How has Covid-19 impacted the real estate market in Switzerland? Our experts discuss the challenges and trends facing the industry

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How has Covid-19 impacted the real estate market in Switzerland? Our experts discuss the challenges and trends facing the industry

Séverine Cauchie - Senior Fund Analyst and Portfolio Manager, Open Architecture

Séverine Cauchie

Senior Fund Analyst and Portfolio Manager, Open Architecture

Some are predicting that the real estate bubble in Switzerland is on the brink of bursting and believe that the Covid-19 crisis has accentuated some of the sector's structural trends. Are these concerns valid? And what are the opportunities and developments a private investor should take into account in this complex, real estate environment?  

Hear from our expert Séverine Cauchie, Senior Fund Analyst and Portfolio Manager, Open Architecture, who analyses the current situation in the Swiss real estate sector:


Now that we can learn some initial lessons from this pandemic, what have been its main effects on the real estate market?

In the case of the direct (illiquid) real estate market, as in all the other countries where restrictions were introduced, investments in Switzerland fell between April and May 20201. However, the situation reverted back to normal as soon as the restrictions were lifted.

In the specific case of liquid (listed) investments, we saw a peak in the volatility of the price of Swiss real estate funds in 2020 due to Covid-19. Between 24 February and 16 March, prices fell in response to investors' reactions to the onset of Covid-19. Subsequently, with the easing of measures, the sector bounced back by more than 15%2.

2020 was an excellent year for this asset class, with annual performance exceeding 10%, following a rise of over 20% in 2019. We have witnessed rapid, consistent progression for two consecutive years now. This is a first for properties listed in Switzerland.

2020 was an excellent year for this asset class, with annual performance exceeding 10%, following a rise of over 20% in 2019

What types of real estate have performed the best?

The residential real estate market has been resilient as households received help from the Swiss government to compensate for their partial loss of income by salaried employees. This has prevented homeowners from defaulting on their payments. The big winner in this market in 2020 was the multi-storey ownership (PPE in Switzerland) segment. This is when several individuals own parts of a dwelling or building. In this segment, prices have risen 4%3. Lockdown has been difficult for many households living in confined spaces, and they would like to ideally move into detached homes. The supply shortage in this segment has meant that demand has focused on available and more affordable properties, such as storey ownership.

The big winner in this market in 2020 was the multi-storey ownership (PPE in Switzerland) segment. In this segment, prices have risen 4%

Another market that has benefited from the crisis is logistics. This sector, which was already booming before the crisis took hold, has undergone growing demand for storage space and logistics, as consumption by millennials and the following generations is shifting increasingly towards e-commerce.

In contrast, many establishments in the hospitality sector have had to shut down or cope with drastically lower levels of occupancy. Hotels that depend on international clients have been particularly badly affected. The only hotels that have been spared are mountain hotels, whose occupancy rates have actually been higher.

Have some market segments experienced an increase or a correction in structural imbalances?

Location, location, location. This is obviously the focal point when choosing a real estate investment. Macro-location, i.e. the location of the property, in a village or a town for instance, and micro-location, which is where the property is located within that village or town. Is it close to public transport or major transport points?

Another market that has benefited from the crisis is logistics

Prior to the pandemic, there was an excess supply of residential units due to large institutional investments concentrated in suburban areas. In these regions the rental growth was negative, while rents continued to rise in urban centres.

One repercussion of the Covid-19 crisis is the increase in remote working. This has led to a change in the habits, needs and wants of households. The distance between one's work and one's home is no longer such an important factor when choosing somewhere to live. There is now a tendency for households that want to improve their quality of life to leave city centres and move out to the suburbs. So demand is likely to grow weaker in the central markets.

On the other hand, the current imbalances in the commercial property market will persist.

There is now a tendency for households that want to improve their quality of life to leave city centres and move out to the suburbs. So demand is likely to grow weaker in the central markets

Can we talk of a speculative bubble in certain geographical areas?

Residential real estate prices have been rising ever since the turn of the millennium. This trend led UBS to produce a Real Estate Bubble Index. It shows that the Swiss market has been in a risk zone for a long time but shifted to the bubble risk zone in the third quarter of 2020.

Why? Because mortgage volumes, high real estate prices and the loss of household revenue led to an increase in certain indicators, which shifted this index into the bubble zone.

We believe that the economic recovery and ensuing increase in income will take us back to a risk zone similar to the one we have known for many years. We also feel that a rise in interest rates will lead to a drop in prices.

Some regions, such as the Lake Geneva region, Ticino, Central Switzerland and the Greater Basel area, are at risk in 2021.

We also feel that a rise in interest rates will lead to a drop in prices

Europe is a really interesting zone. Its market is like a wonderful mosaic with its own dynamics, which allows investors to diversify their income and hence be able to generate stable income over time.


Which market has the greatest risks and the best opportunities?

Retail property should be avoided. In Switzerland there is an oversupply. We have one of the highest rates of retail property per inhabitant in the world: 1.6 m2 versus 1.1 m2 in France.

By contrast, the office space market is attractive. Even though it registered excess supply in 2017-2018, we saw a turning point in 2019. Furthermore, in spite of the crisis, tenants have continued to pay their rent. We think that companies will retain their premises because they need them. So we don't expect to see any drastic change in rental demand. Furthermore, as lease agreements are for between five and ten years, there will be no immediate renewal issues. By the time the agreements expire, the economic recovery will be well under way, which will favour the rise of new demand.


What will be the greatest challenge facing the real estate industry in the years to come?

The green revolution. In 2020, parliament passed the new C02 law, which aims for a carbon neutral Switzerland by 2050. This involves reducing real estate emissions too.

In 2020, parliament passed the new C02 law, which aims for a carbon neutral Switzerland by 2050. This involves reducing real estate emissions too

Today, renewable energy, efficient buildings and the use of recycled materials make it possible to reduce these emissions. Oil-fired central heating will also need to be phased out, and buildings will need to be better insulated. These changes are supported by tax incentives, but the bulk of the cost will be borne by owners.

1 Source: Wüest & Partner
2 Source for all performance in this question: Lombard Odier based on Factset data of the SXI Real Estate® Funds Broad TR
3 Source: IAZI-CIFI

Wichtige Hinweise.

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