EHL Investment property report 2024 | Vienna

Report 2024 | Vienna

We stand for real estate.

Investment Property Report

Preface

Continuity and the committed pursuit of goals are the key words for the long-term investment strategy of successful real estate investors, even when the market briefly deviates from the desired direction. No market can always trend upward, and temporary price declines are normal as seen from the long-term perspective. The decisive factor is the development over several property cycles. Not only the investment property market but developers and investors are currently experiencing the first time in ages without a continuous increase in prices. The normal market cycle has been intensified by a weak economy, uncertainty concerning the possible negative effects of the energy transformation, a substantial rise in interest rates and the endless manoeuvring of political parties over the indexing of benchmark rents, and these factors have been responsible – depending on location and quality – for a decline in square metre prices.

This situation is undoubtedly challenging for many market participants, but is no reason for a fundamental re-evaluation of the investment property market. Rising interest rates have had a negative effect on all real estate investments but, with a view across cycles, the same arguments in favour of investment properties are still valid: demography – because Vienna is growing, quality – because these properties offer exceptionally high living conditions, and centrality – because the locations of historical buildings are seen as particularly urban given Vienna’s continuing expansion. As seen over the long run, there is reason to believe that the current market develop- ment is only a “temporary dip”. There are signs that the current price declines can be recovered in the next property cycle, even when it will take some time to overcome the current challenging situation.

Yours,

Michael Ehlmaier

Vienna | 2024

The EHL Investment Property Specialists: Commitment and Expertise

The know-how of one of the leading real estate service providers in market research, property appraisal, development, consulting and apartment rentals gives you the perfect support for your investment property.

Franz Pöltl FRICS

Markus Mendel MRICS

Herwig M. Peham MRICS

Managing Partner EHL Investment Consulting GmbH

Managing Director EHL Investment Consulting GmbH

Head of Investment EHL Investment Consulting GmbH

Thomas Stix

Karina Schunker MRICS

Mario Schwaiger

Senior Consultant EHL Investment Consulting GmbH

Managing Director EHL Wohnen GmbH

Head of Retail Properties EHL Gewerbeimmobilien GmbH

Investment Property Report

Contents Preface............................................................................Pg. 03 EHL Investment Property Specialists................................Pg. 04 Market Development in 2023/24.....................................Pg. 06 The Economic Environment..............................................Pg. 08 Market Trends..................................................................Pg. 10 The Housing Market.........................................................Pg. 12 Commercial Space...........................................................Pg. 15 Appraisals........................................................................Pg. 16 Round table......................................................................Pg. 18 References.......................................................................Pg. 24 Data sources ...................................................................Pg. 63

Overview of Vienna’s Districts

1. District Inner City.........................................................Pg. 26 2. | 20. District Leopoldstadt | Brigittenau.........................Pg. 28 3. District Landstrasse.....................................................Pg. 30 4. District Wieden.............................................................Pg. 32 5. District Margareten......................................................Pg. 34 6. District Mariahilf...........................................................Pg. 36 7. District Neubau............................................................Pg. 38 8. District Josefstadt........................................................Pg. 40 9. District Alsergrund.......................................................Pg. 42 10. | 11. District Favoriten | Simmering..............................Pg. 44 12. District Meidling.........................................................Pg. 46 13. | 23. District Hietzing | Liesing.....................................Pg. 48 14. District Penzing..........................................................Pg. 50 15. District Rudolfsheim-Fünfhaus....................................Pg. 52 16. District Ottakring........................................................Pg. 54 17. District Hernals...........................................................Pg. 56 18. | 19. District Währing | Döbling....................................Pg. 58 21. | 22. District Floridsdorf | Donaustadt.........................Pg. 60

Verena Hammerschick

Head of Transaction Advisory EHL Investment Consulting GmbH

Astrid Grantner-Fuchs MRICS

Managing Director EHL Immobilien Bewertung GmbH

Vienna | 2024

Market Development in 2023/24

Stagnating turnover and pressure on prices

Persistently high interest rates have had a significant negative impact on the invest- ment property market. Transaction volumes dropped by roughly 57 per cent year- on-year in 2023, and investments in loft expansions have also fallen substantially.

Apple House (Kärntner Strasse 11) and Meinl House (Am Graben 19) by the SIGNA Group. The number of transactions with smaller properties up to roughly six million Euros has increased, but these investment property prices have tended to decline stronger than prices in the larger segment.

This successful sale in May shortly before the interest rate summit set a positive signal for the investment property market in 2023 and underscores the general stability, at least of the top segment. Certain relief, despite substantial resistance, resulted from the indexing of benchmark rents which are relevant primarily for the investment property segment. The 8.6 per cent increase in April 2023 helped to substantially strengthen earnings and improve the debt coverage capacity of investment property owners. In view of the liquidity that will be required in the coming years, the mitigation of the Austrian Renewable Heat Act can be seen as a positive factor as it no longer calls for the mandatory replacement of fossil heating systems, especially gas.

