Investment market
Prime yields on office properties in European comparison (in %)
Source: EHL Market Research | BNP Paribas Real Estate | Q3 2021
Investment Market The real estate investment market in Austria and here, above all, the office segment witnessed a sharp rise in demand by private and institutional investors during the first half of 2021. The invest- ment volume of approximately EUR 1.7 billion was negatively influenced, above all, by a limited range of products and a shortage of available core pro- ducts in the office segment. This also explains the relatively low share of office properties (nearly 14 %) as a per cent of the total volume. In contrast, the share of residential and logistics properties rose to 37 %, respectively 12 %.
Interest rates and inflation fears fuel demand
Cash flow-secure real estate, meaning proper- ties covered by long-term leases with top-quality tenants, represent the main focal point of investors’ interest. Their investment behaviour is increasing influenced by risk considerations, in particular efforts to maximise security, which has shifted yield issues into the background. This trend will continue because interest rates will remain very low – at least over the medium-term – and alternative investments like government bonds will not provide serious competition for real estate investments. Moreover, inflation – which has recently passed the 2 % mark – is another classical motive for inves- tors to increase their investments in real estate. A further decline in the current record levels to under 3 % can therefore be expected. The general decline in yields has, naturally, also benefited the lower quality segments, whereby risk prevention has led to a stronger differentiation within the various categories. Since the financing costs for real estate investments are still extremely moderate, the “cash-on-cash“ returns for investors remain very attractive – also in the lower quality segments.
The pandemic was reflected primarily in the inves- tors‘ regional origin – buyers from the Far East and Anglo-Saxon countries were not active at all on the Austrian investment market. However, the increase in vaccination rates and slow, but steady impro- vement in travel options lead to expectation of a return – even if moderate – by buyers from these regions. Generally speaking, private as well as institutional investors have increased, rather than reduced their real estate commitments during the pandemic. The result has been an increase in the already severe demand overhang and absolutely insufficient avai- lability of core office properties. Last but not least, this has naturally led to a further decline in prime yields and an increase in prices.
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