Real Estate Market 2015 Structures and Prospects

Transcription

Economic Research
Swiss Issues Real Estate
March 2015
Real Estate Market 2015
Structures and Prospects
Credit Suisse Economic Research
Publishing Details
Publisher
Giles Keating
Head of Research and Deputy Global CIO
+41 44 332 22 33
giles.keating@credit-suisse.com
Fredy Hasenmaile
Head Real Estate & Regional Research
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fredy.hasenmaile@credit-suisse.com
Contact
immobilien.economicresearch@credit-suisse.com
+41 44 333 33 99
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Authors
Denise Fries
Fredy Hasenmaile
Philippe Kaufmann
Dr. Christian Kraft
Sarah Leissner
Thomas Rieder
Daniel Steffen
Dr. Fabian Waltert
Contribution
Andreas Bröhl
Thomas Schatzmann
Swiss Issues Real Estate – Real Estate Market 2015
Table of Contents
Management Summary
4
FX Shock: Impact on Swiss Real Estate Market
6
Owner-Occupied Housing
Demand
Supply
Market Outcome
Residential Property as an Investment
Outlook for Owner-Occupied Housing in 2015
8
8
11
14
18
21
Residential Property in Regulators' Sights Across
the Globe
22
Rental Apartments
Demand
Supply
Market Outcome
Outlook for Rental Apartments in 2015
26
26
29
31
34
Driverless Cars: The Next Stage of Mobility
35
Office Property
Demand
Supply
Market Outcome
The 15 Largest Office Property Markets at a Glance
The Five Largest Office Property Markets in Detail
Zurich
Geneva
Berne
Basel
Lausanne
Outlook for Office Property in 2015
37
37
39
41
43
43
44
46
48
50
52
54
Retail Property
Demand
Supply
Market Outcome
Outlook for Retail Property in 2015
55
55
58
59
62
Student Housing: Yields Despite Low Willingness to
Pay?
63
Real Estate as an Investment
Direct Real Estate Investments
Indirect Real Estate Investments
Outlook for Real Estate as an Investment in 2015
67
67
72
77
Factsheets: Regional Real Estate Markets at a
Glance
78
3
Management Summary
Consequences of the
Swiss Franc Shock
Page 6
Return of the cycle
The Swiss franc shock accelerates a development that has long been in evidence on the Swiss
real estate market, which is that the lengthy period of stability is drawing to a close. The traditional real estate cycle, in which excess supply replaces the long phase of rising prices, is returning. This process is likely to accelerate, firstly because the domestic economy is also being
dragged down by the Swiss franc shock, thus reducing the demand for floor space, and secondly because even more capital is now flowing into the real estate markets. This is because
negative interest rates are driving investors into the real estate market, increasing the investment in new developments and therefore further expanding the supply of space.
Owner-occupied housing
Page 8
Braking and accelerating forces in equilibrium
Were it not for regulatory measures and the dampening effect of repeated warnings about a
price bubble, the residential property market would be overheating due to ultra-low mortgage
interest rates. Based on data for two cantons, it is possible to show how high prices and an unequal distribution of assets, in combination with regulation, are limiting demand. Thus the market – figuratively speaking – has one foot on the scorching hot plate and the other in the freezer. This "cohabitation" between hot and cold is by and large working. But whereas the highprice segment continues to suffer, the home ownership boom in the lower-priced segments is
continuing apace. Developers have become cautious, however. Demand for owner-occupied
property is showing saturation tendencies; on the other hand, home ownership presents an increasingly important investment opportunity at a time of low interest rates.
Special focus:
Residential property in
regulators' sights across
the globe
Page 22
Switzerland is not the only country seeking to calm its housing market
Some countries are currently showing a tendency toward overheating. The range of regulatory
measures deployed around the world is as wide as it is uncharted. Switzerland has already implemented a comparatively large number of measures. This is not entirely without some initial
success, which may have something to do with the typically Swiss sport of self-regulation.
However, regulation is not without its costs and requires considerable judgment as well as good
timing.
Rental apartments
Page 26
Gradual transition from landlord's to tenant's market
Complaints about a lack of housing are widespread, despite the fact that vacancies for rental
apartments are at their highest level since 2001. With demand having peaked, this easing of
the situation is likely to be the subject of increasing awareness in future. Though down by more
than 10%, immigration is once again more or less likely to ensure the sale of newly built apartments this year. That is unlikely to be the case going forward, however; we therefore examine in
greater detail which regions would be most affected by a continued decline in immigration. The
current easing of the situation is primarily due to the high level of apartment construction. Because developments are continuing at a very rapid pace, the greater number of days on the
market and weaker growth in rents offered – both of which we are seeing at the moment – are
unlikely to be a flash in the pan. They are early signs of decreasing pressure on rents. A broadbased fall in rents is not yet expected over the coming quarters. The market is only slowly turning. But provided there is no tightening of supply, that is indeed likely to become a reality.
Special focus:
Driverless vehicles – the
next game-changer
Page 35
Driverless vehicles take mobility to the next level
Driverless cars are on everyone's lips, but as yet very little is known about how this new technology will alter people's behavior and their needs. The new technology is already being tested
in the real world and will determine our everyday lives in the not-too-distant future. We therefore
give some thought to what this could mean for the real estate market.
Office property
Page 37
No light at the end of the tunnel
Despite solid five-year economic growth in the 1–2% range, an oversupply of office space has
built up in Zurich and Geneva in particular. The primary reason is the fact that the development
of the economy was dominated by domestic growth in the period after 2009. Momentum
4
among traditional users, such as banks, insurance companies and consultancy firms, has
slowed considerably and even gone into reverse in places. An increased requirement for office
space has developed among real estate and construction service providers, public administration, educational institutions, healthcare and providers of services to the high-tech industry, on
the other hand, though with a lower willingness to pay and/or different floor space requirements. Because the absorption of new properties was effortless for a long period of time, the
market failed to respond quickly enough to changing demand requirements. The result is excess
supply, although this varies considerably from one location to another. Prime sites such as railway locations in the major centers should continue to do well. There is a major risk of an increase in excess supply, however. The fact is that even if production has peaked, construction
activity will remain at too high a level due to the dearth of investment opportunities – a situation
that is likely to be amplified further by the introduction of negative interest rates.
The five largest office property markets in detail
Page 43
Oversupply more clearly in evidence
In-depth analysis of the major office property markets centers on the question of where advertised floor space is concentrated in location terms. Extensive supply currently exists in the central business districts (CBDs) of Geneva and Zurich in particular, mostly comprising small-scale
properties. Bern and Basel are comparatively unaffected; here it is above all individual projects
in the outer business districts that are looking for new tenants. Lausanne is positioned somewhere between the two extremes.
Retail property
Page 55
No end to the challenges
The retail property market has demonstrated an astonishingly high degree of stability in recent
years. Supply and demand have never been far apart. However, there are now growing signs
that the spate of development that occurred in the period up to 2011 is set to take its toll on the
market. Although a few projects are still awaiting completion, it seems there are virtually no new
projects in the planning phase. This speaks volumes: the uncertainty on the part of investors
and tenants alike as to how the market can cope with the imminent challenges due to the
growth of online sales is tangible. Bricks and mortar retailing has still to find its new role in a
digitized omni-channel world. What's more, this is in a business environment that is now even
more challenging following the Swiss franc's appreciation.
Special focus:
Student housing
Page 63
A niche with growth potential
Affordable housing for students is a scarce resource at many university locations. First, low incomes mean many students have minimal willingness to pay; this severely restricts the choice of
potential accommodation. Second, reurbanization and immigration have made housing increasingly scarce in the urban centers, where educational institutions are located, and driven rents
sharply higher. Supply is particularly scarce in the major university cities. Consequently, there is
major demand for additional housing for students. At the same time, in an environment of continuously falling yields the question of alternative investment opportunities is becoming an increasingly pressing one for real estate investors. Niche markets such as student housing are
one of these alternatives and are also perfectly suited to diversification.
Real estate as an
investment
Page 67
No way real estate investments can be avoided at the moment
Swiss real estate investments benefited from extraordinary circumstances on the capital markets last year. This trend is likely to continue in the current year, though presumably not with the
same dazzling results. We anticipate that short and long-term interest rates will remain at low
levels this year. The gap between dividend yields on real estate investments and safer bond
yields is therefore set to remain huge, meaning there is virtually no way real estate investments
can be avoided. We also show that funds are less heavily exposed to the growing absorption
risk. It will not be possible to prevent initial yields on direct Swiss real estate investments from
falling again, however, since the development of prices and rents on residential and mixed-use
investment properties is continuing to diverge.
Regional analysis
Page 78
Regional real estate markets at a glance
We explore the influence of regional factors and characteristics on the structure and development of real estate markets in even greater detail in the form of informative electronic fact
sheets for all 110 of Switzerland's economic regions. These regional fact sheets serve as an
online reference tool, enabling private and professional real estate investors to compare regional
sub-markets and discover the key features of the local real estate markets.
5
FX Shock: Impact on Swiss Real Estate Market
The Swiss National Bank's abandonment of the euro exchange rate floor caught many market
participants totally unprepared. Although this thunderbolt has not fundamentally altered the
Swiss economy's starting position, the scale and urgency of the new challenge should not be
underestimated. Following an initial stock-taking, we have halved our growth forecast for gross
domestic product this year to 0.8% and expect a sharp fall in employment growth. The main
victims of the SNB's decision are the export sectors. They include not only the exportdependent industrial segments but also key elements of the Swiss financial center as well as
tourism and retailing. As the real estate and construction sectors with few exceptions have a
distinctly domestic bias, the direct consequences are more or less negligible. Since the Swiss
franc shock nevertheless has a negative effect on the domestic economy, Swiss real estate
markets will very probably feel the consequences of the decision via second-round effects.
Need for structural adjustment and cost pressures
will reduce demand for
floor space
The abandonment of the euro exchange rate floor is an economic shock that will cause a slump
in demand for Swiss products. However, it also means a need for structural adjustment has built
up – literally overnight. The pressure for adjustment will require a rapid response that – after a
slight time lag – will ultimately spread to the furthest reaches of the economy through various
transmission channels. Companies will have to rethink their strategic business areas and be
forced to adapt to the new situation. This will lead to the relocation of production processes,
abandonment of entire business areas and concentration on new, high-value areas of activity.
However, all cost factors will be scrutinized. These include the cost of premises, with the result
that many of the companies affected are looking for ways to increase floor space efficiency and
negotiate more favorable rents per square meter. Real estate players therefore have to expect
reductions in demand.
Negative interest rates increasing the attractiveness
of real estate yields …
Although the fundamentals were negatively affected by the Swiss franc shock, interest in real
estate investments is likely to increase further still. There are four reasons for this: first, yield
spreads between real estate investments and alternative investments are at a record level following the renewed reduction in interest rates by the National Bank. Second, the fear of negative interest rates and shortage of alternatives are driving investors into real estate. Third, there
are no signs of a rapid change in the situation. There is no threat of a sharp rise in interest rates
or excessive slump in demand. Fourth, a greater home bias can be expected given that domestic investors are once again attaching greater weight to exchange-rate risk. Following a brief dip
on the day of SNB's decision, price gains on listed Swiss real estate investments confirm the
heightened interest among investors.
… and driving investors into
real estate
The yield gap in favor of real estate is likely to cause prices of the latter to go on rising, regardless of the trend to excess supply and declining yields. Both rising prices and growing vacancies
are putting yields under pressure. Falling yields therefore continue to characterize the real estate
market, where prices and fundamentals are becoming increasingly decoupled.
Impact on individual segments of the real estate market
Commercial property
market worst affected
The expected softening of economic activity comes at an inopportune moment for the office
property market. Floor space expansion continues to put a strain on the market and is causing a
rise in vacancies. The existing oversupply is now likely to accentuate even further. Having already been slack to date, demand this year is likely to suffer from companies' response to the
exchange-rate shock. In a single stroke, production costs in Switzerland also became substantially more expensive for foreign companies. The recent exceptionally low success rate in attracting foreign businesses (see page 37) is unlikely to recover quickly following the SNB's decision. On the contrary, consultants and locational development chiefs state that interest in
Switzerland among foreign firms is dwindling; hence the further fall in the number of new businesses attracted in recent months. Growing uncertainty about the political framework in light of
the many anti-business proposals is now accompanied by a jump in costs. We expect additional
demand of less than 200'000 m² for 2015, which is only around one-eighth of the record de-
6
mand seen in 2007. More efficient use of floor space is one option for firms wanting to cut
costs and maintain margins. This creates opportunities for new or refurbished properties, provided they can offer companies efficient use of space. In overall terms, however, the market
trend means an acceleration in vacancies and even more pressure on rents. In the major centers
of Zurich and Geneva in particular, we expect an unbroken rise in vacancies. That said, the situation may vary considerably at local level. Prime sites such as railway locations in the major centers should continue to do very well, including in the case of new properties. Smaller office markets are also likely to be less significantly affected by the supply overhang.
Retail property: sites near
border at risk
The abandonment of the euro exchange rate floor has a serious effect on the retail property
market, especially in border areas. The business environment in retailing – not that it had improved in any case – will continue to become more depressed as a result of the currency appreciation shock. Shopping tourism will get another boost and consumer enthusiasm will remain
subdued, while retail prices fall more sharply again. We consequently expect a noticeable, nominal decrease in sales in 2015. Investors and tenants had already been unsettled by online competition prior to the Swiss franc shock. Thus any boost to the demand for space is only likely to
come from population growth and foreign retail chains, whose interest in Switzerland as a business location has increased due to the sharp jump in the Swiss franc's purchasing power. A
rapid rise in surplus capacity is unlikely in future, however, given that expected construction output has also slumped. Vacancies will nevertheless continue to rise, while the supply of property
will remain at a high level at least.
Rental apartments market:
return of the cycle
The super-cycle in the domestic economy is beginning to lose steam. This development is being
accelerated by the abandonment of the euro exchange rate floor. Unlike the owner-occupied
market, which is being curbed by regulatory intervention, the rental apartments market is only
seeing a minimal loss of momentum whether on the demand or the supply side. For 2015,
however, we expect slightly weaker immigration from abroad of around 70'000 persons as well
as more cautious demand given that tenants are among the main victims of the expected jobshedding. The regulatory induced reduction in demand for owner-occupied housing will nevertheless continue to have a supportive effect. Significantly lower employment growth and a consequent decrease in the flow of immigrants will have a greater impact on demand in the medium
term. On the supply side, production of rental apartments meanwhile continues unabated or is
actually being stimulated further by the increasingly pressing dearth of investment opportunities.
We therefore expect another marked increase in vacancies of around 4000 apartments in
2015. As a result, the rental apartments market is gradually moving toward a situation of excess
supply and is likely to evolve into a tenant's market. It will be a slow process, however. This will
temporarily result in a slight easing in the urban centers, which are characterized by a shortage
of housing. Long-term, the decline in demand is likely to be observed above all outside the major cities.
Owner-occupied housing:
High-price segment worst
affected
The more subdued economy, which is likely to become more noticeable to households during
the summer months, will ensure a continuation of the weakening trend for owner-occupied
housing and keep the market on track for the hoped-for soft landing. Meanwhile, segmentspecific differences are likely to become more accentuated. The high-price segment is exposed
to persistently weak demand, which will become more acute due to the exchange-rate shock.
Switzerland's price/performance ratio is simply no longer acceptable to foreign buyers, and this
will also hit sales of second homes. The number of vacant owner-occupied properties is therefore likely to increase again this year. We do not expect higher vacancies medium-term, however, as output of owner-occupied housing has already been declining for years and is therefore
adjusting to waning demand. This year, for instance, construction of owner-occupied properties
will reach its lowest level since 2001. This is likely to have a stabilizing influence on the market
should the second-round effects of the exchange rate shock weaken demand somewhat more
strongly in 2016.
7
Owner-Occupied Housing
Without regulatory measures and the dampening effect of repeated warnings of a price bubble,
the residential property market would overheat due to the extremely low interest rates. Metaphorically speaking, the market therefore has one leg on the glowing hotplate and the other in
the freezer. All in all this therefore results in a pleasant feeling. But will this "cohabitation" between hot and cold continue to keep the market on course? In order to answer this question it is
helpful to know where the market is currently standing and how it can be expected to develop in
the next few quarters.
Demand: Marked Effects of (Self-) Regulation
Low mortgage interest
rates only exerting a limited
effect due to regulation
Mortgage interest rates and consequently the financing of residential property were more favorable than at any time within living memory at the start of 2015. Mortgage interest rates are at
their lowest technically feasible level well into the medium-term duration segment; in other
words, the mortgage holder is only paying the margins of the lending institutions that the latter
require to cover the handling and risk costs. Interest rates should remain at an extremely low
level on a historical comparison over the rest of the year. In principle this represents ideal breeding ground for strong demand for owner-occupied housing. However, demand can only benefit
from the low mortgage interest rates to a limited extent: On the one hand the constant rise in
property prices means that the number of households that can afford residential property is decreasing. At the same time, the regulatory measures introduced so far, the impact of which we
will address below, have additionally increased the obstacles. Although the desire for owneroccupied housing remains high due to very low mortgage interest rates, it is something that
fewer and fewer households are able to realize.
What is an average household still able to afford?
A comparison between the maximum price that according to conservative affordability guidelines
an average household is able to afford and the market price of a newly constructed condominium illustrates vividly how the price level achieved and the regulatory measures are curbing demand (see Figure 1). A property of this kind cost CHF 450'000 back in 2000. An average
household would even have been able to afford a property for CHF 664'000 back then, i.e. it
was not merely able to buy property but could even afford some extra space or a property in a
better location. The maximum affordable purchase price at the end of 2014 was CHF 734'000.
The small increase in purchasing power is partly attributable to the fact that the higher payback
requirements serve to neutralize some of the growth in income. Over the same period the price
for an average property rose to almost CHF 800'000, which is no longer affordable for an average household. Figure 1 illustrates this disproportionate development of market prices and the
purchasing power of the broad population.
Figure 1
Figure 2
Gulf between price and maximum affordability
Imputed affordability (average household)
Comparison in CHF for average household and medium-sized condominium
Imputed costs for residential property as % of income
800'000
45%
700'000
40%
600'000
35%
Maintenance 1% of property value
5% mortgage interest for 80% loan capital
Repayment costs from 80% to 66%
Golden rule of financing
30%
500'000
25%
400'000
20%
300'000
15%
200'000
10%
Market price of condominiums
100'000
Maximum affordable price of condominiums
0
2000
2002
2004
2006
Source: Credit Suisse, Wüest & Partner
2008
2010
2012
2014
5%
0%
2001
2003
2005
2007
2009
2011
2013
Source: Credit Suisse
8
Imputed affordability no
longer guaranteed for
average households
If affordability is calculated at an imputed interest rate of 5%, an average household no longer
fulfilled the imputed affordability criteria1 for the purchase of a new standard condominium at the
end of 2014. 36% of household income would have to be spent on interest and repayments as
well as maintenance, which is above the generally recognized affordability threshold of 33.3%
(see Figure 2). Affordability is not only becoming a growing financing hurdle in the high-price
regions surrounding Lake Geneva, Zurich and Zug, but is now also affecting comparatively inexpensive regions such as St. Gallen/Rorschach and La Gruyère. The recent significant increase in prices in these regions alongside comparatively moderate simultaneous growth in income has pushed up the imputed living costs to 35% and 37% respectively (see Figure 5).
Significant effects of
self-regulation
Alongside the continuous price increases, the regulatory measures gradually introduced by the
supervisory authorities in the past few years and the self-regulation of Swiss banks were the
main reason for the growing difficulties of households in meeting the affordability requirements.
The maximum repayment period for mortgage loans (up to 66.6% of the lending value) was reduced to 20 years in July 2012 and a further reduction to 15 years followed in September
2014. The shorter repayment periods resulted in an abrupt rise in annual repayments (see Figure 2). Because the latter are included in affordability calculations, the imputed living costs of
the average household are increased. Without the two regulatory measures the living costs
would today lie at 33.8% instead of 36.0%.
Capital requirements the
greatest obstacle
Even stronger than via the affordability channel regulatory measures unfolded their effect by
affecting capital requirements. Owing to the hefty property prices the capital requirements today
pose the greatest obstacle on the path to home ownership for broad sections of the population.
According to our Housing Affordability Index (HAI), at the end of 2014 an average Swiss
household had to spend 6.1 times its annual income on a new medium-sized condominium (see
Figure 3). The cost of a single-family dwelling amounts to 7.7 annual incomes. In the UK,
where real estate is not exactly cheap, only 5.0 annual incomes are required for the purchase of
residential property. Thanks to the option of an advance withdrawal of retirement assets, the
growing capital requirements for a long time did not pose any major obstacle. However, the
tightened equity requirements introduced in the summer of 2012 according to which a home
buyer has to contribute 10% of the lending value in the form of common equity that is not taken
from pension fund assets were then deliberately radical. Because many households are either
not able or not prepared to accumulate savings outside mandatory occupational retirement benefits, this clear provision has increased the entry obstacles. According to our estimates, the regulatory measures introduced so far have curbed the growth of mortgage volumes over the past
few quarters by 1.0 to 1.5 percentage points.
Distribution of wealth
increasingly determining
the potential demand
To determine how drastic these equity requirements are, we have carried out a detailed analysis
of wealth data from the cantons of Aargau and Zurich. According to the most recently available
figures from 2011, only 38.9% of taxpayers in the canton of Zurich are able to supply the 10%
of common equity required for the purchase of an average newly built condominium in the canton from their own assets (see Figure 4). At 42.0%, somewhat more taxpayers fulfil this criterion in the canton of Aargau, where a new condominium costs almost a third less. Assets in the
canton of Aargau are generally lower so that as a rule fewer households and taxpayers are able
to supply the capital for an equally expensive home. However, because house prices in the canton of Aargau are significantly lower, altogether more households are able to overcome the equity obstacle.
What would be the effect
on demand of a further
tightening of
equity provisions?
The assessment of wealth distribution also shows what effect could be expected from a further
increase of the obstacle concerning common equity. A tightening of this requirement from 10%
to 15% or 20% would reduce the share of taxpayers in the canton of Zurich with sufficient
capital for a newly built condominium from 34.2% to 29.8%. In the canton of Aargau, 37.2% or
33.6% of taxpayers would remain as potential buyers of residential property.2 In some cases the
requisite funds can also be procured via family or friends. However, this has a negative effect on
1
2
Loan to value ratio: 80%; imputed mortgage interest rate: 5%; maintenance: 1%; reduction of debt from 80% to 66.6% of lending value within 15 years.
Because funds from the third pillar are not included in the wealth data but can be allocated to common equity, the actual shares will in fact be somewhat higher. On the
other hand, the continued rise in prices for residential property of 10.5% since 2011 that the wealth data is based on has reduced these shares again.
9
affordability unless the money is lent without interest. Our results show that for each tightening
of the common equity requirements by five percentage points a fall in demand of over 10%
compared with the existing potential demand can be expected.
Figure 3
Figure 4
Housing affordability index: condominiums
Taxpayers with sufficient assets
Required annual income for the purchase of average residential property
X axis: share of taxpayers with sufficient assets; Y axis: required equity; data
(shown as minimum required equity and loan capital)
from 2011
7
200'000
6
Common equity
Other equity
Loan capital
175'000
Canton Zurich
ZH 20%
150'000
5
Share of required
common equity
Canton Aargau
AG 20%
125'000
ZH 15%
4
100'000
3
2
ZH 10%
AG 10%
50'000
1
0
2001
AG 15%
75'000
25'000
2003
2005
2007
2009
2011
2013
0
20%
25%
30%
35%
40%
45%
Source: Cantonal statistical offices, Credit Suisse
Major regional differences
in terms of capital requirements and affordability
Regionally there are very different ratios in terms of the households still capable of fulfilling the
dream of home ownership within the scope of their financial resources. The Housing Affordability Index drawn up for the first time on a regional basis clearly illustrates these differences regarding the capital requirement obstacle (see Figure 6). To purchase a condominium costs 9.0
annual incomes and more along virtually the entire shore of Lake Geneva. The front runners are
Geneva at 14.6 and Lausanne at 11.1. The situation around Lake Zurich is similar, although not
quite so extreme. The front runner here is the city of Zurich with 11.1 required annual incomes,
followed by the Pfannenstiel region with 9.7. The situation in many parts of the Swiss Plateau is
very different: For instance, 5.1 annual incomes are sufficient in both the Thurtal region and
Aarau.
Demand switching to less
expensive regions or smaller properties
A very similar regional picture emerges for imputed affordability that has long since ceased only
to be difficult to uphold in the high-price regions (see Figure 5). For this reason a shift in demand can currently be observed to regions with lower land and property prices. Those who nevertheless do not wish to give up the dream of their own four walls at central localities are today
being obliged to switch to smaller-sized properties and if necessary also to make concessions in
terms of features.
Further downturn of
growth in demand in 2015
due to regulatory reasons
The additional self-regulation measures for banks introduced in September 2014 (tightened
repayment guidelines, lowest value principle) that ultimately serve to increase both the affordability and the equity obstacle had only partially taken effect in the second half of 2014. We
therefore expect the demand for owner-occupied housing to continue to fall in the current year
despite negative interest. Because many potential buyers already own residential property, the
positive momentum arising from the extraordinarily low mortgage interest rates will not only be
neutralized but overcompensated by the reduction in potential demand due to regulatory reasons.
10
Figure 5
Figure 6
Imputed affordability (average household)
Capital requirements (housing affordability index)
5% interest, 1% maintenance, 80% loan to value ratio, repayment on 67% in
Required annual incomes for the purchase of average residential property.
15 years
51 –
41 –
34 –
31 –
26 –
21 –
15 –
88%
50%
40%
33%
30%
25%
20%
Source: Credit Suisse, Geostat
10 – 15
8 – 10
7–8
6–7
5–6
4–5
2–4
Supply: Falling Number of Planned Owner-Occupied Properties
Continued shift of
construction activity
from residential property
to rental apartments
Housing production is so far barely showing any signs of fatigue and remains at a high level. We
expect the completion of 47'000 residential units in 2015 (see Figure 7) which is only marginally below the level of the past two years. Structurally, however, the mix of housing has been
changing for years in favor of rental apartments. The construction of single-family dwellings has
been declining for over ten years. For the first time less than 10'000 new single-family dwellings were approved in 2013. By contrast, the number of approved condominiums remained at a
level of over 20'000 units until mid-2011. However, constructions in this segment have since
then also entered a downward trend that was only temporarily halted by a wave of second home
approvals following the acceptance of the second home initiative. We expect around 15'000
condominiums and 8000 single-family dwellings to be built in the current year – a decline of
12% on the previous year. Altogether the construction of residential property has decreased by
a quarter since 2011. Residential property construction is at its lowest level since 2001.
Production of new residential property will also fall in
2016
It is expected that this development will continue in 2016. There are currently no signs of a
trend reversal in terms of either building permits or planning applications. The decline in production can at best be expected to slow down for condominiums. In view of the situation outlined
above with an ongoing downturn in demand for owner-occupied housing, the anticipated fall in
supply is to be welcomed. This should reduce the risk of a growing oversupply.
Noticeable decline in
owner-occupied projects
in high-price regions …
The interesting question now is where less residential property is being planned. Is construction
activity also shifting in line with demand from the high-price regions to the surrounding areas
where purchasing one's own four walls is more affordable? In order to analyze this, we base our
assessment of building permits on regional aggregates that reflect the differing price momentum
(see Figure 8). It can be seen that approvals in the high-price regions on Lakes Geneva, Zurich
and Zug already dropped significantly at the start of 2012 and since then have more or less
managed to maintain the current annual level of 4300 approved units. This corresponds to a
decline of 25% since mid-2011 when the local maximum of the past six years was recorded.
The decline in the urban centers outside the high-price regions and in the growth regions close
to the urban centers is less marked (–22% since mid-2011). However, the downward trend
there has not yet come to a halt. Although the price level in these regions is not as high as in
the high-price regions, the continuous price rises are also posing a burden there for more and
more households. Meanwhile, the Alpine regions have sustained the sharpest fall with a virtual
halving of owner-occupied projects (–46% since mid-2011) because following acceptance of
the second home initiative condominiums not used as a first home may only be built to a very
limited extent.
11
Figure 7
Figure 8
Net addition by Segment
Owner-occupied housing building permits
In residential units, 2014/2015: Credit Suisse estimate/forecast
Geographical aggregates, number of residential units, total over 12 months
60'000
High-price regions (hotspots)
Urban centers outside the hotspots and growth regions close to the urban centers
Other parts of Swiss Plateau and Jura
Alpine regions
14'000
Single-family dwellings
Condominiums
Rental apartments
50'000
40'000
12'000
10'000
30'000
8'000
6'000
20'000
4'000
10'000
2'000
0
2001
2003
2005
2007
2009
2011
2013
2015
0
2002
2004
2006
2008
2010
2012
2014
The residential units approved in 2012 can no longer be constructed due to
objections upheld by the Federal Supreme Court.
Source: Credit Suisse, Baublatt, Swiss Federal Statistical Office
… but less loss of momentum in other parts of the
Swiss Plateau and the Jura
Source: Baublatt, Credit Suisse
The least loss of momentum was recorded for the construction of residential property in other
parts of the Swiss Plateau and the Jura (see Figure 8). With 9800 approved condominiums and
single-family dwellings in the last 12 months, permits are 17% down compared with mid-2011.
The less marked decline will be attributable primarily to movements on the demand side from
the high-price regions to regions still offering affordable housing. No change to this geographical shift is to be expected in the immediate future.
Figure 9
Planned expansion of residential property
As % of stock of residential property (condominiums and single-family dwellings)
> 2.5%
2.0 – 2.5%
1.5 – 2.0%
1.0 – 1.5%
0.75 – 1.0%
0.5 – 0.75%
< 0.5%
Versus five-year average
Sharp increase
Moderate increase
Sideways movement
Slight decrease
Sharp decrease
Source: Credit Suisse, Baublatt, Geostat
12
Major regional differences
Major regional differences can arise within the geographical aggregates. Our overview map
shows how much the stock of residential property in the individual regions is expected to expand
in 2015 (see Figure 9). It confirms the impression that the focus of construction activity is increasingly coming to lie outside the high-price regions. The highest growth in 2015 can be expected in the regions of La Gruyère, Glâne/Veveyse, Erlach/Seeland, Sursee/Seetal and the
Limmattal and Knonaueramt. However, what is astonishing is that the momentum east of Zurich
is only well above the national average in the Thurgau regions of Thurtal and Untersee/Rhein.
Fewer major projects
Not only is less residential property being built but the projects are generally also smaller (see
Figure 10). Projects with 25 homes or fewer now account for 68% of all approved condominiums. This primarily comes at the expense of projects with 26 to 50 homes. However, projects
with over 100 homes are also rare and can today be counted on the fingers of one hand. The
decrease in project size will at least partially be attributable to the fact that a greater share of
residential property is being constructed outside the densely populated high-price regions where
the volume of demand is limited. However, the decrease in project size also shows that suppliers have become more cautious and are avoiding cluster risks. In times of falling demand,
smaller properties are more likely to achieve sufficiently high advance sales figures and hence
greater chances of realization.
Increasingly cautious
behavior of real estate
investors
Real estate investors also appear to be deciding increasingly later whether to construct rental
apartments or condominiums. The number of multi-family dwelling projects without specification
of use has therefore risen sharply. It is now the case for 34% of all planned homes in multifamily dwelling projects that no information is at hand as to whether rental apartments or condominiums are under construction (see Figure 11). There are two reasons for the lack of usage
specification – diversification and scope for manoeuver. On the one hand major projects are increasingly serving both demand segments, which is among other things also down to the
changed structure of immigration and increased demand for rental apartments. Any changes to
the market situation in one segment can be absorbed better with this kind of diversification. On
the other hand, usage is deliberately kept open for as long as possible in order to retain scope
for manoeuver. If the homes cannot be sold to private owners due to the ongoing fall in demand, many investors will be tempted to let them out. However, this entails the risk that potential future sales problems for residential property spread to the rental accommodation market, to
say nothing of the fact that a conversion of condominiums to rental apartments is not all that
easy – especially since the two market segments are increasingly drifting apart. At least the returns will be brought under pressure by such a change of housing type.
Figure 10
Figure 11
Residential property projects by project size
Planned use of MFD projects
Share of MFD building permits by project size (owner-occupied only)
Percentage of building permits
1 – 10
11 – 25
26 – 50
51 – 100
101 – 200
> 200
100%
100%
Rental apartments
MFD, usage unknown
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
2002
Condominiums
0%
2004
2006
2008
2010
2012
2014
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
13
Market Outcome: Continued Slowdown – No All-Clear
The "soft landing" path is
narrow
Until now it has been possible to keep the Swiss residential property market on course despite
excessive growth momentum from time to time. There remains a good chance that the current
property cycle will end with a "soft landing", which is more the exception than the rule. The
regulatory measures introduced to date have significantly weakened demand despite abnormally
low mortgage interest rates. Thanks to the likewise reduced expansion of supply, a major market imbalance has so far been prevented. However, the challenges remain in place. It is to be
hoped that any further potential regulatory measures are implemented in a well thought out and
sensitive manner.
Vacancies of residential
property increasing
Owing to the long period between the planning and completion of construction projects, supply
is responding with delay to the lower demand. There was therefore an increase in residential
property vacancies of 1565 residential units in the past year. As of 1 June 2014, 5215 condominiums and 4692 single-family dwellings were vacant. This is equivalent to a vacancy rate of
0.91% for condominiums and 0.34% for single-family dwellings. These levels are not yet worrying but merely confirm the more challenging market environment for investors.
Vacancies in the hotspots
almost doubled since 2010
An analysis of vacancies according to the various geographical aggregates confirms that the
property market is no longer running smoothly above all in the high-price regions (see Figure
12). Since 2010 vacancies in the hotspots on Lakes Geneva, Zurich and Zug have almost doubled to 0.4%. This is roughly equivalent to the level in the urban centers outside the high-price
regions and in the growth regions close to the urban centers. The considerably less expensive
supply of owner-occupied housing in these regions has largely found buyers so that vacancies
here have only risen marginally in recent years. The upturn in the remaining parts of the Swiss
Plateau and Jura was also limited although the vacancy rate here is somewhat higher at 0.53%.
The significant upturn in the Alpine regions is to a considerable extent due to statistical effects
as vacancies in many tourist regions were reported too low in the past. Figure 13 illustrates the
current vacancy rates of residential property in the individual regions. The map shows that particularly in the regions of Morges and Chablais and in the canton of Appenzell Ausserrhoden too
many properties have been constructed recently that are proving difficult to sell.
Figure 12
Figure 13
Vacancies of residential property
Regional vacancies of residential property in 2014
As % of stock of residential property (single-family dwellings and condos)
As % of stock of residential property (single-family dwellings and condos)
0.7%
Urban centers outside the hotspots and growth regions close to urban centers
Alpine regions
0.6%
2014 property vacancies
1.21 – 1.53%
1.01 – 1.2%
0.81 – 1%
0.61 – 0.8%
0.41 – 0.6%
0.21 – 0.4%
0 – 0.2%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
2001
2003
2005
2007
2009
Source: Credit Suisse, Swiss Federal Statistical Office
Number of transactions
decreasing
2011
2013
Change on 2013 – 2014
Sharp increase
Moderate increase
Sideways movement
Slight decrease
Sharp decrease
Source: Credit Suisse, Swiss Federal Statistical Office, Geostat
The fall in demand for owner-occupied housing is also reflected in the development of transactions (see Figure 14). These reached their peaks in the spring of 2011. Compared with these
peaks there has been a decrease in the number of transactions of 11.8% in the case of condominiums and 16.8% in the case of single-family dwellings. Altogether this represents a moderate downturn in changes of ownership that points towards continued attractive framework
conditions for owner-occupied housing. However, the conditions are now no longer equally attractive for all market players. The renewed appreciation of the Swiss franc following the withSwiss Issues Real Estate – Real Estate Market 2015
14
drawal of the minimum exchange rate has made residential property for foreigners calculating in
foreign currencies much more expensive. Prices already rose by a quarter due to exchange rate
effects back in 2010/2011. In the canton of Zurich the number of property purchases by foreigners has been falling since 2011. Alongside the appreciation of the franc, these falling sales
figures can also be explained by the changed structure of immigration. Immigrants from Southern Europe have less income and capital and can be proven to purchase less expensive properties. They will therefore be much more greatly affected by the tightened financing guidelines.
Newly built homes account
for two fifths of transactions but old properties
gaining popularity
Newly built homes account for an extraordinarily large share of overall transactions in Switzerland. In 2014, 21% of all changes of ownership were attributable to newly built homes (see
Figure 15). If in order also to take into account newly built homes that cannot be sold immediately we also count one-year-old properties, the share of newly built homes rises to almost
29%. This high share results from the growing significance of condominiums in Switzerland as
well as the typically long period of residence of owners in their own four walls which significantly
reduces the market liquidity of older properties compared with other countries. However, old
properties that we define as properties in excess of 30 years old are gaining popularity in particular in the single-family dwellings segment. They are exerting a growing influence on the selling
market for owner-occupied properties.
Figure 14
Figure 15
Transactions by segment
Transactions by age of property
Index: 2009 = 100; Credit Suisse estimate
Percentage of all transactions
120
Condominiums
110
Newly built
31 – 40
100%
1
41 – 50
2–5
51 – 75
6 – 10
76 – 100
11 – 20
> 100
21 – 30
90%
100
80%
70%
90
60%
50%
80
40%
70
30%
20%
60
10%
50
0%
2009
2010
2011
Source: SRED, Credit Suisse
2012
2013
2014
2000
2002
2004
2006
2008
2010
2012
2014
Source: SRED, Credit Suisse
Downturn in price momentum losing strength
The prevailing fall in demand is not only making itself felt in increased vacancies but also in a
reduction of price momentum. The upsurge in prices has been receding for a good three years.
In the medium-range segment the prices of condominiums rose by 2.5% in the fourth quarter of
2014 compared with the prior-year quarter, while those of single-family dwellings went up by
3.2% (see Figure 16). A price fall was only observed in isolated regions in 2014. We expect a
continued downturn in price momentum although at a lower speed. The lower production of residential property and above all the extremely low mortgage interest rates suggest that the rise in
residential property prices in the current year is likely to remain close to the 2% threshold or
even above it.
Price falls to be expected in
high-price regions in 2015
The upsurge in prices has by far decreased the most in the high-price regions. At present there
is only weak year-on-year growth of 0.3% (see Figure 17). The first price falls on an annual
basis are even emerging in the Lake Geneva area. Prices are falling most sharply in the canton
of Geneva at –2.8% on an annual basis. A certain degree of correction to the excessively high
property prices in Geneva has therefore started to set in. The times of marked price growth are
also over in the city of Zurich and along the Gold Coast. Although self-regulation is presumed to
have made the greatest contribution to this development, further reasons will also be responsible: The structural change in the financial sector, a lower number of prosperous expats due to
fewer settlements and generally lower foreign demand have particularly affected the high-price
segment. As no rapid change in these factors is to be expected and an economic slowdown will
now also be added following the withdrawal of the minimum exchange rate, price momentum in
15
the high-price regions looks set to decrease further. We expect a fall in prices on an annual basis for the first time in a long time in 2015.
Figure 16
Figure 17
Price growth in the residential property segment
Growth of residential property prices – regional
Annual growth rates in %
Geographical aggregates (condominiums and single-family dwellings); annual
growth rates in %
Condominiums
Average condominiums 2000–2014
Average single-family dwellings 2000–2014
10%
8%
Urban centers outside the hotspots and growth regions close to urban centers
14%
Alpine regions
12%
10%
6%
8%
6%
4%
4%
2%
2%
0%
-2%
0%
1.Q 2011
1.Q 2012
1.Q 2013
Source: Wüest & Partner, Credit Suisse
Continued high price
growth outside the highprice regions
1.Q 2014
-4%
2001
2003
2005
2007
2009
2011
2013
Source: Wüest & Partner, Credit Suisse
The situation in the Alpine regions is difficult to interpret at present. A large number of second
homes have been built due to the second home initiative. However, their sale is stalling considerably due to the uncertainty among buyers owing to the unclear legal situation. Statistically
there are therefore only few observations available and price performance should accordingly be
treated with caution. However, the upsurge in prices in the Alpine regions has until recently fallen to a credibly similar degree to that in the high-price regions of the Swiss Plateau. By contrast, price growth in the urban centers outside the high-price regions and in the growth regions
close to the urban centers has evened out at a level of around 4% and is only displaying a very
small further downward trend. This will be attributable to the geographical shifts in demand. As
explained above, many households are now only able to afford owner-occupied housing in less
expensive regions owing to the tightened financing guidelines.
Second homes – continued legal uncertainty
The second-homes act, or "Lex Weber", which market players hope will create legal certainty, has yet to materialize. It has now been debated in the Council of States and is included in the agenda for the spring session of the National Council in March 2015. But
even if the National Council were to go along with the toned-down draft legislation of the
Council of States, it is questionable whether implementation would be swift. The initiators
of the second-homes initiative are threatening a referendum. This could give the Swiss
electorate the final say, which would extend the legal uncertainty. The Building and Planning Committee of the National Council therefore intends to declare the legislation urgent.
That would mean it entering into force with immediate effect. Any referendum would follow
later, and might result in the law being overturned again.
The ongoing legal uncertainty is toxic for a functioning market in the regions affected.
Potential buyers are shying away from a purchase, and in many places it is difficult to sell
property at present. This is compounded by the large number of new second homes in
some tourist regions; these were planned and constructed at the last minute after the
"yes" vote in the second-homes initiative. Following the lead verdict issued by the Swiss
Federal Court, stipulating that the rules on restricting second homes must apply from the
date of the referendum, the status of these properties has not been resolved. Will they be
treated as equal to homes built under the old legislation, or should specific restrictions
apply to their use? The decision will have a key impact on price levels for these homes. No
wonder, then, that sales are slow. In addition, the entire situation is exacerbated by the
16
overall economic situation – particularly in the euro zone. Poor economic prospects in their
home countries, plus the strong Swiss franc, are currently deterring many foreign residents
from buying a second home in Switzerland. As a result, excess supply will continue to rise
in the short term.
Unfortunately the uncertainties will not be cleared up even after the law is passed. The
draft legislation contains a number of passages interpretation of which will presumably
require final clarification by the Federal Court. Once the law is passed, a noticeable improvement in the market situation is likely to begin for properties not subject to restrictions
on their use (those covered by the old legislation) at least. However, the possible scale
and type of additional second homes that may be built in future as well as future prospects
for the construction sector in the regions affected will be heavily dependent on the definitive form in which the second-homes act takes effect.
More – but less extreme –
imbalances
The decreasing price momentum has reduced the risk of a price bubble by preventing the real
estate market from slipping into a development shaped by speculative purchases. However, this
does not mean that the question of the sustainability of the current price level has been resolved. On the contrary, the residential property prices in various regions continued to rise more
sharply than incomes over the last year. The imbalances have therefore increased in number but
are no longer quite as extreme in some regions. We now consider the price performance in 55
out of 106 regions no longer to be sustainable (see Figure 18). Price corrections must be expected in these regions in the event of a normalization of the interest rate situation. However,
the overvaluation in some regions is only very moderate and their price levels differ greatly from
those in the high-price regions. This applies to most of the regions that are newly included in
this count. As before, we are talking only in the case of Geneva about a veritable price bubble.
However, the imbalances were slightly reduced in 2014 in both Geneva and the other high-price
regions around Lakes Geneva and Zurich. Nevertheless, there is still a long way to go before
regional property prices correspond better with local incomes again.
Figure 18
Figure 19
Regional valuation of residential property prices
Criteria of a property price bubble
Price performance of condos/single-family dwellings in relation to income
1996 – 2014 ratio
> 1.6
1.5 – 1.6
1.4 – 1.5
1.3 – 1.4
1.2 – 1.3
1.1 – 1.2
1.0 – 1.1
< 1.0
 Agree
YoY change
Deterioration
No change
Im provement
No property price bubble
despite overvaluation
~ Insufficiently pronounced X Disagree