Price declines have been consider- ably more moderate but normally with a minus of five to 35 per cent versus previous highs, depending on the location and property. Only prime properties have remained stable since they are generally acquired under extremely long- term perspectives and their prices are less influenced by the current market situation.

An increasing number of market participants are coming under liquidity pressure as the current situation continues.

One notable transaction was the sale of the Apple House for EUR 31,000/sqm, which is the highest square metre price ever registered for a historical property in Vienna.

The underlying environment has not deteri- orated significantly in comparison to 2022 but the realisation that high interest rates, high inflation and economic weakness will not disappear in the near term has sus- tainably clouded the market sentiment. An increasing number of market participants are coming under liquidity pressure as the current situation continues. However, the expected, particularly favourable emergen- cy sales hoped for by potential buyers have hardly materialised to date. A detailed analysis shows that the transac- tion volume is attributable to several major transactions. Included here, in particular, are the sale of the “Adlerhof“ by S IMMO to Thalhof Immobilien and the sale of the

Purchase prices in EUR/sqm 6,800–12,000

2,800–7,400 1,700–6,500 1,200–3,900

Source: EHL Market Research | Q2 2024 Purchase prices in EUR/sqm

Investment Property Report

Transaction volume in EUR million Investment properties + investment property shares

2,500

2,000

2,400

2,200

1,500

1,750

1,650

1,000

1,400

1,350

950

500

2017 2018

2019

2020

2021

2022

2023

Number of transactions in investment properties

500

400

300

340

333

312

306

200

267

100

155

2017 2018

2019

2020

2021

2022

2023

Number of transactions in investment property shares

500

400

300

200

208

197

192

100

168

163

148

105

2017 2018

2019

2020

2021

2022

2023

The included data are based on transactions recorded in the real estate register up to 2023 (asset deals/share deals). Differences to previous years can result from subsequent registrations.

Vienna | 2024

The Economic Environment

It all depends on interest rates

Franz Pöltl FRICS

Managing Partner EHL Investment Consulting GmbH

The performance of investment properties has been characterised by high value appreciation and low cash flow for over ten years. With the rapid rise in interest rates which began in mid-2022, financing costs became the dominant topic on the invest- ment property market because the income generated by these properties was often no longer able to cover the interest and principal payments. The increase in key interest rates from zero

Recent information, among others supported by corresponding statements from ECB Council members, points toward mid-2024 as the most probable point in time for a first reduction in interest rates. If the ECB fails to meet these expectations, the situation will remain tense with fewer transactions and challenges for debt service.

New financing, in contrast, is connected with substantial hesitation: On the one hand, rents have increased notably due to the high inflation and related indexing and, on the other hand, purchase prices are in some cases 25 per cent below the former highs. The resulting higher yields are still not sufficient to make debt financing possible at the previous standard level of 75 per cent and more. The required equity component now normally lies above the 50 per cent mark. An analysis of the various market segments shows that – as is typical in challenging market situations – the lowest price declines have been recorded in the top segment at the best locations. Impressive proof is provided by two major sales from the portfolio of the bankrupt SIGNA Group, the Apple House on Kärntner Strasse and the Meinl House on the Graben (both in the 1 st District). These transactions reflect the strategy of high net worth investors, who are using the crisis to purchase properties that are unlikely to come on the market in “normal” times.

Stabilising prices and the return of investors on a significant scale can only be expected when the hoped- for interest rate reversal materialises.

per cent at the beginning of 2022 to 4.5 per cent in autumn 2023 led to soaring costs for owners and developers with variable fi- nancing. The impact on investors

with long-term loans has been less dramatic due to the clearly inverse interest curves, but new investments are now only conceivable with an above-average equity component. The fate of the investment property market is, as a result, highly dependent on the development of interest rates in the Eurozone. Stabilising prices and the return of investors on a significant scale can only be expected when the hoped-for interest rate reversal materialises.

On a positive note, the banks have been flexible in dealing with current financing and are prepared to search for solutions together with their customers to help them manage potential stress situations. This has, undoubtedly, played an important role in nearly eliminating the need for emergen- cy sales and allowing the market to remain generally stable in spite of the difficult climate with its very low turnover.

Investment Property Report

Investment property market by buyer

2 %

37 %

61 %

Project developers Foundations & private persons Banks & insurance companies

Investment property market by transaction volume per property

5 %

9 %

28 %

11 %

> 10 M EUR 6-10 M EUR 4-6 M EUR 1-2 M EUR 2-4 M EUR >1 M EUR

26 %

21 %

The included data are based on transactions recorded in the real estate register up to 2023 (asset deals/share deals). Differences to previous years can result from subsequent registrations.

