Investing in Austria operate inner-city hotels with as few staff as possible, thereby keeping operating costs low. The operating margins of these companies are consequently higher, meaning that they are able to pay more competitive lease rates and sustain these higher lease rates due to their operating structures. Vienna residential market: new construction reaches a peak in <strong>2022</strong>. While high demand and low supply will ensure further purchase price increases, rental growth is ex-pected to be more restrained. In 2020, there was a surprising changing of the guard on the Austrian investment market for commer-cial real estate: For the first time, residential properties were the most sought-after asset class, while office, the long-time leader, came in second. The same picture emerged in 20<strong>21</strong>: According to data from EHL Immobilien, residential (transaction volume: 1.4 billion Euros) ranked ahead of office (1.09 billion Euros). Given the persistently low interest rate levels, the lack of secure alternative investments and attractive financing options, investors have stepped up their involvement in the residential sector. The Corona-induced challenging economic environment has also likely contributed to the shift. The largest and most important in Austria, the Vienna residential market, has recently seen brisk new construction activity. With almost 20,000 units, more apartments will be completed this year than ever before. This means that 2020, which was also a record year with a completion volume of around 15,500 residential units, will be exceeded by another 30 percent. In the coming years, Vienna‘s new construc-tion activity will be significantly lower again. On the one hand, this is indicated by the declining number of building permits and dedications in the residential category. In addition, market experts now see a certain saturation of the market. An oversupply of apartments is to be expected not only in the coming years but also currently. „The new projects are pre-sold to a considerable degree,“ explains Andreas Holler, Managing Director of the residential construction specialist BUWOG. The demand is driven on the one hand by the further increasing population (forecast for <strong>2022</strong>: plus 12,300) and decreasing household sizes, and on the other hand by the desire for change and improvement of the housing situation - pandemic-related, for example, more living space is in demand. Adds Holler: „There is still a great structural need for modern housing.“ A lot of capital is looking for investments In the medium term, new residential construction in Vienna is expected to even out at the level of the 2010s. According to the BUWOG expert, this also corresponds to the structural need and ensures a healthy market with a balanced relationship between supply and demand. Interesting: since 2019, for the most part, only the number of new rental apartments has grown, but not the supply of new con-dominiums - except for the growing share of investor apartments purchased for rental. Since a lot of capital is still looking for attractive, long-term investment opportunities, this situation should not change anytime soon. Due to the significantly larger supply, Michael Ehlmaier, CEO of EHL Immobilien, also expects some-what more restrained price increases for new rentals. Specifically, the growth is likely to be between two and three percent. „Depending on the location, I expect a price increase of three to five percent compared to the previous year,“ claims Ehlmaier, who sees purchase prices rising much more signifi-cantly, nonetheless. Currently, the price per square meter in first-time occupancy starts at 5,000 Euros. CBRE Austria considers the fact that the gap between developer costs and achievable rents is widening as another reason for the decline in construction activity. The fact that residential yields have been falling for some time is less surprising. While three percent can now be earned in the new construction sector in the provinces, this limit has already been broken in Vienna - downward, mind you. Various market forecasts assume that prime yields will continue to decline. According to EHL Immobilien, the downstream quality segments will also continue to increase in price due to the prevailing supply shortage. „High land costs in urban areas, competition with other types of use and the need to reduce soil seal-ing are leading developers to increasingly focus on post-densification and conversions,“ according to a market outlook by CBRE Austria. The government program 2000 to 2024 is also behind this, according to which the daily increase in land use is to be reduced from the current 11.5 to 2.5 hectares per day or nine square kilometers per year by 2030. Austriawide monitoring of land use is also planned. Accord-ing to CBRE and EHL Austria, there is no doubt about one thing: Sustainability is becoming the defining issue for the housing industry, both in Vienna and nationwide. 30 ImmoFokus
<strong>MIPIM</strong> | <strong>2022</strong> 31
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