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Home Sweet Home

Swiss Real Estate Market 2021 | March 2021

Owner-occupied housing Digital real estate Sustainable real estate

Home working boosts demand Internet of Things changes No sustainability without
on urban periphery office use transparency

Page 9 Page 36 Page 53

Imprint

Publisher: Credit Suisse AG, Investment Solutions & Products

Nannette Hechler-Fayd’herbe
Head of Global Economics & Research
+41 44 333 17 06
nannette.hechler-fayd’[email protected]

Fredy Hasenmaile
Head Real Estate Economics
+41 44 333 89 17
[email protected]

Cover picture
Building: Im Guss, Bülach. Living should feel good. Attractive residential property and
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References
Unless otherwise specified, the source of all quoted information is Credit Suisse.

Authors
Fredy Hasenmaile, +41 44 333 89 17, [email protected]
Alexander Lohse, +41 44 333 73 14, [email protected]
Thomas Rieder, +41 44 332 09 72, [email protected]
Dr. Fabian Waltert, +41 44 333 25 57, [email protected]
Andreas Wiencke

Contribution
Fabian Diergardt
Thomas Mendelin
Andy Egger (Realmatch360)
Alexis Leibbrandt (Akenza)
Patrick Schirmer (UrbanDataLab)

2 Swiss Real Estate Market 2021 | March 2021

Content

Management Summary 4

Owner-occupied housing 7
Demand: The elusive ownership dream 7
Demand: Home working boosts demand on urban periphery 9
Supply: Existing stock dominates supply due to low newbuild activity 11
Market outcome: Prices keep rising 13
Outlook 2021: Scarcity of property for sale 15

Digital real estate:

Digitalization as decoder of demand 16

Rental apartments 19
Demand: Demand extremely robust 19
Supply: Construction peak passed 21
Market outcome: Calming in the centers 22
Outlook 2021: Consequences of COVID manageable 25

Digital real estate: Rethinking micro-location 26

Office property 30
Demand: Demand being recalibrated 30
Demand: Central premises in demand 31
Supply: Supply of space remains high 32
Supply: Too much space in the pipeline 33
Market outcome: Center-periphery divide widens 34
Outlook 2021: Demand applies the brakes 35

Digital Real Estate: IoT changes office use 36

Retail property: A bad start to the year for retail 39

Logistics real estate: Real estate segment of the hour 44

Real estate investments 48

Direct investments: Limited COVID losses 48
Indirect investments: Residential property: false sense of security? 50
Outlook 2021: Low interest rates make real estate a coveted asset 52

Sustainable real estate :

No sustainability without transparency 53

Factsheets: Regional real estate markets at a glance 57

Swiss Real Estate Market 2021 | March 2021 3

Management Summary

Home sweet home

COVID-19 may have triggered a great deal of uncertainty, but it has also brought certainty in one
respect: Increases in interest rates are still a long way off. This consideration, combined with rapid
and targeted government support measures, has ensured that real estate values have held up well
in the crisis. Residential property in particular has proven to be a crisis-resistant investment, further
cementing its status as a rock-solid investment. But beyond this, the coronavirus pandemic has
provided clarity with respect to something else too: Digitalization is a strategic necessity for those
who do not want to be left behind. We illustrate the added value that digital technologies can bring
to the real estate industry using three examples.

Owner-occupied The elusive dream of home ownership

housing Lockdowns and enforced home working have increased the significance of an attractive and com-
Page 7 fortable home, as well as stimulating the ownership drive. This desire has been further strength-
ened by the extension of the low-interest phase. But the longing for residential property does not
fit with the picture on the supply side, which is characterized by a decline in the construction of
owner-occupied housing dating back years. The indications of scarcity are now clear for all to see.
Within the last 12 months, prices have surged again – from what were already very high levels. As
a result, an increasingly small number of households can now fulfill the high financing require-
ments imposed by the regulator. This in turn means that a greater amount of equity is essential,
which is why households seek recourse to their pension assets. But as is evident simply from the
declining number of advance withdrawals to finance property acquisition, the dream of owning
one’s own four walls is becoming increasingly elusive for many households. Many prospective
homebuyers are focusing their search on peripheral regions where residential property is more af-
fordable – particularly as the greater opportunity for working at home in the future makes longer
commuting times bearable. However, the strong price growth is also likely to increase market risks
further. Property owners can counteract this risk effectively if they consistently use the savings
they are making as a result of low interest rates to repay the loan capital.

Digital real estate Data analytics – digitalization as decoder of demand

Page 16 Lots of information has long been available on housing supply, but demand has remained largely
in the shadows. For decades, demand preferences were mostly only measurable indirectly, such
as via vacancy data. However, the digitalization of all walks of life is opening up opportunities, and
allowing key information to be more easily compiled and evaluated. The best example of this are
the search registrations on property websites, where prospective buyers have to enter their prefer-
ences. Realmatch360 was the first company to identify the value of this information for the real
estate market. However, smart algorithms are required if missing, duplicate, and misleading infor-
mation is to be stripped out of this data. The COVID-19 pandemic has shown how important it is
to access data as rapidly as possible when evaluating a situation. Thanks to the valuable assess-
ment of search profiles, data-based statements can be promptly made as to whether (and how)
the coronavirus crisis has changed demand for housing. For example, there has been an increase
in searches for condominiums and houses to buy, and fewer for rental apartments. Moreover, de-
mand is increasingly focused on medium-sized and large homes, as well as on homes with outside
space.

