Retail Market Report Austria | 2022/23

Investment: The focus is on security - great times for local suppliers

The investment market for retail properties not only reflects the capital market trends that followed the ECB‘s interest rate hike at the beginning of this summer – it also mirrors retailers’ current sentiment. There have been noticeable changes in consumer behaviour as a result of the pandemic, the Ukraine crisis and rising raw material and energy prices. This has led to a decline in the demand for brick-and-mortar retail as well as steady pressure on realisable rents. Investors have become more cautious in eval- uating major retail property investments and are closely monitoring the market for signs of future developments. Consumers, in turn, have been upset by fears that the sharp rise in the prices of consumer goods, food products and, above all, energy will substantially reduce disposable in- come. Many potential investors share these same concerns and are now avoiding large-scale retail transactions. Above all, institutional investors who normally dominate the shopping centre market. The few large transaction in this segment during the past 12 months – for example, the sale of the Haid Centre by ECE – were all negotiated before the start of the war in Ukraine. The realisable yields for investors are still too low in view of today’s wide-ranging uncertainties.

Retail parks, standalone supermarkets and building materials outlets present a different picture. Rental contracts with discounters, retailers who operate primarily in the convenience segment and DIY stores are highly valued and, consequently, properties with these types of tenants are extremely popular due to the low demand elasticity – in these market segments, business tends to remain relatively stable in economically difficult times. Long-term leases with top-quality tenants represent another high priority feature for buyers. The growing importance of index clauses is a further crucial factor in this connection: Full indexing in times of near double- digit inflation, combined with quality tenants and long-term leases, sets a clear “buy signal” and can more than offset the impact of rising interest rates. The market situation for properties on shopping streets is, in contrast, mixed. Private buyers, who traditionally play a much larger role here, are also currently interested acquisitions. However, the high-streets have a particularly large share of textile and shoe tenants – two branches that have been hard hit by the current situation. The concerns of potential buyers that existing rent levels will not be sustainable is leading to different price expecta- tions by buyers and sellers and, as a result, almost no transactions have closed in this segment.