Valuation
Has the Vienna investment property (once again) become a “safe haven”?
Astrid Grantner-Fuchs MRICS Managing Director EHL Immobilien Bewertung
Absolute security is an impossible dream for investors – but with careful, project-specific analyses, investment properties can provide relatively high security and good protection for downside valuations.
The supply shortage alone is no reason for a permanently lower risk premium.
restricts the short-term ability to react to inflation-based higher costs. Politically motivated intervention in rental laws make cash flow forecasts more difficult and place greater importance on conservative cash flow approaches and a focus on sustainable instead of short-term market rents. At the same time, specific dynamics are clearly visible on the cost side: Rising construction and maintenance costs combined with stricter energy efficiency and sustainability requirements are driving the demand for investments. These expenditures are increasingly included in valuation through maintenance reserves, CapEx forecasts and appropriate discounts. The structurally limited supply remains a central stabilising factor: The supply of traditional investment properties is limited and will be further reduced by the separation and sale of individual units. That
From a valuation standpoint, the Vienna investment property was characterised by unusually high stability for many years. This standing was based on a structurally limited supply, solid long-term demand parameters and relatively predictable cash flows. The result in the low interest environ- ment up to mid-2022 was an initial yield of less than two per cent in individual cases – a standing that anderscored the nature of a presumably low-risk investment. The interest rate reversal in 2022 clearly shifted the valuation methodology and re- quired substantial downward adjustments. The upward trend in risk-free interest rates led directly to higher capitalisation rates and, with a frequently limited improvement in earnings, to a yield expansion. Initial yields currently range from 2.5 to over 4.0 per cent and reflect a standard market reaction to changes in financing and opportunity costs.
This in no way supports conclusions of a general increase in risk because today’s valuations already include risk factors to a greater extent and upward potentials are less heavily weighted. The changes in framework conditions are, in fact, reflected in the further development of valuation methodology, whereby property-specific aspects and scenario analysis are beco- ming more important. A clear differentiation between regulated and non-regulated areas is still required on the earnings side. The development of rents in classical older style buildings is governed by a benchmark system, where adjustments can only be made with a delay and within defined limits. That, in turn,
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