- The Swiss real estate market remains highly attractive
- Logistics real estate is a “rising star”
- Attractiveness and prices of residential property on the rise
- Increased focus on sustainability as part of purchase decisions
Switzerland will remain an attractive to very attractive real estate market for investors in 2021. That is the view of 99 percent of investors surveyed by EY Switzerland’s real estate experts for the study “Real Estate Investment Market Trend Barometer 2021”. The country’s attractiveness actually rose slightly compared with the previous year. With respect to transaction volumes, 79 percent of survey respondents expect a sideways trend at a high level in 2021. Only 15 percent agree with the statement that investment volumes will decline in 2021 (previous year: 17%).
“At the global level, we see a lack of investment alternatives, high investment pressure and increasing economic uncertainty driving real estate as an asset class. The ongoing pandemic and the completion of Brexit are two current examples of rising volatility,” says Claudio Rudolf, author and Head of Transaction Real Estate at EY in Switzerland. “In light of these events, investors view the Swiss real estate market as a safe harbor that is more crisis-resistant than other countries.”
Yet the level of attractiveness varies, depending on the type of real estate. Investor risk aversion has been on the rise again because of the coronavirus pandemic. Nearly 90 percent of respondents expect a run to quality as well as a focus on less risky real estate segments, such as residential properties and office properties with tenants with good credit quality. 75 percent of respondents expect an increase in so-called “sale-and-leaseback” transactions. With this financing model, properties are sold to an investor and then leased back for immediate use. Rudolf sees another interesting and clear trend here that can be discerned in connection with many companies' additional need for liquidity in the recessionary environment.
Sustainability as a mega trend
The vast majority of study participants (94%) agree fully or somewhat with the statement that sustainability criteria will play a decisive role in the future when institutional investors make purchase decisions. 96 percent expect greater pressure to reduce CO2 emissions as part of Energy Strategy 2050. Regulatory pressure will result in the operationalization of ESG criteria (environment, social, governance) driven by the capital market, as 95 percent of survey participants emphasize. However, as nearly 90 percent of respondents note, the sector is still in its infancy. “The real estate industry is responsible for a large share of total emissions – and it therefore bears a large responsibility for achieving the climate goals,” says Daniel Zaugg, co-author of the study and Head of the Real Estate Sector at EY in Switzerland. “The high level of pressure being exerted by the capital market and regulators also puts us in a position to tackle the challenge in an effective and forceful manner.”
Impact of the pandemic: differences among segments grow
The investors surveyed believe a full recovery from the coronavirus pandemic in all real estate segments is rather unlikely this year. Respondents view core office properties and holiday hotels as the segments with a good chance of recovery. Positive signs are also expected in the medium term for trendy concepts like co-working spaces, micro-living and serviced apartments. “While the performance of the various real estate sectors was more strongly correlated in the past – in line with the motto ‘a rising tide lifts all boats’ – the coronavirus pandemic has resulted in a sharper differentiation in the real estate market,” says Daniel Zaugg. Thus, 47 percent of respondents anticipate that business hotels, office properties in peripheral areas and shopping centers will not fully recover from the crisis even over the long term.
Prices expected to decline again for the first time
With respect to expected purchase prices, the residential segment is once again solid as a rock. In this area, survey participants largely expect prices to rise or remain the same, depending on the location. The same applies to logistics properties. Apart from these two segments, however, the sentiment is that prices will fall in 2021. In contrast to the previous year, these expectations are not limited to properties in peripheral locations. In particular, business hotels are faced with negative prospects, insolvency risks and thus falling prices. Nonetheless, survey participants believe there will be a negative price correction for retail properties and even office properties outside of 1a locations. This view is also reflected in respondents’ investment focus, with 73 percent strongly preferring residential property investments, followed by logistics (32%), health care (31%), office (13%) and hotel properties (6%). As in the previous year, retail lags far behind – almost none of the surveyed investors focuses their investment strategy strongly on this segment (1%).
Digitalization at companies becoming increasingly important
Digitalization continues to be an extremely significant trend, one that, at 87 percent, is an even greater focus than in the previous year (82%). The vast majority of respondents (95%) also agree with the statement that digitalization is becoming increasingly important at companies. “Digitalization has received an additional boost as a result of the impact of the pandemic. If a large number of employees work from home, the resilience of digital processes is essential. But digitalization will also have a strong impact on the way offices are used in the future and the amount of space that is needed,” says Daniel Zaugg. The significance of the efficiency gains that can be achieved as a result of the digital transformation is growing. While 80 percent of respondents did so last year, 91 percent expect this to be the case in 2021. Data standards continue to play an important role for company-wide digitalization – 91 percent of survey participants view them as fundamental.
Digitalization and demographic change are the most relevant mega trends
After digitalization, respondents view demographic change as the most relevant mega trend for the real estate investment market in the next five to ten years (87%), followed by climate change (83%), which gained further importance compared with the previous year (67%). Interest rate developments (69%), political uncertainty (53%) and the globalization of investment streams (39%) are seen as less important. Another pandemic in the future and the related impact on the Swiss real estate market is not ruled out by 37 percent of the investors surveyed.
Information about the study
As part of the “Real Estate Investment Market Trend Barometer 2021” by EY Real Estate Switzerland, 74 investors active in the Swiss real estate market in previous years were surveyed in October 2020. The survey has been conducted annually since 2011. The Barometer is intended to serve as an annual assessment of the Swiss real estate investment market by professional real estate investors and to enable an outlook for the strategy that investors in Switzerland will follow in the next 12 months.
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