In conversation with Daniel Häcki (AXA Investment Managers)

"The return of investor appetite is driving up prices for Swiss yield properties," wrote the Swiss Property Owners Association, a specialist portal for institutional real estate investors, in December 2024. The combination of falling interest rates, limited supply, and growing capital pressure has brought the Swiss transaction market back into motion after a period of restraint.

1.1.  How do you assess the current market situation? Do you share the view that falling interest rates, limited supply, and capital pressure lead to rising prices?

This development is further compounded by geopolitical events, such as the trade war feared in light of U.S. tariff introductions, as well as local political challenges, including tenant protection measures and related initiatives.

Unlike the volatile world of trading, marked by rapid price fluctuations, the real estate market is typically defined by long-term, stable development. The Swiss real estate market, in particular, benefits from its reputation as a safe haven. This status is underpinned by the country’s stable economy, robust pension system, and strong currency – solid fundamentals that support sustainable market performance.

Another distinctive feature of Switzerland is its largely closed market, characterized by limited supply and specific local conditions. As a result, fluctuations often seen in markets like bonds tend to have only a limited impact on real estate. Taken together, these factors offer reassurance that potential future challenges will likely have only a marginal effect on the market and are unlikely to pose significant long-term risks.

1.2. What role do regulatory factors currently play for the market?

Regulatory requirements are currently undergoing a paradigm shift in certain areas, particularly with the introduction of ESG¹ metrics (e.g., environmental indicators for real estate funds according to AMAS). An example is investment guidelines for vehicles regulated by FINMA. FINMA can now require the definition of ESG metrics and, depending on the scope, also the definition of interim CO2 targets in order to market a product as "sustainable." This can be particularly challenging in cases where external factors cause delays—for instance, if a district heating network expected to be operational by 2025 is not available until 2027, it raises the question of how unmet interim targets will be handled.

This regulatory shift is difficult for many to grasp, as it was previously unthinkable to include specific project goals in a fund prospectus—particularly when failing to meet these targets could have negative implications. ESG metrics, such as CO₂ emissions per energy reference area, are becoming increasingly relevant and must now be factored into investment decisions. While ESG was often regarded as little more than a marketing tool in the past, it is now being recognized as a key component of risk management.

a. How do ESG criteria and climate-related risks influence the underwriting and strategic positioning of real estate investments at AXA today?

The world is no longer insurable” – with this in mind, AXA introduced an ESG policy as early as 2019, recognizing that environmental and climate-related risks increasingly affect the insurability of real estate. In high-risk regions such as Florida, natural disasters like floods have shown that insurers are becoming significantly more cautious. Against this backdrop, AXA aims to proactively adapt its properties to future challenges, ensuring long-term value preservation and rentability. A property’s strategic positioning is central to this approach, considering factors such as heritage protection and existing infrastructure plans. For instance, a building located on a street not scheduled for connection to a district heating network for another 25 years presents a very different ESG risk profile than one already integrated into sustainable infrastructure. This kind of strategic orientation in underwriting is essential to achieving sustainable risk management in the real estate sector.

b. How do owners and investors deal with dynamic regulatory requirements and technical challenges in decarbonizing existing properties – especially regarding realistic Capex planning and risk management?

Current challenges in the real estate sector—particularly in the office segment—are increasingly shaped by rising sustainability and energy-efficiency requirements. Large corporates now expect buildings to meet strict environmental standards, while smaller companies may apply less strict criteria. Many property owners assume that defining a decarbonization path is sufficient to meet regulatory and market expectations. In practice, however, the transition to environmentally friendly technologies—such as air-source heat pumps—often presents unexpected obstacles.

Moreover, decarbonization strategies typically require at least a year of consumption data to validate progress, meaning reductions often become visible later than initially planned. In some jurisdictions, regulations go even further: buildings with outdated systems, like oil heating, may no longer be eligible for rental. As a result, the focus is shifting away from ESG as a marketing tool toward ESG as a core aspect of risk management. A thorough reassessment of existing assets and strategies is therefore essential.