Vienna | 2024

Market Trends

Green streets as an investment opportunity

Herwig M. Peham MRICS

Head of Investment EHL Investment Consulting GmbH

“Bordering on green and recreational areas“ is a classic location criterion. Above all in the densely built residential areas where the supply of Vienna’s investment properties is concentrated, the types of op- portunities are often few and far between. Consequently, small green oases in the surrounding area are even more important for the quality of life in a neighbourhood and for the medium-term and long-term investment perspectives of a location. Green cityscapes are currently under development, above all in street areas. As part of the programme “escape from

Mariahilfer Strasse (15 th District) and Christian-Broda-Platz (7 th District) near the Western Railway Station is scheduled to start in summer 2024 and will be accompanied by numerous streets of local importance like the Argentinierstrasse (3 rd District) and Bernardgasse (7 th District). These measures create new opportunities for the real estate market. A glimpse of green, the reduction of noise through trees and the cooling effects of planting are undisputed and increase the value of apartments and investment properties at inner city locations.

A rule of thumb for investors links an increase in the positive effects of greening and traffic calming with a reduction in the attractiveness of a residential location. These locations have recently come under growing price pressure which, consequent- ly, also creates particularly interesting entry opportunities. There is no master plan for greening pro- grammes, and the city often refers to the involvement of the districts. Investors who want to utilise this potential should turn to various information sources to learn where have citizens’ initiatives started, what requests the districts have communicated to the city government, where are bicycle boulevards planned etc. The wide-ranging know-how of a professional real estate advisor can pay off, especially through an information advantage, and eliminate the need for time-consuming research.

asphalt”, 100 million Euros is being invested in the greening of streets during the current legislative period. This invest- ment volume supports individual pilot projects as well as larger remodelling that significantly changes the character of mi- cro-locations. Current examples include the redesign of main

The announcement of plans for extensive street greening near a location opens a range of attractive possibilities for investors and developers.

roads like the Praterstrasse (2 nd District) and Wiedner Hauptstrasse (4 th District) as well as the traffic hub at Julius-Tandler- Platz (9 th District) where re-naturalisation and the planting of 40 additional trees has already started. Work on the Äussere

The announcement of plans for extensive street greening near a location (usually also connected with traffic reduction and more space for pedestrians and cyclists) opens a range of attractive possibilities for investors and developers.

Investment Property Report

Investment property market yields in the Vienna districts

4 %

3 %

2 %

1 %

0 %

Source: EHL Market Research | Q2 2024

Vienna | 2024

The Housing Market

New apartment construction has already declined significantly, and a further even more severe contraction is expected in 2025 and 2026. This creates new opportunities for the owners and sellers of existing apartments – particularly through rental and, in the coming months, also through sales. Weak new construc- tion and opportunities for older buildings

Karina Schunker MRICS

Managing Director EHL Wohnen GmbH

The economic downturn, rapid increase in interest rates and high construction prices have created a virtually toxic environment for the real estate sector. New

The decline in building permits also means fewer construction starts and will have an impact on completions, above all in 2026 and 2027.

which has been intensified by the general standstill in older building loft extensions.

This development may appear problematic from an overall economic perspective but is good news for property owners. Rents have increased substantially, vacancies are on the decline and the marketing periods in practically all locations are shorter than in previous years. On the investment property market with its regulated rents (Austrian Tenancy Act, “Mietrechtsgesetz”), the benefits are found primarily where location-based surcharges are possible and support pricing in line with the market – here, among others, central locations and areas with excellent infrastructure. The location-based surcharge, in part 16 Euros, across large sections of the inner city allows for attractive rents.

construction, in particular, has come under serious pressure. The number of project starts has collapsed and led to a substan- tial decline in completions. Roughly 13,390 apartments are scheduled for completion in 2024, whereby the number of especially popular, freely financed rental apartments has dropped by more than half to 2,840. That represents the lowest level in seven years.

Rents have increased substantially, vacancies are on the decline and the marketing periods in practically all locations are shorter than in previous years.

Numerous developers have already postponed or suspended planned projects for an indefinite period. The number of completed units is, as a result, expected to fall even below the minimal number of building permits. Apartment production in the coming years will be substantially lower than the structural demand for new space,

This downward trend is, however, not yet over and developments over the medi- um-term promise to be even more difficult. The number of building permits for new residential projects fell to roughly half the 2021 volume at only 10,545 in 2023.

