Make (rail) way for new districts

The inauguration of Vienna’s new main train station in October 2014 was a momentous event for the Austrian capital. Three important European railway axes meet here, not to mention the connecting local means of transport. But the chic main station is far more than just a transport hub. It is the centre of a new part of town spanning 109 hectares with shops and restaurants, office buildings, hotels, schools and a residential neighbourhood for 15,000 people.

With this development measure, Vienna is not alone. In other major cities across Europe, train stations are also taking on a new significance as centres of urban, lively, mixed-use districts. Whether in Zurich or Berlin, in London or in Rotterdam, in Lyon or many other cities – train stations and their surroundings are changing, and in the process, they are becoming more attractive for the real estate industry as well. “The attitude towards transportation real estate has fundamentally changed,” says Günter Vornholz, Professor of Real Estate Economics at the EBZ Business School in Bochum. “More and more market participants are recognising the opportunities inherent in combining the traffic function with other uses.”

“Renaissance of Railway Stations”

Such opportunities were noticeably absent during the last few decades. On the contrary: large train stations and the adjoining areas were seen as a part of town better avoided. “More than a few neighbourhoods surrounding train stations declined until they were mainly known for drug use and prostitution,” wrote Heinz Dürr, then Chairman of Deutsche Bahn, as early as 1996 in a publication accompanying an exhibition with the programmatic title “Renaissance of Railway Stations”. In addition, he continued, many station buildings were “either ruthlessly torn down or converted into faceless utility buildings” after the Second World War.

And this in spite of the fact that originally, in the 19th century, train stations were designed to be truly magnificent buildings that elevated entire neighbourhoods. “Nowadays it is hard to imagine that in the early years, train stations turned their surroundings into prime locations,” says renowned architect Meinhard von Gerkan. “In their immediate vicinity and neighbourhood, you would find the classiest hotels, the finest shops, the most representative offices and the most feudal residences.” The Kaiserstraße, for example, which connects the train station and the city centre in Frankfurt am Main, was one of the banking metropolis’ most prestigious locations in the 19th century – only to descend into urban blight at the end of the 20th century.

The new district that is being built around the Vienna main station is quite different: it is already considered one of the best office addresses in the Austrian capital. The Austrian Federal Railways (ÖBB) set up their headquarters here, and the Erste Group Bank AG moved into an 117,000-square-metre complex. In addition, together with the S Immo AG, the Austrian project developer UBM Development AG is building the Quartier Belvedere Central, which will feature offices, hotels, and apartments. Union Investment acquired one of these buildings, the office project QBC 3 with 7,600 square metres of rentable floor area, for its open-ended retail real estate fund UniImmo: Global long ahead of its scheduled completion date in autumn 2017. “Due to new, urban ways of life, the areas surrounding main train stations have appreciated significantly all over Europe,” says Philip La Pierre, Head of Investment Management Europe at Union Investment Real Estate GmbH. “This trend is also quite visible if you look at the current development of neighbourhoods in Vienna. Therefore we secured the prime office property QBC 3 with a view to the future.”

At the beginning of this year, Union Investment took over another remarkable project in the immediate vicinity of a train station: the Grand Central development project in the centre of Paris, developed by The Carlyle Group. The business centre with a rentable area of 23,600 square metres is being built at Saint-Lazare railway station, the French capital’s second largest station with around 100 million passengers per year. Tania Bontemps, president of Union Investment Real Estate France SAS, is satisfied with the investment: “Grand Central will be one of the most modern business centres in Paris at a location that is unsurpassed in terms of transport links.”

In addition to office and retail space, the property will also include two restaurants, a bar, and a publicly accessible auditorium. Leases have not yet been signed, but Union Investment is not worried about finding prospective tenants. As in all major cities, discerning office users appreciate the proximity to the train station. Professor Günter Vornholz of EBZ puts it in a nutshell: “This type of location has the advantage that customers are able to reach company headquarters easily and employees are able to get to their customers quickly.” It is not a coincidence, therefore, that consulting firms, whose employees often travel to their clients, are especially interested in locations that are close to a railway station. In Berlin, the auditing firm PwC, for instance, chose to locate its offices right next to Berlin’s new main station, which opened in 2006.

“The urban quarter we developed has since become a well-established office location, and demand among tenants is high,” says Frank Nickel, CEO of the Austrian real estate company CA Immo about the neighbourhood adjacent to Berlin’s central railway station, called the Europacity. And indeed brokers include the Europacity district of Berlin among the most expensive office locations in the German capital. A large transaction that was announced at the beginning of 2017 is evidence of the area’s appeal: even before construction had begun, the investment company TH Real Estate acquired a cube-shaped office building to be developed by CA Immo right next to the entrance to the main station.

“Urban mix of uses – jobs, services, commerce, residential, culture and education”

Characteristic of the new neighbourhoods around train stations is, however, that they are not just office districts. The real estate division of the Swiss Federal Railways (SBB), for example, seeks an “urban mix of uses – jobs, services, commerce, residential, culture and education” for its Europaallee project adjacent to the Zurich main station. In Vienna, as well, the area surrounding the main station includes not just office buildings, but also hotels, a shopping centre, an educational campus, the residential quarter Sonnwendviertel with its 5,000 residential units and no fewer than 8 hectares of green space.

It is surprising that it is even possible to find the space needed to develop these new neighbourhoods in the heart of major European cities. The reason is that many of the uses around railways are no longer needed today: storage sheds, transshipment yards and other logistics facilities have disappeared and thus made room for new developments.

But whether the desired urban mix will really succeed and vibrant quarters will develop next to train stations, is debatable. Jürg Stöckli, Head of Real Estate at SBB, points out that such a large project needs time – and not only during the implementation but in the preparation phase as well. For all of the large European community development plans in the vicinity of train stations, a master plan was developed over multiple years – long before the first sod was cut. The institutions responsible for their implementation vary: in some cases – in Vienna and Zurich, for example – it is the real estate departments of the state railway companies that drive the development. In other cases – in Berlin and London, for example – it is a private real estate company, and sometimes – in Lyon, for example – it is a company that was specially founded by the public sector for that purpose.

Housing prices in the vicinity of the new railway stations had appreciated up to 38 percent more than in other, comparable locations

What’s more, the new appeal of the train stations has a positive impact on existing neighbourhoods as well. The real estate consultancy Knight Frank investigated this effect with regard to the stations along the new Crossrail in London and found that between 2008 and 2014, housing prices in the vicinity of the new railway stations had appreciated up to 38 percent more than in other, comparable locations. The impact on the surrounding areas in Zurich is fascinating as well. There, the Europaallee connects the main station with Langstraße, a multicultural mile infamous as a red light district and centre of the drug trade as late as the 1990s. But even there, real estate prices have been rising for a while, according to the Zurich-based “Tagesanzeiger-Magazin”: it states that from 2005 to 2011, residential buildings saw their values increase twofold as a result of the development of the Europaallee.

Incidentally, the city of Vienna, with its long tradition of social housing, is not willing to accept such price increases without a fight: contrary to the 19th century railway districts, the Sonnwendviertel will not only see the construction of “feudal residences” but also of publicly funded apartments with a monthly rent of €7.44 per square metre.