Rental apartments Demand remarkably robust thanks to “safe haven” effect

Page 19 The much-feared slump in immigration as a result of the coronavirus crisis never came to pass.
Indeed, net immigration in 2020 was actually much higher than the previous year, as the rate of
emigration slumped more strongly than immigration. Faced with less attractive labor market situa-
tions in their native countries, many foreigners elected to remain in the safe haven of Switzerland.
We are expecting net immigration to prove robust this year too, albeit not at the level of last year.
In addition to this effect, the ever-higher hurdles that have to be overcome to purchase residential
property should support demand for rental accommodation, which is why we are expecting only a
modest decline in demand, despite the pandemic. Any weakening can be expected to make itself
felt in the large urban centers as well, particularly as the pandemic is weakening not only immigra-
tion but also the pull of city centers. The flexibilization of working time and location brings less

4 Swiss Real Estate Market 2021 | March 2021

 central, cheaper locations into consideration as residential alternatives. Although this will not re-
verse the urbanization trend, it should weaken it somewhat. On the supply side, rental apartment
construction has now clearly passed its peak, and construction activity is losing momentum. That
said, the rate of construction is still too high, which means vacancies are likely to continue to rise,
with the corresponding downward pressure on rents.

Digital real estate Data analytics – rethinking micro-location

Page 26 Location is a criterion of the utmost importance in the real estate industry. Accordingly, the im-
portance of evaluating this aspect objectively can hardly be overstated, as it has a key impact on
real estate valuations, portfolio strategies, and the success of real estate projects. However, as-
sessing the quality of a location is anything but child’s play. Although user-specific locational rat-
ings are theoretically useful, they often fall down in practice due to the lack of available data or
analysis instruments. New technologies, which among other things focus on information on the
morphology of buildings, are trying to plug this gap. Morphological criteria such as building form,
exposure, size, and interconnectedness, as well as new analysis techniques such as machine
learning and artificial intelligence, make it possible to capture the multifaceted nature of user pref-
erences, thereby significantly improving the evaluation of locational quality for a variety of uses.

Office property Demand being recalibrated

Page 30 Demand for office space remains very weak, as companies are holding back from renting new
premises and reviewing the extent to which they can make long-term savings on office space
through home working. In the medium term, the importance of the office as a place of work is
likely to rise again, however, as the high levels of productivity initially observed in home working
are likely to fall back in time due to a lack of social control and insufficient communication. In addi-
tion, productivity is also likely to be impaired by lower innovation output on the part of a home-
based workforce, which should focus attention once again on the value of centralized working.
Even before the second wave of infection, there was evidence of a slow but steady stream of
workers returning to the office. The remaining demand is focused heavily on central locations,
which fare better not just from the perspective of accessibility, but also as a complement to home
working. Since supply rates have remained at high levels in recent years despite a strong econ-
omy, we are anticipating a continuation of the latent oversupply, particularly at more peripheral lo-
cations. As a result, vacancies should rise and rents should fall outside of inner-city locations. As
such, the already striking divide in respect of supply, vacancies, and rental prices between the
centers and the peripheries of Switzerland’s office property markets is likely to widen further over
the next few years.

Digital real estate Internet of Things changes office use

Page 36 Changed forms of working as well as more flexible workplaces and working times pose new chal-
lenges to the world of office property. New technologies based on the Internet of Things (IoT) are
facilitating innovative solutions for the management of office buildings. The IoT essentially enables
almost any physical or virtual object to be connected to, and communicate with, another object via
a network. The IoT therefore goes a long way to meeting the new requirements made of office
property in the form of a more efficient usage of space, better air quality, and superior services. In
a similar way, IoT technologies facilitate the development of so-called “smart cities”. Building an
IoT solution is a complex undertaking, however. A whole array of different sensors, e.g. for meas-
uring occupancy, need to be connected with one another using various linking technologies so
that all sensor data can be managed at a central location – such as a public or private cloud – on
an ongoing basis, before then being enriched with additional information and ultimately analyzed.
In this way, meeting rooms and collaborative working areas can be used efficiently and conven-
iently thanks to real-time information on occupancy and quality, for example.

Retail property A bad start to the year for retail

Page 39 The stationary retail trade has endured a very bad start to the year. The renewed closure of non-
essential stores is likely to entail a serious slump in sales for the non-food trade. In what was a
topsy-turvy year, bricks-and-mortar retailers emerged from 2020 fairly well with a modest sales
increase, but this overall result conceals a number of significant differences. Rarely, if ever, can
the results of different retailers have diverged as dramatically as they did last year. COVID-19 is
driving this disparity, creating clear winners and losers in this sector too. The biggest beneficiary
has been food retailing, which had no competition from restaurants or canteens for a significant
period due to lockdown. The winners also include omni-channel providers, whose losses in the
stationary trade can be at least partly offset by disproportionate growth in the online business. The
retail trade benefited from shifts in consumer spending last year due to restrictions on leisure ac-
tivities and cross-border shopping. But this is a deceptive advantage: Any benefit gained is likely
Swiss Real Estate Market 2021 | March 2021 5
 to evaporate again once the pandemic has been mastered. What’s more, a significant proportion
of the sales that migrated to the online channel is likely to be lost to the stationary trade forever.
Last but not least, our model calculations flag up a lasting decline in pedestrian frequencies (15%
to 20%) as a result of the greater proportion of employees working from home in the future –
which will affect stores that benefit from spontaneous purchases in particular.

