The Economic Environment
Recession, caution and a lack of drive
Franz Pöltl FRICS
Managing Partner EHL Investment Consulting GmbH
The current economic environment has an extremely negative influence on the real estate market. In Austria, the three-party government coalition recently announced its intention to fight the excessive budget deficit with a sweeping package of cost-cutting measures. This will challenge the country’s economy in the third consec- utive year of recession and in an extremely volatile global climate. Additionally, there are reasons to fear that factors like the Ukraine crisis and the erratic tariff policy of the Trump administration will prevent any rapid economic recovery in Western Europe. The resulting negative effects are noticeable on many levels. The weak economy and uncertain outlook have made consumers nervous and led to a sharp drop in spending which, in turn, has disrupted the retail trade and commercial property market. The outcome has been an increase in vacancies and declining rents for retail space in ground floor zones. This development is evident in major shopping streets like the Mariahilfer Strasse and even stronger in shopping streets with a primarily local focus and lower pedestrian frequency. One factor not to be underestimated involves the consequences for potential investors’ liquidity. Austrian companies
are faced with substantial profit declines and, in many cases, have started to build up high cash reserves as security for potential near-term challenges. The family businesses which were previously among the most active buyers on the investment property market are uneasy, often despite high liquidity buffers, and are taking a wait and see approach to the market instead of buying at conditions that are attractive compared with pre-2022 years. Developments on the financing side remain disappointing. Key interest rates and related reference rates like the Euribor have fallen considerably since mid-2024, but the banks have significantly increased risk premiums, equity requirements, repayments and margins. Consequently, financing costs have not declined as strongly as expected and hopes that the changes in ECB policy would revive the market have (not yet) been fulfilled.
However, interest developments bring a ray of hope for the market. Further cuts in key rates are likely and it can be assumed that these reductions will be passed on to interested buyers in the future through lower interest rates. Another positive factor is the recent stabilisation of rapidly rising building costs. The current low capacity utilisation in the construction and related industries should check the momentum in building price trends.
Purchase prices in EUR/sqm 6,000–10,000 2,000–6,200 1,600–5,800 1,400–3,200
Source: EHL Market Research | Q1 2025 Purchase prices in EUR/sqm
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