AUSTRIA Trends and Developments Contributed by: Christoph Urbanek, Mario Schiavon and Irena Gogl-Hassanin, Urbanek Law
Vienna Real Estate Market Faces Changes The Vienna real estate market is currently fac - ing fundamental changes. After years of sta - ble growth and continuous demand, a clear paradigm shift has been observed since 2022. Geopolitical uncertainty, the European Central Bank’s interest rate turnaround, new regulatory requirements in the ESG area, and increasing social pressure for affordable housing are leading to a fundamental realignment of market strate - gies, project developments and investment deci - sions. Despite these challenges, Vienna remains an attractive, internationally renowned location with high resilience and long-term potential. However, current developments clearly show that the market demands new solutions and dif- ferentiated thinking. The impact of the interest rate turnaround on investment behaviour and project development is particularly noticeable at present. The days of virtually free financing are over. Banks are act - ing more restrictively, margins in development have fallen, and requirements for equity capi - tal and pre-letting have risen. In practice, this means increasing project caution, especially for privately financed residential buildings or mixed- use projects in mid-range locations. Investors, in turn, are increasingly focusing on properties with stable cash flows, high third-party usabil - ity, and clear ESG compliance. The transaction market is more subdued than in the years before the interest rate turnaround, especially for value- add investments, whose business plans are now subject to changed conditions. At the same time, the importance of sustainabil - ity criteria, particularly in the context of Euro - pean ESG regulation, is becoming increasingly apparent. The EU Taxonomy Regulation and the Disclosure Regulation set clear framework conditions that must be taken into account for
new buildings and, increasingly, for existing properties as well. In Vienna, certifications such as ÖGNI and klimaaktiv are becoming increas - ingly important, not least because institutional investors now regard sustainability as a mini - mum standard. ESG is no longer an optional add-on, but a prerequisite for long-term value retention. Existing properties without a renova - tion strategy run the risk of losing their value as “stranded assets” . At the municipal level, ESG is also becoming increasingly mandatory through urban development contracts – for example, in the context of land use planning or the allocation of land under building law. In hardly any other segment are the structural challenges as evident as in residential construc - tion. Demand for housing in Vienna remains high, with the city’s population growing by around 15,000 to 20,000 people annually. At the same time, building permits are declining, and projects are being postponed or cancelled altogether. • restrictive rent regulations in older buildings. The Tenancy Law (MRG) is of central importance for the legal structure of the Vienna real estate market. It regulates both rent formation and lease terms and conditions and poses a con - The Tenancy Law (MRG) – a dynamic legal framework with far-reaching consequences for investors The Austrian Tenancy Act (MRG) is subject to constant change through legislative initiatives and case law, in particular through decisions of There are many reasons for this: • increased construction costs; • more difficult financing conditions; • regulatory uncertainties; and siderable challenge for investors. Legal Challenges in Tenancy Law
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