Logistics real estate Real estate segment of the hour

Page 44 In a world where everything can be ordered at the click of a mouse, logistics services have be-
come a key factor for manufacturers and retailers. COVID-19 has accelerated this development,
and the need for logistics space has grown as a result. Switzerland has a shortage of modern
warehousing as well as distribution and transportation centers, as many existing buildings have be-
come outdated. In addition, new development projects are encountering resistance almost every-
where, and proceeding only slowly. With suitable sites being in short supply, prices have risen ac-
cordingly. Only rental prices – unlike in other countries – have yet to rise in Switzerland. The com-
bination of scarcity of supply and a healthy long-term demand picture nonetheless makes logistics
real estate an interesting diversification option for investors looking to benefit from low correlations
with other real estate segments, as well as high yield premiums.

Direct real estate Low interest rates make real estate a coveted asset
investments Bearing in mind the dislocations triggered by the coronavirus pandemic, the rental income losses
Page 48 in the portfolios of Swiss real estate funds and real estate investment companies have been toler-
able, and limited to low single-digit percentages. But the consequences of COVID-19 will prove
challenging for the real estate market for quite some time, as they are triggering structural
changes in demand. The pandemic has accelerated developments that were previously only
patchy. Specifically, the office and retail property markets are experiencing a trend of increasing
oversupply as companies look to reduce their space requirements. The general pessimism over
the traditional real estate segments of office and retail is something we share, at least where the
latter is concerned. In the world of office property, however, we see reason for a more optimistic
assessment once an end to the pandemic is within reach. Here investors are likely to attach all the
more importance to locational quality. Furthermore, some niche strategies are likely to be suc-
cessful, as smaller sectors such as logistics real estate and student accommodation are supported
by powerful trends.

Indirect real estate Residential investment property: false sense of security?

investments The long-term demand for residential property has been comparatively little affected by the coro-
Page 50 navirus crisis. The rental market, by contrast, has been on a downward trajectory for years, as evi-
denced by rising oversupply tendencies and downward pressure on rents. Vacancy-related rental
income losses are therefore on the rise generally. Striking discrepancies in premiums and rental
income losses point to major differences between the various market funds in respect of portfolio
quality, diversification, and vacancy management. We see virtually no potential for further in-
creases in value in residential real estate funds at the moment. As economic recovery gains mo-
mentum as the year progresses, demand is likely to increasingly shift to cyclical sectors, which
means real estate shares and commercial real estate funds could benefit.

Sustainable real No sustainability without transparency

estate For wide swathes of the population, the COVID-19 pandemic has pushed climate concerns into
Page 53 the background only temporarily. The need for a more proactive response to climate crisis is now
firmly lodged in the minds of broad swathes of the population, and this shift in attitude is increas-
ingly reflected in the behavior of investors. Where sustainable real estate investments are con-
cerned, investors expect greater transparency, as only this can engender trust. One of the great-
est problems for sustainability is that sustainable goods or services are typically not identifiable as
such from the outside. In the world of real estate, the initial focus therefore lay on building labels,
which resulted in a rising transparency to at least a certain degree. Benchmarking comparisons at
an international level have strengthened this trend. Ultimately however, there can be no alternative
to systematic measurements at individual property level, particularly where the consumption of en-
ergy and emission of greenhouse gases is concerned. This is the only way of obtaining the infor-
mation needed to continue bringing down consumption figures in a lasting way. Nor is it just regu-
latory pressure that can be expected to remain high over the coming years – competitive pressure
will also remain intense, particularly as an increasing number of market participants are becoming
aware of the advantages of a sustainable approach.

6 Swiss Real Estate Market 2021 | March 2021

Owner-occupied housing – demand

The elusive ownership dream

Those wanting to purchase their own home in Switzerland are finding “imputed
affordability” an increasingly formidable hurdle. However, higher equity – such as
through advance withdrawals of pension assets – can reduce the affordability problem.

Imputed affordability The strong price rises of the last two decades are putting property ownership out of reach for an
as major hurdle increasing number of Swiss households. The big challenge is “imputed affordability” as dictated by
regulatory requirements, under which the financing of residential property must be calculated with
a conservative long-term interest rate rather than the very low mortgage interest rates currently
available. By contrast, actual affordability continues to pose no problem at all (Fig. 6, page 9).

Two out of every For an average-income household, only 34% of the properties advertised across Switzerland with
three properties no four or more rooms are affordable based on an imputed interest rate of 5% and 80% debt financ-
longer affordable ing (Fig. 1). At 42%, condominiums (CDM) fare better than single-family homes (SFH) at 26%.
By way of comparison, at the end of 2008, 65% of advertised condominiums and 43% of single-
family homes were affordable for an average-income household.

Newbuilds now The development illustrated in Figure 1 shows the recent intensification of the problem only partly,
particularly however. The sideways movement in the proportion of affordable properties in recent years cannot
unaffordable be attributed to an unchanging price level. It is more likely to be a case of increasingly older and
thus cheaper (as well as less well-located) properties being advertised. It should be borne in mind
that newbuilds are not included in the calculation. Newbuilds, which are typically more expensive,
are usually not advertised or only in summary form (development cluster advertisements), which is
why no evaluation is possible here. In other words, the magnitude of the affordability problem is
even being underestimated.
Central locations In the cantons of Zurich and Zug, in the Lake Geneva region, and in the areas around Basel and
too pricey Lucerne, almost no properties are affordable for average-income households requiring an 80%
mortgage. The proportion of affordable properties in the Glattal region close to Zurich stands at
7.8%, for example. The situation is similarly bleak for prospective buyers in the Nyon region on
Lake Geneva (3.7%), and in the lower Basel region (13.7%). By contrast, more options open up
in the Mittelland region: For example, 40.3% of all advertised properties are affordable for an av-
erage-income household in the Aarau region, a figure that rises to as high as 62.2% in the Olten
region.