~

Excess liquidity




~

Long period of rising real estate prices
X

High / excessive growth in mortgage volumes given margin
pressure on mortgage lenders
X

Insufficient credit checks for mortgage approval (due to false
incentives)
X

Excessive construction activity and supply surplus
Excessive appetite for risk
Real estate prices decoupled from income
High level of speculative real estate transactions
With a view to our checklist for the existence of a property price bubble, the situation is similar
to that of the previous year (see Figure 19). As before, some criteria for the existence of a
property bubble are not fulfilled. There can be no talk of either excessive construction activity or
generally poor credit checks by the mortgage loan institutions. Furthermore, because the growth
of mortgage lending to private households has shrunk markedly to 3.3%, there can no longer
be any talk of excessive lending. On the other hand, we are placing more of a focus on speculative real estate transactions. Although the falling overall number of transactions (see Figure 14)
is having a calming effect and does not support the conclusion that a large number of properties
17
are being acquired with the objective of a swift resale with profit, owing to the risk of an increase in "buy to let" transactions we are adjusting our assessment from "Does not apply" to
"Not sufficiently pronounced".
Seemingly attractive "buy to
let" transactions
The record low interest rates can tempt people into buying residential property for investment
reasons in the form of so-called "buy to let" transactions. Private buyers then purchase residential property not for their own use but to let out. There are no nationwide figures available for
this phenomenon. Almost every fifth loan granted by the two big banks is for a "buy to let"
transaction. In view of the extremely low borrowing costs, these kinds of transaction appear to
be very attractive investments – at least from a short-term perspective. However, viewed over a
longer term it is not clear whether the profit currently achievable from letting will suffice to offset
future value adjustments due to a normalization on the interest rate front.
Risk of increasing "buy to
let" transactions
Letting is set to become more challenging in the next few years because oversupplies are tending to accumulate on the rental accommodation market (see chapter on rental apartments). On
top of this, many of these owners hardly have any experience in property management. In the
absence of specialist knowledge, the costs of maintenance are often underestimated and the
potential renewed rise in borrowing costs in the future are insufficiently anticipated. Markets with
high shares of "buy to let" are generally considered to be more volatile because such properties
are more hastily placed on the market in the event of a deterioration of the framework conditions and can trigger major price fluctuations. The first banks have therefore tightened the financing guidelines for such transactions, for instance in the form of higher repayments. Although these transactions do not pose any direct risk potential at present, there has been no
increase in their number at the big banks in the last two to three years.
Bottom line: Overvaluation
yes, bubble no
There can still be no talk of a speculative property price bubble on the Swiss residential property
market. Despite the fall in demand and significantly weaker price growth, the price levels in the
majority of regions continue to point towards overvaluation. This poses certain risks that can at
best be alleviated through the creation of capital buffers by all involved. However these do not
make value losses any less likely, they at least enable them to be absorbed better. There is at
any rate no call to sound the all-clear as long as interest rates remain at such low levels.
Residential Property as an Investment
Distinction between building and building land
The high price rises of the past few years have made residential property appear an ideal investment. In the current negative interest environment in which private households are seeking
opportunities to park their money with at least a minimum rate of return, this perception is gaining even more supporters. However, the price indices underlying the price rises reflect the performance of new construction projects and therefore blend out part of the investment calculation, namely the depreciation resulting from structural and economic ageing. From an investor
perspective it is imperative that this is included. In view of their differing performance, it makes
sense to consider the building and building land separately in the investment calculation. The
building has its maximum value when new and loses value each year. The loss of value is taken
into account via depreciation. This contrasts with the building land, the value and future appreciation potential of which primarily depend on the attractiveness of the location and its further development as well as economic and property market-specific factors. Whether the home owner
lets out or lives in his property plays only a subordinate role in our consideration. In the former
case the home owner achieves a letting success and the latter is a question of consumption. At
this stage we only consider the value over time of the property.
Land value share as a
decisive influencing factor
For the home owner to make appreciation gains, the increase in value of the building land must
exceed the depreciation on the building. Decisive in this regard is the share of the land in the
overall value of the property, also referred to as the land value share. The higher the land price,
the greater the land value share. However, the maximum achievable plot ratio is barely relevant
as a decision-making criterion for the investment decision as it is included in the land price and
increases the value of the property irrespective of the planned building project. Although a single-family dwelling normally comprises more land per square meter of living space, this is also
generally worth less in single-family dwelling zones due to the low potential for construction
18
(lower plot ratio). A single-family dwelling with a large amount of land therefore does not necessarily have a higher land value share than a house with several condominiums. The decisive influencing factor is hence the land value share and not the share of land. The greater the land
value share of a property, the less weight is carried by the depreciation of the building so that
there is a chance of appreciation gains. However, if a high land value share only arises because
the building land prices are so expensive, a more detailed examination should be carried out to
establish whether the building land still has any appreciation potential at this level. This is the
case if a future inflow of comparatively high-earning and prosperous inhabitants can be expected who are able and willing to pay these building land prices or if there is potential for zone
expansion.
In practice there is very little data available on land prices and hence also on land value shares.
Thanks to estimates by IAZI we are able to illustrate the Swiss average development over time.
Between 2000 and 2014 the land prices of single-family dwellings in Switzerland rose by 74%
(see Figure 20). This is equivalent to an increase of 4% per year and will have more than offset
the depreciation of the property in the majority of cases. This has also caused the land value
share to rise from 36% to 42%. However, major differences emerge at the regional level (see
Figure 21) that reflect the attractiveness of the municipalities as places of residence. For example, today's land value share averages at a very high 74% in Lausanne and 76% in Meilen.
However, the land value share in many parts of Switzerland lies at less than half, such as in
Solothurn at 47%. The lowest land value shares can be found in very rural areas and in particular in the canton of Jura where the land value share amounts to less than 20%.
Major regional
differences in land value
shares
Figure 20
Figure 21
Property prices, land prices and land value shares
2014 land value shares in Swiss municipalities
Indexed single-family dwelling, land prices: 1978 = 100; land value share as %
Share of land value in overall value of single-family dwelling property as %
500
50%
400
40%
300
30%
200
20%
IAZI House Price Index (left-hand scale)
100
10%
IAZI Land Price Index (left-hand scale)
IAZI Relative Land Value Share (right-hand scale)
0
1978
1982
1986
1990
1994
Source: IAZI
1998
2002
2006
2010
0%
2014
Source: IAZI
Investment or consumer
asset
Residential property as an investment therefore primarily pays off in attractive residential locations with high land value shares where the land prices are already high today and are also set
to rise further in the future due to the attractiveness of the location. Residential property as an
investment is much less attractive in many rural areas where the land value share is low and only
marginal increases if any are to be expected in land prices as the depreciation over time carries
too much weight. In these regions residential property is primarily a consumer asset and owner
occupancy stands in the foreground.
High land value share also
poses risks
However, the potential risks must be pointed out with regard to residential property as an investment. Although a high land value share is attractive from an investment perspective, it also
poses higher risks in the form of a greater potential fall, particularly in view of the fact that the
price changes of residential property with high land value shares largely result from changed
land prices. The development of land prices fluctuates even more strongly than that of property
prices that already display a very cyclical nature (see Figure 20). Although at attractive locations
an increase in value can be expected in the long term, value losses are also possible here in the
short and medium term. For example, according to estimates by the Statistical Office of the
19
Canton of Zurich, land prices in the city of Zurich fell by 13% between 1992 and 2004 and only
made good this loss again in 2008. On top of this there is the location-based risk: In the event
of a sustained deterioration of the local framework conditions, e.g. in the form of higher taxes,
the construction of a busy road or another form of emissions, a long-term decrease in the value
of the building land can result.
20
Outlook for Owner-Occupied Housing in 2015
Stalled cooling off will pick
up momentum again
The residential property market remains on the narrow path toward a "soft landing". The slowdown in the upward pressure on prices has recently abated somewhat in the wake of a further
fall in mortgage rates – in part, perhaps, because residential property is also seen as an attractive investment opportunity against a backdrop of negative interest rates. At any rate, the desire
for owner-occupied housing remains strong among large sections of the population. Due to
tighter regulation, however, this demand can to an increasing extent only be met in areas outside the high-price regions, where price levels are to some extent still in tune with regional
household incomes. In these regions, residential property prices will therefore continue to rise
and at a relatively significant rate. Only the more subdued economy, which is likely to become
more noticeable to households during the summer months, will ensure a continuation of the
weakening trend for owner-occupied housing and keep the market on course for the hoped-for
soft landing. Meanwhile, segment-specific differences are likely to become more accentuated.
The high-price segment is exposed to persistently weak demand, which will become more acute
due to the exchange-rate shock. Switzerland's price/performance ratio is simply no longer acceptable to foreign buyers. The number of vacant properties is therefore likely to increase again
this year. We do not expect higher vacancies medium-term, however, as output of owneroccupied housing has already been declining for years and is therefore adjusting to waning demand. This year, for instance, construction of owner-occupied properties will reach its lowest
level since 2001. No major supply overhang has emerged other than in the mountain regions,
where regardless of demand as much as possible continued to be built before the secondhomes initiative put a stop to it. This is likely to have a stabilizing influence on the market should
the second-round effects of the exchange rate shock weaken demand somewhat more strongly
in 2016.
Demand, supply and market outcome
Demand
Background
Outlook
Level of mortgage rates: Mortgage interest rates have reached their lower technical limit.


No further reductions are possible even in the case of lower negative interest rates,
unless the banks expose themselves to major cluster risk. The phase of falling mortgage Libor mortgage Libor mortgage

/
rates is therefore likely to be replaced by a longer phase of sideways-trending interest
Fix mortgage Fix mortgage
rates at an exceptionally low level.
Regulation: The full effect of the reduced redemption period introduced in September
2014 and introduction of the lower-of-cost-or-market principle will only be felt in the
course of the year, when it will additionally dampen the demand for owner-occupied
housing.


Population trends: We expect immigration to decline by more than 10% in 2015 to a net
70'000 immigrants. This will have a dampening effect on the demand for owneroccupied housing. In addition, the changed structure of immigration in terms of country
of origin (increasingly southern Europeans) will contribute to a slight decrease in the
demand for owner-occupied housing subject to a time lag.


Net addition of owner-occupied housing in 2015: With around 15'000 new condominiums and 8000 single-family dwellings due to be constructed in 2015, production will fall
to its lowest level since 2001. The shift in new construction from the high-price regions
to regions with more sustainable price levels continues apace.


Medium-term expansion plans: Recently submitted planning applications for owneroccupied projects suggests this development will continue in 2016.


Vacancies: We expect a further rise in vacancies for owner-occupied housing in 2015. In
the high-price regions in particular, supply is likely to meet comparatively weak demand.


Prices: Price momentum is likely to continue weakening in 2015, but should remain well
into positive territory in overall terms with a rise of around 2%. Medium-term, the more
subdued economic picture is likely to contribute to a marked softening of prices in the
peripheral regions as well. Except in the high-price regions, we do not expect prices to
fall as long as interest rates remain so low.


Sustainability of prices: The imbalances in the high-price regions are declining slowly,
though they remain substantial. Outside these regions, however, owner-occupied prices
are likely to rise much more strongly or at least in tandem with incomes; consequently,
the gap between prices and incomes is still not set to narrow. That means it is too early
to give the all-clear.


