Development of the Economic Environment

Development of the Economy and the Industry


According to data released by the German Federal Statistical Office (Destatis), the German economy continued to make substantial gains in 2017, with gross domestic product (GDP) demonstrating a strong annual result of 2.2% growth. The marked upturn in the German economy is likely to have continued in the first quarter of 2018, according to statements published by experts from Deutsche Bundesbank in their monthly report for March 2018. The industrial sector remains the driving force behind the economic development, bolstered by an extremely high level of orders received by companies in the second half of last year. German industrial production rose considerably in January 2018, namely by 1.5% in seasonally adjusted terms, compared with the final quarter of 2017, although the order intake was down on the very high level seen in the previous month and January’s industrial revenues and exports were subdued. According to the ifo institute, companies in the manufacturing sector still consider their business situation to be very good on the whole, and the significant damper on the expectation component is only expected to materialize over the course of the coming quarter. Although production in the construction industry was down significantly in January 2018, in seasonally adjusted terms and compared with the previous month, due to significantly lower construction activity in the finishing trade, production increased sharply again in the main construction industry. Relevant indicators suggest that the brisk construction activity is likely to continue in spite of the damper in January. The order situation is excellent as well. Nevertheless, the rapid expansion of construction activity is facing considerable capacity bottlenecks, according to Deutsche Bundesbank. As a result, the contribution made by the construction sector to macroeconomic expansion in the first quarter of 2018 is expected to be rather modest. The continued strong momentum on the labor market is still propping up private consumption. According to experts at the Kiel Institute for the World Economy (IfW), Germany is moving into the final stage of a prolonged upswing and is progressing towards a boom. Further increases in economic output are being increasingly limited by capacity bottlenecks. Rising corporate investment is unable to remedy the increasing shortage of production capacities. Emerging trade conflicts, among other things, could give rise to risks and burdens on further economic development on an international level and in Germany.

The situation on the labor market improved further: According to information supplied by the German Federal Statistical Office (Statistisches Bundesamt), the number of employed people rose by 62,000 in January 2018 and by 45,000 in February when adjusted for seasonal work. Based on the information provided by the German Federal Employment Agency (Bundesagentur für Arbeit), the unemployment rate based on the total civilian labor force came to 5.5% in March 2018, down by 0.5 percentage points compared with the previous year. Consumer price performance was moderate over the past few months. In January 2018, the rate of inflation based on the consumer price index (CPI) came to 1.6% as against the same month of the previous year, coming to 1.4% in February and an estimated 1.6% again in March.

Although some signs are emerging that the European Central Bank (ECB) is intending to make a gradual break with its ultra-expansive monetary policy, it is still keeping key rates at the record low levels of 0.0 % from March 2016.

Quoted Rents Continue to Rise in Germany – Continued High Demand in the German Residential Investment Market

Based on information provided by Deutsche Bundesbank, the broad-based price increase for residential real estate in Germany continued in 2017, but the price increase rate, which has been fairly high for some time now, did not increase any further. In urban areas, living space became more expensive at an almost undiminished pace, although the price increase slowed slightly in Germany as a whole. Cities appear to have gained appeal in comparison with rural areas. The increase in supply in 2017 is expected to have accelerated significantly, with no additional surge in demand in the absence of a further drop in interest rates. According to the estimates of Deutsche Bundesbank, prices of housing in cities are likely to exceed the level justified by longer-term economic and demographic factors. According to the F+B housing index of the independent research institute F+B Forschung und Beratung für Wohnen, Immobilien und Umwelt GmbH (F+B), the price development for individual multifamily residences in 2017 (+2.0%) was slightly below the level of the increase seen in new contract rents. At the beginning of 2018, quoted rents continued to rise in Germany: the IMX, the quoted price index of the real estate portal lmmobilienScout24, rose nationwide by 0.4 percentage points in January compared with the previous month and by 0.5 percentage points in February. The quoted prices for condominiums also increased further across Germany in 2018. Compared with the increase in rents, these prices have again been increasing at a much faster pace. The IMX for prices for existing condominiums increased by 2.1 percentage points in January and 1.9 percentage points in February in a month-on-month comparison. The IMX for newly built condominiums rose by 1.7 and 1.3 percentage points respectively during the same period.