Fig. 1: Only a third of residential property still affordable Fig. 2: Residential property close to urban centers barely affordable
Proportion of affordable advertised properties with four or more rooms for an aver- Proportion of affordable advertised properties (CDM and SFH) with four or more
age-income household rooms for an average-income household
Proportion of affordable properties
70% > 70%
All owner-occupied housing 60 – 70%
50 – 60%
60% CDM
40 – 50%
SFH 30 – 40%
50% 20 – 30%
10 – 20%
40% < 10%

30%

20%

10%

0%
2006 2008 2010 2012 2014 2016 2018 2020

Source: Credit Suisse, Meta-Sys Last data point: Q4/2020 Source: Credit Suisse, Meta-Sys, Geostat Last data point: Q4/2020

Swiss Real Estate Market 2021 | March 2021 7

Smaller proportion of The problem can be defused if households provide more equity. Figure 3 shows how strongly im-
debt capital helps puted affordability improves for a specific income when the equity proportion rises. On an income
of CHF 120,000 and an 80% mortgage, 30% of properties are affordable. But if the mortgage
proportion can be reduced to 60%, for example, 56% of all advertised properties become afforda-
ble.
Insufficient equity the In other words, the key for many households looking to live in their own four walls is to provide
problem for buyers greater equity. This is easier said than done, however, as prospective buyers first need to save the
amount in question. While this can obviously be achieved more quickly with a higher income, even
high-earning households are now taking longer to save the equity sum they need. Without family
support (inheritance, interest-free loan), younger households in particular lack the capital they
need to realize the home ownership dream.
Pension assets can For that reason, many households are viewing their pension assets as an increasingly important
help source of equity. Tied pension assets (Pillar 3a) have been eligible as a source of equity since
1990, and occupational pension savings (Pillar 2) since 1995. However, it should be borne in
mind that buyers must provide at least 10% of “hard” equity, for which occupational pension sav-
ings – in contrast to Pillar 3a funds – are not eligible. Pension assets may also be drawn upon for
renovations and any other value-enhancing property investments.
Declining number of In 2018, 18,400 people withdrew funds from occupational pension savings under the home own-
advance withdrawals ership promotion scheme. The average amount was just under CHF 78,900 per person (Fig. 4).
reflects growing In addition, 33,000 people withdrew funds from Pillar 3a. The average amount here was CHF
affordability problem 36,300. 4,850 people drew on assets from both Pillar 2 and Pillar 3a savings, with the average
combined amount coming in at CHF 101,800. It is important to bear in mind that the above fig-
ures are displayed per person. In the case of couples/families, it is often likely that both partners
draw on pension savings to acquire residential property. Before the financial crisis, when residen-
tial property was more affordable, more than 30,000 people per year withdrew funds from Pillar 2.
The number of people making such advance withdrawals experienced a further slight decline be-
tween 2015 and 2018. This reflects the extent to which the dream of owning one’s own home
has become removed from reality for many households – despite mortgage interest rates lan-
guishing at record lows.
Majority of As people get older, the size of pension withdrawals under the homeownership promotion scheme
withdrawals by over- rises (Fig. 4), as the longer a person works, the greater their occupational pension assets. How-
35s, amounts ever, the number of people making such withdrawals declines. Very few people draw on their pen-
increase with age sion assets below the age of 30. The 35–39 age category is the one in which most withdrawals
are made.
The pitfalls of Pension fund assets are a door opener for the acquisition of property. That said, resorting to these
advance withdrawals assets is a step that should be considered carefully. Pension fund withdrawals reduce the benefits
paid in retirement (and in some cases also in the event of death/disability, depending on the pen-
sion fund) unless the assets can be paid back. However, questions also arise in respect of the ac-
tual withdrawal (withdrawal or pledge?), and tax considerations also have to be taken into account
– particularly if a person has bought into a pension fund in the three years prior to withdrawal.

Fig. 3: Greater equity improves affordability Fig. 4: Pension assets help realize home ownership dream
Affordability of property (CDM/SFH, ≥4 rooms)* by loan-to-value ratio and income Number/amount of pension asset withdrawals for residential property purchase by
age
180,000 36,000
Occupational pension fund: CHF withdrawal
160,000 Pillar 3a: CHF withdrawal 32,000
Occupational pension fund: no. of persons (rhs) 28,000
140,000
Pillar 3a: no. of persons (rhs)
120,000 24,000
100,000 20,000
80,000 16,000
60,000 12,000
40,000 8,000
20,000 4,000
0 0
Total

18 – 24

25 – 29

30 – 34

35 – 39

40 – 44

45 – 49

50 – 54

55 – 59

60+*

* Advertised properties 2018–2020 *Occupational pension fund: 60–61 (F), 60–62 (M), Pillar 3a: 60–64 (F), 60–65 (M)
Source: Credit Suisse, Meta-Sys Last data point: Q4/2020 Source: Swiss Federal Statistical Office Last data point: 2018

8 Swiss Real Estate Market 2021 | March 2021

Owner-occupied housing – demand

Home working boosts demand

on urban periphery
Demand for residential property ownership has remained strong, despite COVID-19.
One reason is likely to be the rise in status of the home in the wake of the pandemic. In
addition, a greater acceptance of flexible working is increasing the relative appeal of
property on the urban periphery.

