Sound demand levels and strong growth potential in Eastern Europe
- CA Immo: Sound demand levels and strong growth potential in Eastern Europe
- Raiffeisen Capital Management: Promising investment opportunities on liquid real estate markets in Western Europe
- Wiener Privatbank: Investing in Viennese apartment houses and investment apartments will remain attractive despite interest rate changes
Vienna, 11 May 2011. In the run-up to the Real Vienna fair, CA Immobilien Anlagen AG, Raiffeisen Immobilien Kapitalanlage-Gesellschaft and Wiener Privatbank SE will be providing an up-to-date overview of the property markets of Eastern and Western Europe (including Austria) at a joint real estate press briefing. Experts from these organisations – CA Immo Chief Executive Officer Dr. Bruno Ettenauer, Raiffeisen Immo KAG Managing Director Dr. Hubert Vögel and Dr. Helmut Hardt, Executive Director of Wiener Privatbank – expect developments to be generally positive, although they emphasise the speed of the recovery will vary from one European market to another. The real estate markets of Poland, the Czech Republic, Germany, France and Austria will all represent attractive opportunities for investors.TURNING POINT IN THE EASTERN EUROPEAN PROPERTY CYCLE
According to CA Immo, the CEE is witnessing a widespread upward trend; investors are showing renewed interest in the region, which in turn is leading to the stabilisation of yields. However, a shortage of willing sellers means that the transaction volume remains low. The lettings market is also displaying encouraging signs: the widespread suspension of construction activity in recent years has prevented the level of available floor space from expanding, and this has perceptibly boosted levels of demand for modern premises on most markets. Despite the general pattern of recovery, however, it will be more important than ever to differentiate between the markets of the region. Bruno Ettenauer, Chief Executive Officer of CA Immo, believes that, “Although there is considerable growth potential across all markets, different regions are recovering at different speeds.” Whereas economic output in some Eastern European nations (such as Poland and the Czech Republic) is much higher than that of many states of Western Europe, investors are still faced with a challenging environment; this is especially true of South Eastern European markets such as Serbia and Romania as well as Hungary. Strongly cyclical markets such as Russia and the Ukraine are in a league of their own; in these areas, it is usually the timing of an investment that determines its success.
On saturated real estate markets like Germany and Austria, predatory competition is the norm; in Eastern Europe, by contrast, demand for high-quality properties is assured. According to Ettenauer, “Quality and sustainability are the trump cards. Demand for properties with these attributes in Eastern Europe is already strong, and will only get stronger in the years ahead. This is the right time in the property cycle to be making long-term investments in the region.” Early this year, CA Immo took advantage of the opportunity by acquiring Europolis, a subsidiary of Volksbanken active in the real estate sector; in doing so, the company secured a property portfolio centred on Hungary, Poland, the Czech Republic and Romania worth € 1.5 bn.
REAL ESTATE SHARES: HIGH POTENTIAL FOR LONG-TERM INVESTORS READY TO TAKE RISKS
CA Immo also believes there is strong potential in real estate shares. With low initial investment levels, reasonable incidental costs and minimal administrative expenses, property shares as an asset class clearly outrank other forms of real estate investment. The constant option of trading on the stock market promises flexibility, and the spreading of portfolios through the regional and sectoral distribution of properties means that risks (such as occasional rent losses and local fluctuations) are easier to gauge. Moreover, the current significant discount in the price of all Austrian real estate shares to the intrinsic value of companies (NAV) justifies the hope that rates will continue to increase. On the other hand, there are the risks common to shares in all sectors: the development of the share price is determined not only by operational business activity, but also by supply and demand on the capital markets; the result is that price patterns are difficult to predict, and capital losses cannot be ruled out. According to Ettenauer, “Property shares are always a good option when deployed as an extra investment in a properly diversified investment portfolio.” As with funds, what matters when choosing shares is invariably the content.