Supply
Market outcome
21
Residential Property in Regulators' Sights Across the Globe
The overheating housing market and attendant risks to households and the financial system is a
hotly debated subject not just in Switzerland. Relaxed monetary policy in various countries has
led to signs of overheating, which governments have sought to counter in recent years. Price
momentum has now weakened considerably in Switzerland and there is no need for further
measures to cool the situation. It is nevertheless worth taking a look beyond the country's borders at other countries' experience with the use of various instruments.
Price increases alone are still not a threat
Price increases only problematic in combination with
sharply rising debt
Persistent, sharp price increases alone are not necessarily problematic for the stability of a
housing market. It is only in combination with excessive growth in credit and a high level of
household debt that a risky situation can arise in which house price momentum diverges from
the economic fundamentals. For example, studies show a potentially dangerous positive correlation between default rates and the level of indebtedness.3
Real estate bubbles can
potentially be more dangerous than other price
bubbles
There are two reasons why the development of bubbles on real estate markets can cause potentially greater harm than bubbles on other types of investment market. First, owner-occupied
housing accounts for a substantial share of national wealth in many countries. A slump in real
estate prices accordingly affects private households in greater number and to a greater extent
than, say, a sharp fall on equity markets. Consumption consequently suffers a more considerable slump, as a result of which the growth in gross domestic product is more adversely affected.
Second, mortgages account for a large portion of bank portfolios in many countries. A sharp fall
in real estate prices can seriously impair the viability of mortgages and trigger banking crises,
which in turn impacts very negatively on the level of economic activity.
No worldwide overvaluation, but sharp price increases in some countries
In general terms, worldwide housing markets cannot be regarded as overvalued at present. The
equally weighted global house price index of the International Monetary Fund (IMF), which
shows the development of house prices in more than 50 industrialized and emerging-market
countries, has been rising since mid-2009; measured in terms of economic growth, however, it
has risen by a comparatively modest 3.2%. On the other hand, some countries have recorded
very strong real growth rates in the past. Recovery movements can be seen in the likes of Ireland (+18.1% since the low point at the start of 2013) and the US (+21% since the start of
2012). Since 2000, real house prices have also risen strongly in Australia (+34%), Switzerland
(+52%), the UK (68%) and most of all Sweden (+120%). Momentum in Germany was considerably weaker at around 7% (see Figure 22). The growth in credit volumes is trending higher,
as are price levels in relation to incomes and rent levels. In terms of affordability, Sweden, the
UK and Australia stand out in particular. There, house prices are already well above their longterm average compared with incomes and rents.
More restrictive monetary
policy frequently not an
option
Apart from the problem of differentiating between a potentially dangerous overvaluation and
normal price increases, legislators and regulators face the challenge of implementing appropriate measures (see Figure 23). The most obvious tool for keeping lending and consequently real
estate prices in check is a restrictive monetary policy. As this measure has a braking effect not
only on the real estate market but also on the economy as a whole, it is not an appropriate instrument in the current environment of tentative growth because it is disproportionate.
3
See Crowe et al. (2013): How to deal with real estate booms: Lessons from country experiences, Journal of Financial Stability, pp. 301–302.
22
Figure 22
Figure 23
Real-term house price indices in selected countries
Four groups of regulatory measures
Index: Q1 2000 = 100
Schematic view of the measures
220
200
180
Sweden
Singapore
Australia
Switzerland
UK
Monetary policy
More restrictive monetary policy:
Hike in interest rates
Transaction taxes
Wealth taxes
160
140
Macroprudential regulation
120
Reduced tax deductibility of
mortgage interest
Banking sector: higher capital
requirements
100
Private households: upper limits
for loan-to-value ratios and
degree of indebtedness
80
60
2000
Fiscal policy measures
2002
2004
2006
2008
2010
Source: Credit Suisse, Datastream, Wüest & Partner, BIS
Higher interest rates don't
always have the desired
effect in practice
2012
2014
Microprudential measures
Supervision at individual
institution level
Two real-life examples also show that monetary policy alone is often not enough to curb an
overheating real estate market. In Australia and Sweden, interest rates were deliberately increased with aim of preventing an impending bubble on the real estate market. Interest rates in
Australia were raised by 300 basis points between 2002 and 2008, and in Sweden by a total of
325 basis points between the end of 2005 and 2008. Real house prices nonetheless increased
by 21% (Australia) and 81% (Sweden) between 2000 and 2007. To exert a dampening effect
on the housing market, the hike in interest rates would therefore have to be too large from the
perspective of the economy as a whole and would consequently involve too much collateral
damage.
Broad arsenal of fiscal policy and macroprudential measures
Action can be taken in
relation to banks as
well as households
Targeted regulatory intervention can be taken in relation to households as well as the banks.
Intervention falls into the category of fiscal policy measures and primarily affects the tax treatment of real estate purchase, ownership and method of financing. This includes transaction
taxes, which increase the cost of purchasing owner-occupied housing. Their role is to make
speculative real estate investment – which can be reflected in a large number of transactions in
a relatively short period – more expensive and therefore more difficult. In reality, the effect of
transaction taxes is mixed. In a comparison of transfer and capital gains tax across the Swiss
cantons, no evidence of a dampening effect could be found.4 By contrast, the US experience
shows that wealth taxes reduce the attractiveness of owner-occupied housing (see again Crowe
et al., 2013). Fiscal policy instruments also include the abolition of tax breaks in relation to owner-occupied housing and debt interest.
Macroprudential measures
focus on higher capital
buffer
By contrast, macroprudential regulatory measures are aimed at the degree of indebtedness of
banks and households. Higher capital requirements on banks through an increase in risk
weightings and rules on greater risk provisioning in the good times not only have a dampening
effect on credit growth but are also helpful in terms of building up reserves for possible future
losses. On the borrower side, upper limits for loan-to-value ratios and the level of indebtedness,
i.e. the ratio of debt to income, can reduce the vulnerability of household balance sheets to fluctuations in real estate prices and interest rates.
In practice, many legislators focus on a combination
of different measures
In practice, various combinations and variations on the aforementioned measures are used from
country to country. Two interesting examples are Singapore and Hong Kong, where the real
estate markets are already at a very far advanced stage in their cycle and a series of measures
has been implemented. Following real growth in prices of 34% between mid-2009 and mid-
4
See Aregger/Brown/Rossi (2013): Transaction Taxes, Capital Gains Taxes and House Prices, SNB Working Paper.
23
2010, sellers' stamp duty (SSD) was introduced in Singapore with the aim of curbing speculative activities. This stamp duty originally had to be paid if a buyer of owner-occupied housing
sold it again within a year of purchase. A short while later, the holding period was changed from
one year to four and the level of duty revised upward depending on the holding period. For example, owner-occupied housing that is sold again within a year is subject to a duty of 16% of
the selling price. Furthermore, various loan-to-value ratios were successively lowered in subsequent years. In December 2011, the additional buyers' stamp duty (ABSD) was introduced; this
makes the purchase of owner-occupied housing more expensive, particularly for persons without Singapore citizenship. The measure resulted in a 23.5% decline in sales in this customer
segment within a year. An actual fall in prices was not observed until the end of 2013, however,
following the introduction of the total debt service ratio (TDSR). Accordingly, banks can only
grant a mortgage if no more than 60% of income is used for debt servicing on all loans; in addition, all calculations are based on an interest rate of at least 3.5% (or the market interest rate if
higher).
Swedish banks have had to
observe higher capital
requirements since the
start of the year
Sweden too faces a problem of sharply rising house prices. Over the last 10 years, they have
increased by around 85% (+65% in real terms). Over a 10-year period, debt among private
households also grew from around 107% of disposable income to the worrying level of nearly
150% in 2013. Although an upper limit of 85% was introduced for loan-to-value ratios in October 2010, more extensive macroprudential measures for the banking sector were only implemented in fall 2014. Here the risk weighting for mortgages was increased from 15% to 25%
and a countercyclical capital buffer of 1% established. Additional capital requirements apply to
the country's four largest banks. They include a capital buffer for systemic risks of 5% core
capital (CET 1). The effects on real estate prices of the measures introduced last year remain to
be seen. However, the maximum loan-to-value ratio set in 2010 was definitely not enough to
curb a surge in prices. The growth in prices in the first three quarters of 2014 was at its strongest since 2009.
Australia focusing on lending to professional investors
Moves toward stricter lending criteria have also been made recently in Australia. The Australian
Prudential Regulation Authority (APRA) announced that bank mortgage lending would be more
closely scrutinized and appropriate measures taken if necessary. These include the likes of even
higher capital requirements. Special attention is paid to high-risk loans in the banks' portfolios
but also to lending to professional real estate investors with high portfolio growth rates. APRA is
also examining whether the banks use sufficiently conservative assumptions when assessing
credit ratings. Such calculations are to be based on an interest rate buffer of at least 2% and a
notional interest rate of not less than 7%.
Regulation requires considerable judgment
Regulation is not without
costs
In view of the upheaval caused by the real estate crises in the US, Ireland, Japan and Spain,
regulatory intervention in housing markets that are tending to overheat is basically legitimate.
However, such intervention is not without costs. It firstly results in direct costs and secondly in
high administrative expenses. Although the direct costs are intentional in many instances,
someone has to pay for them. What's more, intervention often impairs the flexibility of regulated
markets and encourages uniform behavior; this can involve potentially higher risks should the
regulatory cornerstones be misplaced. Regulation ultimately needs to be well-founded and proportionate in policy terms. The effects of the new measures are little known in advance, and so
too are the prospects of success. There is still very few empirical data available for macroprudential regulation specifically.
New regulatory measures
only if homework has been
done
At least two conditions need to be met before new regulatory measures are implemented: first,
politically induced distortions and disincentives that contribute to the growth in real estate prices
must be eliminated or at any rate tempered. These include structurally driven shortages on
housing markets, government-guaranteed mortgages as well as tax breaks for owner-occupied
housing and debt interest. Second, maximum use needs to be made of existing regulations. For
example, this means more systematically enforcing microprudential regulation within the credit
business – supervision at individual institution level – and insisting on compliance with standards
relating to the granting of loans.
24
Regulation not without selfinterest
Self-interest is pursued in the field of regulation as well, with supervisory authorities seeking to
extend their influence and the existence of incentives to cross the line. That is because the regulator generally pursues its primary goals – in this instance eliminating or reducing the risk of a
real estate price bubble – largely regardless of the costs. The latter are not borne by the regulator itself but by market participants. The art of regulation therefore lies in sticking to the essentials, getting the timing right and having a highly intuitive knowledge of how the markets concerned work.
Delegation of regulation
Mandatory self-regulation is a promising way forward. Instead of determining the details of regulation itself, the regulator specifies the effect to be achieved but leaves the concrete design of
the regulatory system to the market players. The latter generally have a better understanding of
the most efficient way of achieving the intended effect and at the same time have an interest in
avoiding undesirable side-effects. With this system and with its wealth of experience, the search
for balanced, compromise solutions has thus far been a positive one for Switzerland. The country is seen as an international pioneer in terms of the regulations applied to the real estate market and has on a number of occasions been copied.
Transfer of country-specific
regulatory measures tricky
Other countries' experience of specific measures to stem excessive growth in credit and prices
can be thoroughly instructive; however, the direct transfer of such instruments is a thorny subject in view of the very different overall conditions in each country. The risk of overheating has
not yet been banished in many countries, with the result that it is not yet possible to arrive at a
definitive conclusion. The same is true for Switzerland. Here the minimum equity requirement for
mortgage financing, shorter repayment periods and systematic application of the lower-of-costor market principle are contributing significantly to the weakening of the pressure on prices. The
expected cooling down of the economy is likely to provide a further impetus. There is no need
for an additional tightening in relation to owner-occupied property, particularly given that the introduction of macroprudential measures combined with the increased supply of owner-occupied
housing, various demand-dampening individual effects and saturation tendencies have played a
role in calming the upward pressure on prices. Nevertheless, it will only be possible to sound the
all-clear once high valuation levels fall more into line with incomes again.
25
Rental Apartments
There are widespread complaints about a lack of housing despite the fact that in 2014 the vacancy rates for rental apartments reached their highest level since 2001 at 1.6%. However,
particularly in the major centers the complaints about a housing shortage may still be justified.
On the other hand, the expansion of supply in the areas surrounding these major centers shows
that the market is quite capable of solving the shortage problem as long as it is not hindered by
excessively rigid rules. The low interest environment should continue in the future to guarantee
that large quantities of capital flow into the housing market, the supply of housing increases further and an easing of the situation can therefore be expected. The only problem lies in the fact
that due to inflexible domestic regulations strong growth in the number of rental apartments is
primarily taking place away from the demand hotspots and leading to an oversupply there. Only
a desire for high quality concentration that is also actually pursued can help to solve the housing
shortage problem in the centers.
Demand: Peak Has Been Passed
The main driver of demand for rental apartments in recent years has been the strong net immigration that particularly affected the agglomerations. After the second highest net immigration
(83'000) after 2008 was recorded in 2013, this figure will only have decreased slightly in the
previous year. We estimate the 2014 balance of migration to be just under 80'000. Immigration
should fall more noticeably in the current year but still amount to a net total of around 70'000
persons (see Figure 24). There are various contributory factors here: First of all we know that
net immigration responds with some delay to changes in employment momentum and the latter
practically halved in 2014. Furthermore, the Federal Council has decided to reduce the quotas
for skilled labor from third countries by 2000 as of 1 January 2015. And last but not least the
influx from the eight new EU member states that until now has been growing strongly should
diminish somewhat as many short-term residence permits have been converted to permanent
residence permits following the expiry of the safety valve that until the end of April 2014 restricted residence permits for citizens of the eight new EU member states by means of quotas.
This statistical distortion will have somewhat exaggerated the immigration figure in the past year
and no longer be reflected in the current year.
Expected decrease in
immigration in 2015
Figure 24
Figure 25
Net immigration and employment growth
Net immigration by country of origin
Left-hand scale: net immigration; right-hand scale: change in employment
Including change of status, moving 12-month total
Forecast
Net immigration
Change in employment
100'000
90'000
140'000
27'000
120'000
24'000
80'000
100'000
21'000
70'000
80'000
60'000
60'000
50'000
40'000
40'000
20'000
30'000
0
20'000
-20'000
6'000
10'000
-40'000
3'000
-60'000
0
0
2002
2004
2006
2008
2010
2012
2014
Source: Fed. Office for Migration, Swiss Fed. Statistical Office, Credit Suisse
Family reunions as a
stabilizing factor
Germany
Italy
Other EU 17/EFTA countries
Rest of Europe
France
Portugal/Spain
EU 8
Others (America etc.)
18'000
15'000
12'000
9'000
2010
2011
2012
2013
2014
Source: Federal Office for Migration, Credit Suisse
Family reunions exert a stabilizing effect on immigration. At 31% they are the second most important reason for immigration after employment (51%). This share has remained relatively stable since 2007 and fluctuated between 31% and 33%. However, in years with lower net immigration (2002–2005) it was significantly higher at up to 43%. Swiss citizens also contribute to
26
family reunions when they bring foreign spouses to Switzerland. Almost a fifth of family reunions
come about in this way, albeit that there is barely any correlation with remaining immigration.
The remaining fourth fifths are divided roughly equally between spouses and children of foreigners.
Shift in immigration from
Southern to Eastern Europe
Despite fairly stable immigration volumes in recent years, the structure of immigration has repeatedly undergone considerable change over time (see Figure 25): In parallel with the positive
development of the German labor market, net immigration from Germany has already been declining sharply for several years. Furthermore, immigration from Spain and in particular Portugal
has also been receding since the end of 2013 after these two countries were responsible for
the highest immigration figures in 2012 and 2013. Spaniards and Portuguese often lack
knowledge of the national languages so that the Swiss market is only able to receive them to a
limited extent. At the same time, the labor markets in these people's countries of origin have recovered slightly since 2013. The recently observed downturn in immigration from the Iberian
Peninsula is to a large extent being offset by increased migration flows from the eight new EU
member states in Eastern Europe, particularly Poland, Hungary and Slovakia. However, this
may be a catch-up effect triggered by the above-mentioned expiry of the safety valve. A slightly
falling trend in unemployment in these countries also suggests that immigration from the eight
new EU member states has passed its peak.
Domestic labor market and
size of the ethnic minority
here as migration factors
Immigration from Italy and non-European countries remains strong. The development of net
immigration from France, which has been more or less rising continuously since the second half
of 2012, is also striking. This will be attributable among other things to the economic stagnation
and the unchecked rise in unemployment that has already reached over 10% in France. Furthermore, the increase in the top tax rates will have prompted some of the French to transfer
their residence for tax reasons. Unlike the majority of labor migrants who primarily target the
rental segment, these fiscally motivated newcomers are likely in many cases to purchase property. Generally speaking there are two factors that strongly shape immigration: the already existing size of the corresponding diaspora in Switzerland and the labor market situation in the country of origin. For example, comparatively few Greeks migrate to Switzerland despite high
unemployment because their diaspora is considerably larger in other European countries. On the
other hand, the size of the diaspora and the weak momentum on the labor market suggest that
the strong immigration from Italy and France is likely to continue. A similar case would apply in
the event of an expansion of the free movement of persons to Croatia.
Which regions would be
affected by a decline in
immigration?
The longer-term prospects for immigration and hence for housing demand depend on how the
popular initiative "against mass migration" to be implemented by 2017 is put into practice and
how the tense relationship between Switzerland and the EU develops further. The domestic
pressure to limit immigration will remain high so that we consider a reduction in immigration of
some kind after 2017 – starting from a level of over 80'000 – to be likely. Immigration from
abroad has in recent years been decisive in several regions for the development of demand on
the rental accommodation market. In other regions demand has generally been lower or more
strongly driven by migration from neighboring regions. It can therefore be assumed that the regional rental accommodation markets will respond with differing degrees of sensitivity to the fall
in immigration. Figure 26 identifies regions with a high population growth, high immigration from
abroad and low internal migration. A rapid downturn in immigration would lead to a significant
reduction in demand for rental apartments in these regions.
Dependence of demand for
rental apartments on immigration from abroad greatest in the major centers and
some tourist regions
Regions surrounding major centers such as Zurich, Lausanne, Vevey and Lugano have been
particularly strongly shaped by immigration from abroad in recent years. These regions all have
high balances of migration from abroad and negative internal migration balances. They have
therefore grown solely on the basis of immigration from abroad. Some regions shaped by the
tourist industry in the canton of Graubünden also display an above-average dependence on migration from abroad. In contrast to many other rural regions experiencing outward migration, the
high level of migration from some of these areas (Schanfigg, Davos, Oberengadin) to other regions is offset or even overcompensated by the strong immigration from abroad. It is natural that
a majority of the regions with high dependence on immigration comprise regions bordering on
neighboring countries (Werdenberg, Untersee/Rhine, La Vallée). By contrast, the dependence
27
on migration from abroad of many regions of the Swiss Plateau outside the major agglomerations is below average. The demand for rental apartments is stagnating in these regions due to
a lack of population growth (e.g. Toggenburg, Burgdorf, Sense) or the growth in demand is
largely resulting from strong internal migration (e.g. Freiamt, Sursee/Seetal, Fricktal). However,
only nine of the 110 economic regions are experiencing net internal migration that is stronger
than immigration from abroad.
Figure 26
Dependence of demand for rental apartments on international immigration
Index based on migration and population figures, 2011–2013
Well above average
Above average
Average
Below average
Well below average
Source: Credit Suisse, Swiss Federal Statistical Office, Geostat
Fall in immigration would
relieve the rental accommodation markets in the
urban centers …
In the short term a regulatory-related fall in immigration would be felt above all in and around the
major centers and certain tourist regions (see Figure 26). Such a slowdown in the demand for
rental accommodation would lead to an easing of the situation in the urban centers that would
be welcomed by tenants particularly in view of the fact that these markets are shaped by low
vacancy rates and high rents. Market rents would rise more slowly or even turn downwards.
However, from a medium to long-term perspective this assertion strongly requires putting into
perspective as lower immigration from abroad does not change the fact that the major centers
are more attractive than other residential areas due to their high supply of jobs, services and infrastructures. Nevertheless, the economic regions of the largest Swiss cities all have negative
internal migration balances5. Due to a lack of housing, high prices and a high tax burden, many
households are leaving the urban centers and settling in the neighboring suburban areas.
… although only in the
short term
Figure 27 illustrates this mechanism. The migration flows shown all bear the color of their origin
such as yellow for abroad and green for the urban centers. It can be seen that migrants from
the urban centers practically all choose suburban areas as their new place of residence. Meanwhile, the suburban areas are themselves losing inhabitants at the end of the day, largely to rural but also to peri-urban areas that in turn are recording negative balances of migration with rural areas. This migration to regions further away from the urban centers accordingly serves as a
safety valve to prevent an even greater heating of the markets in the major centers. If there is
now a decrease in international migration to the major centers, it can be assumed that due to
the relief of the housing markets resulting from this fewer people will leave the urban centers to
5
An exception is the Berne economic region that is defined on a larger scale than the economic regions of the other major centers.
28
settle in suburban, peri-urban or rural areas. In the medium to long term the demand for rental
apartments should therefore recede especially outside the urban centers where rising vacancy
rates can be expected as a result. Meanwhile, the pressure on rents in the urban centers will
ease, with rents even falling in one or two isolated cases.
Figure 27
Migration movements 2008–2013
Balance of types of municipality, persons in 100'000, abroad until 2012
Explanation: Migration flows bear the color of their origin, e.g. yellow for migration from abroad, green for migration from
the urban centers.
Tightened regulation for
residential property boosting demand for rental
apartments
The tightening of (self-) regulation for residential property is boosting demand on the rental accommodation market. The relatively stable economic situation and falling interest rates of the
past few years have prompted many households to purchase residential property. Above all the
tightening of the minimum requirements for lending together with the higher prices is causing
fewer households to be able to afford owner-occupied housing despite record-low interest
rates. This is reflected in a lower growth in the volume of mortgages granted to private individuals and a declining number of transactions (see chapter on owner-occupied housing, p. 15). All
in all, however, this effect will not suffice to offset the slightly lower demand resulting from immigration and we therefore expect overall demand for rental apartments to be somewhat weaker
in 2015. The subdued economic outlook due to the withdrawal of the minimum exchange rate
also points towards lower overall demand.
Supply: No Signs of a Downturn in Rental Apartment Construction
Rental apartment construction set to peak in 2015
Due to the investment crisis caused by the low interest rates and the rising demand of recent
years, rental apartment construction – in contrast to owner-occupied housing construction – is
continuing to increase. Three phases can be distinguished here: From 2003 to 2008 rental
apartment construction responded to the recovery in the demand for housing and a rapid fall in
vacancy rates. Production rose to a level of around 13'000 apartments. Owing to the uncertainty brought about by the financial crisis, a phase of consolidation at this level then followed before the precipitous and ongoing demand brought about by immigration steadily pushed up the
production level to reach an estimated 22'000 or so apartments last year. We expect a further
increase to 23'000–24'000 units in the current year (see Figure 28). This would mean that
around 50% of newly built apartments in 2015 were attributable to the rental segment.
29
Construction activity shifting slightly more strongly to
the urban centers again but
construction boom in the
countryside not over yet
There are still no signs of an easing in the granting of building permits for rental apartments.
Around 25'700 building permits for rental apartments were granted in 2014 – a new peak since
records began in 2003 (year-on-year increase: 5%). In view of the negative interest, the rental
accommodation market continues to offer very attractive returns despite signs that demand has
passed its peak and we therefore expect production to hold up at this level. Geographically a
strong shift in rental apartment construction away from the agglomerations towards industrial,
rural and tertiary municipalities has been observed in the last few years (see Figure 29). This
development declined slightly during 2014 while the share of construction activity in the urban
center municipalities simultaneously rose again. However, at almost 20% the share of rental
apartments built in rural areas remained very high.
Figure 28
Figure 29
Net addition of rental apartments
Apartment construction by type of municipality
Credit Suisse estimates, number of residential units and share of rental apart-
Share of building permits for rental apartments by type of municipality as %
ments in total net housing addition; 2014 and 2015: forecast
(left-hand scale) and moving 12-month total of building permits (estimate)
30'000
60%
Number of rental apartments (left-hand scale)
Share of total net increase in apartments
30'000
60%
Total rental apartments (right-hand scale)
25'000
50%
50%
40%
40%
20'000
15'000
30%
Suburban/high30% income
15'000
10'000
20%
20%
5'000
10%
10%
25'000
20'000
Urban centers
Industrial/rural/tertiary
10'000
Peri-urban
5'000
Tourist
0
0%
2001
2003
2005
2007
2009
2011
2013
Source: Credit Suisse, Swiss Federal Statistical Office, Baublatt
2015
0%
2003
0
2005
2007
2009
2011
2013
Source: Credit Suisse, Baublatt, Swiss Federal Statistical Office
Major projects still
in high demand
There is a strikingly large number of major projects with over 200 residential units currently being realized, with around 16% of all planned rental apartments attributable to this category.
Such major projects are particularly interesting for institutional investors. However, they can also
pose a risk, especially if they are based in below-average micro locations or in smaller municipalities where they significantly increase the housing stock in percentage terms. Small projects
with up to ten residential units also remain in high demand (share: 16%) and will be particularly
attractive for private investors. The most frequent projects to be realized are those with 11 to 25
apartments (share: 23%). However, the trend here is pointing sideways.
Regional hotspots of residential apartment construction in 2015
Figure 30 illustrates the expected expansion in the number of rental apartments in 2015. There
are significant regional variations in the number of planned rental apartments. The regions with
the greatest momentum are the Three Lakes Region (particularly the regions of La Broye, Erlach/Seeland, Biel/Seeland and Yverdon), the Aarau–Olten–Thal axis and northern parts of the
canton of Zurich (Winterthur-Land, Glattal and Furttal) and Lower Valais. A decline in momentum can be observed in particular in the east of the canton of St. Gallen and in Appenzell Innerrhoden, in the cities of Winterthur, Basel and Lausanne and in some regions to the southwest
and east of Zurich (especially Mutschellen, Oberland, Lorzenebene/Ennetsee). The expansion is
also declining or stagnating at a low level in many mountainous regions.
30
Figure 30
Expected expansion of rental apartment stock in 2015
Expected expansion as % of number of rental apartments; arrows: trend in comparison with previous year
> 3.0%
2.5 – 3.0%
2.0 – 2.5%
1.5 – 2.0%
1.0 – 1.5%
0.5 – 1.0%
< 0.5%
Sharp increase
Increase
Sideways movement
Decrease
Sharp decrease
Source: Baublatt, Swiss Federal Statistical Office, Credit Suisse, Geostat
Market Outcome: Reversion of Cycle
Sharp increase in vacancy
rates …
The high level of momentum in rental apartment construction is starting to leave its mark. Despite the strong immigration of recent years, vacancy rates for rental apartments rose sharply in
2014. The vacancy rate rose by 0.17 percentage points to its current level of 1.56% – the
highest level since 2001 (see Figure 31). This development may come as a surprise in terms of
its scale, particularly in the tourist regions where the vacancy rate shot up from 2.6% to 3.5%.
However, precisely here some of the increase will be attributable to a statistical effect: Investigations have revealed that some tourist municipalities did not report their vacancy rates in full in
the past.
Figure 31
Figure 32
Vacancy rate for rental apartments by type of area
Number of days on the market of rental apartments
As % of number of rental apartments (estimate) as of 1 June
Existing stock, 2014 average in days, arrows: YoY change
Total rental apartments
Regions surrounding core urban areas
Mid urban areas and surroundings
Tourist regions
3.5%
Core urban areas
Large urban areas and surroundings
Small urban areas and surroundings
Rural
3.0%
2.5%
> 40
35 – 40
30 – 35
27 – 30
24 – 27
21 – 24
18 – 21
15 – 18
< 15
2.0%
1.5%
1.0%
Sharp increase
Moderate increase
Sideways movement
Moderate decrease
Sharp decrease
0.5%
0.0%
2001
2003
2005
2007
2009
Source: Swiss Federal Statistical Office, Credit Suisse
2011
2013
Source: Meta-Sys AG, Credit Suisse, Geostat
31
… especially in regions
away from the major
centers
A sharp rise in vacancy rates can also be observed in rural regions and in small and mediumsized agglomerations. This comes as little surprise in view of the strong construction activity in
these regions. By contrast, the vacancy rates in the core agglomerations (Zurich, Geneva,
Berne, Basel, Lausanne) and large agglomerations (Lucerne, St. Gallen, Lugano) and their
surrounding areas only rose moderately or in some cases even fell (large agglomerations). The
available housing here remains scarce.
Number of days on the
market pinpoints tense
rental accommodation
markets …
In and around Switzerland's five largest cities (core agglomerations) it is not just vacancy rates
that remain low; the number of days on the market of apartments advertised to let is also at a
low level. The period of time until an advertisement disappears again from the online marketplace is a reliable indicator of the demand-side momentum and shortage of supply. In the City of
Basel and Lausanne the number of days on the market has fallen again and now amount to 17
and 15 days respectively (see Figure 32). In suburban and peri-urban areas, low average figures are being recorded above all in French-speaking Switzerland around the major centers of
Lausanne and Geneva. The German-speaking urban centers have clearly been more successful
in meeting the high demand brought about by immigration with a matching supply. The market
here is easing, which is reflected in a greater number of days on the market. Altogether the
number of days on the market has increased moderately in the past few years and serves to
confirm the picture of a slight easing of the Swiss rental accommodation market. By contrast,
the number of days on the market in the Jura, in many parts of Graubünden and Ticino and in
places where there has recently been a great deal of construction activity is very high. For example, this applies to the Rhine Valley and the Grenchen/Olten area where on average more
than 30 days on the market should be anticipated.
Figure 33
Regional supply of rental accommodation between excess supply and shortage
X axis: 2015 expansion; Y axis: Number of days on the market in 2014; axis intersection: Switzerland
55
50
45
Engiadina bassa
Economic regions
Decreasing excess
supply
Appenzell I.Rh.
Mendrisio
Mesolcina
Appenzell A.Rh.
40
Davos
35
30
25
20
Thal
Grenchen
Toggenburg
Lugano
Olten/Gösgen/Gäu
Prättigau
Locarno
Einsiedeln
St.Gallen/Rorschach
La Vallée
Visp
Schwarzwasser
Biel/Seeland
Freiamt
Burgdorf
15
Furttal
Luzern
Basel-Stadt
Winterthur-Stadt Lausanne
Sierre Aarau
Sursee/Seetal
Martigny
Unterland
Vevey/Lavaux
Lorzenebene/Ennetsee
Thun
Bern
La Sarine
Genève
Growing excess
supply
La Gruyère
Yverdon
Gros-de-Vaud
Zürich-Stadt
La Broye
Sion
Winterthur-Land
Glattal
10
Tension
5
-1%
Easing
0%
1%
2%
3%
4%
5%
Source: Credit Suisse, Meta-Sys AG, Baublatt
… and markets with a
short-term excess supply
Somewhat unsettling is the fact that in some of these regions very high construction activity can
still be observed. This is set to exacerbate the regional excess supply even further in the short
term (see Figure 33). Primarily worthy of mention here are the regions of Thal, Einsiedeln, Olten/Gösgen/Gäu and Aarau. The development of demand must additionally be taken into account for a more long-term assessment of the risk of oversupply (see chapter on real estate as
an investment, p. 69). By contrast, the housing shortage in Basel, Winterthur, Geneva, Thun
32
and Berne is barely set to recede, especially in view of the fact that the expected expansion in
these cities in the current year is too low.
Pressure on rents should
decrease in 2015
Rents for new contracts have risen by an average of 1.6% each year since 2005 (see Figure 34). The price growth for advertised rents even came to 2.9%. However, the latter do only
partially take account of any qualitative improvements in supply and will therefore exaggerate the
actual development. Owing to the stronger immigration in 2013, contractual rents have risen
more sharply again since the second half of 2013 following a significant decline and are currently posting growth of 1.7% (second quarter of 2014). However, the development of advertised rents suggests that this renewed rise in rents will not last long. Advertised rents rose by
1.8% compared with the prior-year quarter in the fourth quarter of 2014. Annual growth of
3.2% was still registered in 2013. Advertised rents therefore reflect the easing of the rental accommodation market that has brought about the high growth in supply. In view of this decreasing pressure on advertised rents, the expected fall in immigration and a continued high level of
housing production, we expect the growth in rents in 2015 to prove weak.
Regional: Growth in rents in
the urban centers and highprice regions receding
Measured in terms of contractual rents, rents in the large cities have risen somewhat less
strongly than in the medium-sized centers and other parts of Switzerland since the first quarter
of 2013 (see Figure 34). The distribution of advertised rents and their rates of change (see
Figure 35) largely confirms this picture. Rents in the high-price regions of Lake Geneva, Lake
Zurich, Basel and Oberengadin generally tended sideways in 2014 compared with the previous
year. A slight decrease was even observed in the city of Zurich that will mainly stem from marketing difficulties in the high-price segment. Furthermore, there was an increase in rental
apartment construction in the city of Zurich. Rising rents can still be observed above all in regions outside the major centers. The extent of the expansion in Figure 33 offers an initial indicator of the medium-term regional rent price trend.
Figure 34
Figure 35
Rent price trend (adjusted for quality)
2014 average rent prices by region
Indices, Q1 2005 = 100, annual growth rate in % (right-hand scale)
Median of advertised rents (not adjusted for quality), in CHF/m² (Q1–Q3)
135
130
125
CH annual growth rate (contractual rents)
Large cities (contractual rents)
Medium-sized centers (contractual rents)
CH (contractual rents)
CH (advertised rents)
7%
6%
5%
120
4%
115
3%
110
2%
105
1%
100
0%
95
> 310
270 – 310
240 – 270
220 – 240
200 – 220
180 – 200
< 180
YoY change
Sharp increase
Increase
Sideways movement
Decrease
Sharp decrease
-1%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Wüest & Partner
Gradual easing in 2015
Source: Meta-Sys AG, Credit Suisse, Geostat
The high level of construction activity and slight decrease in immigration should help to ease the
situation in 2015 in the urban centers shaped by a lack of housing. Away from these centers
sufficient housing is available and there are even signs of an oversupply in certain regions.
33
Outlook for Rental Apartments in 2015
More significant easing on
rental market due to high
level of construction activity
and slightly lower demand
The super-cycle that has boosted demand for rental apartments in recent years is beginning to
run out of steam. This development is being accelerated by the abandonment of the euro exchange rate floor by the Swiss National Bank. Unlike in the case of the owner-occupied market,
which is being curbed by regulatory intervention, the rental apartments market is only seeing a
minimal loss of momentum whether on the demand or the supply side. For 2015, however, we
expect slightly weaker immigration (net immigration of around 70'000) and more cautious demand because tenants are likely to be among the main victims of the expected job-shedding.
The regulatory induced reduction in demand for owner-occupied housing will nevertheless continue to have a supportive effect. Significantly lower employment growth and a consequent reduction in the flow of immigrants will have a greater impact on demand in the medium term. On
the supply side, production of rental apartments meanwhile continues unabated or is actually
being stimulated further by the increasingly pressing dearth of investment opportunities. We
therefore expect another marked increase in vacancies. As a result, the rental apartments market is gradually moving toward a situation of oversupply and is at some stage likely to evolve into
a tenant's market. It will be a slow process, however. This will temporarily result in an easing in
the urban centers, which are characterized by a shortage of housing. Long-term, however, the
decline in demand is likely to be observed above all outside the major cities. There, we expect
the first signs of a fall in rents in 2016/2017. In the urban centers, on the other hand, only improved densification incentives will be able to contain the pressure on rents because even at a
reduced level the demand exceeds the supply. Outside the urban centers there is generally no
shortage of rental apartments. Vacancies are therefore likely to affect those regions more
strongly, especially as construction activity remains at a high level for now even outside the focal
points of demand.
Demand
Background
Outlook
Population trends: Due to a decline in population growth and the more subdued economic picture, net immigration in 2015 is likely to turn out weaker than last year at around
70'000. Demand for rental apartments will continue to be underpinned by the fact that
immigration will be more heavily dominated by southern and eastern Europe.