Investment Property Report

50,504

Completed flats vs. population growth

20,000

20,284

19,435

18,022

15,600

15,280

15,000

16,309

13,230

3,494

4,566

4,182

10,000

9,770

5,396

3,523

5,930

2,551

5,810

5,000

2,748

3,411

6,731

6,497

4,784

1,565 834

3,499

2022

2023

2024*

2025*

2026**

Rent subsidised

Ownership

Rent privately financed

Source: EHL/Exploreal, 02 2024 | City of Vienna, 11 2023 *Forecast, **Currently known Population growth

Net rents substantially over 14 Euros in near-centre locations like the Josefstadt (8 th District) or Wieden (4 th District) are also very close to unregulated levels. The generation of added income at locations with a low or no surcharge is limited by strong demand, but the rental risk contin- ues to decline and there are practically no market-based vacancies.

The sale of condominiums is a very attractive strategy for investment property owners, even though demand is currently slowed by the high interest rates. A trend reversal – which appears realistic at the end of this year – could bring new life to apartments in older buildings with substantial benefits due to the lack of new construction.

The product “apartments in older build- ings“ is still part of the trend for potential condominium buyers.

The residential construction package and investment properties The residential construction package passed by the Austrian Parliament in March 2024 is designed primarily to in- crease new construction but also brings advantages for existing buildings. The most important measures for investment properties include the favourable tax treatment of energetic renovation and the replacement of heating systems – the creation of housing through loft extensions is supported by increased de- preciation over a period of three years.

The sale of apartments will also be facilitated by the elimination of ancillary purchase costs like land register and lien rights filing for most apartment buyers.

Vienna | 2024

The Housing Market

Location surcharge and a plus for equipment features – how to optimise rents in older buildings

The limits on rents created by bench- mark regulations is moderated to a significant degree by the optional use of location surcharges. However, these location-based sur- charges are not the only way to generate additional rental income – special equip- ment features in the apartment and the entire building are reflected in higher admissible rents.

Examples are: • A second toilette • Washing machine connections • Open areas (balcony) • Central heating system • Telecommunications connections The upper limit on rent can, as a rule, be positively influenced by targeted invest- ments. However, correct and legally safe implementation requires expertise or specialised advising.

Parallel to the weakness in new con- struction, the creation of additional housing in existing buildings has de- clined considerably. Loft extensions are only profitable in the current market situation at very good locations and the refurbishment of existing apartments has become few and far between due to changes in legal regulations, for example the adjustment of benchmark rents.

Price development rent vs. ownership, first occupancy 2015-2024

15.00

6,900

14.00

6,200

13.00

5,500

12.00

4,800

11.00

4,100

2015

2016

2017

2018

2019

2020

2021

2022 2023 2024

Rent

Ownership

*Excluding 1010 Vienna

Source: First Vienna Residential Market Report| 02 2024

Investment Property Report

Commercial Space

Accelerated structural change

Mario Schwaiger

Head of Retail Properties EHL Gewerbeimmobilien GmbH

The retail trade and gastronomy have been unable to disengage from the effects of a weak economy and consumers reluctance to spend. These trends are reflected in increasing tenant turnover and rising pressure on rental prices for ground floor space in apartment buildings at prime locations. In less attractive locations, the search for alternative uses is becoming more and more urgent.

Offside the large, high frequency shopping streets, commercially used ground floor space currently poses a challenge. The continuing economic weakness and the downward trend in consumer spending have intensified this situation over the past two years and accelerated the structural transformation and the steady decline in retail space.

frequent but there are a few examples of new rentals or contract extensions at satisfactory conditions. Generally speaking, the interest in good locations in the districts outside the beltway is satisfactory – in Favoriten (10 th District) near the main railway station and in the western beltway districts from 1160

Ground floor space can be successfully transformed into offices if the environment is right. Young entrepreneurs and firms in the creative industries, in particular, are open to such concepts. Short-term lodgings are another story that is usually addressed under the keyword Airbnb. If this is legally permitted at a location and the technical requirements (primarily sanitary facilities, modern heat- ing) are in place, these types of locations – especially when they are near subway stations and/or touristic hotspots – can generate very satisfactory income. If none of these possibilities appears realistic, alternatives should be considered to make the ground floor areas usable at least for the tenants in the investment property apartments. Ground floor storage space and storerooms for residents generate only limited rental income but require minimal investments and can increase the value of the apartments.

to 1190. In the other districts, the market acceptance has also become difficult for good locations.

The conse- quences for investment property owners are different: The absolute top

The absolute top locations in the inner city have lost none of their attractiveness.

This situation is par- ticularly challenging for

locations in the inner city – for example the Golden U, Kärntner Strasse – Graben – Kohlmarkt – have lost none of their attractiveness. In other well established shopping streets like the Mariahilfer Strasse (6 th /7 th District) or Landstrasse (3 rd District), tenant turnover has become more

secondary locations and quarters with little relevance for retail trade and gastronomy. A candid market analysis will frequently reveal the advantages of looking for other uses as a better alternative to charming convention- al retailers or gastronomy operators with low rents or investment subsidies.

