Stringent containment measures have also been implemented in Austria from mid-March onwards, resulting in a temporary, but considerable, drop in economic activity. According to the Austrian central bank (OeNB), GDP had already fallen by 2.5% in the first quarter of 2020. This affected a large number of consumer-related service sectors, some of which had to suspend or restrict their business activities. Exports also plummeted, taking industrial production along with them. In addition to the slump in demand, border closures, in particular, hindered the supply of precursors and intermediates. Despite the fact that the measures have been increasingly relaxed since mid-April, an even more significant drop in GDP of around 11% is expected for the second quarter of 2020. While indicators from the economic test run by the Austrian Institute of Economic Research (WIFO) on the current situation of the economy as a whole show an upward trend for June, they remain close to an all-time low. The expectations of Austrian companies are also much less negative in June than they were a month earlier in all sectors, with the construction industry showing the most positive trend. The economic slump triggered an abrupt increase in unemployment from mid-March onwards. Although short-time working programs helped to cushion the blow, the unemployment rate, based on the national definition, climbed to an all-time high of 12.7% in April. The WIFO reports that it fell to 11.5% in May, up by 4.7 percentage points on the same month of the previous year. After coming to 2.2% in February 2020, Austrian HICP inflation slowed to 1.6% and 1.5% in March and April, respectively, dropping back to 0.6% in May 2020.
Thanks to its lower infection rates and earlier measures taken to open the economy back up, the Austrian economy has been hit less hard by the coronavirus crisis than other European countries. Consumer and investment demand, however, are unlikely to gain momentum in the foreseeable future, and the export-oriented Austrian economy will only be able to return to its growth path with global support. Bank Austria expects that an upswing in the second half of 2020 will limit the slump in Austrian GDP to around 9%. Looking ahead to 2021, Bank Austria still expects the economy to catch up, with GDP set to rise by around 8%. One decisive factor is likely to be how quickly private consumption will get back on track again given the insecurity among consumers.
The OeNB’s economic forecast is based on two key assumptions: There will be no second wave of infection in the fall and medical treatment will be available by mid-2021. Taking this as a basis, the OeNB expects the Austrian economy’s GDP to dip by 7.2% in 2020. Exports will fall by 11.6%, with gross fixed asset investment (-6.7%) and private consumption (-5.8%) also expected to fall sharply in 2020. The catch-up process that emerges as backlogs clear, combined with improved economic confidence, is likely to translate into growth of 4.9% in 2021, according to the central bank’s estimate. The OeNB predicts that GDP will only bounce back to the pre-pandemic level in 2022. HICP inflation is forecast to drop to 0.8% in 2020, remaining constant at that level in 2021 and not accelerating to 1.5% until 2022. Bank Austria expects the unemployment rate to remain in the double digits in the second half of the year. Due to demand-related factors, the pace of economic recovery will not be rapid enough to allow for a faster decline. In addition, more than one million people are currently still on short-time work.
At the beginning of 2020, it initially appeared that the overall conditions on the real estate market remained positive. 2019 was characterized by sustained low interest rates, an ongoing good supply of properties despite a slight drop and, in the majority of regions, very high demand for real estate among owner-occupiers and investors alike. Experts reported at the time that they did not expect to see any significant change in these conditions in 2020 either. The coronavirus crisis and the measures taken by the Austrian government to contain the virus have left a clear mark on the Austrian real estate market. According to EHL, the situation improved markedly after Easter following dwindling inquiries regarding apartment rentals or purchases at the beginning of the coronavirus crisis. In the medium term, mounting unemployment and other adverse economic developments will put a damper on demand. EHL nevertheless believes that the structural need for additional housing in urban areas will ensure that the slump in demand is kept within limits. The Austrian Conference on Spatial Planning reports that the Austrian population has increased considerably in the past and will continue to grow in the future, too. The latest population forecast produced by the Austrian statistical office, Statistik Austria, suggests that by 2040, the Austrian population will have risen by 7%, from 8.84 million (2018) to 9.43 million. Bank Austria reports that residential construction activity in Austria has been geared toward addressing the considerable shortage of supply on the housing market for some years now. An estimated 66,000 units were completed in 2018 – the highest level of construction activity seen in decades – and are likely to have satisfied the current need for housing prevailing in Austria on average. Nevertheless, major supply gaps remain in individual market segments, particularly in the area of more affordable rental apartments. According to EHL, it is becoming increasingly evident that the coronavirus crisis will have a very significant impact, particularly on the supply side. While it is predicted, as things stand at the moment, that Vienna alone will manage to complete 19,000 apartments in 2020, in spite of all of the restrictions, there is likely to be a significant drop in the number of building permits and, as a result, in the number of completions in 2022 and 2023.
According to the OeNB, it is currently still impossible to predict the impact that the coronavirus crisis will have on the development of residential and rental prices in the near future. This will largely depend on the duration and intensity of the crisis. The data on price developments in the first quarter of 2020 did not yet reveal any significant impact of the coronavirus crisis, as only the last two weeks in the twelve-week period were affected by the containment measures. In line with this assessment, 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 2020 of 3.4% compared to the previous year, or 1.7% as against the previous quarter. In Vienna, prices increased compared to the previous year by 3.9%. In the rest of Austria (excluding Vienna), price developments came to 2.8% during the same period. While the OeNB is reporting that real estate experts expect rents to decline or stagnate at best, the consumer price index published by the Austrian statistical office shows that apartment rents in Austria have been rising month by month since the beginning of the year and were 3.7% higher in June 2020 than in June 2019. According to CBRE, the housing market is more resistant to crisis than the commercial real estate markets. Demand for this asset class remains high. The fundamentally defensive characteristics of the apartment building sector are expected to maintain investment levels in the long term, while the rental housing market could be boosted by postponed investment decisions made by owner-occupiers. As far as new developments are concerned, it is expected that development-to-sell projects will be changed to development-to-rent projects to a certain extent. Comparatively better conditions on the Austrian labor market could reinforce existing pull factors and lead to higher labor migration to Austria with a potential knock-on effect on housing demand. If problems in the labor market persist, however, concerns will arise as to future rental payments and the demand for both rental apartments that are currently vacant and new rental apartments.
According to EHL, the Austrian investment market is strong and active in spite of the coronavirus crisis. The transaction volume in the first half of 2020 came to around € 1.5 billion. Despite dropping by 11% in a year-over-year comparison, this sort of figure would have been considered perfectly satisfactory only a few years back, even under normal circumstances. EHL reports that it is remarkable that the “coronavirus quarter,” namely the second quarter of the year, was actually significantly stronger than the first quarter of 2020. The fundamental risk-averse mood on the market is reflected in considerable interest in the residential segment. The residential segment accounted for 33% of the transaction volume. According to EHL, the transaction volume is expected to increase significantly in the second half of 2020 compared to the first half. Market activity had already returned more or less to normal by June.