Regulation: Due to tighter rules on mortgage lending, fewer households will be moving
out of rented apartments in order to purchase their own home. This will have a stabilizing
effect on the demand for rental apartments.


Net addition to stock of rental apartments 2015: Production is likely to reach a new high
in 2015 with the construction of 23'000–24'000 new rental apartments.


Medium-term expansion plans: Planning applications received for rental apartment projects in recent months suggest that production of rental apartments will not rise any
further in 2016.


Vacancies: We expect a further marked rise in vacancies for rental apartments in 2015.
The shortage seen in markets in the urban centers is likely to ease slightly. In some
cases, however, excess supply is developing in peri-urban, rural and tourist regions.


Rents: The major expansion of supply and slight easing of demand are likely to ensure
that asking rents trend sideways on a nationwide average in 2015. In terms of existing
rents a renewed fall in the reference interest rates will prevent an upward trend.


Performance (total return): Total returns in 2015 are likely to be just as high as in the
previous year. In terms of cash flow yields we expect marginally lower values, mainly due
to the base effect in the form of continued increases in valuations. Prices for residential
investment properties, on the other hand, are likely to maintain their current momentum
in view of strong investment pressure and negative interest rates.


Supply
Market outcome
34
Driverless Cars: The Next Stage of Mobility
Until recently, many experts were firmly convinced that mobility had reached its peak. They drew
this conclusion on the basis of demographic aging, the growing congestion problem as well as a
less emotional attitude toward cars among the young generation. With the driverless car, however, a technology has recently emerged that will take mobility to a new stage in its development.
Driverless cars already a reality in technical terms
Digital revolution in mobility
At this year's Consumer Electronics Show in Las Vegas, the world's largest consumer electronics trade fair, there was one subject dominating the headlines: autonomous cars. Audi and other
major automotive producers demonstrated how the car of tomorrow communicates independently with its environment, avoids accidents, conserves resources, and therefore saves
money. These new systems are already being tested extensively, not just by Google but also by
all major automotive producers. Thousands of kilometers have already been driven without accident, while in Lausanne tests on driverless minibuses are being conducted on the grounds of
the Federal Institute of Technology (EPFL).
Mobility in 2030: Future
scenario
How would such a world in which driverless vehicles have become firmly established work?
Let's jump forward to the year 2030: Using mobile end-devices (e.g. smart phone), people
communicate their transport needs to the cloud. In fractions of a second, the cloud calculates
which of the many autonomous vehicles in the vicinity has the most similar route and still has
space available. Minutes later, the vehicle is waiting at the front door ready to undertake the
journey as requested. The entire duration of the journey can be used for the passenger's own
purposes, for example to check emails on the way in to the office. Those who are not too keen
on sharing a car can have their own autonomous vehicle registered and thus get their own virtual chauffeur. Having arrived at the destination, the vehicle in this instance navigates its own way
toward a prebooked parking space, which may be a little way away from the center for cost reasons, or the individually owned vehicle goes to work for the cloud and provides transportation for
third parties; these services are credited to the owner and reduce his or her overall costs.
Helsinki to revolutionize its
public transport system by
2025
The technology described opens up unimagined possibilities. Helsinki, for example, has begun a
project aimed at offering residents a real-time, flexible, cheap and coordinated system of driverless minibuses within the next 10 years. Driverless cars and minibuses, rented bikes and public
transport are to be combined in an intelligent way to ensure individual car ownership becomes
more expensive, less convenient and therefore unattractive. But as well as transporting people
from their home to the nearest public transport station, driverless cars can also provide door-todoor transport services. One day it will also be possible for autonomous vehicles to take people
on vacation, allowing passengers to spend the journey relaxing in the back. No-one questions
whether such systems will actually be used at some stage. It is only a matter of time before they
replace today's mobility arrangements, because the new systems offer greater economy, safety,
efficiency, comfort and convenience.
Driverless cars – the next game-changer
Impact of autonomous vehicles on our behavior and
public transport system
Autonomous vehicles have the potential to alter society, representing another quantum leap for
mobility. They will even change our shopping behavior. Whereas in the past the customer went
to the store and today the store comes to the customer, in future driverless cars will look for
pick-up points in order to collect online orders while we go about other activities. The new technology will also have consequences for public transport systems. Public transport has experienced strong growth over recent years. This is not only due to our congested streets but also
the fact that in the age of mobile internet people want to use their travel time more productively.
With autonomous control, the automobile will regain its trump card. Driverless cars are primarily
likely to compete with the local public transport network. Sticking to a timetable and a set route
35
to the nearest stop will therefore become a thing of the past, as door-to-door transport is more
convenient. Thanks to autonomous cars, many people are likely to switch away from public
transport again back to private transport. Investment in park-and-ride facilities should ensure
that the long-distance public transport system still remains attractive.
Efficient road infrastructures will be the new
locational advantage
Once a fully fledged system is in place, thousands of autonomous vehicles will populate the
streets. They will group together in convoys, driving at minimal distance from one another and all
at the same speed. Individual vehicles will have complete flexibility in terms of turning off at
junctions and joining a new convoy on the next street. Thus the car will become a means of
mass transportation, consisting of intelligent, autonomous and flexible units. This will enable a
massive reduction in the external costs of the car. It will be transformed into a clean, safe, quiet
and intelligent mode of transport that can meet mobility needs in the most efficient way possible. This will be a world in which efficient road infrastructures become the new locational advantage. In Switzerland's case it could lead to a rude awakening. That is because the road infrastructure has been severely neglected in recent decades. The congestion problem is likely to
become one of the biggest problems if no action is taken to address it. Car-sharing will reach
the masses, with the result that not only car-sharing but also the creation of car pools will contribute to there being fewer cars on the roads. That said, even more convenient mobility solutions will also spur demand. Consequently, people will once again be calling for an expansion of
the road infrastructure. The pressure to control mobility through fiscal incentives (e.g. mobility
pricing) is therefore likely to grow as well.
Possible consequences of driverless cars for the world of real estate: four hypotheses
Autonomous cars already seem to be becoming such a tangible reality that it is high time the
impact on the real estate sector and its durable products was addressed. Even though it may be
a long time before driverless cars and trucks dominate the street scene, history tells us that any
technical revolution offering such convincing benefits ultimately became established.
Hypothesis 1: Reversal of
reurbanization trend
The advantages of an improved infrastructure, in particular as far as public transport is concerned, have made a key contribution to the resurgent popularity of urban living. After all, a tram
every seven minutes is not something you find in rural areas. With driverless cars, however, the
advantages of a dense urban infrastructure are partly lost. The fact is that in future autonomous
cars will meet the mobility needs of rural areas just as well as those of the city. Possibly even
more so, given that the congestion problem largely disappears. That means the gap in land prices between the center and the periphery is likely to decrease again.
Hypothesis 2: Quality of
public transport to have
less impact on locational
quality
The locational quality of a piece of real estate is currently defined mainly by its proximity to suburban rail stations and public transport stops. In a world of door-to-door mobility, this advantage
fades. Centrality will therefore become less significant as a locational advantage in overall terms,
thus triggering a correction in the price of property.
Hypothesis 3: Parking
needs in inner cities to
decline dramatically
Because autonomous vehicles are constantly on the move, or looking for a place to park up
outside the inner cities, the need for parking spaces in the inner cities will decline dramatically.
In future it will be possible to use this space for other purposes, thereby increasing the supply of
space in the centers.
Hypothesis 4: Transport
costs to be massively lower
Driverless trucks will also reduce transport costs by a massive amount. The protection afforded
to Swiss manufacturers by distance will also be redefined. For example, the general rule used to
be that windows, for example, could only be economically transported for 300 kilometers. Because logistics costs have fallen, the economical distance has now increased to as many as
1,000 kilometers. Driverless trucks are set to make transportation profitable over several thousand kilometers, with corresponding ramifications for Switzerland as a business location but also
for the construction and real estate sector.
36
Office Property
The oversupply on the major office property markets is the dominant topic in the office property
segment owing to the sharp contrast with the lack of housing in the urban centers. Although
negative interest rates are making real estate investments extremely attractive, participating in
the office property markets is becoming more and more challenging due to the increasing cutthroat competition. There is a prevailing oversupply and not only the demand structure but also
the willingness to pay as well as the spatial and locational requirements have changed in recent
years. Those wishing to be successful need to carry out a precise analysis of what is currently in
demand at which location.
The nationwide situation is not quite as gloomy as is being claimed in many places: For one
thing the oversupply is a regional phenomenon that is above all affecting the major centers. And
secondly, the many vacancies are arising not due to an economic crisis but owing to the rational
calculations of real estate investors based on the low interest rates. Or to put it in other words:
Economic growth may be extremely hesitant and demand is therefore weak but at least not
negative. The problem lies instead in the fact that the real estate market is increasingly decoupling itself from the situation on the rental market and the expansion of space corresponds too
little with the sluggish demand.
Demand: Weak and Changing
Subdued outlook for additional demand in 2015
In volume terms, additional demand for office property will continue to remain weak this year.
The propensity to invest remains subdued across all industrial, service and administrative sectors. For this reason, additional demand of at best just around 200'000 m² is to be expected,
which is about an eight of the record demand in 2007 (see Figure 36). There will also be largely
no support from abroad. The establishment of new companies and jobs already fell to a very low
level in 2013 (see Figure 37). Taking into account the subdued economic outlook and the recent locational impairments, there is barely any recovery to be expected here for 2014 and
2015.
Figure 36
Figure 37
Annual additional demand for office property
Company establishments
Estimated additional demand in 1000 m²; 2014 and 2015: forecasts
Number of newly located companies and employees
1'600
3'500
Number of jobs created by business
settlements
Number of business settlements from
abroad (right-hand scale)
550
1'200
3'000
800
2'500
400
2'000
400
0
1'500
350
1'000
300
500
250
-400
-800
-1'200
Construction, trade, catering, transport
Manufacturing industry
Public and social services
Banks and insurance, real estate and services sector
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Cost cuts, locational concentration and spatial
enhancement as the main
motives for demand
0
500
450
200
2007
2008
2009
2010
2011
2012
2013
Source: Swiss Conference of Cantonal Directors of the Economy
An important factor from the investor's perspective is not just the fact that additional demand
remains weak in purely quantitative terms but also that the requirements placed on the soughtafter properties are fundamentally changing. For example, alongside operational enhancements,
the numerous endeavors of the public sector to concentrate offices more in their own administrative centers repeatedly underline the objective of becoming independent in the long term from
37
expensive rental solutions. The cost awareness of companies regarding their space consumption has also increased significantly. According to the summer survey of Colliers in the Zurich
economic area, the three main motives for the demand for office space since the financial crisis
have remained cost cuts, locational concentration and spatial enhancement. The growth factor
has at no point been able to match the period before the financial crisis and amounted to just
4% in 2014.
2009 recession as turning
point for office space
demand
Price sensitivity on the demand side has particularly increased since the financial crisis. The
growing professionalization of the real estate industry has also contributed to this. However, the
financial crisis not only sharpened cost awareness but also sustainably plowed up the growth
structure of the Swiss employment landscape. This break is most visible in financial services.
With annual growth of 2200 employees, the sector generated additional demand of 30'000 to
40'000 m² of high-quality office space each year between 2004 and 2009. Owing to the prosperity of the sector in the years preceding the crisis, the willingness to pay and desire for central
and prestigious locations were correspondingly high. Flagship projects such as Credit Suisse's
Uetlihof 2, the new UBS offices on Europa Allee and the relocation of Deutsche Bank Switzerland to the Prime Tower bear witness to this past phase of expansion. Since 2009 the financial
services providers have been continuously cutting jobs and are also aiming to achieve a significant reduction in the space costs per employee. The expansion of the financial sector in terms
of office space has accordingly turned into a reduction of office space of an estimated
20'000 m² per year including increased space efficiency.
Demand for functionality
instead of prestige
Although employment growth altogether still remained respectable after the 2009 recession, it
was shaped much less by industries serving as potential replacement tenants for prime properties at the originally quoted rents. For example, the demand for office space from IT service
providers has grown by around 45'000 m² per year since 2009. However, prestigious buildings
in urban centers do not necessarily correspond with their preferences. The employees in this
sector are on the road a lot and frequently require parking spaces so that IT service providers
are more interested in decentralized properties offering good functionality. A similar situation applies to other industries such as the wholesale trade and architectural and engineering offices
that partially took over the role of growth pillars after 2009 and in Figure 38 therefore lie below
the diagonals depicting unchanged demand in both periods. The status of a representative address is less business-critical for the new growth drivers than for banks, accountants and management consultants that have all lost momentum since the financial crisis broke out.
Figure 38
Demand structure for office space yesterday and today
Annual absolute employment growth in two periods; size of circle = number of employees in 2014
38
Demand impetus in 2015
mainly from the IT sector,
public sector and high-tech
industry
There will be little change to this picture in 2015. We expect the educational sector and
healthcare to remain the employment drivers and to generate a large demand for office space.
Public administration, the wholesale trade and architectural offices are set to lose momentum,
while growth among IT services and in the field of research and development could remain high.
By contrast, employment growth in industry will prove negative in view of the challenges faced
by the export economy (see Figure 36). However, in view of the ongoing tertiarization and accelerated structural change within industry, new space requirements are arising while others are
disappearing. The expanding industrial enterprises – largely those in the high-tech industry –
place very specific requirements on buildings, for instance due to research and development activities in workshops and laboratories.
Example of Zug: technology
and innovation cluster
The canton of Zug has for some time served as an exemplary illustration of how great the demand for office space is among high added value companies from the industrial and service
sectors. The canton is today no longer just an important location for the financial and commodities industries but has also developed into a major medical technology cluster. Companies such
as Roche Diagnostics International AG and Johnson & Johnson have moved into large serviceoriented office properties in recent years. V-Zug is planning a technology and innovation center
in order to strengthen Zug as an industrial location in the long term and create space for additional industrial enterprises, start-ups and research and training institutions. Siemens will also be
investing in a campus in the center of Zug in the next few years. There are plans for office
properties next to a production building of the Building Technologies division. The decisive factor
for companies focusing on rental solutions despite specific property requirements is that as future tenants they should be involved in the planning process at an early stage. This minimizes
the vacancy risk for the investor even if in aggregate it rises due to departures from other properties. The most successful projects at present are therefore those in which developer, investor
and future tenant work hand in hand from the outset.
Public administration
bodies could generate
additional demand in the
short term
Various parts of public administration have also been among the drivers of demand in recent
years. Although due to increased spending cuts the potential demand is set to be somewhat
lower in the future, we continue to expect an increase in employment. Many administration bodies essentially pose potential tenants for the properties currently being advertised. Functional
offices at central locations with good transport accessibility and short distances to neighboring
departments and other authorities will be the preferences of many authorities. However, due to
very attractive financing opportunities the public sector often builds its own properties. Plans for
proprietary administrative centers are sprouting from the earth throughout Switzerland because
the public administration bodies find rents to be too expensive or their employees are too greatly
dispersed across heterogeneous offices. Nevertheless there is a certain degree of letting potential in the short term as the realization of proprietary public real estate has to go through a complex political process and the desired properties are therefore only likely to be available in the
medium term.
Supply: Many Projects – Unclear Chances of Realization
Production peak is passed
In view of the continued weak growth and the change in the demand structure, expensive new
properties are increasingly also coming under pressure if they are already completed or under
construction. Meanwhile, other properties still at the planning stage are frequently failing for lack
of pre-letting and only executed much later if at all. The increased uncertainty in planning execution has reduced the volume of approved projects to a long-term average of just under CHF 2
billion. The low interest rates are preventing a further downturn. The volume of planning applications is therefore holding up persistently at well above the threshold of CHF 2 billion so that in
production terms the peak of office property construction has been passed. This outlook is also
supported by the development of construction investments in office property that in the area of
new construction projects already fell by around 12% year on year in 2013 (see Figure 39). According to this indicator, around CHF 830 million more was constructed at the peak of the current cycle than at the peak of the previous cycle in 2002.
39
Figure 39
Figure 40
Office property planning and production
Planning security
Building permits and planning applications: moving 12-month total; all figures
Estimate based on homogeneity of application and permit development; rolling
in CHF million
correlation (30 months) of applications and permits
Completion certain
0.5
1'500
0.0
1'000
Completion uncertain
4'000
-0.1
3'500
3'000
2'500
2'000
500
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Planning applications
New construction project investments
Building permits
Conversion investments
Building permits, average since 1995
Source: Baublatt, Swiss Federal Statistical Office, Credit Suisse
0.4
0.3
0.2
0.1
-0.2
-0.3
-0.4
-0.5
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: Credit Suisse, Baublatt
Sharp increase in planning
uncertainty
The recent development of planning applications and building permits points towards growing
difficulties on the supply side. This is reflected by the fact that the correlation of planning applications and building permits recently dropped (see Figure 40). Phases with positive correlations
in the past stood for periods with relatively smooth planning and construction activity. For instance, back in 2000 there was a boom in planning applications that were granted approval after a regular and brief delay. This high correlation signaling a homogeneous planning process up
until approval and beyond this through to execution also held up during the downturn in 2002
and in the weaker years that followed. It was not until the financial crisis broke out in the fall of
2008 that permits collapsed in relation to applications. Investors became more cautious in view
of a gloomier economic outlook, withdrew their planning applications or carried out project adjustments that required a new planning application to be submitted. As a result, the total volumes of submitted planning applications and building permits drifted apart. A similar development can be observed today: The high negative correlation at present shows that applications
and permits have systematically diverged in the past 30 months. The decisive factor for this will
be less the economic situation than the difficult marketing situation due to the growing oversupply.
Sharp downturn
in planning activity in the
largest centers …
The correction on the office property market can altogether therefore no longer be overlooked.
However, not all markets and segments are equally affected (see p. 43) although the supply
expansion of the past few years spurred on by the low interest rates and investment crisis is a
much more broadly supported phenomenon than the widespread expansion after the turn of the
millennium (see Figure 41). The strong expansion of office space in the major centers should
soon die down as building permits have recently fallen to volumes that in some cases are substantially lower than their long-term average. However, what is astonishing is the continued
strong expansion expected in urban areas outside the major and medium-sized centers and in
outlying areas where the long-term average is exceeded by around a third.
… but increased construction activity in outlying
areas
The high expansion of office space expected outside the major and medium-sized centers is
particularly astonishing as it has been observed for some years and so far is not displaying any
signs of fatigue. There are various possible explanations for this: Either the tertiarization process
in the industrial sector which is much less concentrated geographically is proving more dynamic
than expected and ensuring the absorption of these office premises or the properties are being
constructed in a very small-scale manner as a by-product of the intensified housing construction
in outlying areas. Planning provisions often stipulate a minimum share of commercial space. Detailed analyses have revealed that the intensified housing construction in the countryside explains part of the increased construction activity. However, the rise in demand from the industrial
sector will be the crucial decisive factor.
40
Figure 41
Figure 42
Geographical supply expansion of office properties
Supply and net rent after construction period
Moving total of building permits over 12 months, in CHF million
Only properties exceeding 100 m² in Q3 2014; *or initial rental agreement
2'000
300'000
1'800
1'600
5 large centers
6 largest mid-size centers
other centers and suburban municipalities
peripheral locations
1'400
1'200
250'000
Properties (in m²)
Average net rent (in CHF/m² and year, right-hand scale)
400
350
200'000
300
150'000
250
100'000
200
50'000
150
1'000
800
600
400
0
200
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
100
until until until until until until until until until until until
1900 1950 1960 1970 1980 1990 1995 2000 2005 2010 2015*
(71) (42) (67) (65) (109) (99) (41) (38) (76) (190) (155)
Source: Meta-Sys AG, Credit Suisse
Many new office properties
on offer
It is more important than ever for investors to anticipate the correct preferences at the correct
location and to involve tenants at the earliest possible opportunity in order to specify their spatial
requirements. The advertised properties show clearly where there are currently sales problems.
Figure 42 illustrates the distribution of properties advertised online spanning various construction
periods and their average net rent levels. It is based on a random sample comprising all advertisements for properties with more than 100 m² of office space in the third quarter of 2014 for
which construction year details were available. 38% of office space but only 16% of the advertisements taken from this random sample can be attributed to the most recent construction period from 2010 to 2015. This total of 290'000 m² of office space classified as new is comparatively expensive with a nationwide average net rent of CHF 290 per m² and year but offers
modern technical facilities and spatial structures. However, its sales are faltering due to saturation trends in locational and property enhancements by large companies. Incidentally, not all of
these properties have already been realized. The high number of properties advertised as new is
also a result of increased marketing efforts for projects ready for construction on the lookout for
tenants.
High supply of newer
existing properties
The marketing of properties built between 2005 and 2010 will be more difficult. At over
190'000 m², a very large number of these are being offered at relatively high net prices of
CHF 260 per m². These will include quite a few properties that have been left again by their
initial tenants in the course of the newly discovered cost awareness. Very old properties only account for a small share of supply in terms of space. They generally offer less space and are
comparatively expensive. This is due to the fact that they largely comprise good quality properties in very good locations as they would otherwise have long since been replaced by new constructions.
Market Outcome: Further Rising Vacancies and Falling Rents
Oversupply in the office
property market: one million m²
The decreased planning and production of office properties will not yet be able to halt the rise in
vacancies in 2015. Compared with 2013, vacancies within the partial survey that covers 43% of
the nationwide office property market have gone up by 9% to 520'000 m² (see Figure 43).
Vacancies are therefore rising continuously, although not dramatically. However, there is still
some way to go before the peaks of the previous two cycles are reached. On the other hand it
should not be forgotten that the recent increase in vacancies has taken place against the backdrop of relatively robust economic performance. The total oversupply of office properties will
now amount to around one million m² – and the trend continues to point upwards. The rise to
1.9 million m² in the supply of existing property and the widespread stagnation and correction of
rents since 2013 (hedonic rental price index) confirm this picture and suggest that a continued
rise in vacancies and fall in rents is to be expected (see Figure 44).
41
No sign as yet of a trend
reversal
Although fewer rental properties are being planned for lack of pre-letting, overall property production remains too high as companies that directly order the development of new properties
also release capacities when moving elsewhere. The market will therefore adjust further this
year and only stabilize again with the onset of stronger demand growth from traditional service
companies or a more marked downturn in construction projects. Above all in Zurich and the
Glatttal a renewed increase in base vacancies on the scale of 2005 can be expected.
Rents under pressure
Because the current growth industries of the public sector are concentrated much less on the
agglomerations, the rising vacancies will primarily occur in the major and medium-sized centers
and among these exert a disproportionately large impact on the major rental markets of Zurich
and Geneva. Rents here have already come under increased pressure. Rents have been falling
on all markets since the start of 2013. In Zurich they fell by 8% by mid-2014 and in Basel by
6%. There was a less marked downturn on Lake Geneva where in particular the – until recently
– robust situation in Lausanne had a stabilizing effect. The decrease was also low in the city of
Berne that despite a large expansion of office space can count on high demand from the public
sector.
Figure 43
Figure 44
Vacant office properties
Supply of property and price performance
In 1000 m²; partial study: approx. 43% of Swiss office property market
Advertised existing properties in m²; hedonic rental price index: 2005 = 100
800
150
City of Zurich
Canton of Geneva
Canton of Basel Stadt
Canton of Basel Land
City of Berne
Canton of Vaud
Canton of Neuchâtel
700
600
500
140
400
300
Supply of property (right-hand scale)
Zurich
Basel
Berne
Lake Geneva
Rest of Switzerland
2'400'000
2'000'000
130
1'600'000
120
1'200'000
110
800'000
100
400'000
200
100
0
1996
1998
2000
2002
2004
2006
Source: Cantonal statistical offices, Credit Suisse
2008
2010
2012
2014
90
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Wüest & Partner, Meta-Sys, Credit Suisse
New properties without
secure pre-letting coming
under pressure
The development of the Swiss office property market is accordingly experiencing a new although not surprising turn. The victims of the expansion of office space against the backdrop of
weak demand are no longer just old existing properties. The problem is increasingly also affecting new properties embarked upon without any secure pre-letting. This development ultimately
provides an exact reflection of the demand situation: High cost awareness among domestically
oriented industries and a saturation of locational and property enhancements by large companies are causing the market situation for expensive new properties to deteriorate.
Marketing at the
peripheries of the office
property markets becoming
more difficult
While in previous years a large number of new construction projects in the agglomerations of
the major centers attracted a great deal of companies, this phase is now drawing to a close.
The major projects currently being planned are competing fiercely among each other for priceconscious tenants with strong bargaining power. Companies seeking functional properties with a
sound price-performance ratio – which will currently apply to the lion's share of additional demand – are increasingly considering well maintained and centrally located existing properties as
an alternative, especially since a growing willingness to make concessions can be observed on
the part of the landlords of such properties. The expected rise in vacancies will therefore primarily take place at the qualitative and price peripheries of the office property market.
42
The 15 Largest Office Property Markets at a Glance
Figure 45 summarizes the developments of the 15 largest Swiss office property markets. More
than 1.9 million m² of existing office space was advertised in the fourth quarter of 2014, 14%
more than in the previous year. According to our estimates, total office space in Switzerland in
2012 amounted to 52 million m². At 3.7%, the supply rate of existing property is well up on the
previous year. There are major regional differences here. A further increase in supply with falling
rents can be assumed above all in the Zurich market in particular in the city of Zurich itself and
in the Glatttal. Meanwhile, supply in Geneva will no longer be far from its cyclical peak. However, rents also remain under pressure on the Rhone. By contrast, the markets in many larger
medium-sized centers are relatively stable. These include St. Gallen/Rorschach, Aarau, Zug
(Lorzenebene/Ennetsee), Winterthur, Baden and Neuchâtel. Altogether it is very likely that supply will grow further in the current year. Owing to the high share of large and expensive properties that are increasingly being advertised on the online portals, the rents in the random sample
will currently be overrated.
Figure 45
Overview of the 15 largest office property markets
Existing stock of office space (excluding initial rental agreements) in m² in Q4 2014; average rent (gross) in 2014, areaweighted in CHF/m² p.a.; trends for 2015
Office property market
Existing
office space
Advertised
space*
Supply
rate*
Supply
trend
Average
rent*
Price
trend
Zurich
Geneva
Berne
Basel
Lausanne
7'659'000
4'022'000
3'455'000
3'153'000
2'481'000
497'000
339'000
83'000
76'000
164'000
6.5%
8.4%
2.4%
2.4%
6.6%





