Austria on track for bumper year

Austria is on track for another bumper year, following a record year of investment in 2017, Dr. Martin Sabelko, managing director of Warburg-HIH Invest Real Estate Austria, told REFIRE this month.

‘Last year, there were €5.34b of deals, the highest amount on record,’ Sabelko said. ‘This year, I think it could be around €4.5b, which would still be amazing. There were already around €1b of deals in the first quarter.’German investors proved most active in 2017, accounting for 51% of deals, followed by Austrian investors with 28%. Korean investors were also very active, according to Sabelko. The stable growth of the Austrian economy, coupled with strong demand and comparatively small supply, has ensured a high degree of stability, encouraging an attractive growth outlook, according to Warburg-HIH Invest. Vienna, in particular, is leading the charge, accounting for 80% of real estate transactions last year.

‘Austria's gross domestic product grew by 3.1% in 2017, and is highly likely to keep increasing by well over 2% in 2018,’ Sabelko said. ‘The stable boom cycle that the Austrian economy entered after overcoming the financial crisis, along with the subsequent recession and the sovereign debt crisis of the member states on the EU periphery, is set to continue and offers, in combination with the persistently low interest rates, an attractive environment for investments in the real estate market,’ he added.

Yields continue to tighten: prime yields for office properties let on long-term leases in Vienna's central business district dropped to 3.9% last year, undercutting the all-time low of 2016 by another ten bps. Prime high street yields in Vienna tightened to around 3.25% last year, down from 3.4% in mid-2016, according to Warburg-HIH Invest. In the shopping centre category, CBRE observed a hardening of prime yields by another five bps down to 4% in 2017. ‘Retail parks still offer higher yields, at between 5.5% and 6.5%,’ Sabelko said.Vacancy rates in the Viennese office market continued to decrease in 2017 and now stand at 4.9%. The reason for this is the relatively low level of completions in combination with a high pre-let ratio for new-build office space. CBRE registered by far the lowest vacancy rate of Vienna's office market in the SBD submarket, where only 2.3% of offices are available for rent.

For investors looking to tap into Austria’s office market, UniCredit is selling its former headquarters comprising two buildings, according to analysts. A deal is expected to be announced within six weeks, according to those who track the market, valuing the two combined properties at around €170m.

International retailers continue push into Vienna

International retailers are also continuing their push into Austria, particularly in Vienna, and fashion chains such as the H&M spin-offs Monki and Weekday continue to open new stores in prime high-street pitches with a high footfall. In a parallel development, gastronomy is gaining in significance as a major footfall driver for retailers in surrounding high street locations and malls. The growing competition posed by online retailing and tight planning restrictions ensure that the number of new shopping centre developments remains limited.

The retail sector also benefits from the fact that Austrians’ spending power is relatively evenly spread across the country, accordion to Warburg-HIH Invest. While retail warehouse parks often thrive on mid-size catchment areas, some of the big ticket shopping centres don’t have a big enough catchment area, thereby discouraging new developments and reducing the competitive pressure on existing malls.

US investors eye Austria

In a further sign that international investors are eyeing Austria, last month an affiliate of US private equity firm Starwood Capital Group made a bid to acquire up to 26% of Austrian property company CA Immobilien as well as a smaller stake in its rival Immofinanz, in the latest twist in the long-running Austrian saga.

SOF-11 Starlight 10 EUR S.à r.l.,a Luxembourg-based unit of Starwood Capital, has offered CA Immo shareholders €27.50 per share, minus any dividend paid. The offer came on the back of Immofinanz’s decision in February to abandon its planned merger with CA Immon following pressure from an activist investor, saying at the time that it would subsequently consider selling its 26% stake in the firm. Starwood is also offering Immofinanz shareholders €2.10 per share, minus any dividend, Starwood has said it would like to acquire up to 5% of the group.

Immofinanz and CA Immo first toyed with the idea of a merger back in 2015 but talks broke down acrimoniously in the same year before being reignited in 2016. Both parties conceded at the time that the merger was fraught with obstacles and talks floundered. Initially, the merger was expected to create an entity with ‘substantial synergies’, according to Immofinanz CEO Oliver Schumy, generating annual cost savings of around €33m.

Starwood, for its part, said in a statement thatit supports both companies’ management teams: ‘We believe that the substantial capital resources and experience we can contribute as a strategic shareholder of CA Immo and Immofinanz could provide significant value.’

Upon completion of both takeover offers, CA Immo and Immofinanz will remain listed on the Vienna Stock Exchange, according to Starwood. (ssk)