Austrian property underperforms stocks, bonds, but remains solid

The IPD management team has been continuing its tour around Europe’s property markets (we reported recently on the results of their 2012 findings for the German market), with Austria coming under the spotlight earlier this month.

The 2012 annual IPD Austria Property Index showed that the Austrian market generated a total return on all property of 6.2%, ten basis points lower than its return for 2011. The capital growth component came to 1.2%, down 0.3% on the 2011 figure, while the income return component increased by 0.1% to 4.9%. The IPD Austria Index is based on 600 assets and an aggregate market capitalisation of more than €7bn at the end of 2012.

The 2012 Index was also far lower relative to stocks and bonds over the year than in the previous year, although it continued to perform well against those asset categories over the longer term. The return on equities was 25.1% (MSCI Austria) while bonds returned 13.7% (Austrian bond index) in 2012. But IPD noted that real estate 'strongly and consistently' outperformed stocks over a three-, five- and nine-year period.  

Justus Vollrath, IPD’s managing director for Germany, Austria, and Switzerland, said the main sector returns were broadly comparable with 2011. “Retail and residential properties were the top performers with over 7%, while office and industrials generated 5.2% and 5.3% respectively,” he said in a release. “A weighted comparison highlights that the residential sector accounts for a quarter of the total value of the Austrian databank, while offices make up almost 46%.”

IPD board member Dr Nassos Manginas, who was personally instrumental in the early years of building up IPD’s competence in the German-speaking markets, put the Austrian market performance into perspective. “Performance in the Austrian real estate market over the last few years has been unspectacular but remarkably solid. The defining characteristic of the market has been an annualised income return of 5.0% per year over nine years, while capital appreciation and rental value growth were modest over the long-term.

“In times of continued economic uncertainty, the security of cash-flows at a sustainable level over long periods has been the main attraction, creating a strong risk-adjusted investment proposition against alternative asset classes.”