- Residential and logistics properties gain in investors’ favor
- Interest in retail properties declines
- Foreign investment targets coming more into focus
- ESG criteria are becoming increasingly important
The majority of Swiss companies investing in the real estate sector have not been greatly affected by the corona pandemic: 70 percent of respondents say their risk appetite has not decreased. The companies surveyed intend to invest in domestic real estate and increasingly also in foreign real estate. These are the findings of the current Asset Management Survey by EY Switzerland and the Lucerne University of Applied Sciences and Arts. For the study, 52 companies were surveyed, representing a comprehensive cross-section of the Swiss real estate industry. Together, the companies surveyed have invested CHF 248 billion in real estate.
‘The pandemic has had little noticeable impact on investors’ general demand for real estate investments, which remain without alternative in the low interest rate environment and especially in uncertain times,’ said Karl Frank Meinzer, Leader Real Estate at EY Switzerland. And Casper Studer, Real Estate Specialist at EY Switzerland said: ‘What has changed, however, is the focus on properties that have proven more resilient to the pandemic – this is especially true for residential and logistics properties.’ More than half of respondents said they planned to expand their portfolios in the residential asset class. By contrast, properties used for retail have fallen significantly in popularity, while the office property segment remains stable in investors’ favor.
Increasing attractiveness of foreign real estate
Swiss real estate investors are also increasingly discovering foreign countries for themselves. For example, 63 percent of companies are planning to increase investment in foreign residential real estate. In the case of the corresponding real estate in Switzerland, 51 percent of those surveyed said they intended to invest more. Increased investment interest can also be seen in logistics properties: 46 percent of the companies surveyed are pursuing increased investment intentions abroad, while around one in three would like to invest more at home. ‘Swiss investors are increasingly tapping into foreign real estate markets,’ said Prof. Dr. John Davidson, lecturer in economics at the Lucerne University of Applied Sciences and Arts. ‘The crisis has once again highlighted that sectoral and regional diversification is also an important stabilizing factor.’ Retail real estate, meanwhile, is becoming less important: with 36 percent of respondents looking to reduce their domestic investments and 27 percent looking to reduce their foreign investments.
Importance of ESG increases strongly
All the companies surveyed affirmed the increasing relevance of ESG (environmental, social, governance) factors. For almost half (45 percent), the importance of sustainability has increased significantly. ‘With the entry into force of the EU Taxonomy Regulation 2020, which among other things defines requirements for sustainable investments, the importance of sustainability and, in the financial context, of ESG factors, has increased quite significantly,’ said Studer. Asked about the influence of ESG on investment decisions, only three percent of the study participants said that it did not play a role. 69 percent of the companies surveyed said that ESG factors had a medium to large influence on investment decisions.
Pension funds increasingly risk-averse
Pension funds represent a focus group of the survey. A large proportion of these investors, who are already risk-averse, aim to invest more in low-risk, high-class commercial real estate (core/core+) in the future. This was indicated by 45 percent of respondents for Swiss real estate and 39 percent for foreign real estate. The majority of pension funds aim to keep portfolio units in Swiss real estate in the value-add and opportunistic risk classes stable. In the case of foreign real estate in these two risk classes,19 and 14 percent of the pension funds surveyed are planning a reduction, respectively.
Asked about their overall asset allocation, half of the pension funds said they intended to hold fewer bonds in the future. Likewise, half would like to invest more in equities and 44 percent are increasingly interested in infrastructure products. The share of real estate investments in the overall portfolio is to be expanded at a quarter of the pension funds. The real estate debt asset class (real estate loan funds) is also expected to play a greater role in the future for 18 percent of pension funds. Private equity investments are to be expanded by one-third of pension funds. The situation is similar for investments via hedge funds, which around one in five pension funds would like to expand.
Information on the Survey
For the Asset Management Survey 2021 by EY Real Estate Switzerland in cooperation with the Lucerne University of Applied Sciences and Arts, 52 Swiss real estate investors and pension funds were surveyed from February to March 2021. The situation due to the Covid-19 pandemic may have changed since the time of the survey. This is the third time the survey has been conducted. It provides an assessment of Swiss real estate investments at home and abroad, as well as the impact of the corona pandemic and the increasing importance of ESG criteria. It also provides information on investment intentions and strategies.
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