Migration and global hub ambitions serve to fuel Vienna’s growth

“Vienna was very much a closed-shop culture until the late 1980s, bit conservative, bit withdrawn. I would compare it with some circles in French society who only wanted to be among themselves,” says Georg Diwok, a partner of global law firm Baker & McKenzie in Vienna.

That changed when communism collapsed in neighbouring eastern bloc states, shaking up stuffy Viennese society as tens of thousands of the region’s newly liberated citizens descended on the Austrian capital in search of goods, jobs and long-lost relatives.

Vienna’s population grew by almost 18 per cent in under 25 years to reach 1.76m by the end of 2014 and forecasts expect it to increase by another 250,000 by 2029. According to 2014 data from the Austrian Economic Chambers, 23.7 per cent of all employees in Vienna are non-Austrian citizens.

Most of the growth has come from migration, with many people filling jobs in companies that had grown from being domestic players serving a midsized market to international players selling to an entire region. The city estimates that more than 200,000 people commute to Vienna daily from the Czech Republic, Slovakia and Hungary and from the neighbouring Austrian regions of Lower Austria and Burgenland.

One of the most vivid signs of transformation is Quartier Belvedere, a large redevelopment near the new railway station, which when completed will create a commercial, shopping and residential area spread out over 25 hectares.

“The whole project was driven by [Austrian federal railways] to move Vienna from an unconnected hub to a connectable hub, so now you can come from the west and go out through the south of the city without changing trains, meaning there can now be high-speed rain links to the rest of Austria as well as neighbouring countries,” says Richard Wilkinson, chief of Erste Group Immorent, which funds infrastructure projects in central and eastern Europe.

The bank is developing Erste Campus in the Quartier Belvedere. This, when finished by the end of the year, will gather its 4,500 employees in one 117,000-square-metre building.

Transport is key to Vienna’s ambition to link to the rest of the world. As well as rail, a new terminal was opened at Vienna international airport that took its capacity up to 30m passengers per year. In 2014, the airport handled a total of 22.5m passengers, up 2.2 per cent from the previous year, many travelling on to Asia and the Americas.

The standard of living Vienna offers is exceptional — and not just for Russian oligarchs who enjoy its safe atmosphere, where it is possible to eat out without bodyguards. For the third year in a row, Vienna came top in global consultancy Mercer’s quality of living ranking of world cities. CEE rivals lag far behind.

Central to this is affordability. Rich foreigners may have bought up the apartments in the city’s heart but Vienna has room to grow to the south and northeast, where the authorities have identified 10 areas for development over the next 20-30 years.

Thomas Hussl, head of property at Raiffeisen Leasing, which is developing 12 residential projects here, says even after the price rises of the past decade, the average apartment in many districts of Vienna costs €4,000-€6,000 per sq m, compared with about €10,000-11,000 for a much lower standard of home in cities such as Stockholm.

The standard of living Vienna offers is exceptional, not just for rich Russians

Yet observers have concerns about the future, pointing to a number of global businesses moving headquarters out over the past few years, with some opening branches in regional capitals such as Prague and Warsaw. This is being partly offset by the arrival of some eastern European companies.

Friedrich Wachernig, head of Austrian real estate company S Immo, says: “Many global companies have established local branches in [central European capitals] because they saw it’s not necessary to have one headquarters in Vienna, especially because of the lower labour costs elsewhere.”

Blame over costs is often pointed at the Social Democrats, who have run Vienna for the past 70-odd years. While many admit there is some strategy behind municipal development plans, these are also expensive, meaning corporate and personal taxes are high, and costly enterprises that could be privatised remain in state hands.

“We are [among] the top five highest in Europe, even surpassing Sweden in terms of taxes and social security contributions, which at 43.5 per cent is roughly 10 per cent higher than the European average,” says Peter Brezinschek, head of research at Raiffeisen Bank International.

Given the local elections are set for October, and the left-wing Social Democrats have had a drubbing in elections recent polls favouring the right-wing Freedom party, the tax situation could change if the latter wins support. However, the right’s immigrant bashing may conflict with today’s multicultural city.