Another major challenge is the frequent underestimation of capital expenditure (Capex) and implementation timelines for such conversions—often exacerbated by regulatory pressure from authorities like the FINMA. These upgrades generally take longer than expected to complete and to demonstrate measurable outcomes. Many market participants, including private equity investors, are beginning to realize that regulatory and technical requirements represent a “moving target.” This dynamic landscape is still widely underestimated and is likely to remain a significant challenge in the years ahead.

1.3.  What developments and dynamics do you currently perceive? Are there segments (e.g., residential, office, retail, logistics) that are particularly affected?

Residential

Global market participants are increasingly recognizing the potential of the residential asset class. One of its key advantages lies in the inherent diversification within a single property: ten apartments typically mean ten different tenants, offering both stability and risk diversification within the asset itself.

In Switzerland, this trend is not new, as the market has long been dominated by residential real estate. For instance, approximately 60% of AXA’s portfolio consists of residential properties, with the remaining share allocated to commercial assets.

Office Sector

Although the office sector has fallen somewhat out of favor with investors, no significant increase in vacancies has been observed. Instead, attention is shifting more strongly to the location of properties. Offices in prime locations—particularly those with close proximity to train stations—remain in high demand. This high level of connectivity leads to noticeable differences in rental prices.

For example, the area surrounding Zurich-Hardbrücke station commands different rental levels compared to nearby areas such as the Technopark or the Hardturm, even though they are only a 15-minute walk apart. In Switzerland, walking distance and access to public transport are critical factors. In contrast, similar distances in larger metropolitan areas like Paris or London tend to have a less pronounced effect on rental values.

Logistics, Life Sciences, and Data Centers

The logistics sector in Switzerland is a relatively small niche compared to other European markets and is predominantly composed of single-tenant buildings. This concentration creates significant risk, as economic difficulties faced by a single tenant can have a major impact, tempering the enthusiasm around logistics properties. A vivid example of this risk materialized during the COVID-19 crisis, when automotive suppliers halted operations, leading to substantial rental losses.

While Life Sciences and Data Centers are globally viewed as attractive investment opportunities, their highly specialized nature carries a distinct risk profile. In Switzerland, these sectors remain relatively marginal and are often driven more by marketing efforts than by substantial market volume.

Overall, across all asset classes, it can be concluded that there are no clearly defined “loser segments” in the Swiss market.

2.1. How do you explain the discrepancy between high supply volume and the low number of completed transactions in the current market environment?

Looking at the transaction volume, I found it interesting how often the situation is misunderstood. It was not the volume of offers that was smaller, but rather the number of completed deals. A major reason for this is the widespread bid-ask spread. Many owners held on to their high price expectations, which the market no longer supported. This illiquidity, in my opinion, has been underestimated.

This also applies to the listed market: larger land sales, such as an area worth 100 million, do not happen overnight and require time. We ourselves were very active in the market, but completed fewer transactions because price expectations often did not align with market reality.

A common misconception is the comparison with previous peak prices, especially those from the low-interest phase about five years ago. For example, an heir community often expects the price that was offered to them by a developer at that time, despite the current market situation being very different.

Many Swiss property owners are not compelled to sell and prefer to wait. Due to increasingly difficult financing conditions—caused by regulations like Basel III—it also becomes apparent that some market participants pursue unrealistic valuation approaches, often in an attempt to extend existing financing.

In the past months, we received over 220 offers worth more than 7.6 billion, a volume that is in line with the average of the last five to six years. Although the number of completed transactions was lower, the overall transaction volume has not necessarily decreased. Rather, supply and demand simply have not yet aligned.

2.2. What would make a successful transaction year 2025 in your opinion, and how do you assess the current volume compared to the time before the pandemic?

