© Franz Brück
© Dragan Dok
Outlook
Weak demand for space
More conversions The limited production of space in other real estate markets, for example office and residential, will have an indirect impact on the market for retail space. The conversion of retail space into offices or apartments will often be economically more feasible than in the past. The increased restrictions for AirBnB apart- ments announced in Vienna could, over the long-term, increase the demand for space in lower cost hotels and hostels and create an additional option for hard-to-rent shop areas. Steady and strong demand for top locations The exceptional boom for top locations, above all the addresses popular with international luxury labels, will also serve as a source of rising rents in the Golden U during 2024. Numerous global top brands are looking to settle in Vienna and sear- ching, with a definitely aggressive pricing approach, for the infrequently vacated space. Sustainability – challenge and opportunity The political and social pressure towards greater sus- tainability is, from a pure economic standpoint, both a challenge and an opportunity for the retail property market. On the one hand, energetic improvements and the changeover to sustainable heating systems are connected with significant costs but, on the other hand, the mounting resistance against ground sealing is making the production of new space more difficult. In the end, this will benefit the existing supply (especially retail parks and shopping centres in secondary and tertiary cities).
The starting position for the Austrian retail pro- perty market in 2023 and 2024 remains difficult: Disposable income is rising as a result of wage and pension increases combined with government transfer payments (key word: climate bonus), but the weak economy, high interest rates and inflation are fuelling uncertainty and consumers’ reluctance to spend. In combination with the higher wage and purchasing costs faced by the retail trade, this has led to substantial reservation in the demand for space on many submarkets. One positive aspect is the apparent calm that has followed the year’s prominent insolvencies through mid-2023. Little potential for rent increases The weak demand for space has been responsible for greater pressure on rents. Adjustments equal to the inflation rate are often difficult to achieve on new rentals and contract extensions. That means a decline in real rental income, also when nominal rents are stable, even at good locations. However, the normalisation of energy prices – which triggered a massive surge in operating costs during 2022 and at the beginning of 2023 - should slightly improve landlords’ negotiating position. The trend towards shorter lease terms is continuing. Leases of more than five years will no longer be the rule, and the previously rare, very short two- or three-year commitment periods will become more popular.
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