Switzerland remains an attractive destination for real estate investments

The EY “Trend Barometer: Real Estate Investment Market Switzerland 2017”

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  • Office property prices extremely stable
  • Residential property prices rising
  • Prices of hotel properties in prime locations stabilizing
  • Zurich region remains an attractive investment location

ZURICH, 16 JANUARY 2017 – Switzerland will remain an attractive place to invest in real estate in 2017. Ninety-one percent of those surveyed regard Switzerland as an attractive or very attractive real estate market, a marginal decline of one percentage point year-on-year. Almost three-fourths of survey participants also still prefer Switzerland in a direct comparison with other European countries, according to the results of EY Real Estate's “Trend Barometer: Real Estate Investment Market Switzerland 2017”.

Office property prices vary
Some 50 investors who have been active on the Swiss real estate market in recent years offered their assessment of the 2017 property market. Anticipated trends in the micromarkets are varied. Over half of the investors expect stable prices in 2017 for office properties at prime locations. Twenty-seven percent expect lower prices and 20% expect prices to rise. For subprime locations and the periphery, investors mostly foresee lower prices.
The picture for retail properties is similar: while 52% of investors predict stable or rising prices at prime locations, the outlook for subprime locations and the periphery remains somewhat negative for 2017, too.
“To keep occupancy rates high, owners of office properties need to offer attractive incentives when leasing these out to investors,” explains Daniel Zaugg, Partner and Sector Leader Real Estate for EY Switzerland. “On the transaction side of things, sales in 2017 also pose a great challenge – particularly for subprime and peripheral locations,” says Claudio Rudolf, Partner and Head of M&A Real Estate for EY Switzerland, with his take on the current situation.

Prices of residential property continue to rise – hotel sector with slight recovery
Expectations for the residential construction sector in prime locations are optimistic, with 91% of investors expecting stable to rising prices, and the majority anticipating that prices will hold steady in 2017 for subprime locations and the periphery as well.
According to Claudio Rudolf, investors are also concentrating less and less on the high-price segment: “There is a clear trend toward affordable living space. Compact and smart, that’s affordable housing”.

Prices of hotel properties in prime locations are being rated slightly more positively to those of the prior year, with 69% (against 53% last year) anticipating stable pricing, while 11% still expect prices to rise. In contrast, investors in peripheral locations are still not seeing any light at the end of the tunnel, as 78% of those surveyed expect prices to collapse. More than half (54%) also expect the value of properties at subprime locations to fall, while 41% expect prices to remain stable.
“Irrespective of location, within the hotel business the luxury segment in particular is not faring too well – in part due to the strong Swiss franc. Innovative and urban-oriented players positioned in the medium-price segment, however, have a good chance of making attractive returns,” says Rudolf.

Little in the way of exit options
Investment alternatives to real estate are rare in view of low interest rates and volatile stock markets — finding sensible ways to reinvest free capital remains a challenge in 2017. So it is unsurprising that those surveyed plan fewer major transactions in their commercial real estate portfolios in comparison to the previous year. The majority (57%) of those surveyed are not planning to exit the real estate sector themselves, while 29% of those surveyed said they could imagine directly selling an individual property as a possible option. “Investors are sticking with their strategies,” says Claudio Rudolf, summarizing the survey results. At the same time, 80% of those surveyed expect prices to rise due to product shortages on the Swiss market. For this reason, investments abroad are likely to remain a very attractive option in 2017. “Higher return expectations are increasingly prompting Swiss buyers to enter into real estate investments abroad,” explains Daniel Zaugg.

Zurich region remains most attractive location
Investors who choose a real estate exposure prefer the Zurich region for office and retail properties alike. Geneva and Basel are also proving popular as investment locations. Demand for retail properties has fallen year-on-year in Berne, Lucerne and St. Gallen, while in Lausanne demand has risen by three percentage points to 15%. Demand for residential real estate is not focused on any one location. According to those surveyed, the focus of their investments in 2017 will be Zurich and Lucerne (15% each) as well as Basel and Berne, followed by Geneva and Lausanne (7% each) and Lugano at 5%.

Megatrends for 2017
The vast majority of those surveyed (88%) agreed with the statement that demographic change will have a significant impact on the real estate market. Investors also see future interest rate developments (74%), political instability (71%), urbanization (67%) and digitization (61%) as relevant trends for 2017.
According to Zaugg, the rise in interest rates shortly before the end of the year also increased uncertainty in the real estate market. “Investors are rightly asking themselves what direction 2017 will take.”

About the study
Each year, investors active on the Swiss real estate market in recent years are surveyed for the Real Estate Investment Market Trend Barometer. This is the seventh annual edition in the series, which began in 2011. The roughly 50 participants in this latest edition were surveyed in October and November 2016. The barometer is intended to deliver an assessment of the Swiss real estate investment market as well as providing insight into the strategy investors will pursue in Switzerland for the coming year.


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