Demand un- COVID-19 has not slowed demand for residential property. Quite the reverse – over the course of
impressed by the last year, the desire of the Swiss to own their own four walls has risen to new levels. The de-
pandemic mand indices produced by Realmatch360, which evaluate online search registrations for residen-
tial property, rose sharply in the aftermath of the first lockdown, suggesting record-high interest in
condominiums and single-family homes in the second half of 2020 (Fig. 5).
COVID-19 slowed COVID-19 had only a very brief negative impact on the search activity of would-be homeowners in
demand only briefly the spring of last year (Fig. 5). Once the initial shock had been overcome, interest returned with a
vengeance. Such a spike was hardly to be expected, as deep recessions and rising unemployment
typically throttle demand for residential property.
Pandemic increases This time, however, a different reaction was triggered by the rapid measures taken by the political
standing of the home establishment and knowledge of the finite nature of the pandemic. In addition, the crisis greatly
increased the significance of the home and its qualities. Housing is therefore being accorded as
high a priority as ever. This has prompted many people to continue to pursue – or even accelerate
– their goal of home ownership.
Low interest rates However, the home ownership drive would be nothing like as strong as it is right now without
remain key driver of mortgage interest rates still languishing at ultra-low levels. Mortgage interest costs for existing
demand homeowners declined once again this year by CHF 238, and now stand at a new low of CHF
4,684 (Fig. 6). Annual mortgage interest costs are now some CHF 5,279 lower than in 2008, a
fall of 53%.
Actual affordability Low mortgage interest rates translate into very low actual affordability costs for new homebuyers.
remains very much These currently stand at 15.1% of average household income for a new condominium and 21.8%
intact for a new single-family home (Fig. 6; assuming an 80% mortgage). These figures also include
maintenance and mortgage amortization costs. Accordingly, the acquisition of residential property
remains attractive from a financial perspective.

Fig. 5: Surge in demand since the first lockdown Fig. 6: Actual affordability remains no problem
Residential property demand indices, February 2014 = 100 Affordability for average household as % of income (assumptions: newbuild, 1%
maintenance, 80% loan-to-value, amortization on 2/3 within 15 years)

SFH CDM Mortgage costs per residential property CDM: actual

SFH: actual CDM: imputed (5% interest)
SFH average 2014 – 2020 CDM average 2014 – 2020
160 SFH: imputed (5% interest)
50% 12,500
150

140 40% 10,000

130
30% 7,500
120

110 20% 5,000

100
10% 2,500
90

80 0% 0
2014 2015 2016 2017 2018 2019 2020 2008 2010 2012 2014 2016 2018 2020

Source: Realmatch360 Last data point: 12/2020 Source: Credit Suisse, BWO, SNB Last data point: 2020

Swiss Real Estate Market 2021 | March 2021 9

Demand to remain The COVID-19 crisis has further prolonged the negative interest phase. We are not expecting the
robust in 2021 Swiss National Bank to raise key interest rates until the end of 2022 at the earliest. The actual
costs of financing property ownership will therefore remain low. As an additional factor, the eco-
nomic situation can be expected to improve this year. Demand for residential property will there-
fore remain strong in 2021. However, it will be held back by rising capital requirements and the
high regulatory affordability hurdles.

Home working increases appeal of residential property on urban periphery

Home working trend Due to the high levels of real estate prices in or close to urban centers, home buyers on average
changes structure of have to accept longer commutes than tenants. But the trend toward home working is having the
demand effect of extending the commuting times buyers are prepared to accept, because the less fre-
quently a worker has to commute, the greater the distance they see as tolerable. This in turn wid-
ens the search radius of households thinking of acquiring residential property.

Longer but less We have illustrated this for Zurich, assuming that a property owner employed in Zurich has a com-
frequent commuting mute of 48 minutes at each end of the working day. If he or she spends one day a week working
from home, the commute could therefore increase to 60 minutes without changing the total
weekly commuting time (Fig. 7). And if the employee in question manages to work from home two
days a week, the total weekly travel time could be kept unchanged with an 80-minute daily com-
mute.

Search radius Of course, many workers do not want to “invest” the total time savings gained from home working
expanding around in a longer commute. But even if they are prepared to forgo half of the time saved, the commute
urban centers described above could be extended to 54 or 64 minutes respectively (Fig. 7). Figure 8 shows the
extent to which the geographical scope of possible residential areas increases as a result. Here
we assume that 15 minutes of the commute is within the city of Zurich itself. With a greater
search radius, the number of residential properties advertised on a quarterly basis likewise in-
creases – by as much as 43% in the case of a 6-minute extension to the commute.