Vienna | 2024

Appraisal

Valuation in an erratic market environment

Astrid Grantner-Fuchs MRICS

Managing Director EHL Immobilien Bewertung GmbH

Comparative values form the basis for every real estate appraisal. Starting with the price realised for A, including any common factors and differences, and then establishing the value of B is the work of expert appraisers. When, as is currently the case, there are neither rational nor hardly explainable price differences, this inevitably leads to uncertainty.

For countless years, and even decades, we lived in a market of steadily rising prices for investment properties. Many of the younger market participants, of course also including appraisers, had never

Ultimately, the central task for real estate appraisers is to give potential buyers and sellers the best possible information on the “true value”, meaning the market price, of an investment property.

on location, quality, current income and earnings potential, the prices paid are in part so different that they defy rational explanation. The purchase prices for comparable properties in the same street varied by up to 50 per cent between 2023 and 2024. The underlying reasons for the apparently erratic market situation are the completely different approaches followed by the various buyers on the investment property market. On the one hand, high-wealth investors like family offices still rely on the concept of “concrete gold” and square metre prices that are mostly lower than the square metre prices for the individual apartments in the building. Additionally, index-adjusted rents – as far there is no intervention from the political sphere – are seen as secure protection

experienced any other situation up to roughly two years ago. A self-igniting price development – ex- pectations that prices would, in any event, be higher tomorrow created an upward spiral, independent of indicators like the rental yield – and the low interest climate apparently made it unnecessary for many years to address the possibility of price and value corrections. These times have definitely passed. However, the turbulent phase of price increases was not followed by calm but rather general uncertainty that has also created major challenges for appraisal.

The reason this is currently so difficult can be explained by the transaction data for the Vienna investment property market: For properties that are comparable based For properties that are comparable based on loca- tion, quality, current income and earnings potential, the prices paid are in part so different that they defy rational explanation.

Investment Property Report

Return to more comparable transactions Even if the current climate is clouded by uncertainty, the fog is slowly beginning to lift. The number of transactions is in- creasing and will provide appraisers with the necessary benchmarks for valuation, despite the need for particularly critical review.

Cancelled deals were often used out of necessity in the past to set conditional limits on the market value of an invest- ment property. This, at least, is no longer necessary.

The in part exaggerated pessimism on the part of market participants that has prevailed since mid-2022 is gradually giving way to a critical realism which will facilitate the preparation of well found- ed, evidence-based valuations with a more limited price range.

against inflation. On the other hand, we are also witnessing the comeback of yields. Investors who depend to a significant degree on debt financing must focus their attention on properties with sufficiently

Subjective criteria must, consequently, be responsible for these massive price differences if the objective criteria like location, the condition of the building and earnings are comparable.

A market value assessment is therefore particularly important to find a price acceptable to both sides despite the broad spread currently paid on the market. The involvement of a competent and neutral ap- praiser is, just now, an immense advantage and absolutely recommended. It can limit the range of a possible price and support negotiations on the basis of objective criteria.

high cash flow to service their loans – and that is only possible when prices are substantially lower than some high-wealth

The expectations of sellers and the readiness of buyers to accept these conditions are by no means synchronised.

buyers are prepared to pay. The potential for expansion is also priced differently by the market, but the trend is clearly pointing towards no or little added value for these additions. In other words, the expectations of sellers and the readiness of buyers to accept these conditions are by no means synchro- nised.

On the seller’s side, the most important “subjective” criterion is the time horizon within which a sale should or must be completed. A focus on the “concrete gold concept”, meaning the (higher) long-term value, is definitely allowed in the absence of time constraints. The pressure to make a sale generally results in the (lower) earnings value.

Vienna | 2024

Round table

The times are tough, but there are growing signs of an upturn in the near future The crisis is undoubtedly not over, but is apparently near- ing the low point of the cycle – that is the undivided opinion of the experts at the EHL roundtable on Vienna’s investment property market. Progress is, however, in sight and the first signs of recovery should consolidate into a modest upturn beginning in 2025. Here, the European Central Bank is responsible for firing the starting shot, which should be heard loud and clear.