In the first quarter of 2018, residential building bundles and residential developments of 50 units or more accounted for a total transaction volume of around € 6.8 billion on the German residential investment market, according to the global real estate service provider CBRE. Compared with the prior-year period, the transaction volume doubled, driven by Vonovia’s takeover of BUWOG. The continued high demand for residential portfolios among major real estate companies and institutional investors cannot be met to an adequate degree due to the short supply of existing portfolios. Interest in investments in project developments is increasing continuously as a result. In the first quarter of 2018, for example, new construction projects worth around € 1.8 billion were traded as part of forward purchases and forward fundings. The competition for existing portfolios and moves among investors to divert their attention towards new construction developments were reflected overall in a further price increase year-on-year. The increased investment interest in small-scale residential solutions – e.g., student residences and microapartments – brought with it a transaction volume of over € 1.4 billion. As far as 2018 as a whole is concerned, CBRE believes that a transaction volume of at least € 15 billion on the German residential real estate market is very likely.

The increase in the number of inhabitants over the last few years (by approximately 1.6 million from 2014–2017, according to estimates made by Destatis) has further aggravated the shortage of supply on the real estate market, according to Deutsche Bank Research. The housing deficit is currently tipped to come to more than one million apartments nationwide, with the country’s metropolitan areas being hit particularly hard. Experts from Helaba Landesbank Hessen-Thüringen predict that, all in all, Germany will need around 400,000 apartments a year in the medium term. Given an estimated apartment construction activity of at least 300,000 units in 2017 and 320,000 in 2018, the annual demand for new construction would not be covered.


In Austria, the economy showed strong growth in the fourth quarter of 2017, as reported by the Austrian Institute of Economic Research (WIFO) in March 2018. GDP showed a quarter-on-quarter increase of 0.9% in seasonally adjusted terms (2017 as a whole: 2.9%). Growth was driven, in particular, by exports and gross fixed asset investment, and the economy was also boosted by the robust growth in private consumption. The WIFO experts expect that the Austrian economy will maintain this momentum over the coming months. According to the WIFO Economic Test (Konjunkturtest), for example, companies consider their current position and future business situation to be extremely positive. The Austrian labor market is also showing favorable development. The number of non-self-employed people in active employment was 3% higher than in the previous year in January. Unemployment fell again in February 2018 as against the previous year, even though the seasonally adjusted unemployment rate based on the national definition is still significantly higher than before the financial market and economic crisis, at 7.9%. The rate of inflation based on the consumer price index came to 1.8% in both January and February, according to the Austrian statistical office (Statistik Austria).

The values of the DSS OeNB residential real estate price index – the price index of the Austrian central bank (OeNB) on the basis of new and used condominiums and single-family residences – show an increase of 3.8% in Austria in 2017. Whereas prices stabilized in Vienna with an increase of 1.5% year on year, the price development accelerated in the rest of the country. This means that, excluding Vienna, prices in Austria increased by 4.9% in 2017. According to the CPI, apartment rents (excluding ancillary costs) rose by 4.1% in Austria in 2017.

The volume of investment in residential real estate rose in a year-on-year comparison to € 550 million in 2017. Approximately 48% of this amount is attributable to special real estate forms, such as student residences and microapartments. According to CBRE, this is closely linked to the simultaneous increase in new construction activity relating to student residences and microliving concepts; also in response to the growing number of students, single-person households and geographically mobile and flexible single people in Austria. According to the OeNB, the residential construction segment overcame a prolonged period of weakness in 2017. Both residential construction investment as well construction output and hours worked in building construction increased significantly, and the strong momentum in granting building permits points toward a further acceleration. In the face of rising population figures and an increasing shortage of land, CBRE reports that (residential) high-rise buildings are becoming more of a focal point among developers and investors.