgroup.at
Economics & Market Analysis
Walter Pudschedl
Tel: + 43 (0)50505-41957
walter.pudschedl@unicreditgroup.at
Gnter Wolf
Tel: + 43 (0)50505-41954
guenter.wolf@unicreditgroup.at
24 I Real Estate Country Facts 10/2013
Subsidised and SME Real Estate Commercial Real Estate
Gnter Neuwirth Werner Zimmel
Tel: + 43 (0)50505-53263 Tel: + 43 (0)50505-62600
guenter.neuwirth@unicreditgroup.at werner.zimmel@unicreditgroup.at
Gnter Moser Karl Mayerhofer
Tel: + 43 (0)50505-52376 Tel: + 43 (0)50505-55305
guenter.moser@unicreditgroup.at karl.mayerhofer@unicreditgroup.at
Immobilien Rating GmbH (IRG)
Market Research
Doris Tomschizek
Tel: + 43 (0)50601-51871
doris.tomschizek@immobilienrating.at
Alexander Stgbauer
Tel: + 43 (0)50601-51904
alexander.stoegbauer@immobilienrating.at
Helmut Schneider
Tel: + 43 (0)50601-51863
helmut.schneider@immobilienrating.at