353
461
238
279
291





Lucerne
St. Gallen/Rorschach
Aarau
Lorenzebene/Ennetsee
Lugano
Winterthur City
Baden
Neuchâtel
La Sarine
Olten/Gösgen/Gäu
1'546'000
1'385'000
1'318'000
1'206'000
1'226'000
729'000
699'000
613'000
704'000
574'000
38'000
17'000
22'000
44'000
64'000
28'000
13'000
11'000
30'000
17'000
2.5%
1.2%
1.6%
3.6%
5.2%
3.9%
1.9%
1.8%
4.2%
3.0%










213
217
167
258
258
206
217
273
217
169
Switzerland
51'907'000
1'916'000
3.7%

324
Economic region

* Only existing stock
The Five Largest Office Property Markets in Detail
The office property markets in Zurich, Geneva, Berne, Basel and Lausanne represent over 40%
of all office property in Switzerland. As a result, it is not just the overall trends in these markets
that are interesting; equally important are also the shifts within the individual office property
markets and the different characteristics of their various business districts. These changes provide an insight into overall Swiss trends and developments.
43
Zurich
Figure 46
Supply density of office property
Supply of office space in m² per hectare, Q3 2014
Kloten
Extended business district
Opfikon
Regensdorf
Illn
Dietlikon
Spre it enbach
7
Oberengstringe n
Dietikon
Outer business district
8
6
Wallise lle n
5
Dübendorf
2
Sch lie re n
1
Urdorf
Z ü ri ch
3
Supply density
New constructed
and stock space
4
1
2
3
4
5
6
7
8
Hardbrücke
Förrlibuck-Geviert
Europaallee
Hürlimann Areal
Bahnhof Oerlikon
Glattpark
Thurgauerstrasse
The Circle
Central business district (CBD)
very high
Zollikon
medium
0
1.5
3 km
Kilc hberg
Küsnacht
low
Adli il
Source: Meta-Sys AG, Federal Office of Topography, Credit Suisse
Extremely high supply of
property
Zurich is being flooded with a heterogeneous supply of office property. Almost 500'000 m² of
office space is available throughout Zurich's market area. Additional 200'000 m² concern new
rental agreements of which not all have been realized yet. This means that 32% of all advertisements throughout Switzerland for property declared as new and 28% of all advertisements
are attributable to the Zurich market – with a share of existing property of almost 15%. We estimate the supply rate in the city itself to be 7.2% including initial rental agreements and 5.1%
when limited to existing properties. Of the 144'000 m² of advertised properties in the central
business district (CBD), the statistical office of the city of Zurich reported 96'000 m² to be vacant as per June 2014. The supply of existing property is largely old. Advertisements for existing properties are on average classified as having been built in 1970. Measured in terms of the
supply density, sales problems are particularly acute in the CBD south of the main train station
between the Limmat and the Sihl up to the south of Zurich. The supply of property in this area
is generally structured on a small scale – with the exception of properties of up to 10'000 m² at
what in some cases are very prestigious locations such as Bahnhofstrasse or Bleicherweg.
Good prospects for CBD
properties
The problem of small-scale existing office space in old properties in the city center lies in the
fact that the prime locations do not match the age-related suboptimal quality of the office
space. While the high rents are influenced by the expensive land, the supply of office space
does not adequately reflect the high prices. Although structural intervention could remedy the
situation in many places, this presupposes the courage to invest. If no investments are made,
reletting will in many cases only be possible by reducing the rents and thereby devaluing the
properties. However, CBD properties will find new tenants following corrections, a phase of restraint and structural interventions because their locations in the majority of cases are so convincing. Office properties in the west of Zurich are likewise in demand. Above all in the vicinity of
Hardbrücke there were recently hardly any properties advertised to let. Supply is also limited further west from here. The various properties on offer are concentrated solely in the square
around Förrlibuckstrasse. In view of the sharp growth in office space in recent years, the low
supply in the west of Zurich appears remarkable. Properties are also in demand around the main
train station: Five years before its completion, Europa Allee has been completely let. Google
was gained as the sole tenant for the last 50'000 m² of vacant and not yet realized office
space. The significance of this decision by one of the fastest growing companies in the world in
favor of Zurich can barely be overrated. Google intends to use the space for future growth; according to media reports there are no plans to give up the Hürlimann site.
44
Major oversupply between
Oerlikon and the airport
There is a different situation in the north of Zurich. Between Oerlikon station and the airport
there are fewer properties advertised than in the CBD. However, with nine advertisements for
properties measuring between 4000 and 50'000 m², these are a great deal larger and primarily
intended for initial rental agreements such as the two new towers at Oerlikon station, a major
refurbishment on Thurgauerstrasse and properties still to be realized in the growing Glattpark. In
view of the fundamentally good sites in the city center, the vacancies will in the medium term
become concentrated after a phase of correction on the outskirts of the extended business district and beyond; moreover, new properties should increasingly also be affected. The major project The Circle, the realization decision of which was definitively taken in December 2014, is also having difficulties finding tenants for the large-scale office properties. Flughafen Zürich AG
will now itself rent some of the properties. However, switches of this kind are unable to ease the
problem of the growing oversupply in the region.
Overestimated
employment growth
Apart from the effect of the low interest rates, the growing oversupply is attributable to three
main factors: First of all the job growth potential following the recession in 2009 was overestimated. Assuming unchanged growth, the 700'000 m² of advertised office space would accommodate the entire employment growth of the canton in the next four years, although by no
means all employees require an office workstation. In the dynamic years from 2004 to 2008,
employment in the tertiary sector of the Greater Zurich area grew by an average of 2.1% p.a.
The growth drivers were above all the financial sector in the city and affiliated sectors such as
legal, tax and management consulting. This growth slowed down between 2009 and 2014 to
1.1%. Secondly, domestically oriented sectors such as healthcare, education, public administration, construction, real estate and planning have made the largest growth contributions since the
financial crisis. However, these sectors no longer have the same space requirements. The subdued but unchanged positive growth has at least prevented an even greater oversupply. Thirdly,
although locational and property enhancements will remain important reasons for larger companies to relocate, many of the large service companies have already carried out these enhancements.
Vacancies will rise further
in the next two years
In view of these developments the planning of new properties remains too high. Although the
volume of approved new office properties in Zurich has decreased in absolute terms, Zurich's
market area still accounts for 55% of the office property planning of all five major centers (see
Figure 47). Against this background the north of Zurich in particular will continue to develop into
a hotspot for vacant office properties. The total amount of existing office space advertised to let
has climbed steeply over the past year to almost 500'000 m², with growth recorded in all business districts (see Figure 48). There was a particularly sharp increase in the extended business
district. The level reached exceeds the supply of property seen in 2006 when the vacancies on
the Zurich market had just passed the peak of the last office property cycle. Conversely this
means that due to the high supply level vacancies will rise further and rents will remain under
pressure.
Figure 47
Figure 48
Approved construction volume for office properties
Trend in advertised office space
In CHF million (left-hand scale); share of total of five major centers (r.h.s.)
Advertised office space stock; quarterly totals in m²
1'000
900
800
Zurich office property market
City of Zurich
Zurich share of five major centers
100%
80%
700
70%
600
60%
500
50%
400
40%
300
30%
200
20%
100
10%
0%
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
600'000
Zurich outer business district
Zurich extended business district
Zurich CBD
Total supply
90%
500'000
400'000
300'000
200'000
100'000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
45
Geneva
Figure 49
Supply density
New constructed
and stock space
very high
Le Grand-S aconnex
medium
Meyrin
3
low
Vernier
1
2
5
G e nè v e
Chêne-Bouge ries
Lancy
Onex
1
Nations Business Center
2
Blandonnet International
Business Center
3
IKEA
4
Skylab
5
Campus Biotech
Thône x
Car oug e
Bernex
4
Veyrier
0
1.5
3 km
Highest supply density on
the Geneva market – almost only existing stock
advertised
Like Zurich, the Geneva office property market is suffering from a high supply of property. After
the volume of advertised properties had for many years persisted at a relatively low level, it suddenly doubled during 2013. In the past year the number of advertised properties rose further,
although no longer as steeply as before (see Figure 51). The supply rate in the canton of Geneva lies at around 8.4% of the stock of office space. The supply advertised in Geneva is concentrated strongly on the central business district (CBD) where the supply of property is denser
than in all the other major office property markets (see map). The Geneva market is also more
strongly characterized by the availability of small properties than that of Zurich. The small-scale
structure applies particularly to the CBD and extended business district. Of 229 properties advertised in the CBD, half are smaller than 180 m², comparatively old and expensive. The average net rent of the 115 smallest properties amounts to CHF 544 per m² and year and that of
the 114 largest CHF 485 per m² and year. The top rents exceed net values of CHF 900 per m²
and year for very small sizes between 70 and 110 m². The low new construction activity of the
past two years is also making itself considerably felt in terms of supply. Altogether just
25'000 m² of the total stock of 339'000 m² of properties on offer are being advertised for initial
rental agreements.
Demand in Geneva currently shaped by life sciences
and the high-tech industry
Outside the CBD there are exceptions from this widespread small-scale supply structure with six
properties advertised with between 6000 and 12'000 m². Only one of them is attributable to
the extended business district and comprises the Nations Business Center that was completely
refurbished in 2013 and lies at the heart of Geneva's United Nations district. Similarly to the
CBD, a large number of smaller properties also dominates in the extended business district.
Outside the CBD and the extended business district, the advertised properties are strongly concentrated on the airport district where among other things larger properties are available to let
both at the Blandonnet International Business Center and in the IKEA complex. Other large
properties on offer lie scattered around the remaining part of the outer business district. Hidden
among these standard properties for which demand has also been lacking for some time in Geneva can be found the niche offer for the new Skylab project that is being marketed as a hightech business hub at the heart of the watch industry of Plan-les-Ouates and at the A1 motorway intersection in the southwest of Geneva. These properties should be ready for occupancy in
2015. With a view to the changed demand structures (see page 38) this project should meet
with success owing to its integration within a successful enterprise cluster of the high-tech in-
46
dustry. A second exceptional project is the biotechnology campus in the former Merck Serono
building in Geneva Sécheron. The laboratories and offices capable of accommodating 1200
persons have been converted into a research establishment of the University of Geneva and
EPFL. One third of the capacities are already utilized and capacity utilization is currently growing
further with the EPFL part of the flagship European research undertaking "Human Brain Project" moving in. This project supported by a public-private consortium is symbolic of the demand
complexity of service-oriented office properties that simultaneously have to offer optimum conditions for training, research and development as well as the marketing of medical products. The
life sciences cluster that is represented by the umbrella organization BioAlps and has caused
Western Switzerland between Visp and Geneva to become known as "Health Valley" continues
to grow. By contrast, the supply of office property in the city of Geneva that is structured on a
small scale, outdated and expensive due to locational reasons barely offers adequate accommodation for such companies.
Unfavorable combination of
locational uncertainties
limiting traditional demand
for office space
In contrast to the growing demand for office space of the life sciences cluster, traditionally designed office properties for corporate headquarters, banks, insurance companies and corporate
service providers are suffering from an unfavorable combination of negative factors. The international pressure on banking secrecy and the tax privileges that Switzerland grants to global companies has not only triggered a radical structural change in the banking sector but is also unsettling international holdings. Demand for prestigious office properties in Geneva has therefore
ground to a halt. The strength of the franc, the lack of housing and additional uncertainties owing to the flood of initiatives have also contributed to this. Corporate Tax Reform III (CTR III) is to
be taken particularly seriously for Geneva as a demand-limiting factor. The reform of the tax
system is proving particularly difficult for Geneva because a large share of revenue comes from
corporate taxation and regular corporate taxation is not at an internationally competitive level today. In order to prevent an exodus, Geneva is planning a marked cut of tax rates on earnings.
However, this will cause high tax losses.
Geneva likely (soon) to
have reached its peak in
the supply of office
property
The weak demand and locational uncertainties in Geneva are no new phenomenon. They have
gradually developed in the wake of the financial crisis and are reflected in the increase in supply
in the course of time. Because for a long time only very few new properties have been planned,
the advertised supply of office space should stabilize in the medium term. At just
CHF 35 million, the volume of office properties approved in the past 12 months is currently well
below the long-term average investment volume (see Figure 50). An initial ray of hope was also
provided by the fact that in 2014 the official vacancy rates fell slightly from 1.9% to 1.6% of
existing stock. However, in view of the high supply of property we expect vacancy rates to rise
again in the short term as it will take some time to reduce the extensive supply of office space.
As long as it remains unclear how Geneva will implement CTR III, international holdings will continue to put their settlement plans on the back burner.
Figure 50
Figure 51
350
300
Geneva office property market
City of Geneva
Geneva share of five major centers
35%
400'000
30%
350'000
Geneva outer business district
Geneva extended business district
Geneva CBD
Total supply
300'000
250
25%
200
20%
150
15%
100
10%
50
5%
50'000
0
0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
0
250'000
200'000
150'000
100'000
2006
2007
2008
2009
2010
2011
2012
2013
2014
47
Berne
Figure 52
1 PostParc
Supply density
New constructed
and stock space
2 Ostermundigenstrasse
3 Swisscom Businesspark Ittigen
very high
4 Webergut, Zollikofen
4
5 Areal Meielen, Zollikofen
5
6 Titanic II (Monbijou)
7 Verwaltungszentrum Köniz
8 Guisanplatz
Be rn
B e rn
9 Wankdorf
3
10 Schönburg
medium
Zollikofen
low
Ittigen
9
8
2
Ostermundi gen
10
1
6
7
Muri
Worb
Köniz
0
1
2 km
Few large properties
on offer
Berne's office property market remains balanced despite of a high growth in supply. The advertised supply of office space amounting to almost 83'000 m² is shaped by generally small properties in the city center and along the main traffic arteries in the extended and outer business
district. Despite the lively construction activity of recent years with major projects spread across
all business districts, there are only few large properties on offer alongside the small properties
with their natural fluctuation. In the PostParc located in the heart of Berne immediately adjacent
to the main train station, half of the office space has been let to tenants such as Ernst & Young
and the Höhere Fachschule für Wirtschaft und Informatik (IFA) prior to completion at the end of
2015. Nevertheless, in view of the size of the project there are still up to 10'000 m² advertised
to let. Another focus of supply lies on Ostermundigenstrasse just outside the extended business
district. Swisscom transferred its employees from here to the new business park in Ittigen in
2014. The vacant space amounting to around 31'000 m² is currently being marketed under the
label BusinessPark Berne but does not appear on the online marketplaces so that the supply of
office space underestimates the situation. Moreover, larger properties have for some time been
advertised in the west of Berne in the Bümpliz area and recently also in Zollikofen in the Webergut area where the Swiss Federal Administrative Court had its headquarters before relocating to St. Gallen.
Strong growth
in administration absorbing
a lot of office space
Vacancies for office space are arising here and there and have recently triggered a rise in the
supply rate (see Figure 54). A further expansion of supply is to be expected above all for existing properties in the city center in the next few years. Following Swiss Post, PostFinance, SBB
and Swisscom, the Federal Government is also gradually implementing the long-term restructuring of the Federal Administration. The list of planned new administrative locations is long and
becoming increasingly specific. Many of the properties are being constructed on the basis of
growth motives so that not every relocation results in property advertisements and vacancies.
For instance, 700 jobs of the Federal Office of Information Technology, Systems and Telecommunication (FOITT) were created at the Meielen site in Zollikofen at the end of 2013. However, the head office of the FOITT remains the Titanic II office building named after its distinctive shape in Berne's Monbijou district. Meanwhile, other job relocations are more likely to
release supply in the CBD. For example, the Federal Office of Public Health is expected to
move from the city center to its new administrative center in Köniz in the fall. A property for 720
additional staff is currently being completed there. Further administrative centers in Köniz, Ittigen
48
and on Guisanplatz will follow by 2025 with space for a total of 7000 to 8000 staff. However,
although the supply of office space is set to rise somewhat from time to time due to larger-scale
relocation projects, there is no serious oversupply to be expected as long as the planning of additional investment properties is kept in check. At the end of the day the administration based in
Berne will need the space if employment growth continues anything like as dynamically as it has
in the past four years. From 2008 to 2012 the number of employees in administration in the
Berne economic region increased by 3.9% per annum. If this growth is upheld, the additional
properties envisaged would be filled solely due to the growth in employment by 2025.
Educational institutions
also on course for
expansion
SBB is planning in a similarly long-term manner in Berne. In August 2014 its new head office
accommodating 1800 employees was inaugurated in Wankdorf-City. However, the release of
office space is also limited here. The canton has bought two large properties from SBB in order
to convert them for use by the university in the Länggasse area as the university is also growing
and needs more room. It is therefore happy to take over properties that become vacant in the
area. The former SBB head office in Mittelstrasse with 17'000 m² is to be made available to
several faculties as a multifunctional building. As in the other four major centers, demand from
the educational sector therefore also plays a decisive role in the Berne market for the utilization
of office space capacity. As its next step SBB is planning the development of a centralized IT
site, also in Wankdorf (construction zone 6), for up to another 1800 employees. Completion is
set to take place between 2018 and 2020. Further tenants in Wankdorf-City from 2016 will be
Losinger-Marazzi, the KPT health insurance fund in the Twist Again project and Swiss Post
which from this year will move into its head office with 34'000 m² in the Majowa project. Here
too properties will be relinquished although the future of the previous head office, the Schönburg, remains unclear.
Growing supply of office
space barely preventable
for the time being – stabilization in the medium term
Altogether the trend towards an increasing supply of office space is set to continue on the
Berne office property market. While until now supply has risen above all in the outer business
district – which is primarily attributable to the relocation of Swisscom from Ostermundigen – the
relocations of the Federal Administration will also bring about an increase in the CBD. However,
there are three reasons not to expect an alarming oversupply in Berne: First of all planning after
the wave of expansion in Wankdorf is very tentative. At CHF 66 million, the volume of approved
office property over the past 12 months is less than half the long-term average (see Figure 53).
Secondly, it can be assumed that the significant growth of public administration, governmentrelated companies and the educational sector in Berne will continue although with somewhat
less momentum. The administrative sector will therefore be very cautious in the relinquishment
of good central locations. And thirdly, although the advertised supply of office space does not
currently include all properties offered on the market and therefore underrates the situation, the
share of advertised properties is nevertheless well below the nationwide level of 3.7%.
Figure 53
Figure 54
600
500
Berne office property market
City of Berne
Berne share of five major centers
60%
50%
400
40%
300
30%
200
20%
100
10%
100'000
Berne outer business district
Berne extended business district
Berne CBD
Total supply
80'000
60'000
40'000
0
0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
20'000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
49
Basel
Figure 55
Ba sel
Riehen
Supply density
New constructed
and stock space
very high
7
9
6
medium
8
Birsfelden
Allschwil
low
1
4
2
3
Binningen
5
Muttenz
1
Baloise-Tower
2
Grosspeter-Tower
3
City-Gate
4
Meret-Oppenheim-Hochhaus
5
Polyfeld, Muttenz
6
Biozentrum Uni Basel
7
Campus Rosental
8
Roche-Towers
9
Messe Basel
Oberwil
Pratteln
Münchenstein
Therwil
Reinach
Arlesheim
0
1
2 km
Comparatively low supply
of existing office space
In and around Basel there are various high-rise office projects vying for potential tenants. However, marketing success calls for staying power despite the fact that at 76'000 m² the advertised supply of existing office space is comparatively small and there are no real hotspots (see
map). Only 4.0% of the nationwide advertised supply of existing office space is attributable to
the Basel market although the latter comprises around 6% of all office properties in Switzerland.
The advertised supply here is structured in a very small-scale manner. The average size of existing office properties across all three business districts lies between 150 and 220 m². Large and
new properties are the exception, particularly in the central business district (CBD). However,
the Baloise construction project is emerging in the latter and comprises the development of
three buildings and a park where today the Hilton stands near the station. Baloise will move into
its new head office from the end of 2019 with around 700 employees. Further properties for
1300 staff will be let to third parties. Not far from here one of the few larger properties with
12'000 m² is currently being advertised. This is the Grosspeter Tower that like the City Gate office property project situated further to the west is essentially ready for use and simply waiting
for tenants. The Meret-Oppenheim-Hochhaus (MOH for short) on the southern side of the SBB
train station has been more successful: Following its completion at the end of 2018, the SRF
Cultural Department will move into the 81-meter-high tower designed by Herzog & de Meuron
from its current location at Bruderholz.
Education and life sciences
also the main sources of
demand in the future
Other larger properties with the exception of an older property in Aesch are primarily addressed
at potential tenants from the educational and life sciences sector. For example, office space
was on offer in the third quarter at the Rennbahncenter. This is the first project to be realized
within the perimeter of the Polyfeld Muttenz Master Plan where in future various usages are to
be developed in the vicinity of the train station under the key words "knowledge, living, working
and meeting". Among other things the Muttenz Campus with a new building for the University of
Applied Sciences and Arts Northwestern Switzerland (FHNW) is being constructed where accommodation is to be created by 2019 for 3700 students and 680 staff at a cost of CHF 300
million. The life sciences sector is also the undisputed leader in terms of construction investments in the Basel area. With the rebuilding of the university's Biozentrum and the new
Rosental Campus and above all the announcement by Hoffmann La Roche AG of its intention to
build a second even higher tower, there will be continued major investment in the sector cluster
in terms of space in the years to come. Roche intends to invest CHF 3 billion in the construction
50
of a new research and development center, a new office building for up to 1700 employees, the
renewal of its infrastructure and the renovation of its historic administration building in the next
ten years. The office building is to be 205 meters high and will be ready for occupancy in 2021.
Roche investing heavily
in Basel
The clear commitment of Roche to the Basel location is ultimately also good news for the office
property market. Despite the concentration of employees at in-house locations, the long-term
presence of the two major life science companies is attracting other companies and service
providers that are able to benefit from this cluster. Fears that the construction of the first Roche
tower will trigger an oversupply on the Basel office property market will therefore not materialize.
The Roche tower scheduled for completion this year is not sufficient for a concentration of all
employees. The growth of the company appears to have overtaken the expansion of office
space. For this reason there will still be 3000 employees continuing to work at rental properties
spread throughout the city even after the completion of the tower bearing the name "Building 1". Spurred on by these prospects, Messe Basel has presented its plans for a new tower
with 16'000 m² of office space on the site of its parking block in need of refurbishment that
seem reminiscent of the shape of the Roche tower.
Major property potential via
site developments
Another characteristic feature of the office property market in Basel is that the region's industrial and logistical past serves to provide the market with a consistently high availability of development sites. The Erlenmatt site, the Dreispitz site and last but not least the harbor area offer
major property potential over the short to long term. The Canton of Basel Land also has plans to
create settlement sites for new companies through the development of large industrial sites.
The aim is to increase significantly the tax base through settlements and growth as part of an
economic offensive. Out of 37 sites originally identified in the canton, four areas have been
classified as strategically important. On the Salina Raurica site alone that lies between Pratteln,
Augst, the A2 and the Rhine there are 50 hectares available where alongside homes accommodation for 4000 to 9000 jobs could be developed. This alone would be equivalent to 3.5% to
8.0% of the number of employees in the canton of Basel Land. On top of this there are several
sites in the Liestal district on the Ergolz axis between Muttenz and Sissach, the ABB site in
Münchenstein and Arlesheim and the Dreispitz site on the Münchenstein side.
Risk of oversupply averted
for the time being
Outside the educational and life sciences cluster the marketing of properties is proving more
difficult. A ray of hope comes from the insurance industry as not only Baloise but also Helvetia
has new construction plans. Over the last few years the average expansion of office space
measured against the investment volume of approved construction permits in Basel has not exceeded its long-term average despite the Roche Tower and phase of low interest rates and at
CHF 83 million currently even lies more than a third below this (see Figure 56). This has stabilized the market and protected it against oversupply. The Basel market differs markedly in this
respect from most other markets.
Figure 56
Figure 57
500
400
Basel office property market
City of Basel
Basel share of five major centers
50%
40%
120'000
Basel outer business district
Basel CBD
Basel extended business district
Total supply
100'000
80'000
300
30%
200
20%
60'000
40'000
100
10%
0
0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
20'000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
51
Lausanne
Figure 58
1
Flon Quartier
2
Biopôle Park
3
EPFL
4
Business Center Bussigny
Supply density
New constructed
and stock space
very high
medium
low
4
2
Renens
Pr illy
Ecubl ens
Morges
1
3
Pully
0
1.25
2.5 km
La usa nn e
Sharp rise
in supply of office space
Compared with the other major office property markets, the Lausanne market is less dependent
on just a small number of economic sectors and therefore not as exposed to the well-being of
these sectors. However, it is also feeling the slowdown in economic performance, the decline in
company settlements from abroad and the uncertainty of companies based here due to Corporate Tax Reform III. Demand has cooled off accordingly. As a result, the supply of advertised office space stock has shot up in the past few quarters. Around 164'000 m² of existing office
space are currently on offer in Lausanne, which represents an increase in the supply rate to
around 6.6% (see Figure 60). Above all in the central business district (CBD) and in the west of
the extended business district the number of small-scale properties has recently risen (see
map). Within two years the average size of properties advertised in the CBD has fallen from 400
to 180 m². It seems to be becoming increasingly difficult to find a sufficient number of small
businesses for reletting in the heart of Lausanne. High rents and an overburdened transport
system will be the main reasons why more and more companies are opting for outlying locations. With an average net rent of CHF 377 per m² and year, the space costs in the CBD are
well above the level of the extended business district at CHF 266 per m² and year. The latter
includes properties in the Flon district to the west of the CBD that has been modernized in the
past ten years. However, at 60% the lion's share of the advertised supply of office space in
Lausanne is attributable to the outer business district. Whenever there is talk in Lausanne of an
oversupply, this is in the outlying areas. However, here too it is worth taking a differentiated approach as Lausanne has developed into a market with three local magnets where demand has
increased dynamically in recent years.
Three demand magnets:
CBD, Biopôle and EPFL
The CBD and the areas to the south and west of this towards the lake continue to form the first
of these magnets. Despite its traffic restrictions the city center is in demand although due to the
small-scale supply structure larger companies have difficulties finding space. The second office
property hotspot geared strongly towards the life sciences is developing in the Biopôle Park in
Epalinges to the northeast of the CBD. While growing continuously, it still has spare space for
new companies. The third magnet that is already more strongly established is the EPFL campus
in Ecublens. While in Zurich and other places sites for future innovation parks are still under discussion, EPFL, the university and the high-tech industry are rapidly merging in Ecublens to form
a large high-tech cluster. The last major link between these worlds is the Swiss Tech Conven-
52
tion Center that was completed in 2014 and can accommodate congresses with up to 3000
participants. As the campus still has major usage potential, future growth remains guaranteed.
Isolated letting difficulties
away from the three
demand magnets
Lausanne has accordingly developed into a tripolar office property market that similarly to Geneva, Zug and Basel is shaped by companies with a high share of research and development and
the desire to transfer knowledge between theory and practice. However, the recent increase in
the supply of office space on the online marketplaces pertains more to planned or already realized properties in outlying areas away from the existing demand magnets that are less easy to
reach by public transportation. For example, a property of around 30'000 m² in a business center in Bussigny that has for a long time been advertised for pre-letting is repeatedly causing
supply figures in the outer business district to increase dramatically. By contrast, vacant large
properties close to the city center or the other two magnets are rare. The only larger property on
offer in the vicinity of the CBD in the third quarter was a new construction project on the western edge of the extended business district with a good 4000 m² that is scheduled to be available from mid-2015.
Vacancies yesterday in the
Lausanne district and today
in the Ouest Lausannois
district
Vacancies on the Lausanne office property market have risen somewhat. Fewer but larger slowmoving properties above all in the Ouest Lausannois district are shaping the market and are
reflected in a dichotomy of vacancy rates. While at 41'000 m² vacancies in the Lausanne region
altogether lie at their long-term average, their distribution between the two relevant districts of
Lausanne and Ouest Lausannois has fundamentally changed since 2005. At 27'000 m² of
empty office space, the oversupply in the district of Lausanne on average tripled that of the district of Ouest Lausannois between 2005 and 2009. However, vacancies in the core district of
Lausanne fell markedly after 2009 and the relationship has been permanently turned around.
From 2010 to 2014 there were on average only half as many vacant properties in the Lausanne
district as in the district of Ouest Lausannois.
Weak future
supply expansion will stabilize the market
While a further increase in vacancies on the Lausanne office property market cannot be ruled
out, it should remain limited. As in Geneva the peak in the current cycle appears either to have
been reached or to be close, especially since not many new properties are being planned at
present. The volume of approved construction permits in the past 12 months lies at a level of
just CHF 30 million and is therefore well below the long-term investment volume (see Figure
59). The volume of approved permits was already similarly low in 2013. In this point the Lausanne office property market differs markedly from markets such as Zurich. In the short to medium term the low expansion of office space will serve to stabilize the Lausanne office property
market, especially since the latter in any case presents a reasonably intact picture at its core.
Figure 59
Figure 60
400
200'000
300
40%
Lausanne office property market
City of Lausanne
Lausanne share of five major centers
30%
200
20%
Lausanne outer business district
Lausanne extended business district
Lausanne CBD
Total supply
180'000
160'000
140'000
120'000
100'000
80'000
100
10%
60'000
40'000
20'000
0
0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
53
Outlook for Office Property in 2015
Eroding demand meets
excess supply
Despite solid five-year economic growth in the 1–2% range, an oversupply of office space has
built up in Zurich and Geneva in particular. The primary reason is the fact that the development
of the economy was dominated by domestic growth in the period after 2009. Momentum
among traditional users, such as banks, insurance companies and consultancy firms, has
slowed considerably and even gone into reverse in places. An increased requirement for office
space has developed in the domestically oriented sectors, on the other hand, though with a lower willingness to pay and/or different floor space requirements. Thus reduced planning activity
also continues to put too much of a strain on the market. This is likely to become more accentuated with the expected softening of economic activity. Having been slack to date, demand this
year is likely to suffer from companies' response to the exchange-rate shock. More efficient use
of floor space is one option for firms wanting to cut costs and maintain margins. This creates
opportunities for new or refurbished properties, provided they offer companies efficient use of
space. In overall terms, however, the market trend means a further rise in vacancies as well as
pressure on rents. In the major centers of Zurich and Geneva in particular, we expect an unbroken rise in vacancies. That said, the situation may vary considerably at local level. Prime sites
such as railway locations in the major centers should continue to do very well. Smaller office
markets are also likely to be less significantly affected by the supply overhang.
Demand
Background
Development of demand: The industrial and service sectors must seek to compensate
for the effect of the exchange-rate shock through rationalization measures. That also
includes an improvement in floor space efficiency. In volume terms, the demand for floor