A successful transaction year in 2025 will be characterized primarily by greater certainty, as uncertainty often acts as a hindrance. I expect transaction volumes to be comparable to the pre-pandemic period. We continuously monitor incoming opportunities and have observed annual volumes between 20 and 24 billion CHF in Switzerland.

Even during the pandemic, we completed transactions, although property inspections were more challenging. Our global setup proved to be a significant advantage. For example, in Italy, we were able to acquire a large logistics portfolio because our Italian colleagues could conduct inspections while other market participants were unable to enter the country due to pandemic restrictions. That was a notable success.

a. Did virtual inspections play a role during the pandemic, and how do you view them in the real estate sector?

Yes, virtual inspections have indeed become an important topic. In other areas, we use technologies such as drones to inspect forest areas in the Nordic countries, for example. It’s quite exciting—ranging from drone footage to precise on-site quality assessments of the timber. However, in the real estate sector, physical presence remains essential for the final inspection and purchase of a property.

2.3. What factors (e.g., interest rate development, economic uncertainty, ESG regulations) could accelerate or slow down market activity?

The current real estate market situation is shaped by several factors that can both accelerate and slow down activity. A key aspect is the availability of capital: we are witnessing an unusual scenario where equity is significantly easier to obtain than debt, which, from a theoretical perspective, seems counterintuitive. Many investment vehicles are raising substantial amounts of equity, sometimes well beyond their initial requirements.

Another important factor is the Swiss National Bank’s (SNB) key interest rate, which acts as a price tag for money. However, it is equally crucial to consider how much capital is actually available and where it flows—an aspect that many market participants do not yet fully grasp.

Economic uncertainties also play a role, particularly affecting project developments. Many developers, due to financing constraints, seek sales but are often unwilling to accept risk-adjusted prices. This can lead to longer waiting times for buyers and extend the so-called “time lag” in market adjustment.

ESG regulations may further influence market activity by complicating investment decisions and making project financing more challenging due to stricter sustainability requirements.

Finally, market stability may be maintained by avoiding immediate, steep devaluations of properties. While some view this slow adjustment positively as a market stabilizer, others argue that a quicker correction could stimulate activity. Nevertheless, the gradual adjustment offers the advantage of protecting the market from excessive shocks.

2.4. Are there specific buyer groups or investor groups (e.g., institutional investors, family offices, foreign investors) that are particularly active or could become more active?

We observe that certain buyer and investor groups—particularly private investors—are currently active on the sell-side, especially when it comes to smaller properties. Our organization, which primarily operates on the buy-side, occasionally sells smaller assets as part of portfolio streamlining, typically in the range of up to CHF 10 million. These properties, which no longer align with our strategic focus, are often better suited to private investors (individuals or smaller companies) who are locally based and can manage them more efficiently at a smaller scale through in-house resources, cost optimization, or specialized knowledge.

On the acquisition side, we concentrate on properties starting at around CHF 15 million in regions with a catchment area of at least 100’000 inhabitants. Larger projects are generally better aligned with our internal structures, allowing us to ensure the efficiency required for professional management. While the size of the properties is certainly a factor, operational efficiency remains a key driver in our decision-making process.

The market for smaller properties remains robust, and we have successfully sold a number of such assets in recent months. Our valuation approach consistently factors in long-term costs—such as future renovation needs or heating system replacements—which are often underestimated by private buyers when submitting offers. While smaller investments can offer attractive returns, these profits must be reinvested to support our long-term and sustainable business development.

Processing: Challenges and decision processes

7.1.  How many transactions have you completed in recent years, and what challenges have you encountered?

Over the past six years, we have completed more than 200 transactions totaling CHF 6.8 billion. Each deal presented unique challenges and complexities. We often encountered intricate deal structures, particularly in highly competitive markets—where increased competition typically leads to more complex transactions. One notable challenge was that some deals fell through due to unenforceable tax rulings. This underlines the importance of thorough preparation to ensure a smoother process for both buyers and sellers.

