Office-Market Vienna. Currently a number of exciting office projects are in the final stages of completion in Vienna. This will not only shape the city skyline, but also stimulate the Viennese office market.
The Viennese office market was far more active in 2016 than in the previous years. The rental performance increased significantly by one-third to 300,000 sqm up from 200,000 sqm in the previous year. The last time this number could be achieved prior to 2016 was in 2008. “The numerous pre-letting agreements on attractiave new building projects that will be completed in 2017 and 2018 have stimulated the market considerably,” says EHL office expert Stefan Wernhart. A strong rental performance is also forecast for 2017 (about 280,000 sqm).
The completion of new building projects will lead to a trend reversal in 2017 after years of declining production of new office spaces. After the record low of 60,000 sqm in 2016, in 2017 160,000 sqm (almost three times as much) of office areas are being introduced into the market – a significant increase of the supply of office space. A large portion of this space will only be ready for occupancy after the summer.
The office pipeline in 2016 was one of the lowest on record in the Viennese office market. Only 66,000 sqm of new or completely renovated office space were constructed. “Taking this into account the rental performance in Vienna encompassing 329,000 sqm in 2016 was remarkable, in the second half of the year it was almost as strong as the entire year 2015,” says Andreas Ridder, CEO at CBRE Austria and Chairman Central & Eastern Europe. Due to this market situation, the vacancy rate sank by 5.3% by the end of 2016.
The peak rent in Vienna is continuing on a slight upward trend and was at 26 Euros per sqm at the end of 2016 (about 15 Cents higher than it was at the end of 2015).
“With regards to the office pipeline, 2017 is a promising year for the Viennese office market, especially the second half of 2017,” explains Ridder. Projects that will be completed as of the third quarter include the biggest project, the 28,000-square-meter SQUARE PLUS 1 in Heiligenstadt, the ORBI Tower in Erdberg, the DENK DREI in Viertel Zwei and the building parts 3 + 4 of the Quartier Belvedere Central (QBC) at Vienna Central Station (Hauptbahnhof). In 2018 the construction on new sites will even go up to about 330,000 m2, out of which 200,000 sqm encompass the Austria Campus near Praterstern alone.
“In the previous two years customer requests for large and modern areas for first-time occupancy could not all be met with suitable real estate due to a shortage of supply,” says Wernhart. “This two-year backlog is finally being met with an adequate supply of new space. The demand is accordingly strong for these new first-time occupancy office spaces – even though it will take one to two years before the actual completion of the projects.”
The strong interest and the deals that have already been signed and are underway for new high-quality office spaces have led to a slight increase in the average rental prices on the Viennese office market. In 2016 these reached 13.75 Euros per m2. In 2017 a further increase to 14.25 Euros per sqm is expected. The peak rents have remained stable and are expected to level off at 26 Euros per sqm in 2017.
It can be seen in the demand structure that many companies, which previously postponed their plans to move are now going forward again. As in previous years once again, a very large portion of new rentals was responsible for the public and semi-public sector. In 2016 these sectors were responsible for about 23% of the rental volume. Another sector where the demand was high were banks and insurances, these groups covered about 23% of rentals. The third biggest group were lawyers, management and business consultancy companies (about 17%); followed by educational institutions and schools (about 15%).
The demand is also concentrated on established office regions and clusters. Divided by regions, about one quarter of the rentals were in the area of Vienna Central Station (Hauptbahnhof), Quartier Belvedere followed by 22% in the region Neu-Marx/Erdberg and about 12% in the region Wienerberg/Wien-Süd.
Furthermore, the high demand has also had a positive effect on the vacancy rate. It has dropped significantly from 6,5 to 5,8% in 2016 and will drop further to 5,4% in 2017, making Vienna into the city with the fifth lowest vacancy rate among the 15 most important office locations in Europe.
There are two factors that will have a significantly impact the demand in the years to come: the increasing mobility of the work force made possible by modern technology including more flexible concepts on work space and the optimisation of work-life balance. “The structural conditions that are needed to meet these trends optimally are especially well reflected in the new-building projects,” says Wernhart. “These modern trends in the workforce – in contrast to the classical office, where every employee has his own table – are already widespread in Austria and there is a high demand for more flexible office spaces, which make these methods of work possible.” For an optimal work-life balance the choice of location is very important. On the one hand properties that are well connected to public transport to reduce travel time to and from work are in demand and on the other hand are the properties that are close to local recreational areas.