Transaction volumes are declining. While the demand from both corporate and private investors for investment real estate properties is at a record high, there are fewer suitable properties. This development has caused rising prices and a receding market volume.
The volume of transition during the past year has decreased by over 20%. The numbers for 2016 show total sales of 2.7 billion Euros, thus 800 million Euros less than in 2015. “The main reason for these figures lies in the phenomenon of the forward deals, which means that transactions have been essentially agreed upon, but the actual closing will come into effect in 2017,” says Georg Fichtinger, Head of Investment Properties at CBRE Austria. “After these deals are finalised in 2017, we assume that the volume will rise this year.” Fichtinger considers the longer process of individual transactions to be another reason for the increase. Since the especially large-volume transactions and complex deals could not be completed in 2016 as planned, it will have a positive effect the results in 2017.
Four transactions in 2016 had an investment volume of more than 100 million Euros, among them one of the two large hotel deals in the Vienna Inner City: Hilton am Stadtpark. The large deals took place during the first half of the year and in the fourth quarter of 2016. “We began the new year with the some large transactions well under way and we expect the number of such large deals to increase”, says Fichtinger.
The returns in Austria declined further by the end of the year. The record returns for office properties was 4% at the end of the year, hence 20 basis points blow the value at the end of 2015. The logistics properties brought in a top return of 5.75% at the end of 2016 and the specialist markets returns were 5.7%, while top earnings for high street retail were 3.4%. “ The merely slight decrease in returns confirms Austria’s reputation for providing a stable investment market,” maintains Fichtinger. “Furthermore, we have seen a major interest in housing investments, particularly the special types such as student accommodations and senior residences.”
Significant demands came from investors from countries that have been only slightly involved in Austria, or not at all so far. Buyers from Asia and North America have potentially established themselves; above all with the really large deals, those well over the 100 million Euro mark.
Franz Pöltl, Managing Director at the EHL Investment Consulting agrees with Fichtinger in that he expects a growth rate for 2017, despite current reservations among the potential buyers: “On the one hand, some large transactions that have already been agreed on in 2016 will be formally closed up; and on the other hand, the construction of new spaces in the area of office and residential properties will provide high-quality and extremely attractive supply for the investment market. I am convinced that the 3 billion Euro mark can be surpassed by an appreciable margin in 2017.”
Vigorous market activity at the start of the year
Two top deals were closed right at the beginning of 2017. First of all, Invester United Benefits, a Viennese investment group run by Erwin Krause and Franz Kollitsch, in a joint 50/50 venture with René Benko's Signa acquired the BAI and then the Ekazent Group also changed hands. Once again it was Invester United Benefits in a 50/50 joint venture with the UBM Development AG that acquired two Ekazent companies from the Bank Austria Real Estate Holding AG. Martin Huber, the former holdings head at the ÖBB and Krause’s business partner is also on board. The price for both companies was apparently 70 million Euros, which encompasses 28 properties. If everything proceeds according to the new owner’s plans, the combined real estate portfolio should be sold at a profit in five years; namely, to construction companies that will be able to create up to 100,000 m2 of housing on those 28 properties. Reliable sources report that the sale of the Bank Austria Campus as well as the ORBI Tower is practically cut and dried.
“The favourable price development will certainly continue in 2017,” anticipates Franz Pöltz. “The spread between fixed income (such as government securities) and the returns on real estate will diminish further and especially in the office branches the price increase will be intensified by the rising rent costs.”
The limited supply and the high price range prompt more investors to look for alternatives to the traditional investment opportunities such as housing, offices, retail and hotels. “New asset types like student accommodations, senior residences and logistics properties are showing large growth rates and have established themselves well with corporate investors. When the returns are low, the investors are obviously motivated to look for alternative schemes.” At the same time there is a reinforced trend to convert the existing properties in order to diversify their usage. This strategy has, despite high acquisition prices, proved to be very profitable.
Old apartment building boom
Although the volume of transactions of traditional old Viennese apartment buildings is also suffering from lack of supply, a slight increase in the total volume could be noted from approximately 1.35 billion Euros in 2015 to 1.4 billion Euros in 2016. Despite the decrease in the number of transactions, the average price for each transaction has more than compensated for it.
“2016 has been a very good year,” confirms the apartment house expert Markus Arnold, Managing Director at Arnold Immobilen: “Everything is buzzing on the real estate market.” The uncertain future prospects such as the obscure consequences of “Brexit” increase the demand for secure investment properties. In conclusion, “this is also unlikely to change in the next five years.”
According to Marcus Arnold, there is no real shortage of the old Viennese apartment buildings. The traditional “gems” are becoming more rare, but: “they will always be sold because of inheritance or revised financial orientation.” In Vienna come on the market every year.
This market is stimulated by the willingness of corporate investors to part with single properties or entire portfolios after they have reached considerable profit. Private investors and private foundations continue to dominate the transaction volume in the apartment house field with a proportion of 52%.
The foreign investment involvement is still very limited. This is because of concerns due to the complex and restrictive regulations contained in the Austrian rental laws system. An exception to the rule are immigrants to Austria from certain significant countries of origin. Those investors look for investment opportunities in the districts where numerous citizens from that country look for housing. Those demographic aspects, which are sometimes criticised by Austrian buyers, are actually positively assessed by this particular investor group. The comparatively moderately-priced apartment buildings in those areas allow the extended buying class to obtain a good return on their investments.
Properties located in the areas with a high proportion of non-Austrian citizens are gaining new relevance for investors with the necessary capital and respective national backgrounds.
Trends – Apartment Building Market
- 2016: transactions on apartment buildings of about 1,4 billion Euros, a slight increase (2015: 1.35 billion Euros)
- The average transaction volume is further increasing
- In 2017 the supply will remain the limiting factor on the market volume
- Especially in good locations (in the centre and within the Gürtel limits) there is high excess demand
- Prices will remain high in 2017, the returns will remain under pressure
- Developers that buy property for the purpose of subdividing and then reselling are the most active prospective buyers following trusts and private investors
- The high price level is used for reorganising/rebuilding portfolios