Any discussions over the investment prop- erty market in spring 2024, must – whether we like it or not – first address financing, interest rates and equity ratios. My question to the bankers in the round – does anyone want money from you to finance investment properties? Gerhard Humer, Head of Real Estate Project Financing at Raiffeisenlandes- bank Oberösterreich: Financing is still in demand. But requests have declined because borrowing has become much more expensive, and we must also require higher equity ratios. A project where we previously needed 20 per cent equity, for example, must now provide at least 40 per cent. That is also logical because the same

Franz Pöltl, Managing Partner of EHL Investment Consulting: Without a doubt, we have reached a turning point. Investors who operated with very low equity only a few years ago have completely disappeared in the current market situation. Trading in investment properties to exploit the steady rise in prices – in other words, acquire, immediately start looking for a new buyer and then exit at a profit several months later – came to a complete standstill as a business model with the increase in interest rates. We are, however, seeing a growing number of high-wealth, long-term oriented investors for properties in good and very good locations. As potential buyers, they don’t need to worry about financing but see the transaction as an

rental income must now only finance a smaller debt component.

Gerhard Tüchler, Managing Director of the Tecto Real Estate Group: That sounds harmless at first but, in practice, the calcu- lation shows that operating costs of up to 1.90 Euros per square metre must first be deducted from annual rental income – and then, we are looking at an equity ratio of 60 to 70 per cent. Honestly speaking, a real estate company often loses any interest in a new investment under circumstances like these.

Investment Property Report

opportunity to acquire prime properties that are rarely on the market. And that at clearly more favourable conditions than two or three years ago. Michael Schmidt, Managing Partner of the 3SI Real Estate Group: The decline in obvi- ous but there are buyers who still believe in investment properties as a product. Their objective is to build up excellent portfolios, and they don‘t really focus on initial yields. That’s a good sign and shows that we have passed the low point of the cycle. And it is also a good opportunity to acquire good real estate. Another point: We, as 3SI, can also still buy investment properties with 90 per cent debt. Most banks will continue to finance our investment properties, also

with high debt ratios, because the ratio of rental income to financing costs is definite- ly not the only criteria. You also need to look at the inherent value of the property which, given today’s purchase prices, is often lower than the construction cost. In the high-quality buildings we purchase, rental income was usually unable to cover the borrowing costs – even in the best low-interest times.

The market hasn’t turned “bad”, we just need a different business model. The quick and easy resale of investment property no longer works – you need to invest a lot of time and money and, as we do, recover the financing through the development of the building and sale of the individual apartments.

The market hasn’t turned “bad”, we just need a different business model. The quick and easy resale of investment property no longer works. - Michael Schmidt

Our approach normally involves refurbishing, the separation of individual units and ownership, and sale – and, in the end, what counts is that we actually paid a solid and very favourable price per square metre for the acquisition.

Vienna | 2024

Round table

upcoming interest rate reversal. In these cases, it’s understandable when the banks pull the plug. But there are also many good real estate compa- nies and investors with solid business models who have temporary problems caused by the rapid increase in interest rates and delayed sales resulting from the new residential property financing rules. These companies are fit for the future and should be

supported – but when they receive a rating downgrade for every late payment and are punished with higher interest costs, many of them will simply not make it. Humer: The banks are very much in the position and prepared to differentiate, and we also work to develop solutions in part- nership with our customers. But, on the one hand, some of these banks are smaller institutions with heavy commitments in apartment

Humer: That is, of course, true. When a potential borrower presents a profitable, realistic exit scenario, then we naturally look beyond the rental yield. But especially then, other criteria like the investor’s track record, know-how and credit standing are particularly important.

Tüchler: I agree completely. In Austria, the banks have remained remarkably calm. And reacted quite differently than in Ger- many: They were more uncompromising in calling loans, the price declines were much stronger and, as a result, we have recently increased our activities on that market. I think we will soon see this development here in Austria. In the end, you can only conclude that it’s not the buyer and seller, but the banks and the ECB

That sounds a bit too relaxed. Have we really survived the crisis?

Pöltl: No, I don’t think so. When you speak about the market crossing the low point, as Michael said, that may be true for the very good and absolute prime areas where 3SI is active. It in no way applies to average and weaker locations. I expect we will see bankruptcy filings during the second half of this year from a number of investment property owners who are unable to cover their financing costs. A range of investors who bought at the market peak will be forced to sell, inde- pendent of the current price level, and, in some cases, these sales will be managed by the liquidator. Prices in these segments will, in any event, continue to decline.

buildings up to 2022 and were urgently advised to reduce their loan portfolios in this

A range of investors who bought at the market peak will be forced to sell, independent of the current price level. - Franz Pöltl

who will define the market. The duration and extent of this weak phase depends on the ECB’s interest

segment, often independent of

any isolated cases. On the other hand, all banks must

rate policy and on the readiness of

comply with legal and supervisory regulations. We are not completely free in deciding how to rate our customers, when to classify a loan as non-performing and how we should deal with all this. I admit this doesn’t always reflect economic reality, and

the banks to take risks – which, when you look at it, is part of the banking business.