Greater demand for Thanks to the rising trend of home working, more peripheral locations with lower real estate prices
property on urban are increasingly falling within the search radius of possible residential locations. As long as cen-
periphery trally-located residential property remains expensive and in short supply, this will have the effect of
shifting some demand for residential property away from the centers to these peripheral, still com-
paratively affordable regions. Indeed, it is only through this expansion of the potential residential
perimeter that the dream of home ownership can become achievable again for some renting
households.
Interest in vacation It is not only on the urban periphery that the demand for home ownership has increased. Many
homes rises too tourist regions in the mountains have also been attracting greater interest. This phenomenon is the
result of a resurgence in demand for vacation homes. Flexible working increases the amount of
time a vacation home can be used. And cross-border travel restrictions of the kind that were re-
peatedly imposed in 2020 have strengthened the preference for vacation homes in Switzerland.

Fig. 7: Home working should mean less frequent but longer com- Fig. 8: Expansion of residential location scope in “50% saving” sce-
mutes nario
Commuting time per journey based on number of days working at home Residential location scope for Zurich commuters by proportion of home working if
50% of commuting time saved is invested (in brackets: driving time at 07:00)

Scenario "Weekly commuting time remains the same overall"

Scenario "50% of the time gained is saved"
Current average commuting time of homeowners working in Zurich
250
Commuting time per journey (in min)

200

150

100

50

0
0 days 1 day 2 days 3 days 4 days
No. of days working at home

Source: Credit Suisse Last data point: 2020 Source: Credit Suisse, HERE, Geostat Last data point: 2020

10 Swiss Real Estate Market 2021 | March 2021

Owner-occupied housing – supply

Existing stock dominates supply

due to low newbuild activity
Newbuild activity in the owner-occupied housing segment continues to decline, and
there is no end to this trend in sight. Supply is therefore increasingly dominated by
existing stock. A contributory factor here is demographics – a growing number of older
buildings are coming back onto the market, particularly as a growing number of baby
boomers are selling up.

Production of Newbuild activity in the owner-occupied housing segment declined once again in 2020. According
residential property to our estimates, the net addition over the last year amounted to just 12,500 condominiums and
declines once more 6,200 single-family homes. This represents a year-on-year decline of 10.8% and 10.6% respec-
tively. When measured against existing stock, the increase in the number of condominiums
amounts to a still healthy 1.1%. By contrast, the increase in single-family homes stood at just
0.6%.

No trend reversal There is no indication that this trend is set to change in the coming year. The volume of building
in sight permits and planning applications would appear to confirm this: The former have recorded a fur-
ther decline of 2.9% over the last year for condominiums, and a decline of 0.8% for single-family
homes (Fig. 9). Where planning applications are concerned, the declines come in at 10.0% for
condominiums and 3.2% for single-family homes.

More hybrid projects The reason for the persistent decline in production remains unchanged: The negative interest envi-
involving both owner- ronment continues to favor the construction of rental apartments. Although projected activity in the
occupied and rental rental apartment segment is currently in decline, this has not sparked any rise in owner-occupied
accommodation housing production. The only striking aspect is that – for reasons of diversification – investors are
increasingly planning hybrid projects involving both owner-occupied and rental accommodation.
These account for around a quarter of all approved apartments in multi-family dwelling projects,
which are for the most part large-scale undertakings.
Condominiums being Construction activity remains concentrated in peripheral locations. In 2020, 54.9% of all condo-
built near urban minium approvals involved projects outside the large and mid-sized centers and their wider urban
centers once again agglomerations. However, this is also the lowest figure since 2010 and well below the prior-year
level, when 63.8% of all planning related to peripheral sites. This shift in condominium production
toward urban centers is likely to be the result of hybrid projects. At 73.9%, by contrast, building
permit issuance for single-family homes remains clearly focused on peripheral locations.

Fig. 9: Fewer owner-occupied newbuilds in 2021 too Fig. 10: 31 regions exhibit rise in construction activity
Planning applications and building permits in number of residential units, moving 12- Planned expansion of residential property 2021, as % of housing stock
month total

Expected expansion
25,000 > 1.75%
1.50 – 1.75%
2019 – 2020

1.25 – 1.50%
20,000 1.00 – 1.25%
0.75 – 1.00%
Growth

0.50 – 0.75%
0.25 – 0.50%
15,000 < 0.25%
-10.0%
-2.9%
10,000

-3.2%
5,000 -0.8%
Applications SFH Applications CDM
Permits SFH Permits CDM Year-on-year change
Average value approvals SFH Average value approvals CDM
0 Strong rise
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Slight rise
Sideways movement
Slight decline
Strong decline

Source: Baublatt, Credit Suisse Last data point: 11/2020 Source: Baublatt, Credit Suisse, Geostat Last data point: 11/2020

Swiss Real Estate Market 2021 | March 2021 11

Construction activity We are expecting construction activity to expand relatively sharply in numerous parts of central
weak in mountain Switzerland, as well as in the cantons of Aargau, St. Gallen, and Geneva (Fig. 10). In addition, a
regions relatively high number of projects are set to come onto the market in the cantons of Vaud, Fri-
bourg, and Ticino. By contrast, as a result of the restrictions on the building of second homes,
construction activity is very weak across Switzerland’s mountain regions generally.

Supply dominated by One consequence of the decline in construction activity is the increasing lack of newbuilds availa-
existing stock ble to buyers. Last year, just 30.2% of all transactions related to new condominiums. Back in
2008, this proportion was as high as 46.1% (Fig. 11). In the case of single-family homes, just
6.9% of transactions last year involved newbuilds, while the equivalent figure for 2008 was
16.1%, and for 2000 as much as 35.2%. A newbuild is the term given to any property completed
no more than 12 months prior to the transaction year.

