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Market Research - Austria

Austria: Vienna office market - March 2019

Take-up concentrates in modern space of established locations

Record deliveries in 2018 will boost the Vienna office market

 

In 2018 the Vienna office market recorded an all-time high in deliveries with a total of 260,000 sq m of new space and an almost equally high level of take-up with 270,000 sq m. Several high-quality office buildings came on the market in the well-established office clusters; around Vienna Central Station, around Lasallestraße/Messe/Prater and in Erdberg. Up to 70% of the new space is already pre-let and the amount of large-scale lettings above 2,000 sq m significantly increased. With the growing share of lettings in modern buildings, average rents rose to €178/sq m/year while prime rents remained stable at €306/sq m/year. The market will continue to absorb last year’s record deliveries as the production of new space is limited to only 38,000 sq m in 2019. This shortage of new office space will also lead to an increase in demand for fully refurbished existing office space. The vacancy rate remains low by international comparison with only 5.3% available and is expected to decline even further in the course of the year.

 

Strong demand for investment dominated by medium-size transactions

 

With a market volume of almost €4bn, 2018 was the second best investment year in the Austrian market to date. The office segment remained the largest sector with 31%, but was closely followed by retail transactions with a 29% market share. However, the latter is due to a single, large-scale transaction following the near-bankruptcy of an Austrian furniture retailer that distorts the picture. In terms of the number of transactions the office sector was by far the biggest and most active market segment.

The outlook for 2019 is very positive. Office properties remain in high demand by national and international investors, but the amount of investment grade product is limited. As almost no large-scale prime office properties are available, investors are focusing on medium-sized buildings, which is where market activity remains high. At the end of 2018 yields for prime offices stood at 3.5% and 4.75% for secondary property. Office yields will continue to be under pressure during 2019.

 

EOM Austria March 2019
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