CA Immo also believes there is strong potential in real estate shares. With low initial investment levels, reasonable incidental costs and minimal administrative expenses, property shares as an asset class clearly outrank other forms of real estate investment. The constant option of trading on the stock market promises flexibility, and the spreading of portfolios through the regional and sectoral distribution of properties means that risks (such as occasional rent losses and local fluctuations) are easier to gauge. Moreover, the current significant discount in the price of all Austrian real estate shares to the intrinsic value of companies (NAV) justifies the hope that rates will continue to increase. On the other hand, there are the risks common to shares in all sectors: the development of the share price is determined not only by operational business activity, but also by supply and demand on the capital markets; the result is that price patterns are difficult to predict, and capital losses cannot be ruled out. According to Ettenauer, “Property shares are always a good option when deployed as an extra investment in a properly diversified investment portfolio.” As with funds, what matters when choosing shares is invariably the content.
INVESTMENT OPPORTUNITIES ON THE PROPERTY MARKETS OF WESTERN EUROPE
Hubert Vögel, Managing Director of Raiffeisen Immo KAG, believes there are attractive investment opportunities in Western Europe: “The region has nine of the top ten markets that emerged as especially investment-friendly in 2010.” Germany enjoys a special status: it has the biggest property market in overall terms (with a real estate volume of € 270 bn) as well as the 'big five' cities of Düsseldorf, Frankfurt, Hamburg, Munich and Berlin (which accounted for around 15 % of the total transaction volume for Europe in 2010). In general, the big markets continued to get even bigger last year. The cities of Paris and London alone, for example, accounted for nearly 30 % of European property investment; the Netherlands, with its expanding Randstad conurbation of Amsterdam, Utrecht, The Hague and Rotterdam, was responsible for a further 10 %.
During 2010, the property markets of Germany and France succeeded in bouncing back strongly from the negative effects of the financial crisis; rental prices started to rise again in the major German cities as well as Paris as vacancy rates began to level off. In the office segment, peak rents in Germany's big five cities ranged from € 20.50/sqm in Berlin to € 38.00/sqm in Frankfurt, while vacancy rates generally returned to the single-digit sphere. The utilisation rate also increased on the office property market in Paris in 2010, with vacancy fluctuating in the range of 5–7 %. The recovery is proving somewhat slower in the Netherlands. “Bearing in mind the devaluations of 2007 and 2008 linked to the fiscal crisis and the lower rent levels, we believe there is still room for values to rise on the main markets of Western Europe – property prices are at 2005 levels in some instances”, says Hubert Vögel. “We are noticing that investment properties are proving more popular at the moment. This is because many development projects were suspended on account of tighter financing conditions as well as stricter regulations on property use approval and building rights.”
OPEN-END PROPERTY FUNDS: THE INVESTMENT OPPORTUNITY OF THE MOMENT
The liquid real estate markets of Western Europe also provide the investment focus for the Raiffeisen property fund, an open-end property fund set up in 2004 in accordance with Austria's Real Estate Investment Fund Act. Vögel believes that on balance, “Our conservative stance of focusing on the best real estate markets in Europe has paid dividends so far. With its investments in high quality real estate on sound markets, the Raiffeisen property fund is on extremely firm ground. In times of relatively low interest rates, especially from the viewpoint of investors looking for stable returns, it can be simply ideal.”
Raiffeisen Capital Management continues to sidestep investment on problematic markets such as Spain, Greece and Ireland. Vögel emphasises that in general, open-end property funds represent an asset class with a high level of security. This is provided in part by the strict Real Estate Investment Fund Act, which stipulates a very high degree of investor protection; moreover, property investment in general is subject to a different economic cycle to that underlying the asset classes of shares and bonds and thus continues to represent a highly sound addition to any well diversified portfolio. Over the long term, it is believed that rate fluctuations – even during the 'crisis of the century' – will prove to be relatively minor; open-end property funds therefore amount to an attractive investment, particularly in an environment characterised by comparatively low interest rates and fears over inflation.