7.2.  Are there specific deal structures that you do not consider, and how do you handle sale & leaseback transactions?

We generally exclude minority interests from our transactions. Sale and leaseback deals have become less frequent recently but could regain importance in the future. Such transactions often involve advisors, particularly tax experts, especially when working with SMEs. It is common that smaller companies—such as carpenters or plumbers—either lack the resources to acquire real estate or prefer not to sell their properties.

7.3. How is your process for transactions structured, and how quickly can decisions be made?

Our process is designed for efficiency. Each transaction is managed by a dedicated team of experts in transactions, asset management, and construction. Weekly local and global Investment Committees (IC) enable us to make swift, informed decisions. When everything proceeds smoothly and the data is thoroughly prepared, we can complete transactions within three weeks through our fast-track process. Handling nearly all aspects in-house, including our own legal and tax teams, further accelerates the process.

Identifying attractive opportunitites

7.4.  How do you currently identify promising investment opportunities, and what role do networks, brokers, or structured tenders play compared to previous years?

We receive many opportunities, largely thanks to active network management. Our employees play a crucial role in maintaining contacts, and their efforts pay off. While most deals originate from brokers and advisors, the strategic engagement of our employees’ personal networks can be key to securing better results for specific assets. New channels have not been proactively pursued; although we have experimented with ads in the NZZ, the majority of potential deals still come through established sources such as brokers, advisors, banks, and family offices.

Strategic criteria and challenges in redevelopment projects and investments

7.5.  What specific criteria do you evaluate when selecting properties for conversion projects, and how do you consider factors such as construction potential, zoning law, and sustainability aspects in your decision-making?

Our approach focuses less on specific property types and more on the overall viability of a deal. We primarily assess what potential an asset holds, paying close attention to its construction and zoning possibilities. Conversion into residential space has proven particularly successful in recent years, with several ongoing projects in cities like Basel, Bern, and Geneva. The key criterion is the building’s potential—whether office, hotel, or commercial property—it must offer versatility. Local building and zoning laws are crucial factors in our decision-making. Additionally, we consider the existing substance of the property, aiming to preserve as much as possible in line with circular economy principles. For properties that are poorly constructed or difficult to convert—such as certain logistics buildings—we tend to be more cautious.

7.6.  How do you assess the possibility of acquiring heavily depreciated properties, renovating them, and upgrading them, especially in terms of sustainability goals and strategic alignment?

Yes, this is certainly possible, provided certain conditions are met. Such assets must contribute positively to our strategic goals in the short term, particularly in terms of emission reduction. For example, if we have set an interim target to reduce emissions by a specific percentage by 2030, all investments must align with this goal. Properties located in regions without access to district heating or reliant on inefficient technologies such as oil heating would be excluded. Both the financial volume and sustainability aspects must be carefully integrated into our strategy. These investments require thorough planning and implementation to support our long-term objectives and be reflected in our KPI assessments.

7.7. How do you assess the chances and challenges of future rezoning, especially in terms of local political conditions and possible additional requirements such as social housing?

The prospects for rezoning in the future are generally seen as limited, even though such changes would be highly beneficial in many locations. Greater flexibility in zoning regulations could help increase housing supply but often faces resistance due to established principles. The biggest challenge lies in the local political environment, where municipalities frequently introduce additional requirements—such as mandates for social housing—that were not part of the original project agreements. These demands delay approvals and often result in prolonged discussions without concrete progress.

Despite well-intentioned initiatives like the Areal Bonus, which aims to encourage densification, many developers opt for standard construction methods because of the complexity involved in meeting these requirements. This tendency often conflicts with the broader goal of increasing housing availability and is further complicated by differing personal and political attitudes. There is frequently a lack of rational, goal-oriented dialogue that could lead to effective solutions.

Thank you for the interview.