5 Questions for our Expert: Franz Kastner

Franz Kastner

Managing Director of GARBE Industrial Real Estate Austria GmbH

Austria’s logistics real estate market is going through a realignment phase. Following years of intense construction activity, an expanded floor space supply coincides with a more reticent demand side. At the same time, structural issues like land shortage, infrastructure development and tightening requirements regarding energy supply and sustainability are gaining in significance. Sitting down for an interview with us, Franz Kastner, Managing Director of GARBE Industrial Real Estate Austria GmbH, broke down the current market situation and elaborated the latest developments on both the supply and the demand side while also discussing the main trends likely to define the market in the years ahead.

Franz Kastner, let us start with a general question. How do you rate the current situation in Austria’s logistics real estate market? 

Whenever people talk about the Austrian logistics business, they basically have Vienna, Graz and Linz in mind. Which makes sense insofar as these are the three largest conurbations – and simultaneously the country’s central logistics hubs. Vienna, being the second largest city in the German-speaking countries, plays a special role here. 

At the same time, the institutional logistics real estate market in Austria is comparatively young. The first speculative development roughly dates back to 2010. The market entry of international developers and investors caused new-build construction to boom –especially during the years around the pandemic period. It represented a highly dynamic cycle characterised by high completion rates. 

Today, we are witnessing the downstream effects of this peak cycle: A high level of availability coincides with slowed demand. Take-up has been regressive for several years. The situation is particularly conspicuous in Vienna, even if Graz and Linz principally present a very similar picture and even though the underlying issues obviously differ from one region to the next. 

Locations in Upper Austria—with Linz as central hub—are steadily gaining in significance. The region benefits from its strategic location along the A1 motorway between Vienna and Salzburg and close to Germany and the Czech Republic. As a strong industrial and export location, Upper Austria generates a broadly diversified demand for logistics floor space beyond the automotive industry, notably in the mechanical engineering, chemicals and retail sectors. Linz serves as a hub in this context because of its multimodal transport links and its integration into international supply chains. 

At present, supply and demand maintain a relatively balanced relationship. While vacancies do exist, they are scattered across assets of different quality. Demand for modern, easily accessible facilities is more stable whereas legacy properties are under more pressure. 

 The market in Graz, for instance, is dominated by the automotive sector. Here, vacancies present an issue primarily for older building stock. For more details on Austrian locations, see the article “Why Invest in Austria?” 

In Germany, demand has experienced a modest but noticeable upsurge lately. Are you aware of a similar trend in Austria? 

Yes, we have noted an uptick in the number of talks. After years of slow industrial production and recession, the latest exchanges with logistics service providers and occupants have made us cautiously optimistic. 

But, of course, we need to stay realistic: Current demand is rarely driven by a need to expand. Rather, we are seeing predatory competition and consolidation effects. Some logistics operators are pooling their locations in a single central hub to be more efficient or else are abandoning obsolete facilities in favour of modern, sustainable ones. 

Here is a typical example: A tenant occupying a very old warehouse that is technically obsolete may be looking for a new facility that provides better conditions for serving the tenant’s client base. Other companies may be consolidating several remote storage facilities in order to optimise processes and to lower staff costs. 

Current demand is primarily generated by traditional logistics service providers – belonging, for instance, in sectors like contract logistics, packing services or retail-related structures. 

E-commerce also plays a major role, if subject to very specific site and building requirements that are not necessarily met by new structures built on speculation.

You mentioned earlier that the current situation represents a tenant’s market. In what ways has this fact changed letting conditions on the ground – especially in regard to incentives?

As recently as two or three years ago, Austria was clearly a lessors’ market. Floor space was in short supply – with every unit available attracting several requests to rent. Accordingly, incentives were rather modest. 

Now that demand has subsided while completion rates remain high, the tables have turned. So, we are clearly looking at a tenant’s market today. Developers and landlords of existing properties are equally under pressure. Incentive packages have become visibly more generous. 

The situation is exacerbated by competitors with low-priced legacy facilities. Tenants who rent existing buildings on highly attractive lease terms are not easily convinced to move to new-build premises, not even with generous incentives. This results in longer decision-making processes and makes transactions more complex. 

What is the situation in the investment market? 

The Austrian investment market for logistics real estate has been in good working order – and this continues to be the case as long as the product is right. Core properties in good locations, new-build units, fully occupied – assets like these are easy to place even today. 

However, that is precisely the type of real estate that is in short supply at the moment. High vacancy rates and a shortage in fully occupied new-build structures have prompted a certain reticence on the investor side. 

We keep seeing activity in the core plus and value-add segments, pursued especially by local investors. Big-ticket institutional buyers continue to focus mainly on prime products. But as far as the longer-term outlook goes, we are quite sure: As soon as high-quality products are put on the market, the right groups of buyers will emerge. 

Which structural topics will set the trend going forward – meaning anything from land availability to infrastructure? 

A key topic is the restrictive land use planning policy. Austria is severely hampered by its topography, as around 70 percent of the country’s territory is mountainous. Accordingly, the number of plots approved for development is limited. Inversely, this keeps the value of logistics facilities in strategic locations permanently stable. 

At the same time, we have noted that planners are beginning to change their minds. Present economic challenges and the re-shoring debate have helped to shift the focus back toward the need to attract businesses. Certain procedures, such as environmental impact reports, are supposed to be sped up in this context. Nevertheless, the land availability will remain limited, which will inevitably cause developers to focus more and more on brownfield developments. 

But opportunities also emerge in infrastructure: The Koralm railway tunnel and the way it boosts the Baltic-Adriatic transport corridor could bring about a long-term change in logistics flows. Regions like Carinthia are gaining in strategic importance – not for speculative development but for projects pursued by their incoming occupants. 

In addition, we are aware of several topics that will gain in prominence in future. On the demand side, for example, the focus will increasingly shift to urban logistics. On the part of assets and plots, we are primarily aware of a growing need to upgrade grid connectivity and to integrate photovoltaics and energy storage facilities so as to stay on top of the fast-growing role of electric mobility in the logistics sector. 

Especially the availability of adequately dimensioned grid connectivity will become decisive for site selections. This is also relevant for the topic of data centres, another area where we see a brisk increase in demand. We collaborate closely with our Data Center unit in this context and have already begun to review concrete projects.