Hubert Vögel, Managing Director of Raiffeisen Immo KAG, believes there are attractive investment opportunities in Western Europe: “The region has nine of the top ten markets that emerged as especially investment-friendly in 2010.” Germany enjoys a special status: it has the biggest property market in overall terms (with a real estate volume of € 270 bn) as well as the 'big five' cities of Düsseldorf, Frankfurt, Hamburg, Munich and Berlin (which accounted for around 15 % of the total transaction volume for Europe in 2010). In general, the big markets continued to get even bigger last year. The cities of Paris and London alone, for example, accounted for nearly 30 % of European property investment; the Netherlands, with its expanding Randstad conurbation of Amsterdam, Utrecht, The Hague and Rotterdam, was responsible for a further 10 %.
During 2010, the property markets of Germany and France succeeded in bouncing back strongly from the negative effects of the financial crisis; rental prices started to rise again in the major German cities as well as Paris as vacancy rates began to level off. In the office segment, peak rents in Germany's big five cities ranged from € 20.50/sqm in Berlin to € 38.00/sqm in Frankfurt, while vacancy rates generally returned to the single-digit sphere. The utilisation rate also increased on the office property market in Paris in 2010, with vacancy fluctuating in the range of 5–7 %. The recovery is proving somewhat slower in the Netherlands. “Bearing in mind the devaluations of 2007 and 2008 linked to the fiscal crisis and the lower rent levels, we believe there is still room for values to rise on the main markets of Western Europe – property prices are at 2005 levels in some instances”, says Hubert Vögel. “We are noticing that investment properties are proving more popular at the moment. This is because many development projects were suspended on account of tighter financing conditions as well as stricter regulations on property use approval and building rights.”
OPEN-END PROPERTY FUNDS: THE INVESTMENT OPPORTUNITY OF THE MOMENT
The liquid real estate markets of Western Europe also provide the investment focus for the Raiffeisen property fund, an open-end property fund set up in 2004 in accordance with Austria's Real Estate Investment Fund Act. Vögel believes that on balance, “Our conservative stance of focusing on the best real estate markets in Europe has paid dividends so far. With its investments in high quality real estate on sound markets, the Raiffeisen property fund is on extremely firm ground. In times of relatively low interest rates, especially from the viewpoint of investors looking for stable returns, it can be simply ideal.”
Raiffeisen Capital Management continues to sidestep investment on problematic markets such as Spain, Greece and Ireland. Vögel emphasises that in general, open-end property funds represent an asset class with a high level of security. This is provided in part by the strict Real Estate Investment Fund Act, which stipulates a very high degree of investor protection; moreover, property investment in general is subject to a different economic cycle to that underlying the asset classes of shares and bonds and thus continues to represent a highly sound addition to any well diversified portfolio. Over the long term, it is believed that rate fluctuations – even during the 'crisis of the century' – will prove to be relatively minor; open-end property funds therefore amount to an attractive investment, particularly in an environment characterised by comparatively low interest rates and fears over inflation.
INVESTING IN APARTMENT HOUSES AND INVESTMENT APARTMENTS IN VIENNA REMAINS ATTRACTIVE
Market assessments by Wiener Privatbank SE, which specialises in real estate investment, conclude that putting money into apartment houses and investment apartments in Vienna continues to be an attractive option. The bank does not believe that changes to interest rates introduced by the European Central Bank will have any impact on demand: “Interest levels remain at an all-time low; in the last quarter of a century, they have only been lower in 2009 and 2010. Moreover, given the very discouraging real-terms returns on alternative investment options such as savings accounts and government bonds, direct property investment continues to rate higher than almost any other kind of investment amongst security-conscious investors”, says Wiener Privatbank Executive Director Helmut Hardt. During the financial crisis, investors turned to solid residential properties in Vienna as investments with tangible asset value. Even against the current backdrop of the debt crisis, such properties continue to promise security and a safeguard against inflation: “Over the past few years, Vienna has consolidated its position as a stable residential property market for both private and institutional investors. The Austria Annual Property Index, which was recently published for 2010, reveals a total annual yield for the residential segment, taking account of rent and value rises, of 6.1 %. This underlines the attractiveness of the domestic real estate market”, continues Hardt.
