SWITZERLAND Trends and Developments Contributed by: Martin Furrer, Alexander Wyss, Samuel Marbacher and Charles Gschwind, Baker McKenzie
The Real Estate Market in Switzerland: An Overview In general The Swiss economy in general and the real estate sector in particular remained compara - tively strong in 2023, despite some notable mac - roeconomic challenges such as increased inter - est rates and shortages in raw materials, and microeconomic challenges such as the takeover of Credit Suisse by UBS. Switzerland ended the year with a real economic growth of 1.3%, thanks in particular to strong private consumption. The unemployment rate fell to below 2%, the lowest level since the turn of the millennium. After a historical period of negative interest of -0.75% that lasted over seven years, the Swiss National Bank (SNB) raised its key interest rate in several successive steps to 1.75% from June 2022. In March 2024, the SNB slightly lowered the rate to 1.50%. Partly as a result of these measures, inflation was kept at much lower lev - els in Switzerland than in virtually all other devel - oped economies. At the same time, the interest rate increases led to a certain shift of investor interest and money from the real estate sector to other asset classes. Slowing construction activity Construction activity decreased, partly because the construction sector was faced with further shortages and price increases mostly in connec - tion with the ongoing war in Ukraine. Construc - tion companies were not always able to pass on such price increases to their contractual coun - terparties, which reduced their margins accord - ingly. The increase in construction prices combined with higher financing costs in the mortgage mar -
ket and increasingly complex building approval procedures led to a dampening of housing pro - duction, despite a strong demand. According to Wüest Partner, the number of new rental units authorised for construction was 11% below the average for the past ten years. Meanwhile, the projected construction of new office space in 2024 and 2025 is set to slow to approximately half the long-term annual average, according to JLL. At the same time, the construction industry is expected to benefit from technological develop - ments going forward, which were partially further bolstered by respective legislation. For instance, several cantonal authorities are now using fully digital building permit procedures. Real estate investment In line with the new market conditions, real estate investors have adopted a more defensive stance with a reduced willingness to pay pre - mium prices. Prime yields for office properties rose by 60 to 80 basis points over the past two years, reaching approximately 2.7% and 3.0% in Zurich and Geneva respectively, at the end of 2023 according to CBRE. Although the spread between prime office yields and ten-year Swiss government bonds increased in 2023 to 141 and 181 basis points respectively, it is still 30 to 40 basis points below the long- term average.Furthermore, higher interest rates on debt impair the usage of leverage to boost returns on equity. Demand for prime real estate is therefore subdued. As a result, several players who were active as buyers in recent years either completely retreated from the real estate market or started to sell their properties. This is particu - larly true for several insurance companies and pension funds, which reduced their exposure to real estate and sold significant country-wide
925 CHAMBERS.COM
Powered by FlippingBook