space – which has already been slack thus far – is now very unlikely to provide a boost.
Across all industrial, service and public administration sectors, additional demand of
200'000 m2 at most can be expected.
Situation in individual sectors: The financial sector continues to face enormous cost
pressures and is therefore highly unlikely to contribute to job growth in the office sector.
At most a modest increase in demand is expected on the part of insurance companies
and consultancy firms. Industry will presumably rent additional floor space only in the
event of an urgent need for space or if floor space efficiency can be increased as a
result. This year again, the greatest need for floor space is expected to be in the domestically oriented sectors of the economy.
Outlook









Rents: Office rents have fluctuated between stagnation and slight growth in recent years.
On a quality-adjusted basis, a significant correction began to develop in 2013 – one that
is unlikely to bottom out this year.


Performance (total return): The regional market environment and micro-location are what
decide potential returns in a challenging environment. Small, centrally located and growing markets continue to offer buying opportunities in the case of an optimal microlocation. On the other hand, oversupply in Zurich and Geneva limits the increase in
values and profitability. Here, total returns are therefore likely to continue falling.


Supply
Planning activity: The increased uncertainty has reduced planning, as measured by the
volume of projects with building permits, to the long-term average of just under CHF 2
billion. Low interest rates are countering a further weakening. Even though a significant
portion of currently approved projects serve large companies' own requirements and to a
lesser extent comprise pure investment properties without explicit pre-letting, too much
floor space is still being built in overall terms.
Supply structure: Supply within the existing stock is structured around very small-scale
units. In the urban centers in particular, there is increased supply of floor space that is
expensive due to its location but whose outdated building fabric and quality of space do
not match the price. At peripheral locations with an average micro-location, major initial
letting projects are coming under increasingly strong pressure as well.
Market outcome
Vacancies: Vacancies within the partial survey, which corresponds to 43% of the nationwide office property market, rose by 9% in 2014 from their 2013 level to 520'000 m2 .
The total overcapacity in office property is therefore likely to run to around 1 million m2.
This trend is likely to accelerate further. A trend reversal is not expected over the next 2–
3 years.
54
Retail Property
The retail property market has demonstrated an astonishingly high degree of stability in recent
years. Supply and demand have never been far apart. However, there are now growing signs
that the spate of development that occurred in the period up to 2011 is set to take its toll on the
market. Although a few projects still await completion, it seems there are virtually no new ones
in the planning phase. This speaks volumes: the uncertainty on the part of investors and tenants
alike as to how the market can cope with the imminent challenges due to the growth of online
sales is tangible.
Demand: Dominated by Saturation and Structural Change
Disappointing development
of retail sales
Retailers have suffered from the subdued trend in nominal sales in recent years. Flatlining
consumer spending, depressed consumer sentiment, price concessions for consumers as well
as shopping tourism have given Swiss retailers a tough time. Despite optimistic expectations,
little change occurred at all in 2014 (see Figure 61). Sales rose by 1.0% in real terms in 2014
following a 1.8% increase in the previous year. Given the need once again to offer discounts on
products, this resulted in measly growth of 0.2% in nominal terms. Retail prices were down by
only 0.8%, however, significantly less than in previous years. As in the previous year, only food
retailing contributed to the growth in sales in 2014 while the non-food area suffered negative
growth in nominal terms.
Population growth is
only remaining support
to retail sales
With real consumer spending flatlining for years, shopping tourism continuing at a high level and
disposable incomes increasing only slightly, the minimal rise in sales was once again mainly due
to population growth (see Figure 61). Between 2009 and 2014, the population expanded by an
average of 1.1% annually while sales rose 1.9% p.a. in real terms and 0.4% in nominal terms.
The population trend for its part is highly dependent on international migration, which weakened
only slightly in 2014 compared with the previous year. Last year, therefore, immigration once
again proved to be a key support to consumption. It is almost single-handedly responsible for
ensuring sales do not decline.
Figure 61
Figure 62
Retail sales, retail prices and population trend
Total retail sales versus online sales
Annual growth in %; 2014 estimate
Left-hand scale: index: 2008 = 100; right-hand scale: online sales as a share
of total retail sales; 2014, 2020: estimates
6%
Retail prices
Population
Retail sales, nominal
Retail sales, real
5%
4%
3%
2%
1%
0%
-1%
-2%
160
12%
Online sales as a share of total retail sales
Total retail sales, index (left-hand scale)
150
10%
Online and mail-order sales, index (left-hand scale)
140
8%
130
6%
120
4%
110
2%
100
-3%
2006
2007
2008
2009
2010
2011
2015: Bad news from SNB
bound to reduce nominal
sales
2012
2013
2014
0%
2008
2009
2010
2011
2012
2013
2014
2020
Source: Swiss Federal Statistical Office, GfK, VSV, Credit Suisse
Right at the start of the year, the abandonment of the EUR/CHF floor destroyed all hope of an
improvement in the situation for retailing. According to initial forecasts, expected economic
growth in 2015 will be halved to around 0.8% as a result of the exchange-rate shock. Lower
employment growth and rising unemployment are likely to impact on consumer sentiment and
dampen consumer enthusiasm. The purchasing power of consumers will increase based on
55
expected negative inflation of around –1.3%. However, the Swiss franc will increasingly be
spent abroad given the likely further boost to shopping tourism following the currency's appreciation. As shopping tourism is already at a high level, its expected growth is unlikely to be comparable to that seen in 2011. Accordingly, hopes for 2015 once again rest on population
growth. Based on our forecasts, however, immigration has peaked and with an additional
70'000 or so immigrants on a net basis is likely to fall more than 10% year-on-year in 2015.
Besides that, the pressure on prices is likely to increase again considerably. Some retailers
already announced price cuts shortly after the National Bank's decision. As in 2011, the retail
industry therefore faces the prospect of a nominal fall in sales in 2015.
Growth occurring outside
of bricks and mortar
retailing
As if the new situation was not demanding enough, retailing is more exposed than ever to its
greatest challenge since a number of years: online shopping. E-commerce has grown significantly more strongly than retailing as a whole for a number of years now. Online shopping
showed an 8% rise in sales in 2013, while retailing as a whole recorded only a small increase in
sales. Thus the only area of retailing that has been growing in recent years is non-bricks and
mortar trading, while bricks and mortar retailing itself has stagnated. If we also take into account
the comparatively high rate of population growth, bricks and mortar shopping has lost a little
over 1% of sales per capita annually in the last five years.
By 2020, 1 in 10 Swiss
francs will be earned from
non-bricks and mortar
retailing
Prospects for bricks and mortar retailing are sobering (see Figure 62). According to an empirically based future scenario published in Retail Outlook 20156, we expect online shopping as a
percentage of total sales to more than double from the current 5% or so to 11% in 2020. This
equates to annual growth in online sales of around 11%–13%. Differences from segment to
segment, which are already considerable and have emerged due to different product characteristics, are here to stay and will ultimately also define the future demand for floor space. For
example, the online share of food retailing is set to increase from 1.5% in 2013 to nearly 3.4%
in 2020. In consumer electronics we expect an increase from 23% to 38%, while in the
clothing/shoes segment a rise from 12% to a hefty 27% is projected. The impact on the retail
property market is therefore likely to be considerable in five years' time, when more than 1 in 10
Swiss francs will be earned from non-bricks and mortar trading.
Online shopping reducing
demand for retail property
directly and indirectly
Online shopping is turning retailing structures upside down and posing major challenges for the
retail property market in particular. With sales and footfall shifting to the digital channel, this will
ultimately reduce the demand for retail property. This process will continue at least until
e-commerce reaches saturation level. But online shopping is also limiting the demand for space
in an indirect way. As e-commerce requires substantial investment, this ultimately leaves fewer
resources for floor space expansion plans. An online presence is becoming increasingly essential for retailers. According to a survey by Cologne E-Commerce-Center, 25% (in sales terms)
of bricks and mortar purchases in Switzerland in 2012 were preceded by an online search. In
Germany, the figure was as high as 50%. Any bricks and mortar retailer without an internet
presence will be ignored, both in terms of product and location. The perception among young
people in particular is that if something cannot be found via search engines then it does not
exist. The launch and operation of an online store nevertheless require investment. Not only
that: the adjustment cost associated with new corporate strategies and structures ties up
resources. This needs to be supplemented by investment in existing floor space, because bricks
and mortar retailers must focus on their comparative advantages if they are to survive the
growth in online shopping. These lie in the shopping experience as well as good, personalized
advice. Examples include product and seasonal presentations as well as the use of trained staff.
Both ultimately result in higher costs.
Online shopping is changing the role of bricks and
mortar retailing
Because the various sales channels are becoming more and more mutually dependent, online
retailers are increasingly seeking retail property (e.g. showrooms, sales and advice outlets).
Hybrid forms of bricks and mortar/online retailing (multi/cross-channeling) are among the most
promising concepts. It should nevertheless be assumed that the demand for space will decline
in overall terms. The trip to the bricks and mortar retailer is increasingly mutating into a carefully
considered, purposeful visit to a point of sale. A large part of the evaluation phase prior to
6
See Credit Suisse (2015): Swiss Issues Industries – Retail Outlook 2015, p. 18.
56
purchase takes place on the internet – excluding spontaneous purchases. This more targeted
shopping is expressed in lower footfall. In the US, for example, footfall figures for the main
shopping period in November and December have fallen dramatically since 2010. According to
ShopperTrack, which uses 60'000 measuring points, retail footfall fell by 49% between 2010
and 2013. This is not equivalent to a fall in sales, because sales per capita are significantly
higher at the same time. Ultimately, however, lower footfall is likely to result in a need for less
space. Bricks and mortar retailing has still to find its new role in a digitized omni-channel world.
Here there is not just one successful business model. Various concepts will emerge, depending
on the importance of e-commerce in the individual retail segment or in the individual product
category.
Persistently difficult
business environment
for retailers
With the subdued sales trend, as well as shopping tourism, major investment requirements and
growth in online retailing, retailing faces quite a few challenges. This is confirmed by the retail
survey conducted by the Swiss Institute for Business Cycle Research (KOF) at the Federal
Institute of Technology (ETH) Zurich (see Figure 63). For four years, retailers have reported a
deterioration in their profitability. It is not only small and medium-sized retailers but also the major operators that complain of increasingly poor profitability. The latter were among the winners
from the growth in floor space over the last decade. The same goes for customer footfall. For
the fifth year in succession, more retailers are reporting a negative trend in customer footfall
than a positive one – all thanks to e-commerce.
Figure 63
Figure 64
Profitability and customer footfall in retailing
Planned change in retail space
Net positive (=improved) and negative (=deteriorated) responses on profitabil-
Left-hand scale: total retailing, n= 47 (2011) to 90 (2014); right-hand scale:
ity; development of customer footfall (vs. previous year)
2015 projections by segment (food: n = 33; near/non-food: n = 57)
Profitability, small retailers
Profitability, medium-sized retailers
Profitability, large retailers
Profitability, total
Customer frequency, total
50%
40%
30%
20%
10%
0%
-10%
-20%
80%
100%
72%
90%
64%
80%
56%
70%
48%
60%
40%
50%
32%
40%
24%
30%
16%
8%
20%
10%
0%
0%
-30%
Planned Planned Planned Planned Planned Planned
2010 2011 2012 2013 2014 2015
-40%
-50%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: KOF Swiss Economic Institute of ETH Zurich
Weak demand for
retail property
Food
Reduction in retail space
Unchanged retail space
Expansion of retail space
Don't know/no answer
Near-/
non-food
Source: Furrer & Hotz
In light of the aforementioned situation, the retail property market is beset by weak demand in
overall terms. Demand is driven by population growth, the expansion plans of retail chains
already present as well as those of foreign chains, plus the demand for space on the part of
online providers. The marked rise in the value of the Swiss currency following the Swiss franc's
return to flexible exchange rates will, for example, spur demand among foreign retail chains for
branches in affluent Switzerland. The fact that the Swiss business environment also offers
opportunities for market entry is shown by Teledata numbers on commercial register entries.
Despite a slightly falling trend since 2002, the rate of start-ups has remained at a remarkable
level (2002: 6.5%; 2013: 5.9%), which bears witness to the substantial structural change in
the Swiss retail industry. Since online shop start-ups are also included in the data, not all startups result in additional demand for space. The figures nevertheless highlight the fact that
despite the difficult business environment retailers are venturing into the market, whether from
abroad or Switzerland. The annual survey of major retailers' plans for retail space conducted by
Furrer & Hotz is optimistic as usual. At 58%, the share of retailers planning an expansion of
retail space in 2015 is at a similarly high level to that of the previous year (see Figure 64). The
fact that food retailers in particular intend to extend their space is unsurprising given the markedly better sales trend in the food segment; this is occurring particularly in places where there is
strong population growth and entire residential districts are springing up.
57
Shop closures increasingly
moving into spotlight
Cracks are nevertheless beginning to appear in the normally very optimistic planned retail space
– a picture that currently bears little correlation to the business situation. The proportion of
retailers planning a reduction in floor space has been rising steadily for five years. For 2015, as
many as 15% of retailers surveyed said this was their intention. In 9 out of 10 cases, this is
happening through the closure of existing outlets. That it is virtually only retailers from the
near/non-food segment that are considering a reduction in floor space (24%) underscores the
growing impact of online shopping. E-commerce is expanding in the non-food segment in particular, where it already shows a high degree of market penetration. Shop closures are likely to
be an increasing occurrence going forward. This development has already been under way for
some time against the backdrop of a prolonged process of structural change, but has so far
mainly affected small shops – hence the relative lack of media interest.
Supply: Expansion of Floor Space at Record Low
Investment at record low
The retail property market has been characterized by an exceptionally high level of investment
activity over the last decade. The supply of retail property has expanded markedly, particularly in
the form of shopping malls and retail parks. This phase lasted until 2010; since then, construction investment has weakened steadily (see Figure 65). In 2013 the volume of construction
came to CHF 600 million, almost one-third (31%) down on the post-1995 average of CHF 860
million. Retail property investment in Switzerland is likely to have been even lower in 2014.
Based on planned projects, the total investment amounted to a mere CHF 360 million – the
lowest figure since the data was first collected. This tallies with the trend in approvals, which
with the exception of a major project in central Switzerland has indicated a significant decline in
the expansion of floor space for more than three years.
Figure 65
Figure 66
Retail property construction activity
Retail property planning
In CHF million, new construction/refurbishment; 2014: construction projects
In CHF million, new construction
(provisional figure)
1'400
Construction investment, new
Construction investment, refurbishment
1'200
1'400
1'200
1'000
1'000
800
800
600
600
400
400
200
200
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: Swiss Federal Statistical Office
Future expansion of floor
space even lower
Permits
Applications
Permits, average
Applications, average
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
The continued fall in the level of interest rates last year undoubtedly increased yield spreads and
therefore the attractiveness of real estate investment. While investment activity on the market
for residential and office property remains unusually high as a result, the planning of new retail
properties has been heading in one direction only in the past two years (see Figure 66). In
2014, retail property for which building permits have been granted reached a record low at a
total of CHF 322 million. Against the backdrop of another low level of planning applications, the
expansion of floor space in 2015/2016 is consequently likely to be well below the long-term
average. These very low levels in absolute and relative terms – in an environment in which even
medium-term swap rates offer negative interest rates – indicate how weak the demand that
cannot be measured in data terms must in actual fact be. In addition, properties that can no
longer be let profitably and have had to be switched to alternative uses are continuously disappearing from the total stock. In light of the business situation in Figure 63, it is the small retailers that are under most pressure. Furthermore, according to Furrer & Hotz, investment is
58
concentrated on large shopping malls of at least 20'000 m² as well as inner cities and their
urban areas rather than on small malls of less than 5000 m² outside of the major centers and
their urban areas.
Only a few new shopping
malls being built
The fading expansion of floor space can also be seen in the case of shopping malls, thus
confirming the assessment arrived at based on construction activity and planned floor space.
Whereas one in three of the shopping malls currently in operation opened its doors as recently
as during the last decade, only a handful of projects are now coming onto the market. In 2014
there was just one shopping mall with a minimum floor space of 7000 m²: the Esplanade in
Porrentruy; this year there will be two: the Allmendcenter in Frauenfeld and the Stades de
Bienne. Given that a number of other properties are at the planning/completion stage, the
expansion of shopping malls is not set to come to a complete standstill in the coming years. We
expect a similar rate to that seen in 2014/2015.
Investors fussy despite
respectable yields
After the adventurous expansion of floor space in the Noughties, the ramifications of which have
in some cases remain with us to this day, a consolidation was overdue. Even back then, retail
consumption was largely saturated. The financial crisis consequently brought subdued consumer
enthusiasm accompanied by latent uncertainty and upward pressure on the Swiss franc, causing
shopping tourism to flourish. In such an environment, it was and remains difficult to persuade
investors of the merits of new projects. More or less cut-throat competition exists on the retail
property market. Some of the projects currently under construction therefore faced a long battle
to attract tenants and investors. The fact that online trading all the more became a challenge to
bricks and mortar retailing with the triumph of the mobile internet may have contributed to this.
Market Outcome: Carefree Days are over
Trend reversal in vacancies
The decline in floor space expansion benefited the retail property market. The subdued demand
for floor space did not therefore culminate in a supply overhang. This is clear from the vacancy
data collected by a number of statistical offices. This constitutes a partial survey covering around
one-third of the market. From 2007 to 2013, the retail property market reflected very stable
conditions with vacancy rates of 64'000–73'000 m² (see Figure 67). This long period of stable
development now seems to be over: in 2014, advertised vacancies increased to around
83'000 m². In view of the reluctance to expand floor space, this rise of nearly 25% year-onyear also points to less dynamic demand. However, this is still not a broad-based development.
A regional breakdown of the figures highlights that the rise is mainly due to the city of Basel and
the municipality of Villeneuve (Canton of Vaud). The Vaud municipality is home to the
10'000 m² Villeneuve Outlet Center, which was largely unlet and closed recently due to lack of
profitability.
Increased supply of
properties
The fact that vacancies are an accurate reflection of the market situation and that demand-side
challenges are increasingly visible is also evidenced by the development of the supply of properties (see Figure 68). This increased noticeably in the course of last year – a development that
began back in 2012 but only became palpable following a marked increase in 2014. Given that
adverts are increasingly frequently placed several times for marketing reasons and full adjustment of data is not possible, this trend is likely to be somewhat exaggerated. Nevertheless, both
of these signals – whether vacancies or the supply of property – point in the same direction and
unequivocally highlight emerging imbalances.
Vacancies likely to go on
growing despite minimal
investment
In view of the steady growth in online shopping as a share of overall retail sales, it is unrealistic
to assume an imminent recovery in the demand for retail property. Shop closures, changes of
tenant and vacancies are likely to change the face of the retail property market to an increasing
extent in future. Yet despite the digital world, retail property has not yet had its day. Bricks and
mortar retailing will continue – just in a different way. The internet can serve as a vast shop
window for bricks and mortar retailing and make it more independent of costly pedestrian flows.
The playing field for brave new concepts is extensive right now, though so too is the degree of
uncertainty. In any event, the effects of the digital revolution are likely to be substantial for the
retail property market.
59
Figure 67
Vacant retail space
In m², as at June 1, partial survey: approximately 33% of retail property market
Geneva (canton)
Lausanne City
Basel-Land (canton)
Berne City
Switzerland
140'000
120'000
Vaud (canton), without Lausanne
Neuchâtel (canton)
Basel-Stadt (canton)
Zurich City
100'000
80'000
60'000
40'000
20'000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Statistical offices, Credit Suisse
Difficulty of initial letting of
ground-level sites
Comparison with the UK helps us arrive at a rough assessment of the impact of the growing
share of e-commerce. The UK has a similar retail demand and supply structure to that of Switzerland, though at 13.5% (2014) it has a considerably higher online share and is therefore more
highly developed in this regard. The results are sobering: in the 2008–2014 period, when the
online share of total retail sales in the UK increased from 8.3% to 13.5% (Centre for Retail Research), vacant retail space grew from 5.4% to 13.4% according to Local Data Company. As
no vacancy rates are available for the retail market in Switzerland, and the UK also had considerable economic difficulties in the period mentioned, it is impossible to draw a direct comparison. This example nevertheless provides impressive clarification of where things are going.
There are good reasons to expect vacancies to continue rising over the coming years. We see
major challenges in such an environment, above all for the initial letting of ground-level mixeduse properties. Fear of potentially making an error of judgment has grown not only among investors but also among tenants. In the current environment, the courage needed to open new
outlets at less tried-and-tested sites is therefore absent in many instances.
Figure 68
Figure 69
Advertised retail property and rents offered
Contractual rents on retail property
Left-hand side: advertised office space stock, in m²; Right-hand side: gross
Gross rents (median) in CHF per m² p.a., based on year contract agreed;
rents (adjusted), in CHF per m² p.a.
n= 42 (2002) to 203 (2010)
300'000
250'000
320
Advertised space, total (left-hand scale)
Area-weighted rents (right-hand scale)
300
900
800
700
200'000
280
150'000
260
100'000
240
50'000
220
0
2006
200
2007
2008
2009
2010
2011
2012
2013
2014
70% quantile
Median rents
30% quantile
10% quantile
600
500
400
300
200
100
0
2002
2004
2006
2008
2010
2012
2014
Source: REIDA, Credit Suisse
60
Only minimal growth in
rents since 2002
The median rent calculated on the basis of contracts agreed by institutional investors amounted
to CHF 416 per m² p.a. in 2014 (see Figure 69). With an annual rise of just 1.5%, this means
there has been minimal growth since 2002. Contractual rents have risen even less in the 10%
and 30% quantiles (0.1% and 0.9% p.a. respectively). The high volatility of contractual rents in
the upper segment (the 90% quantile fluctuated between CHF 740 and 1790 per m² p.a. between 2002 and 2014) is a result of long-term rental agreements and willingness to pay top
dollar at prime locations. Where contracts agreed on properties at prime locations are concentrated in a particular year, rents for the upper quantiles show a sharp swing. Because institutional investors are primarily invested in real estate with above-average locational quality, contractual rents hover at a higher level than advertised rents, which cover a much broader market.
The area-weighted gross rent based on the supply data amounted to CHF 265 per m² p.a. in
the third quarter of 2014 and as with contractual rents also shows little change over the long
term (see Figure 68).
Very little upward potential
for rents – except at prime
locations
Across all retail properties and price categories we see very little upward potential for rent levels
because the subdued sales picture and growth in online shopping are weighing on output. Not
even the most successful shopping malls in output terms are excluded from this: between 2010
and 2013, they showed an average fall in sales of –2.7% p.a. In particular, properties at poorquality locations (C locations) will increasingly have to contend with tenancy terminations and
changes of use. The scope for rent increases is therefore likely to be minimal. We also see little
potential for higher rents at slightly higher-quality locations. Only at prime locations are very high
– and in some cases even higher – rents likely to remain achievable given the increased willingness to pay for visibility and prestige. Accordingly, we expect the gap between rents at prime locations and those at B and C locations to continue widening.
61
Outlook for Retail Property in 2015
No end to the challenges
Retailing is undoubtedly one of the main victims of the abandonment of the euro exchange rate
floor. The business environment in retailing – not that it had improved in any case – will therefore continue to become more depressed as a result of the currency appreciation shock. Shopping tourism will get a boost and consumer enthusiasm will remain subdued, while prices will fall
significantly faster again. This is compounded by online shopping, which will again see far more
dynamic sales growth than the market as a whole in 2015. The competition from e-commerce
is likely to be increasingly reflected in the form of branch closures and a lack of financial resources for floor space expansion in bricks and mortar retailing. Demand for retail floor space
will consequently fall. That said, a rapid increase in excess supply should not be expected in
2015; this is firstly because construction output remains low and secondly because population
growth and expansion strategies on the part of domestic and foreign retail chains will provide a
degree of support to demand. In the latter case, interest is likely to have increased due to the
sharply higher purchasing power of the Swiss franc. Vacancies will nevertheless continue to
rise, while the supply of property will remain at a high level at least. In particular, the emerging
imbalances are likely to affect locations where key factors such as accessibility, visibility and
high footfall are absent and changes of use are costly or difficult to implement.
Demand
Background
Retail sector: The abandonment of the euro exchange rate floor will have a profound
effect on the retail sector. Consumer sentiment will remain subdued in light of lower
economic and population growth as well as rising unemployment. Shopping tourism will
get a boost, while the pressure on prices will pick up again significantly. Due to lower

