After the Austrian economy showed strong growth of 2.7% in 2018, the beginning of 2019 brought more moderate economic development. GDP rose by 0.4% in the first quarter of the year 2019, in line with the average growth rate for the euro area. According to the Austrian Institute of Economic Research (WIFO), domestic demand once again proved to be a stable pillar propping up economic growth. Both private consumer spending and public-sector consumer spending expanded. Gross fixed asset investment (equipment and construction investments) also showed robust growth in the first three months of 2019. Exports increased by 0.6% in the first quarter of 2019. All in all, however, this confirms the trend toward declining momentum that emerged in mid-2018. Import demand increased by 0.4% in the first quarter of 2019. The economic slowdown is gradually starting to leave its mark on the labor market, too, even though the situation remains favorable. The number of non-self-employed people in active employment rose further in June based on preliminary estimates (+60,000 or +1.6% in a year-on-year comparison). Based on the national definition, the unemployment rate came to 6.5% in June, which corresponds to a drop of 0.3 percentage points as against June 2018. The rate of inflation came to 1.7% in May 2019 (CPI), a level that is on a par with the level for the euro area. The price increase remains moderate.
In its most recent economic forecast, the Austrian central bank (OeNB) predicts that, though the global economic slowdown will put a damper on economic growth in Austria, sustained dynamic domestic demand will counteract any major slowdown. In light of the above, the WIFO is predicting GDP growth of 1.7% in 2019 and 1.5% in 2020. Bank Austria expects the pace of growth in gross fixed asset investment at just over 2% to be much more moderate in 2019. Within this context, the bank is more optimistic regarding developments in construction in general than it is with regard to equipment investments. According to OeNB forecasts, the consumer price index (CPI) will drop from 2.1% in 2018 to 1.7% this year, remaining at this level in 2020 and 2021. As far as 2019 is concerned, the WIFO expects employment momentum to wane slightly as the economy slows down.
Overall conditions on the real estate market remain positive. 2018 was characterized by low interest rates, an ongoing good supply of properties despite a slight drop and very high demand for real estate among owner-occupiers and investors alike. At the beginning of 2019, experts from the real estate service provider RE/MAX Austria reported that they do not expect to see any significant change in these conditions in 2019 either. In line with this prediction, the values of the current OeNB residential real estate price index on the basis of new and used condominiums and single-family residences show an increase in Austria in the first quarter of 2019 of 5.0% compared to the previous year’s period. In Vienna, prices increased compared to the previous year by 5.5%. In the rest of Austria (excluding Vienna), price developments were slightly lower during the same period at 4.1%. According to the consumer price index published by the Austrian statistical office, Statistik Austria, apartment rents rose by 3.3% in May 2019 compared with the same month of the previous year. The fundamental price indicator of the OeNB for residential real estate shows a further increase in possible overvaluation for Vienna in the first quarter of 2019 compared with the fourth quarter of 2018, but remains stable for Austria overall. According to the RE/MAX Real Estate Future Index, residential real estate prices are expected to increase slightly overall in 2019, although the rate of increase will be lower than in previous years. Rents and prices for condominiums will continue to increase both in city centers and on the outskirts of cities, whereas the prices for condominiums in country municipalities will remain virtually unchanged and rents will falter. Apartment purchase prices are likely to increase at a faster rate than rents that can be freely agreed. According to EHL, rents in Vienna are expected to increase by around 1.5%, with purchase prices for properties in average locations expected to rise by between around 2.75% and 4% in 2019.
The Austrian Conference on Spatial Planning (ÖROK) reports that the Austrian population has increased considerably in the past and will continue to grow in the future. According to the OeNB, excess demand started to accumulate in the mid-2000s due to smaller household sizes, rising net migration and weak construction activity, a trend that reached its peak in 2016. Given the dynamic development of residential construction in 2017 and 2018 with the notable decline in demand for housing, excess demand is expected to be remedied throughout Austria by 2020, according to the OeNB. One exception is Vienna, where apartments are expected to remain in short supply even in 2020. EHL believes that the new Viennese building regulations, e.g., the requirement for a higher proportion of subsidized apartments where areas are rezoned for residential development, encumber the Viennese property market. In the short and medium term, the impact on the supply of apartments will be a negative one, which could also put an end to the slight easing of the situation regarding apartment prices and rents.
The dynamic development on the Austrian real estate investment market continued in the first quarter of 2019. According to EHL, transactions worth just under € 900 million were executed. The share attributable to the residential segment, which recently started to play more of a role, was, however, on the below-average side in the first quarter of the year at only 9%, although a number of other, and in some cases high-volume, transactions in this segment are expected to be executed before 2019 is over. According to EHL, international investors continue to see Austria as an investment location of above-average appeal.