Schmidt: That’s exactly why stronger differentiation by the banks is so impor- tant. There are investors whose business is impossible to save. Also not by the

Investment Property Report

I would be very happy to see the supervisory authorities critically review their regulations. A short while ago, we mentioned the attractive Delta between apartment and investment property prices. The supply of available apartments is declining steadily, but the demand for additional housing is there and it is high. Actually, a perfect situation for existing properties? Tüchler: That is, simply speaking, a cost issue: Construction and mainte-

It is virtually impossible for a developer to start construction today given the current cost situation. Most projects are already negative when the developer makes an ini- tial calculation, and even if an investment is economically feasible, the developer can’t arrange for financing in most cases.

Schmidt: As has already been said, I am very optimistic and see the housing market further along on a recovery course. I have numerous offers for apartments in our buildings, which makes me very confident. We also recently evaluated the buyers’ financing situation for a property and identified a significant decline in the number of mortgages. In other words, buyers are relying more on equity. There are plenty of people who want to buy and can do this independent of bank financing. This customer base also includes investment property buyers, for example private foundations. But somehow the impulse is missing to buy NOW, despite the fact that now is probably the best time to locate good properties. When everyone starts buying again, it will be too late. It is virtually impossible for a developer to start construction today given the current cost situation. - Gerhard Tüchler

nance, renovation and improvements have hardly become less expensive, personnel costs have increased, and financing costs have multiplied. And that can’t be offset by the decline in the purchase prices for investment properties.

olph

Vienna | 2024

Round table

In conclusion, let’s take a look at the crystal ball: Where will the investment property market be in three years? Exactly where we are today, in a serious decline or back to its old strength? Tüchler: The investment property as an as- set class definitely has a secure future, and prices will be higher in three years. But as

per cent in 2025, the prices for investment property will be significantly higher than now, and there will be many more trans- actions. However, we will not experience a boom like in 2021/22 für a very long time, and that would also not be normal. Humer: When you look at the fundamen- tals, you can actually be optimistic. The demand for

only a few years ago. There will be a much greater interest in properties and every- body believing in another upturn – in other words, the same scenario we had in 2021 and 2022.

I have already said: Everything depends on the ECB and the banks. When

apartments is there, and real income has recently increased substantially in nearly all branch- es. That will make higher rents and

When you look at the fundamentals, you can actually be optimistic. - Gerhard Humer

short-term interest rates also decline and the banks resume financing for investments and development projects, then we will see an upturn. Schmidt: I share your opinion and believe the first ECB interest rate cut will have a far greater psychological effect than 0.25 or 0.5 percentage points of real savings in financing costs. It will mark the starting point, and investors who are currently shopping around will actually start to buy. I think the Euribor will stand at roughly 2.5

condominiums more easily affordable again – and will also have a positive influence on the investment property market Pöltl: I am very cautious with forecasts beyond a period of two or three years. The real estate market is and will remain strongly cyclical. I would rather predict that the next cyclical high – in roughly ten years – will bring a market where we wonder how inexpensive everything was

Investment Property Report

People in conversation

Gerhard Humer

Michael Schmidt

Head of Real Estate Project Financing at Raiffeisenlandesbank Oberösterreich

Managing Partner of 3SI Real Estate Group

Franz Pöltl

Gerhard Tüchler

Managing Partner of EHL Investment Consulting

Managing Director of Tecto Real Estate Group

Vienna | 2024

References

Brokered Investment Properties

Kärntner Strasse 12, 1010 Vienna

Schubertring 9–11, 1010 Vienna

Built in 1875, this corner apart- ment building scores not only for its splendid appearance, but also for its exclusive city centre location.

The Christinenhof on the Ringstrasse, built in 1863-65 by Ludwig Zettl, is a detached, early historical residential courtyard with an architectural- ly designed inner courtyard.

Rentable space approx. 3,550 sqm

Rentable space approx. 9,445 sqm

Schreyvogelgasse 2, 1010 Vienna

Franz-Josefs-Kai 27, 1010 Vienna

The imposing corner apartment building, built in 1894, is locat- ed in the heart of Vienna and, with its prominent location, is part of Vienna‘s city history.

Built in 1899 and located di- rectly on Franz-Josefs-Kai, this apartment building is in one of the most sought-after locations in Vienna‘s 1 st district.

Rentable space approx. 3,424 sqm

Rentable space approx. 3,508 sqm

Favoritenstrasse 39, 1040 Vienna

Mariahilfer Strasse 3, 1060 Vienna

Built in 1890 by the architect Carl Holzmann, this corner apartment building is largely oriented towards the concepts of strict historicism.

Nine-storey apartment building from the late Wilhelminian period, located directly on Aus- tria‘s longest shopping street and in the immediate vicinity of Vienna‘s city centre.