immigration numbers, the boost from population growth will also be less substantial in
2015 than in the previous year. Accordingly, we expect a nominal decline in retail sales
in 2015.
Structural change: Online shopping is changing the structure of the retail sector and the
demand for retail property to a greater extent than virtually any previous structural
change. While the multi-branch trend – the trend to large formats as well as convenience
stores – is boosting demand for retail space in principle, online shopping will ultimately
squeeze the demand for retail space. Online shopping is likely to amount to nearly 6% of
total sales at the end of 2015. Estimates suggest online sales will have an 11% share of
total share by 2020.
Supply
Planning activity: Despite low interest rates, investors in the retail property market are
remaining on the sidelines: the risks due to market saturation and structural change are
viewed as too great. Approved retail space totaled a record-low CHF 322 million in
2014. Minimal expansion of retail floor space is therefore expected.
Expansion of shopping malls: Given market saturation, the search for new shopping
malls on the part of investors and tenants is stagnating. Of the shopping malls still at the
planning stage in 2015, two (with a floor space > 7000 m² and food offer) are set to
open their doors in 2015. After 2015, we expect a modest rate of expansion similar to
that observed in 2014/2015.
Market outcome
Vacancies: After years of stable development, vacancies increased by 25% in 2014 to
83'000 m². Because demand-side challenges will increase with the growth of online
shopping, we expect an ongoing rise in vacancies.
Advertised rents: The average advertised rent (gross) amounted to CHF 265 per m² p.a.
in the third quarter of 2014, equivalent to a 1% year-on-year increase. We see little
upward potential for rents in 2015 – with the exception of prime locations, where there is
a high willingness to pay for visibility and prestigious locations. Accordingly, we expect
the gap between rents at prime locations and those at B and C locations to continue
widening.
Outlook











