EUROPE - German institutional investors are targeting Austria as a less competitive alternative to their domestic market with equally good fundamentals, according to Stefan Wundrak, property research director at Henderson Global Investors.
"German investors like it as diversifier," he said, pointing to returns that are not closely correlated with Germany's from a market German investors find easy to understand.
Despite attractively priced Austrian opportunities, he said cross-border investors had largely ignored the market, which meant weaker competition for assets and more attractive pricing than in Germany.
At the same time, he said Austria's strong economic ties with Central and Eastern European markets made it "a good proxy for that region without actually going there".
His comments came by email as Warburg-Henderson KAG, a joint venture, announced it had raised €180m from German and Austrian investors for a core/core-plus fund targeting diversified assets, mainly retail and logistics but with potential for office acquisitions in the capital.
The KAG, which launched last year and targets a 7% total annual return, has made its initial investments in retail.
However, the joint venture has also acquired two logistics assets in Vienna and Fürstenfeld, and exchanged contracts on a third.
It expects to complete its target acquisition of between 10 and 15 assets before the end of the year.
Wundrak said the retail warehouse sector had been minimally exposed to overseas investment, with "just a few" domestic investors competing for prime assets.
"Retail warehousing works best in small and medium-sized towns, which is the most common town type in Austria," he said.
However, the fund faces stronger domestic competition in the capital for office, especially given "less appealing" average lot sizes above €50m.
"Many domestic investors are hamstrung with an overhang of underperforming investments in Central and Eastern Europe from the boom years and therefore not very active buyers - often even sellers - of domestic stock to free up capital needed elsewhere," said Wundrak.
"In addition, the domestic banks are often not that willing to lend, which does not hold us back, as we mostly use German banks, which are very keen to lend for good assets in Austria."
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