Market dominated by Depending on the segment, the owner-occupied housing transaction market is dominated by very
older single-family different properties. The dominant properties are modern condominiums and older single-family
dwellings dwellings. 59.1% of all condominiums that exchanged hands in 2020 were built no earlier than
2000 (Fig. 12). By contrast, the market for single-family homes looks very different: Here just
25.8% were built in or after the year 2000, with the most frequently traded properties being
houses dating back to the periods 1981-1990 (14.6%) and 1971-1980 (13.6%).

More and more baby- It is thanks to the existing stock of housing that prospective buyers have a greater selection of
boomers selling up residential properties to choose from than might be assumed at first glance, despite years of de-
clining newbuild activity. Moreover, the supply of existing stock is being fed not just by properties
of existing owners looking for a different property, but also increasingly by residential property be-
ing relinquished for age-related reasons. As a consequence of age demographics, transactions of
this kind have become more frequent in recent years. Based on an analysis of ownership structure
by age in the years 2013 and 2017 (no later data available), it can be seen that an average of
13,100 single-family homes and just under 2,900 condominiums were relinquished each year by
the over-70 age group during this period. Based on demographic developments, this source of
available property can be expected to increase even further over the coming years.
Older buildings com- Thanks to the growing number of older buildings on the market prior to COVID-19, the conse-
pensate for declining quences of the ongoing decline in newbuild activity have been mitigated somewhat. As a result,
newbuild activity would-be buyers have a less restrictive spectrum of available property to buy. In the single-family
home segment, older buildings are almost the only option for buyers. At the same time, declining
construction activity will make it easier to sell the properties that are set to come onto the market
in larger numbers over the next few years. Very low vacancy rates confirm that the market has had
no problems absorbing the existing stock on offer up to now (page 13). The specter of a surplus
of derelict single-family homes, which has often been raised in the past, looks a rather less likely
scenario from today’s perspective.

Fig. 11: Existing stock increasingly dominates supply Fig. 12: More older single-family dwellings on the market
Newbuilds as proportion of total transactions Transactions in 2020 by period of construction, proportion in %

Condominiums Single-family homes

50%
2019 – 2020
45%
2011 – 2018
40%
2006 – 2010
35% 2001 – 2005
30% 1991 – 2000
25% 1981 – 1990
20% 1971 – 1980
15% 1961 – 1970

10% 1946 – 1960

1919 – 1945
5% Condominiums
vor 1919
0% Single-family homes
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 0% 5% 10% 15% 20% 25% 30%

Source: Swiss Real Estate Datapool, Credit Suisse Last data point: Q4/2020 Source: Swiss Real Estate Datapool, Credit Suisse Last data point: Q4/2020

12 Swiss Real Estate Market 2021 | March 2021

Owner-occupied housing – market outcome

Prices keep rising

The supply of owner-occupied housing has not kept up with demand. As a result,
vacancies are likely to decline further in 2021, despite already being at low levels, while
prices keep rising.

Demand overhang As a result of the COVID-19 pandemic and mortgage interest rates remaining at very low levels,
has become more the desire of the Swiss to own their own home has increased further recently. The crisis has made
substantial many households even more aware of the desirability of having a home in which they feel comfort-
able and which meets their own (changed) requirements, which has in turn prompted many house-
holds to rethink their living situation – frequently including the issue of ownership. This is in stark
contrast to the supply side, which is characterized by declining newbuild activity. The consequence
has been the emergence of a substantial demand overhang for owner-occupied housing.

More than twice as A comparison of property search engine registrations online with the supply situation clearly high-
many home-seekers lights this demand overhang. For each property advertised in Switzerland there are 2.1 search en-
as available gine registrations by people looking to acquire property. The imbalance is greater for single-family
properties homes than condominiums. In order to facilitate a better regional comparison and ensure that cer-
tain nuances in the use of online platforms and advertisements do not distort the results, we have
looked at the relationship of search engine registrations to advertisements separately and in a
standardized way for the three different main language areas of Switzerland. The highest number
of property-seekers relative to supply is to be found in the wider Zurich area, the Lake Geneva re-
gion, and central regions such as Basel, Zug, Bern, and Fribourg (Fig. 13). By contrast, the num-
ber of interested parties relative to supply is lower in the Valais, Ticino, and rural and Alpine re-
gions.
More rapid marketing The persistent demand overhang is also reflected in the change in advertised residential property
supply. Over the last 12 months, the supply of available condominiums and single-family homes
has fallen by 4.3% and 8.3% respectively. The same picture also emerges when we look at the
required marketing costs: Over the last 12 months, the time-on-market of the median condomin-
ium has declined from 110 to 74 days, and in the case of single-family homes from 98 to 77.

Low vacancies an The smooth sale of residential property is keeping vacancies in this segment at very low levels,
almost ubiquitous quite at odds with the situation in the rental apartment market. In June 2020, the respective seg-
phenomenon ment vacancy rates stood at 0.55% for condominiums and 0.61% for single-family homes. Va-
cancies are low in the great majority of Swiss regions (Fig. 14). Only nine of the 110 regions ex-
hibit a vacancy rate of more than 1%, and just one region more than 1.4%.