62
Student Housing: Yields Despite Low Willingness to Pay?
Affordable housing for students is a scarce resource
Affordable housing for students is a scarce resource at many university locations. First, many
students have a low willingness to pay due to negligible or non-existent incomes; this severely
restricts their choice of potential accommodation. Second, reurbanization and immigration have
made housing increasingly scarce in the urban centers where educational institutions are located
and driven rents sharply higher. Supply is particularly scarce in the major university cities. The
websites of the universities of Geneva and Lausanne explicitly warn potential students of the
shortage of housing that exists, while in Zurich students have had to be housed in civil defense
facilities as a temporary solution. Consequently, there is major demand for additional housing for
students. At the same time, in an environment of continuously falling yields the question of alternative investment opportunities is becoming an increasingly pressing one for real estate investors. Niche markets such as student housing are one of these alternatives and are also an
ideal means of diversification.
Modern student residences put greater emphasis on privacy
Student housing essentially consists of three different types: students either live at home with
their parents, look for an apartment on the open market or live in a student residence or student
apartment designed exclusively for student needs. These student residences constitute student
housing in its narrower sense.
Foreign students, exchange
students and students from
the periphery are target
groups
The target groups for student residences are primarily students who do not have the option of
living with their parents. They include Swiss students whose parental home is not within commuting distance of a university, as well as foreign students and exchange students. Foreign
students are those whose place of residence was not in Switzerland prior to the start of their
course. They are unfamiliar with the local market; nor do they have an opportunity to sound out
the market in advance. The same is true for exchange students, who are furthermore seeking a
home for a limited period only and therefore have trouble finding accommodation. However, interested parties also include students who value a high level of housing mobility, are seeking to
share with like-minded people or prefer more flexible contractual structures than those associated with a traditional rented apartment.
Central but cheap: students' criteria are not easily
reconcilable
Students' housing requirements are very specific. Limited student budgets necessitate lowpriced accommodation. On the other hand, university facilities need to be located as closely as
possible. Thus five out of six students (83%) currently live in a residence that is no more than
five kilometers from their university. The entertainment factor can also be important. Proximity to
nightlife or leisure activities is also highly appreciated. Easily accessible urban and if possible inner-city locations are therefore favored. But the more attractive such a location, the more expensive it is likely to be for students. Thus in many cases compromises need to be made, for
example in terms of flexibility regarding the micro-location. One current example is the planned
student residence in Zurich's Rosengartenstrasse. The location is central, with the university
campus in Irchel barely two kilometers away, bus links to Hönggerberg around the corner and
easy access to the nightlife district of Langstrasse and Escher-Wyss. However, the noise pollution caused by traffic is above-average. The realization of student residences often fails due to
this challenging search for suitable locations. More outlying locations may be an option, but this
needs to be offset by very good public transport links.
Delicate balance between
privacy and sense of community
Besides location, format and facilities are other important factors in the successful letting of
student residences. Here the interplay between privacy and community plays an important role.
Traditional student residences, where rooms are arranged along shared corridors and students
on each floor share wet areas and kitchens, are outdated and unpopular with students. 75% of
students prefer to have their own wet area in their room and also frequently want fitted kitchens
and balconies. Many modern student residences solve this by equipping several separate rooms
with their own individual wet area and connecting them to a communal kitchen and common
room. This is tantamount to creating smaller flat-shares within the building, with Copenhagen's
63
"Tietgenkollegiet" often serving as a model. This student residence consists of 30 flat-shares,
each of 12 people. 12 one-room apartments with their own wet area share a common room,
kitchen and terrace. These modern concepts are increasingly being adopted by Swiss student
residences as well. The accommodation is typically offered on a furnished basis.
Despite strong demand for student housing, Switzerland lags behind in terms of student residences
In 2013, a total of 230'000 people were enrolled on a course in Switzerland. According to the
latest figures available, 40% of them live with their parents (see Figure 70). That means around
138'000 students require their own accommodation. Only 4% live in student residences – a
very low figure by international standards. In Sweden, for example, nearly one-third of students
live in student residences; the share is also significantly higher in the UK (17.7%) and Germany
(11.3%). These major differences are at least partly down to country-specific characteristics
and traditions, but are also due to subsidies.
Student residences only
have a small market share
Figure 70
Figure 71
Types of student housing, 2009
Growth in student numbers
Share by student group; foreign students: 2005 data
Three scenarios
Foreign students
14
14
22
280'000
Core scenario
260'000
Low scenario
6
High scenario
Universities of applied
sciences
Universities
16
28
46
37
2
5
23
30
10
12
16
14
3
2
240'000
220'000
200'000
Total
40
0%
20%
Parents
Flat-share
With partner and/or children
4
40%
27
12
60%
80%
Student residence
Private apartment
Other
15
2
100%
180'000
160'000
140'000
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Potential demand is higher
than it might seem
The high occupancy of student residences in Switzerland shows that their low share of total
students is due to a lack of supply rather than a lack of demand and that there is potential for
more student residences. A survey in Germany found that 13% of all students would most like
to live in a student residence. Thus a possible potential of around 10% in Switzerland seems
quite realistic provided the rent, location and facilities are acceptable. Theoretically, the current
potential demand for places in student residences would therefore amount to up to 23'000
rooms.
University students and
foreign students more likely
to live in student
residences
There are major differences in the demand for specific types of student accommodation (see
Figure 70). Thus the share of students at universities of applied sciences who live in student
residences is just half that of students at universities. The main reason is likely to be the fact
that the universities of applied sciences are structured on a regional basis and students are
therefore more likely to opt to live with their parents. In addition, the share of foreign students
who are more reliant on student residences is higher at universities (16%) than at universities of
applied sciences (12%) or universities of teacher education (5%). That foreign students are
more dependent on places in student residences is also clear from the fact that 14% of all foreign students live in student residences, which is markedly above the Swiss average of 4%.
Demand to continue growing in future, but at less
dynamic rate
The higher education landscape in Switzerland has undergone radical change in recent years.
There has been a sharp rise in the demand for tertiary education. The upgrading of the universities of applied sciences has further amplified this growth. Between 2003 and 2013, the universities of applied sciences recorded a 76'000 increase in the number of students – an annual
growth rate of 4.1%. A softening is expected in the coming years, however. Based on the core
64
scenario of the Swiss Federal Statistical Office, growth of around 1.1% p.a. is expected in the
period to 2023, meaning an additional 2600 students p.a. (see Figure 71). If the share of students living with their parents remains constant, an additional 1570 students per annum will require housing over the coming years. Assuming around 10% of all students potentially require
housing in student residences, the additional potential therefore represents 260 persons per
annum. This is in addition to the aforementioned potential, resulting in a situation where too few
places are currently offered in student residences.
Disproportionate growth in
demand from abroad is
additional driver
The exact level of demand in the coming years will be highly dependent on the number of foreign students and exchange students. Between 2003 and 2013, the number of students of
foreign nationality at universities rose by a disproportionately strong 18'000 people. Foreign
students, for whom places in student residences are especially prized, are just one part of this.
The marked increase is also attributable to greater international cooperation on the part of universities, e.g. the Erasmus program.
Demand dependent on situation on housing market
Another important factor in the demand for student residences is the individual regional housing
market. Where vacancies are very low and rents high, students have trouble finding accommodation on the open market; this is firstly because they cannot afford the rent and secondly because many landlords prefer tenants with a secure income. There is clearly greater demand for
student residences in a market environment such as this than in cities with comparatively high
vacancies and low rents.
Supply being expanded in Zurich in particular
Supply to grow by an
estimated 15% in the
next five years
Switzerland's student residences currently provide rooms for about 16'000 students. In some
cases, however, places are given to apprentices and other young people who are not students.
More than 2400 additional places are planned for the next few years, the most prominent example being the student residence at Hönggerberg with around 900 places. Thus Switzerland's
total stock should increase by around 15% over the next five years. The biggest increase in
supply over the next few years will be in Zurich, where in addition to the plans for Hönggerberg
there will also be a student residence in Rosengartenstrasse with around 130 rooms, plus another 200 student rooms in Freilager and 60 in Manegg. In Lausanne as well, a further 200
places are currently planned.
More and more private
providers of student
residences
Student residences in Switzerland are offered by private, charitable and church-based organizations. Close cooperation with the universities or respective student representative bodies is crucial for these providers. The high number of church-based organizations that provide student
residences is striking. Cooperatives and associations that promote student housing are also very
important. For example, the WOKO student housing cooperative lets more than 2500 rooms to
students in Zurich and Winterthur. Similar organizations exist in most university cities. However,
the private sector too is increasingly investing in student residences. The most recent example is
the Stöckacker student residence in Bern, which opened last year.
Investment in student housing can be highly attractive
Owing to the demand for additional housing for students and investors' search for new niche
markets, the market for student residences is likely to remain attractive to private investors in
the years ahead as well. However, the question of whether students' willingness to pay and the
yields expected by private investors are compatible is likely to be crucial to success.
Rent per m2 roughly the
same for student residences and private apartments
In modern student residences, many of which are regarded as exemplary in terms of student
housing, a living space of 31 m2 per student is expected. That includes bed/study room, kitchen, common room and wet area. The rents charged for student residences in Switzerland vary
sharply but are likely to average around CHF 550–600 monthly per student. The average rent
for an apartment on the open market in Swiss cities with universities of applied sciences is a net
CHF 234 per m2 p.a. If we adjust this CHF 234 to the average living space of a student in
modern student residences, we arrive at a monthly rent of CHF 605 on the open market. Thus
65
students' willingness to pay is very close to the income that can be obtained for the same floor
space on the open market.
Rents in major university
cities considerably higher
In Geneva and Zurich in particular, however, average prices for rental apartments are considerably higher than the Swiss average at a net CHF 390 and CHF 341 per m2 p.a. Accordingly, a
monthly rent of CHF 1007 would need to be charged for a room in student residences in Geneva and CHF 881 for Zurich in order to arrive at a similar rental income per square meter to the
open market. But with the housing situation in these cities very tight, particularly for students,
with extremely low vacancies and high rents on the open market, rooms in student residences
are also likely to be sought-after at these prices provided the student residence is modern and
attractively designed.
Student residence as
example of modern student
housing in Switzerland
This is also evidenced by the recently opened Stöckacker student residence in Bern. Here the
private owners offer 1-person studios to 4-person flat-shares for a net CHF 750–1140 per
room. The comfortable rooms, all of which come with a balcony, were almost fully booked in the
first semester after opening (91–94% occupancy), and this is despite the fact that vacancies
are higher in Bern and average rents on the open market significantly lower than in Geneva or
Zurich at a net CHF 253 per m2 p.a. The Stöckacker residence is directly adjacent to a suburban rail station and has excellent public transport access; otherwise, however, it is far from centrally located. Due to its direct proximity to the railway line, residents are also exposed to increased noise pollution. At 31.4 m2, the living space per student corresponds fairly closely to
the figure we have calculated for modern student residences. If we adjust the CHF 253 per m2
p.a. for a rented apartment in Bern to the living space per student in the residence, we get a
monthly figure of CHF 653. This is actually below the cheapest rent in the student residence. at
CHF 750 per person. Much of the difference is likely to be down to the fact that apartments in
student residences are often furnished, while average rents on the open market tend to be for
unfurnished properties. Also, the fact that more wet areas tend to be incorporated into student
residences makes their construction more expensive. Administrative costs are also likely to be
higher for a student residence due to the greater turnover.
Student housing – an interesting niche
Student housing is more popular in Switzerland than might initially be supposed. Demand exceeds supply, meaning there is already a large amount of pent-up potential. In addition, the
number of students is also set to grow in the coming years and thus more places will be needed
in student residences. The most suitable locations for future projects are the major university locations, where vacancies are low and there are few alternatives available. With the exceptions of
Zurich and Lucerne, supply is not currently being expanded to any significant extent. Assuming
student residences take on board today's student needs and preferences, rents that are attractive to students and investors alike can easily be charged for such rooms. Newly built student
housing can also be let on a long-term, relatively risk-free basis to specialist operators who
know the market inside out.
66
Real Estate as an Investment
Swiss real estate investments were once again near the top of investors' shopping lists last
year. The yield spread versus risk-free investments rose again, with the result that direct as well
as indirect real estate investments (real estate funds and real estate companies) became even
more attractive. Demand for real estate investments exceeded supply and consequently drove
up prices. Initial yields on direct investments therefore continued to fall, while total returns on
listed indirect real estate investments were well above-average by long-term standards. From a
fundamental perspective, latent risks generally rose slightly year-on-year. In the case of investment properties, the vacancy risk in particular increased. This was not the case across the
board, however, and listed real estate funds are favorably positioned in geographical terms.
Direct Real Estate Investments
No end in sight to rise in price of residential investment properties
Prices are decoupling from
fundamentals
Unlike in the case of owner-occupied housing, there is still not much of a decrease in price
momentum for residential and mixed-use investment properties (see Figure 72). The strong
demand for investment properties has developed in tandem with demand on the owneroccupied market over a long period of time, although there is now increasing evidence of a decoupling. With prices growing 4.7% on a year-on-year basis in the fourth quarter of 2014, the
gap between transaction prices and rents is becoming increasingly wide. Prices of residential investment properties have now risen by 55.8% since 2004. Advertised rents increased by only
26.0% in the same period, while existing rents – which are heavily dependent on the reference
mortgage rate – rose by a mere 11.6% (to end-2013). As the reference mortgage rate will fall
again to 1.75% in the first half of the year, a further widening of the gap is expected.
Figure 72
Figure 73
Price trend for investment properties
Initial yields
Residential and mixed-use properties, annual growth rate in %, price indices:
Gross initial yields (median) = gross rental income/transaction price in %,
1Q 2004 = 100
samples for office properties in 2011 and 2014 too small
Annual price growth (right-hand scale)
Quality-adjusted advertised rents
Transaction prices for investment properties
Rents for existing contracts (IAZI net rent index)
Reference mortgage interest rate (right-hand scale)
165
155
12%
6%
5%
145
9%
135
6%
125
3%
2%
115
0%
1%
105
-3%
0%
-6%
-1%
95
2004
2006
2008
2010
2012
2014
Source: IAZI, Homegate, Swiss Federal Statistical Office, Federal Housing Office, Credit Suisse
Investor pressure has
further reduced yields
Office
Residential, rest of Switzerland
Residential, major cities
Swiss 10-yr. govt. bond yields
7%
15%
4%
3%
2011
2012
2013
2014
2015
Source: Credit Suisse, REIDA, Bloomberg
The divergent development of prices and rents is leading to a continued fall in gross initial yields
(see Figure 73). According to an assessment by REIDA, which provides data on real estate of
institutional investors, average initial yields for residential properties in the major cities fell to
3.7% in 2014 (previous year: 4.9%). In the rest of Switzerland there was a decline to 4.6%
(previous year: 5.4%). This marked fall reflects not only the price trend but also the fact that
first-class properties, which are characterized by low yields, are increasingly sought-after. Given
67
that most of the observations are based on major institutional investors, which predominantly invest in core properties with above-average locational quality, yields will likely tend to be below
those of the market as a whole. In terms of office property, too few transactions took place in
2014 for the yield to be calculated on an accurate basis. The small number of observations indicates firstly that buyers and sellers have different price aspirations, which have not yet started to
converge, and secondly that the quality of advertised properties does not correspond to buyers'
expectations; hence the fact that few properties changed hands.
Initial yields for direct real
estate investments likely to
go on falling
With the Swiss National Bank's abandonment of the EUR/CHF currency floor on January 15,
2015, and the simultaneous announcement of a further reduction in the Libor target band, direct investment in real estate is becoming even more attractive despite already low yields. This
is especially the case given that yields on 10-year government bonds having fallen into negative
territory for the first time in history (see Figure 73). Although excess supply is becoming more
acute on the market for office property in some cities and the rental apartments market will face
lower demand in the future, investment properties nevertheless remain popular with investors.
With higher interest rates a long way off, strong investor pressure caused by the erosion of returns on the government bond market is likely to continue. Thus prices for residential investment
properties are likely to go on rising in 2015. At the same time we expect growth in rents to
weaken in 2015, with the result that the downward pressure on initial yields will remain in place.
In terms of office property, which is at a more advanced stage in the cycle, initial yields should
tend to stabilize at their existing level; however, there may be considerable regional differences
here.
Changes on the investor side
Pension funds becoming
more cautious on new
investments
Institutional investors such as pension funds, real estate funds and insurance companies are
becoming important players on the investment property market. According to the pension fund
statistics produced by the Swiss Federal Statistical Office, the real estate portfolio of all Swiss
pension institutions combined was worth around CHF 113 billion in 2013. This figure has grown
by an average of 5.9% annually since 2004. Indeed growth rates of around 7% were achieved
in the 2009–2011 period; since then, the value of these real estate portfolios has not grown as
sharply (2013: 4.6%). The real estate ratio, i.e. Swiss real estate as a share of the total assets
of pension institutions (excluding insurance policies), has actually fallen slightly since 2011
(2013: 15.8%). As the value of direct real estate investments showed very strong momentum
between 2011 and 2013 (see Figure 72), it can be concluded from these figures that the pension funds have become slightly more cautious in terms of new investments in real estate. High
prices, in combination with the limited availability of attractive, core properties, mean that investment in real estate is no longer occurring at any cost – despite record-low interest rates.
Increasing significance of
micro-firms as players on
real estate market
Unlike the investments of the pension funds, those of the real estate companies and property
developers are to a considerable extent financed through mortgages. As long as production
activity stays at a high level in the residential construction sector, such debt-financed investments are likely to remain popular. This is clear from the development of mortgage volumes
(see Figure 74): while the annual growth in loans to private individuals fell to 3.3% due to tighter
regulation and the high level of prices, the volume of mortgages granted to companies grew by
another 4.7%. A marked fall in growth rates was nonetheless observed here too from the midpoint of 2013.
Unclear role of small firms:
developers or owners?
Loans to the sector of the economy that includes real estate activities have grown particularly
strongly in recent years. The volume of credit granted to these firms has grown by 56% since
2009. More than two-thirds of credits are given to small and micro-companies with fewer than
10 employees. The increased attention paid to the real estate market by private investors since
the financial crisis, as well as the persistently positive performance over a long period, is attracting an increasing number of private investors and small players onto this market. According to
figures from the Swiss Federal Statistical Office, the annual number of start-ups of micro-firms
with fewer than one full-time equivalent in the real estate activities sector almost quadrupled between 2001 and 2012. Many of these businesses are likely to be owned by high-net-worth in-
68
dividuals who – mainly for tax reasons – do not wish to hold their real estate portfolios as personal assets.
The statistics on construction investment also indicate growing corporate exposure to real estate
(see Figure 75). Companies account for 66% of the strong 80% rise in construction investment
between 2002 and 2013. However, it is unclear what role these companies play. Are they the
developers of the properties, and sell them on at a later date, or do the properties continue to
be owned by the companies? Additional data would be useful here given that companies that
develop credit-financed real estate in order to sell or lease it are likely to be exposed to greater
risks in the event of future rate hikes; this is because rising interest rates simultaneously lead to
pressure on property values and increased finance costs. Institutional investors with limited
mortgage-based real estate financing would be much less heavily affected.
Figure 74
Figure 75
Volume of mortgages
Investment in residential construction by client type
Index: 2009 = 100 (left-hand scale), year-on-year growth rate in %
New construction, in CHF million
160
150
140
Growth – companies YOY (right-hand scale)
Growth – private individuals YOY (right-hand scale)
Companies
Private individuals
Real estate & housing, other sectors
14%
12%
8%
120
6%
110
4%
100
2%
0%
2010
2011
2012
Source: Swiss National Bank, Credit Suisse
2013
20'000
10%
130
90
2009
25'000
2014
Other (public sector, foundations, etc.)
Housing cooperatives
Companies
Private individuals
15'000
10'000
5'000
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Danger of oversupply is growing on rental apartments market as well
Vacancies tend to be tolerated when interest rates
are low
The rising vacancy rates that have been the norm on the office and retail property market for
some time have now spread to the rental apartments market as well. Vacancies for rental
apartments rose markedly in 2014. At the same time, the peak appears to have been reached
on the demand side. In the case of investments in segments and regions with high vacancy
rates, investors need to be aware of the attendant risks – specifically rental loss rates and market value losses – even if they appear modest given the current low level of interest rates. We
anticipate that construction activity in the rental apartments segment will remain at a high level
for a while yet. Fact is, surveys prove that investors tend to tolerate vacancies at a time of low
interest rates because the opportunity costs due to idle capital are lower during such periods.
Where is caution advisable
in future?
A comparison of demand and supply on a medium-term view (see Figure 76)7 shows that the
only evidence of disequilibrium at present is outside of the major centers. At above-average risk
are some regions in northwest Switzerland (from the Jura Arc to the Aarau region), northeast
Switzerland (the Hinterland district of Glarus, Toggenburg, St. Gallen Rhine Valley, Appenzell)
and the central and western foothills of the Alps (Einsiedeln, Entlebuch, Upper Emmental,
Schwarzwasser) as well as numerous Alpine regions, above all in the cantons of Valais and
Graubünden. In the latter regions, weak demand is the primary reason for the heightened risk of
oversupply; this is because of a stagnating or shrinking population in many Alpine valleys. Other
regions (e.g. Aarau, Einsiedeln) are seeing continued strength in construction activity, which is
7
This took into account demand-related factors, including locational quality, demographic development and tourist appeal, as well as supply-related factors such as current
project planning activity and future expansion potential. To reflect the current market situation, the index also includes indicators as to the current vacancy situation and
number of days on the market.
69
likely to exceed demand in the medium term. Some of the regions with a greater-than-average
risk exposure already show increased vacancies or a longer time on the market (e.g. Olten/Gösgen/Gäu, Thal). On the other hand, it is not only the major centers and their surrounding areas that show a below-average risk of oversupply but also the regions around mediumsized centers like Lugano, Lucerne, Zug, Winterthur and St. Gallen.
Choice of location crucial in
avoiding high vacancies
Figure 77 shows an interesting correlation in this regard. We have already referred to the importance of accessibility by public and private transport to locational quality on several occasions. As the graphic shows, the vacancy risk falls relatively significantly as the degree of accessibility increases. From an investor's point of view, vacancy risks can therefore be reduced or
even managed through choice of location. Other aspects of locational quality also play a role, of
course. Together with other factors, they explain the remaining, considerable interregional differences. Besides macro-location, a sound micro-location within the municipality reduces the
vacancy risk by a significant amount. Investment at below-average locations can nevertheless
make sense in the context of a well-diversified real estate portfolio, particularly given that the
expected yield rises in line with the risk. At peripheral locations of below-average quality, investors should nevertheless analyze the market in closer detail in order to ensure the size of residential unit, specification, etc. matches tenant requirements.
Figure 76
Figure 77
Med.-term risk of oversupply of rental apartments
Vacancy rates and locational quality
Based on various supply and demand indicators
Vacancy rates in % of stock of rental apartments (vertical axis) and accessibility by public and private transport (>0 = above-average)
8%
Leuk (12.3%),
Mesolcina (8.9%)
Martigny
7%
Engiadina bassa
Sierre
6%
Sion
Glarner Hinterland Thal
Oberaargau
5%
Jura bernois
Surselva
Goms
Jura
Visp
4%
Biel/Seeland
Oberthurgau
Entlebuch
3%
Oberland-West
Prättigau
2%
Sharply above average
Above average
Average
Below average
Sharply below average
Locarno
Tre Valli
Brig
1%
Davos
Schanfigg
0%
-1.5
-1.0
Olten/Gösgen/Gäu
Freiamt
Aarau
Wil
March/Höfe
La Broye
Lugano
Thun
-0.5
Bern
Luzern
Nyon
Genève
Lausanne
0.0
0.5
1.0
Mendrisio
Pfannenstiel
Baden
Glattal
Zimmerberg
Winterthur-Stadt Furttal Limmattal
Basel-Stadt Zürich-Stadt
1.5
2.0
2.5
3.0
3.5
4.0
Source: Swiss Federal Statistical Office, Navteq, search.ch, Credit Suisse
Tenancy law and demographic change restricting mobility on rental market
Tenancy law undermining
housing mobility
As Figure 72 shows, the gap between rents offered and existing rents has widened significantly
in recent years. This is down to the fact that under tenancy law the rents on current rental
agreements are pegged to the reference mortgage rate, which has been revised downward
repeatedly in recent years due to low interest rates. This regulated rent no longer adequately reflects the shortage of housing. The divergence between market and existing rents means it is
unattractive for long-standing tenants to move home. This amounts to a lock-in effect: due to
the expectation of a substantial rent increase in the event of relocation, households remain in
their existing home despite the fact that it is no longer the perfect match for their needs due to
changing circumstances (e.g. new place of work, children leaving home, etc.). This results in a
welfare loss for society, because regulated rents distort decisions regarding the quality and
quantity of housing.
Demographic aging reducing inclination to move and
real estate income
The negative effect of existing tenancy law on tenant mobility is amplified by a second long-term
effect: the aging population (see Figure 78). The average age of the population continues to
increase. Increasing age is accompanied by a reduction in the willingness to relocate and the
70
likelihood of a change of a municipality; we measure this here as "inclination to move home".
This probability reaches a maximum in the case of the mid-20s age group, because at that time
in their lives young people are finishing their education or setting up home with a partner. The
inclination to move home then falls continuously as age increases. Between 60 and 65, the inclination to move home finally stabilizes as some households review their accommodation needs
at the time of retirement and optimize their housing situation in light of the needs of old age. A
further, if only slight, increase in the inclination to move home can also be observed from the
age of 80. This is likely due to the move into old people's homes and care institutions.
Figure 78
Figure 79
Inclination to move home and population by age
Change in inclination to move home by age
Inclination to move home: annual share of population changing municipality in
Share of population changing canton in which they live by age group,
which they live
2010–2011: structural break due to switch from ESPOP to STATPOP
25%
2.5%
Inclination to move 2011–2013 (left-hand scale)
Share of population 1990
Share of population 2013
2.0%
Share of population 2035 (CS forecast)
5.0%
15%
1.5%
3.0%
10%
1.0%
5%
0.5%
0%
0.0%
100+
20%
4.5%
0 – 17
18 – 29
30 – 39
40 – 49
50 – 64
65 – 74
75 +
Total
4.0%
3.5%
2.5%
2.0%
1.5%
1.0%
0.5%
0
10
20
30
40
50
60
70
Investors with a long-term
horizon should consider
tenant mobility in their
decisions
80
90
0.0%
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Demographic aging is consequently resulting in a decline in tenant mobility. From an investor's
point of view, poor tenant mobility means a loss of rental income due to the fact that the lower
level of tenant fluctuation also results in fewer opportunities for adjustment to market rents.
Tenant mobility is typically lowest in peripheral regions of the Alps and the Jura, as well as in the
regions surrounding the major centers. Higher mobility can be observed in many suburban and
peri-urban areas as well as in tourist regions. Assuming constant mobility within each age category over time, the probability of moving home is likely to fall by a total of around 10% by 2035.
Thus far, however, this effect has not been evidenced on a large scale. Indeed data on intercantonal migration indicate that among the 30–64-year-old generation the inclination to move home
has risen slightly in the last 10 years (see Figure 79). This countervailing effect has thus far
more or less compensated for the loss of mobility due to demographic aging. However, investors with a long-term horizon should take account of regional tenant mobility in their decisions
given that it cannot be assumed there will be a continuous increase in the mobility of older
households. By contrast, demographic aging is continuing to rise inexorably.
71
Indirect Real Estate Investments
Real estate investments an attractive choice from an investor perspective
2014: Dazzling results for
indirect real estate investments
The performance of indirect real estate investments by far exceeded expectations held at the
start of last year. This was more attributable to the renewed and surprisingly sharp fall in longterm interest rates than to changes in the assessment of the underlying real estate market.
Yields on 10-year Swiss government bonds declined continuously in the course of last year and
virtually collapsed in December before moving into negative territory for the first time ever shortly
after the abandonment of the EUR/CHF currency floor. It is no surprise that the average total
return on the real estate funds listed on the SIX amounted to 15.0% in 2014 and that of the
real estate companies to 13.6%. By comparison, the Swiss Performance Index (SPI) generated
a return of 13.0%. Evidence of the unbroken interest in real estate investments comes from the
various new launches and capital increases among real estate funds. In 2014, the capital increases of 10 real estate funds amounted to a total CHF 1.18 billion; the volume of the three
new launches meanwhile amounted to CHF 345 million.
Figure 80
Figure 81
Return profile for real estate investments
Return profile for listed individual real estate funds
Estimated frequency distribution (y-axis) of monthly total returns from 01/2000
Estimated frequency distribution (y-axis) of monthly total returns from 01/2000
to 12/2014 (x-axis)
to 12/2014 (x-axis)
Past performance is no guarantee of future returns. Performance can be impaired
by commission, fees and other costs, as well as exchange rate fluctuations
Past performance is no guarantee of future returns. Performance can be impaired
by commission, fees and other costs, as well as exchange rate fluctuations
Source: Credit Suisse, Datastream
Source: Credit Suisse, Datastream
Narrow distribution of
returns for indirect real
estate investments
Let us ignore for a moment the fact that the performance of listed securities is based on real
estate and consider the total return as a pure stock-market movement. Besides the correlation
with other asset classes, which we analyzed on a previous occasion8, and the total return, the
distribution of returns is the most interesting aspect for the investor. To that end, we consider
the monthly returns in the period from 2000 to 2014 and compare indirect real estate investments with bonds and equities. Figure 80 illustrates that the volatility in monthly returns was
significantly lower for real estate vehicles than for the broad equity market index, the SPI, thereby favoring investors. This can be seen from the much narrower frequency distribution of
monthly returns, with the Swiss Bond Index (SBI) performing best here.
To a small extent, real
estate investments also
show a skewed return
distribution
A quick glance at Figure 80 shows that monthly returns for the SPI equity market index are not
only more broadly distributed but also more unfavorable in asymmetric terms and have relatively
fat tails. This means that greater monthly gains and losses occur more frequently in the case of
equities than in the case of real estate investments. If we also calculate the corresponding sta-
8
See Credit Suisse (2009): Swiss Issues Real Estate – Real Estate Market 2009, page 59f.
72
tistical measures of skewness and kurtosis, this shows that return distributions for listed real estate funds and companies themselves also show unfavorable characteristics. Exceptional events
are more commonly found in the negative area than in the positive one, if to a less pronounced
extent than in the case of the SPI equity market index.
Monthly loss of more than
2.8% for real estate funds
possible in only 5% of
cases
The less risky distribution of returns on real estate investments can also be seen from the fact
that the loss not exceeded with a 5% probability or not exceeded in the worst 5% of all months
was 8.2% in the case of the SPI, just 4.6% for real estate equities and a mere 2.8% for real
estate funds. Thus larger monthly losses are very rare in the latter cases. This risk measure is
also known as value at risk and can be calculated for any probabilities. Among the various real
estate funds that were listed throughout the period from January 2000 to December 2014
there are also differences with regard to the estimated distribution of returns (see Figure 81).
However, these differences are less pronounced than between the asset classes in Figure 80
and therefore of less significance to investors.
How will agios develop in future?
Long-term interest rates are
likely to remain at historically low levels for a
considerable time
For investors who attach importance to stable distributions, indirect real estate investments are a
substitute for corporate and government bonds; hence the negative relationship between longterm interest rates and the premiums/agios paid on net asset values on the stock market. On
the interest-rate front, premiums on indirect real estate investments are not a direct threat at the
moment given our assumption that yields on 10-year Swiss government bonds will increase only
very gradually over the next five years. In our most likely scenario, they remain below 1% on average throughout this period.
Figure 82
Agios for real estate funds including forecasts
Estimated and observed agios, in % of net asset value (weighted, listed and unlisted real estate funds); dots: forecasts for
three scenarios (green: weak economy, pink: main scenario, red: strong economy)
30
25
20
Difference
Estimated agio
Observed agio (quarterly average, dashed line: Jan 2015 )
15
10
5
0
-5
-10
-15
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: Credit Suisse, annual and semi-annual reports of funds
Low interest rates have
caused high but not
excessive premiums
In the wake of the marked fall in long-term interest rates last year and at the start of this year,
agios on listed and OTC-traded real estate funds surged from an average level of 13.6% at the
end of 2013 to 29.1% at the end of January 2015. In parallel, the average 1.8% discount for
real estate companies turned into a premium of 8.2%. Interestingly, the model shows that until
the beginning of 2015 agios could well have been higher still than the effective trading level.
The marked difference between the agio observed and the agio estimated on the basis of previous correlations which has remained in place since mid-2012 suddenly disappeared in January
2015 (see Figure 82). There were essentially two reasons for this difference: first, it was unclear whether the same relationships apply on the margins of the model where – due to low in-
73
terest rates – agios can currently be found. Thus investors were not exhausting the current
scope and remained rather cautious. Second, the foreseeable challenges on the rental markets
were likely to add to investor caution. The new situation with negative interest rates has
changed the initial position of investors. It seems that the fear of negative interest rates is
stronger and has moved investors to put down der cautiousness.
None of our scenarios indicates a sharp fall in agios
Based on our model, we anticipate that agios for real estate funds will only fall slowly in all assumed economic scenarios; we base this on three long-term scenarios concerning economic
growth as well as the development of vacancies and interest rates. Countervailing effects ensure that the individual scenarios lie very close to one another. According to the projection, the
agio would actually be highest in a weak economic scenario; that is because extremely low
long-term interest rates would more than outweigh the negative effects of the economy and vacancies. Conversely, interest rates would normalize quickest in the case of a strong economy;
despite lower vacancies and positive income prospects, this would depress agios.
Indirect real estate investments from a fundamental perspective
Positive and negative
effects more or less balanced out in the books
Real estate investment vehicles benefit from abnormally low interest rates in two ways. First,
finance can be obtained at even lower rates and for a longer term. On average, the interest rate
on the debt of the four big real estate companies was just 2.1% based on the latest interim
reports. Lower interest rates secondly provide further scope for a reduction in capitalization
rates, which increases property valuations all other things being equal. For that reason, subdued
earnings expectations on the underlying real estate market are only slowly making themselves
felt in annual reports. In income statements, lower rental income on existing properties is offset
by the lower cost of borrowing; in balance sheets, lower rental income is not yet feeding through
to property valuations or even overcompensating due to reduced discount rates. Premiums as
well as total returns are therefore likely to lie relatively close to one another in the scenarios regarded as realistic, especially as the trend toward declining capitalization rates persists in the
fairly negative scenario and raises real estate valuations or at least keeps them stable despite
poorer rental prospects. Thus the change in net asset value is likely to be less dependent on
economic activity than might be expected. Only in a stagflation scenario – high inflation with
weak growth – would a sharp fall in the overall return be expected. However, such a scenario is
classed as highly unlikely over the next five years.
Figure 83
Figure 84
Regional diversification of real estate funds
Regional distribution of properties
1: perfect diversification (evenly distributed), 0: no diversification
Share of properties by region based on absorption risk
1.0
Diversification by major region
100%
Residential property
90%
Mixed property
80%
0.9
0.8
Commercial property
0.7
Real estate funds
Median real estate funds
Stock of rented apartments Switzerland
70%
0.6
60%
0.5
50%
0.4
40%
0.3
30%
0.2
20%
0.1
10%
0.0
0.0
0.2
0.4
0.6
Diversification by economic region
Generally good geographical diversification among
real estate funds
0.8
1.0
0%
0.5Below-average risk1.5
Average risk
2.5 Above-average risk3.5
Source: Credit Suisse, only funds with more than 20 residential properties
Based on their key financial data, however, indirect Swiss real estate investments can equally
be valued on a bottom-up basis, i.e. on the basis of the individual properties. Geographical diversification is a key argument in favor of indirect real estate investments compared with a small
portfolio of direct investments, and we therefore take a closer look at them. Switzerland's reSwiss Issues Real Estate – Real Estate Market 2015
74
gions vary considerably in terms of vacancy risk in particular (see Figures 76 and 77 above),
making diversification a sensible strategy. We therefore examined the regional diversification of
the listed Swiss real estate funds based on the Herfindahl index, which measures concentration.
Most funds have diversified their properties very broadly across Switzerland's 110 economic regions (see Figure 83). In the case of one real estate fund the residential properties are diversified across 47 regions; in terms of commercial properties the figure is a maximum of 28 regions. Based on the larger number of units, diversification is somewhat more pronounced for
residential properties than in the case of mixed and commercial properties. However, a good
distribution of properties needs to be achieved not only across economic regions but also across
the major regions; that is indeed the case for most funds.
Absorption risk of funds'
residential properties is
manageable
Putting the diversification in concrete terms, i.e. setting the distribution of residential properties
against the medium-term absorption risk from the direct investments section, shows that an
average of 77% of the properties of the real estate funds were located in regions with a belowaverage absorption risk (see Figure 84). 17% can be found in regions with average risk, and
only 6% of properties are in regions with above-average absorption risk. The distribution of the
individual funds is also shown in Figure 84. On average, the locational quality of the funds is
better than that of the overall rental apartments stock. They therefore have below-average exposure to absorption risk. Figure 85 illustrates the geographical diversification of the properties
of the real estate funds based on their latest annual reports.
Figure 85
Geographical breakdown of real estate funds' properties
Color: property type. Background: medium-term risk of oversupply for residential investment properties
Commercial property
Mixed-use property
Residential property
Risk of oversupply
Sharply above average
Above average
Average
Below average
Sharply below average
Source: Credit Suisse, annual reports of real estate funds, Geostat
Real estate companies
heavily concentrated on the
five major centers
We also conducted the above regional analysis for the properties of Switzerland's four largest
real estate companies (Swiss Prime Site, PSP, Allreal and Mobimo). Due to these companies'
greater focus on commercial property, we did not conduct the geographical analysis on a regional level but at the level of business district and confined ourselves to commercial properties.
The companies are more heavily concentrated on the five major centers of Zurich, Geneva, Basel, Bern and Lausanne. In each case 36% of the total property portfolio of the companies is
located in the central business district (CBD) and in the extended/outer business districts of
these centers. The market values of these properties add up to as much as 84% of the total.
Real estate companies are considerably less strongly represented in Switzerland's six next largest medium-sized centers (Winterthur, St. Gallen, Aarau, Lugano, Lucerne and Zug). They account for just 9% of the properties or 7% of the value of the buildings, although considerably
more importance is attached to central locations in the medium-sized centers than in the large
75
centers. 19% of the properties, or 9% of the market value, are located in the rest of Switzerland according to the latest information.
International indirect real estate investments
Historical valuations can be
compared in international
terms
In view of the relatively high premiums for indirect Swiss real estate investments and the fact
that Swiss real estate markets are in the fall of their cycle in fundamental terms, it is worth looking at foreign markets. In terms of commercial real estate, the international focus is mostly on
office and retail property. The market for residential real estate investment is relatively insignificant by contrast. This is mainly due to higher residential ownership rates and – associated with
this – to some extent underdeveloped or overregulated rental apartments markets. An international comparison of the cycle of real estate indices is difficult because real estate companies
are invested in different segments depending on the country. Indirect real estate investments
are relatively easy to compare, on the other hand, based on their historical valuations. To do
this, we compared the indices for each individual country on the basis of their historical valuations. Figure 86 shows where the FTSE EPRA/NAREIT real estate indices of a number of European countries stand in a long-term comparison – firstly with regard to the premiums paid on
net asset values and second in terms of the yield spread versus 10-year national government
bonds.
Valuations are high, but not
extraordinary by European
standards
Current valuations for Swiss real estate funds and companies are above the long-term average,
which is unsurprising given ultra-low interest rates. For example, the yield spread for funds
amounted to 273 basis points at the end of 2014 and was therefore 85 basis points above the
average since March 2009. For Swiss real estate companies, the difference at the end of 2014
was 71 basis points. Premiums were also above the historical averages at the end of 2014 at
11.6% (funds) and 2.3% (equities). Figure 86 shows that these are not extraordinary values in
an international context, however. Agios/premiums for Swiss vehicles were relatively close to
their historical averages compared with other countries. In terms of yield spreads, Swiss real estate investments rank only average despite exceedingly low government bond yields. This underscores our view that agios for Swiss real estate funds cannot be described as excessive in
the current environment.
Figure 86
Valuations of indirect real estate investment in a European context
Premium to NAV and yield spread vs. 10-year government bonds; in each case deviation from historical average
Deviation of current premium from historical average
(2000–2014), in %
40%
Germany
35%
30%
Netherlands
Sweden
25%
UK
20%
Belgium
15%
Swiss real estate
funds
10%
5%
France
Swiss real estate
companies
0%
-20
0
20
40
60
80
100
120
Deviation of current spread from historical average (2009–2014), in basis points
140
Source: Credit Suisse, EPRA, Bloomberg, Datastream
76
Outlook for Real Estate as an Investment in 2015
2015: Another year of
falling yields on real
estate investments
Swiss real estate investments benefited from extraordinary circumstances on the capital markets last year. This trend is likely to continue in the current year, though presumably not with the
same dazzling results. There is unlikely to be much change in the overall, valuation-friendly conditions. We anticipate that short and long-term interest rates will remain at low levels this year.
Real estate's appeal to investors therefore remains unbroken. The gap between dividend yields
on real estate investments and bond yields is set to remain huge, meaning there is virtually no
way real estate investments can be avoided. Initial yields on direct Swiss real estate investments
are therefore likely to fall again.
Real estate remains an
extremely attractive
investment option
Indirect real estate investments are likely to be largely – though not fully – exhausted in terms of
the development of agios. The focus therefore lies on the comparatively high dividend yield and
wide yield spreads. As long as these are not diminished by market developments, real estate will
remain an extremely attractive investment option. As we have shown, funds are also less heavily
exposed to the growing absorption risk. Attractive investment opportunities have recently become available in neighboring countries too. In the past, Swiss franc appreciation has often
wiped out the slightly higher real estate returns abroad or even reversed them. With the abandonment of the EUR/CHF currency floor, the Swiss franc has now appreciated so strongly that
this could be a favorable window for investing in the euro zone. Further appreciation of the
Swiss franc is fairly unlikely – indeed the opposite is the case. Thus investors are currently able
to benefit not only from the advantages of diversification but also from the typically higher dividend yields on foreign real estate investments.
77
Factsheets: Regional Real Estate Markets at a Glance
Periodically updated key Indicators for the 110 Economic Regions
What are the locational qualities of the Lucerne economic region? What sectors are
particularly important for the region? How high are house prices in the region's municipalities? The Credit Suisse Factsheets answer these and many other questions concerning the regional economy, demographic developments and housing markets.
Regularly updated statistics are presented in the form of meaningful diagrams, tables
and maps.
Regional Economy and Demographic Developments
Are you planning to tap into new locations with your
company or would you like to gain a picture of an economic region? The Credit Suisse Factsheets offer you
up-to-date statistics on topics such as locational quality,
accessibility and population developments.
Regional Housing Markets
Are you planning to relocate or would you like to
buy a home or investment property? The Credit
Suisse Factsheets provide you with key facts
about the regional housing market including indicators such as the age of existing housing, vacancy rates, planning activity and much more
besides.
House Prices and Rents
Would you like to gain an overview of regional house prices and their development
or compare the prices of different municipalities of the region? This information can
also be obtained from the Credit Suisse Factsheets.
How to order individual Credit Suisse Factsheets:
Credit Suisse clients can order factsheets on the individual economic regions in their preferred language (English, German, French or Italian) at the following link:
www.credit-suisse.com/immobilienstudie
You will find a list of Switzerland's 110 economic regions on page 79.
78
Appendix: Switzerland's Economic Regions
Credit Suisse Economic Research has defined these economic regions on the basis of the Mobilité Spatiale regions used by the Swiss Federal Statistical Office. Political borders play less of
a role in the definitions than economic phenomena, geographical and demographic features,
and mobility patterns. Consequently, some of these economic regions straddle cantonal borders.
Switzerland's Economic Regions
54
51
79
52
53
28
110
48
49
17
107
16 27
15
106
46
108
95
97
89
30
18
31
19
14
21
32
20
37
22
47
91
90
93
24
92
109
105
25
103
102
99
71
66
70
69
98
101
65
67
26
44
88
81
80
33
23
94
96
45
43
50
74
12
82
13
10 11
76 3
63
57
2
58
55
77 4 1
8
9
56
78 5
7
62
61
6
41
59
42
36
29
39
35
60
34
40
64
38
75
68
72
83
73
84
85
100
86
104
87
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Zürich-Stadt
Glatttal
Furttal
Limmattal
Knonaueramt
Zimmerberg
Pfannenstiel
Oberland-Ost
Oberland-West
Winterthur-Stadt
Winterthur-Land
Weinland
Unterland
Bern
Erlach/Seeland
Biel/Seeland
Jura bernois
Oberaargau
Burgdorf
Oberes Emmental
Aaretal
Schwarzwasser
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Thun
Saanen/Obersimmental
Kandertal
Berner Oberland-Ost
Grenchen
Laufental
Luzern
Sursee/Seetal
Willisau
Entlebuch
Uri
Innerschwyz
Einsiedeln
March/Höfe
Sarneraatal
Nidwalden/Engelberg
Glarner Mittel- und Unterland
Glarner Hinterland
Lorzenebene/Ennetsee
Zuger Berggemeinden
La Sarine
La Gruyère
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
Sense
Murten
Glâne/Veveyse
Olten/Gösgen/Gäu
Thal
Solothurn
Basel-Stadt
Unteres Baselbiet
Oberes Baselbiet
Schaffhausen
Appenzell A.Rh.
Appenzell I.Rh.
St. Gallen/Rorschach
St. Galler Rheintal
Werdenberg
Sarganserland
Linthgebiet
Toggenburg
Wil
Bündner Rheintal
Prättigau
Davos
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
Schanfigg
Mittelbünden
Domleschg/Hinterrhein
Surselva
Engiadina bassa
Oberengadin
Mesolcina
Aarau
Brugg/Zurzach
Baden
Mutschellen
Freiamt
Fricktal
Thurtal
Untersee/Rhein
Oberthurgau
Tre Valli
Locarno
Bellinzona
Lugano
Mendrisio
Lausanne
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
Morges/Rolle
Nyon
Vevey/Lavaux
Aigle
Pays d'Enhaut
Gros-de-Vaud
Yverdon
La Vallée
La Broye
Goms
Brig
Visp
Leuk
Sierre
Sion
Martigny
Monthey/St-Maurice
Neuchâtel
La Chaux-de-Fonds
Val-de-Travers
Genève
Jura
Swiss Issues – Real Estate Market 2015
79
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80
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15C027A_R
82
Other Credit Suisse Publications
Global Real Estate Monitor
Q1 2015
The Global Real Estate Monitor is a
quarterly overview of the key real
estate markets and trends around the
world. We analyze both direct and indirect real estate investments.
Monitor Switzerland
Q1 2015
The Monitor Switzerland summarizes findings from macroeconomic and microeconomic analyzes and forecasts.
March 17, 2015
March 10, 2015
Swiss Construction Index
Q2 2015
The quarterly Swiss Construction Index
provides up-to-date information about
the economy in the construction industry and contains estimates and background information regarding sales
performance in the construction sector.
Real Estate Monitor
Q2 2015
The Real Estate Monitor provides an
update on all market developments related to the real estate sector three
times a year, thereby supplementing the
fundamental analyses and special topics
addressed in the annual Credit Suisse
Real Estate Study.
May 21, 2015
May 28, 2015
The Canton of Ticino
Structures and Prospects
Ticino faces special challenges resulting from its geographical situation. The
regional study focuses on the canton's
economic prospects.
June 10, 2015
Success Factors for Swiss SMEs
Focus on Investment
The annual study canvasses Swiss
SMEs on their success factors in Switzerland. This year the focus is on the
importance of investment for SMEs –
particularly in light of a strong Swiss
franc.
September 1, 2015
Reap rewards from the extensive know-how of Credit Suisse
As a global provider of real estate investment products, Credit Suisse offers access to
diversified property portfolios in Switzerland and abroad. Enjoy the favourable outlook
for long-term returns and benefit from the earnings stability of real estate investments.
www.credit-suisse.com/ch/realestate
©Adrien Barakat
Bright prospects
for long-term
returns.

Real Estate Market 2015 Structures and Prospects

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