The returns on investment funds in the real estate sector are considered a stable source of income, even though this market has seen a strong outflow of capital over the past two years. The investment form of real estate investment funds can include commercial properties, residential properties, office buildings, shopping centres or hotels, for example. Investors benefit from the gains from rental income and the increase in the value of the property. The investor risk is often reduced through diversification, for example with different local locations or property types.
A quick review at the market figures of the Association of Austrian Investment Companies (VÖIG) for recent years shows relatively stable growth in the domestic property investment fund market amid a persistently low interest rate environment – until 2022. Since then, higher interest rates have put pressure on financing costs for real estate projects and returns on fund. As a result, there have been significant capital outflows from this market over the past two years as investors have shifted to other asset classes. The total volume of real estate investment funds in Austria shrank by almost 1.4 billion euros in the previous year alone. Family offices – which manage assets for wealthy families with real estate solutions, among other things – had purchased assets at relatively high prices due to the boom in yields. After all, demand has been high for many years and, as we know, this determines the price. In den letzten zwei bis drei Jahren wurden andere Anlageformen wieder attraktiver. Under the pressure of capital outflows, many family offices had to sell their real estate properties for much lower prices.
Having the right tools at hand for strategic decision-making in the dynamic of the current economic challenges can make all the difference. For example, metamagix.ICRS provides the necessary precision in real estate asset and portfolio management for family offices. Various reports, current portfolio reports, property overviews and cash flow data are retrieved from a single system.
As explained by experts, the market has now bottomed out. According to VÖIG, investment companies once again generated significant net growth in the market totalling around EUR 3.1 billion last year. These are not record increases as in some previous years, but the upward movement is noticeable.
The real estate market as a whole, including project developments and purchases by private individuals and real estate companies, also grew in the year before. Private investors traditionally prefer smaller tickets and buy with higher equity ratios, according to commercial real estate expert CBRE. Yields on office and logistics properties stood at 5.00 per cent at the end of 2024, while retail properties were slightly above the previous year’s figure of 4.60 per cent at 4.70 per cent. Due to high demand, prime yields for residential properties fell to 4.25 per cent in December. Technological innovations are also improving efficiency, and sustainable real estate investments continue to gain in importance. Investors and fund managers are increasingly focusing on ESG criteria to secure their investments.
A market analysis by Walter Senk in the Bau & Immobilien Report in January also sees signs of a recovery in the market subsequent to a ‘massive hangover after a long party’ in relation to the cyclical interest rate rally of recent years. Although a ‘fundamentally pessimistic attitude towards the economy will continue into 2025’, market players are quoted as saying, many assume that ‘the entire economy will calm down and recover again this year’
Investors with a strong equity base and financing partners such as family offices and real estate private equity will have an advantage over institutional, risk-averse investors. The residential property market in particular is experiencing renewed momentum as a result of the relaxation of the KIM regulation. Low interest rates are also fuelling the enthusiasm for new projects. Walter Senk also recalls the backlog in real estate development due to the construction freeze in many places as a result of the tense situation. Austria’s real estate giant BUWOG is now starting to build new residential projects again after a break. BUWOG’s investment offensive totals around 229 million euros and will see the start of construction on three projects with over 1,000 flats by the summer.
Randolph Kepplinger, Managing Partner at metamagix, also shares the optimism that the property market will grow more strongly again in 2025: ‘We are noticing that our customers and interested parties are once again planning investments and pushing ahead with the digitalisation process. Projects that were postponed last year are now increasingly being tackled. For family offices in particular, there are favourable opportunities for acquisitions and portfolios are being expanded. This also increases the need for digital portfolio management.’
Sources
https://www.voeig.at/voeig/internet_4.nsf/sysPages/investmentfondmarkthistorisch.html
https://www.cbre.at/press-releases/talsohle-durchschritten-oesterreichischer-investmentmarkt
https://www.report.at/bau-immo/24423-optimismus-trotz-harter-realitaet