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Real Estate Outlook – Switzerland, Edition May 2024 – UBS

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Polarization of commercial real estate sector
While the rental housing market is characterized by scarcity more or less across the country, the situation of commercial real estate varies greatly depending on the location and quality of the property. Office space demand has changed significantly over the past four years due to home office and hybrid working models. Compared to other countries, Swiss companies have, however, a significantly higher office presence.

Moreover, the effects of the current economic slowdown stay within reason due to the stability of the labor market. As a result, the supply ratio only increased marginally from 4.5% in the previous year to 4.6% in 2023. However, the polarization observed on international office markets is also evident in Switzerland. Hybrid work models reduce the space needed per employee. For the space demanded, however, quality requirements are way up.


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As companies want to attract and retain employees in times of a labor shortage, there is strong demand for easily accessible, modern and sustainable spaces. Secondary assets, on the contrary, increasingly experience difficulties in rental negotiations. This is also reflected in the development of rents: while prime rents (of top objects in prime locations in Zurich or Geneva) in the office sector rose by 5.9% YoY in 1Q24, average rents fell by 3.1%.

The picture in the market is similar for retail space: despite currently poor consumer sentiment and declining retail sales, retail spaces in central, well-frequented locations continue to record solid demand and rental price growth. The popularity of prime locations is supported also by the return of tourists: with 41.8 million overnight stays, 2023 was not only a further recovery from the Corona-related slump, but a new record high for the Swiss hospitality industry.

Positive rental prospects support property values
The rise in interest rates has also led to corrections in the Swiss real estate market in 2023. Compared to many international real estate markets, due to the lower rise in interest rates and solid fundamentals of the user markets, the value corrections of -1.7% across all segments in Switzerland were however very moderate. The situation on the rental market was particularly supportive for the residential segment. While residential real estate lost 0.9% in capital values in 2023, the correction in the office (-2.6%) and retail (-2.5%) segments was almost threefold.

The focus on user markets that characterizes the Swiss valuation system compared to systems which are strongly oriented towards transaction markets means that the value corrections are more moderate compared to other countries but are also likely to drag on for a little longer. In the commercial segment in particular, the corrections should therefore continue in 2024 with -1.8% for office spaces and -1% for retail spaces. The very positive prospects for rental growth on the residential market are likely to turn capital growth of residential real estate positive again already in 2024, with an appreciation expected to be almost neutral at +0.4%.

While capital value growth was elevated due to the high investment pressure during the negative interest rate period, this is currently no longer expected. Income return and with that active asset management ₋ especially when sustainability factors are taken into account ₋ are therefore clearly slipping to the center of investment management.

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