Rentable space approx. 2,582 sqm

Rentable space approx. 2,772 sqm

Investment Property Report

Bürgerspitalgasse 29, 1060 Vienna

Burggasse 51, 1070 Vienna

Unique three-front apartment building in a prime inner-city location between Westbah- nhof and Innerer Mariahilfer Strasse.

The Adlerhof was built in 1874 and is characterised by its extremely attractive residential location in Vienna‘s 7 th district of Mariahilf.

Rentable space approx. 3,561 sqm

Rentable spaceapprox. 11,410 sqm

Lerchengasse 36, 1080 Vienna

Schönbrunner Strasse 249, 1120 Vienna The representative semi-de- tached house impresses

The vacant corner apartment building in a prominent location on Josefstädter Strasse has potential for expansion in the existing flats and in the attic.

with its attractive, articulated façade and is located in a very well connected residential and office area.

Rentable space approx. 856 sqm

Rentable space approx. 4,223 sqm

Koppstrasse 62, 1160 Vienna

Hofstattgasse 20, 1180 Vienna

The Wilhelminian style house was built between 1848 and 1918 and captivates with its structured façade as well as its exposed location as a corner apartment building.

This apartment building in a quiet residential area in the 18 th district offers not only the best quality of living but also the potential for conversion in the attic.

Rentable space approx. 1,448 sqm

Rentable space approx. 1,281 sqm

Vienna | 2024

Overview of Vienna’s Districts

1., Inner City

Vienna’s inner city has generally withstood the market turbulence in satisfactory condition up to now. Buyers who are willing and able to pay high prices can always be found for prime properties, even under difficult conditions

The extremely challenging real estate market saw one exceptional transaction in 2023: The “Apple House” on the Kärntner Strasse changed hands for a surprising 31,000 Euros per square metre. This sale of this building at a high frequency location for nearly 100 million Euros and an impressive square metre price can, however, not be seen as a typical investment property transaction due to the high share of retail space. Then again, other deals like the sale of the Meinl House on the Graben, which also brought top prices, underscore the strong condition of the market in Vienna’s inner city. This surprising market resilience is due, on the one hand, to the availability of typical “trophy assets” and, on the other hand, to the long waits by high-wealth investors to acquire prime properties at prime inner city locations. Short-term yield expecta- tions play a less important role here just the same as costs or the availability of bank financing. On the (potential) buyer side, the action is dominated by highly liquid Austrian private investors and/or foundations.

Their interest is directed primarily to top locations near St. Stephan’s Square or prestigious addresses like the Freyung or

Private investors and institutional buyers with a long-term focus currently dominate the market, while developers and invest- ment property traders will only play a limited role in the near future.

Their interest is directed primarily to top locations near St. Stephan’s Square or prestigious addresses.

Am Hof. Yields ranging up to more than three per cent are possible in properties with a high share of commercial tenants, while yields of 1.0 to 2.0 per cent can be realised on properties with a majority of residential space. The higher retail component in the investment properties along the Golden U (Apple) and the high level of rents support higher yields, but this is only possible at particular high street locations. The strong interest on the part of investors will hold prices at a level comparable to the previous highs in 2021 and 2022. The search is currently concentrated on completely developed properties with stable tenants.

Inner City

Investment prop. prices6,800 to 12,000 EUR/sqm

Yields

1.0 to 2.0 %

Monthly rents (net) in EUR/sqm

Apartments

Ø n. a.

Offices

15.00 to 28.50

Retail space A locations

120 to 650

Retail space B locations

15 to 85

Investment Property Report

Schottenring

U2 U4

Schottenring

Gonzagagasse

Schottentor

Marc-Aurel-Strasse

Schwedenplatz

Tuchlauben

Urania

Graben

Kohlmarkt

Wollzeile

Rathaus

U1 U3

Stephansplatz

Above-average price locations Average price locations Below-average price locations Underground U5 underground line in planning

Landstrasse - Wien Mitte

Kärntner Strasse

U2 U3

Volkstheater

Stadtpark

U1 U2 U4 U5

Karlsplatz

Demographic development

Average net income

Share of non- Austrian citizens

16,620

€ 24,992.– € 37,250.–

34.2 % 31.3 %

2023

Ø Vienna 1010

-17.2 %

+49.0 %

-2.9 %

13,761

2043

Area distribution

Age groups

4 %

6 %

25 %

10 %

40 %

0 to 5 years (668) 6 to 14 years (1,056) 15 to 24 years (1,661) 25 to 64 years (9,056) 65 years and older (4,179)

49 %

Construction zones (141.6 ha) Green areas incl. water (30.3 ha) Traffic areas (114.9 ha)

55 %

11 %

Vienna | 2024

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