Market assessments by Wiener Privatbank SE, which specialises in real estate investment, conclude that putting money into apartment houses and investment apartments in Vienna continues to be an attractive option. The bank does not believe that changes to interest rates introduced by the European Central Bank will have any impact on demand: “Interest levels remain at an all-time low; in the last quarter of a century, they have only been lower in 2009 and 2010. Moreover, given the very discouraging real-terms returns on alternative investment options such as savings accounts and government bonds, direct property investment continues to rate higher than almost any other kind of investment amongst security-conscious investors”, says Wiener Privatbank Executive Director Helmut Hardt. During the financial crisis, investors turned to solid residential properties in Vienna as investments with tangible asset value. Even against the current backdrop of the debt crisis, such properties continue to promise security and a safeguard against inflation: “Over the past few years, Vienna has consolidated its position as a stable residential property market for both private and institutional investors. The Austria Annual Property Index, which was recently published for 2010, reveals a total annual yield for the residential segment, taking account of rent and value rises, of 6.1 %. This underlines the attractiveness of the domestic real estate market”, continues Hardt.
MAJOR LONG-TERM DEMOGRAPHIC TRENDS INTACT
Investing in the Viennese residential property market is also advisable in view of the fact that Vienna remains one of the best value residential capitals in Europe; rental rates in the city are still around 50 % lower than those reported in Paris, Rome and London. The case for Vienna is also supported by the principal long-term demographic trends: the predicted growth in the population to between 2.2 and 2.4 million, the unbroken trend towards single households and steady per-person increases in demand for residential space are driving the market. Another key factor is the shortage of residential space caused by low levels of construction activity in Vienna. “With building work roughly 50 % below the annual requirement, demand for living space is always high in Vienna”, stresses Helmut Hardt.
NO PRICE SHOCK FOR THE RESIDENTIAL PROPERTY MARKET IN VIENNA
Driven by demand, prices are continuing to rise on the Viennese residential property market. “Bearing this in mind, rather than any dramatic changes, we expect prices to carry on increasing by a moderate 2–3 % per annum. That goes for both investment apartments and apartment houses, although one exception is the apartment house market in the first district of Vienna, which is low-yielding. The same applies to the urban expansion zones outside the Gürtel ring road – these have a lot of development potential but we see them as risky”, says Helmut Hardt. By contrast, Wiener Privatbank recommends investing in the central city districts 2 to 9 on the basis of stable development of prices and consistently high demand from tenants. Hardt concludes that, “The quality of real estate has to be right – apart from location and infrastructure, the size, layout and fittings of a residential unit as well as its attractiveness to tenants are critical factors”.
Investing in the Viennese residential property market is also advisable in view of the fact that Vienna remains one of the best value residential capitals in Europe; rental rates in the city are still around 50 % lower than those reported in Paris, Rome and London. The case for Vienna is also supported by the principal long-term demographic trends: the predicted growth in the population to between 2.2 and 2.4 million, the unbroken trend towards single households and steady per-person increases in demand for residential space are driving the market. Another key factor is the shortage of residential space caused by low levels of construction activity in Vienna. “With building work roughly 50 % below the annual requirement, demand for living space is always high in Vienna”, stresses Helmut Hardt.
NO PRICE SHOCK FOR THE RESIDENTIAL PROPERTY MARKET IN VIENNA
Driven by demand, prices are continuing to rise on the Viennese residential property market. “Bearing this in mind, rather than any dramatic changes, we expect prices to carry on increasing by a moderate 2–3 % per annum. That goes for both investment apartments and apartment houses, although one exception is the apartment house market in the first district of Vienna, which is low-yielding. The same applies to the urban expansion zones outside the Gürtel ring road – these have a lot of development potential but we see them as risky”, says Helmut Hardt. By contrast, Wiener Privatbank recommends investing in the central city districts 2 to 9 on the basis of stable development of prices and consistently high demand from tenants. Hardt concludes that, “The quality of real estate has to be right – apart from location and infrastructure, the size, layout and fittings of a residential unit as well as its attractiveness to tenants are critical factors”.