Fig. 13: Pronounced demand overhangs close to urban centers Fig. 14: Very low vacancies in the majority of regions
Ratio of property search engine registrations to advertisements, standardized by lan- Regional vacancy rates for owner-occupied housing (condominiums and single-family
guage region homes), as % of housing stock

> 1.4%
Ratio of property search registrations to advertisements
High 1.2 – 1.4%
1.0 – 1.2%
0.8 – 1.0%
0.6 – 0.8%
0.4 – 0.6%
0.2 – 0.4%
Low < 0.2%

Year-on-year change
Strong rise
Slight rise
Sideways movement
Slight decline
Strong decline

Source: Realmatch360, Meta-Sys, Credit Suisse Last data point: Q3/2020 Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 06/2020

Swiss Real Estate Market 2021 | March 2021 13

Lower vacancies If the Swiss economy recovers from the pandemic as expected, vacancies should even decline
expected for 2021 this year. However, the downside potential is limited by virtue of the fact that vacancy rates are al-
ready so low. Regional differences are likely to become apparent. In particular, the surge in inter-
est in second homes could have the effect of bringing down vacancies in mountain regions, which
are relatively high compared to the Mittelland region north of the Alps.

Unexpectedly strong The combination of strong demand and declining supply drove up the prices of residential property
price dynamism in last year to an unexpectedly high degree. In just one year, prices in the mid-range segment rose
2020 by 5.1% for condominiums and 5.5% for single-family homes (Fig. 15). Surprisingly, rises were
strongest in the upmarket segment. Given the decline in household incomes, a stronger rise in the
lower and mid-range segments might have been expected. Where condominiums are concerned,
by contrast, growth has accelerated most strongly in the lower price segment over the last few
quarters.

Price growth likely to Given the ongoing demand overhang, it is only reasonable to expect prices to continue to rise this
flatten in 2021 year. Upside price potential is limited by Switzerland’s strict regulatory financing requirements,
however. We are therefore expecting price momentum to flatten off. Just like last year, price
growth can be expected to be less strong for condominiums (3%) than for single-family homes
(4%).

Growing imbalances Because the prices of residential property are being fueled not just by low mortgage interest rates,
but now also by a scarcity of supply, regional imbalances between price and income development
have increased further. But this also gives rise to the possibility of greater price corrections. At the
same time, stringent regulatory measures are limiting the ability to purchase a home to relatively
affluent, high-income swathes of the population, which generally speaking ought to be in a better
position to handle price fluctuations.

Savings on interest The imposed regulatory measures are helping to reduce the risks faced by individual homeowners.
costs allow house- Thanks to the shortened repayment requirement for two-thirds of the loan-to-value ratio intro-
holds to reduce risks duced a few years ago, households with high ratios are reducing these more quickly. In addition,
tangibly the wide gap between the actual mortgage interest paid by a household and the imputed interest
rate is significantly increasing homeowners’ financial freedom of maneuver. Figure 16 shows how
rapidly a first-time buyer could reduce their risk. Here we are looking at a household that only just
passes the imputed affordability test. If this household then saves the difference between the ac-
tual and the imputed rate of interest, it could reduce its overall debt level substantially by the end
of the term. In the case of a 10-year fixed mortgage, for example, the loan-to-value ratio can be
reduced from 80% to 43.3% and the income burden of imputed affordability from 33.3% to
17.9%. In practice, of course, only very few owners will save the entire interest difference. The
above example nonetheless shows how important it is to set aside at least a proportion of the
saved interest costs. This way, the individual financial risks associated with home ownership can
be reduced significantly.

Fig. 15: Higher price growth in all segments Fig. 16: Striking reduction in risk after just a few years
Annual growth rates by price segment Assumptions: Difference between imputed and actual interest rate is wholly used for
the partial repayment of the mortgage at end of term

Basic property Average property Upmarket property Purchase price Mortgage

12% Cumulative saving Imputed affordability (rhs)
Loan-to-value ratio (rhs)
9% 900,000 90%
6% 800,000 80%
700,000 70%
3%
600,000 60%
0% 500,000 50%
-3% 400,000 40%
300,000 30%
-6% 200,000 20%
-9% 100,000 10%
0 0%
-12%
Purchase Fixed mortgage Fixed mortgage Fixed mortgage
2012 2014 2016 2018 2020 2012 2014 2016 2018 2020 (in year 1) 5 years 10 years 15 years
Condominium Single-family home (in year 6) (in year 11) (in year 16)

Source: Wüest Partner Last data point: Q4/2020 Source: Credit Suisse Last data point: 12/2020

14 Swiss Real Estate Market 2021 | March 2021

Heading 1 – chapter
Owner-occupied title– outlook 2021
housing

Outlookof
Scarcity Wohneigentum
property for sale
Heading 3 – lead text

Mortgage interest rates (market

Text text text average)
5-year Fix mortgage 10-year Fix mortgage SARON mortgage (1-month)

1.10% 1.30%
0.87% 1.04% 0.86% 0.86%

12 / 2020 12 / 2021 12 / 2020 12 / 2021 12 / 2020 12 / 2021

Demand Supply
Building permits in number of housing units

Single-family homes 5950

– 0.8% 5900

Condominiums 12,250

• Stable demand despite COVID-19 – 2.9% 11,900

• Low mortgage interest rates the key driver of demand
•  isingpricesandrigorousfinancingre uirementsslo 
2019 2020
momentum
2021: Demand for owner-occupied housing to 2021: Newbuild activity continues to slow
remain robust

Vacancies

• Declining newbuild activity leads to major demand

overhang
2021: Vacancies decline slightly 0.61% 0.55%
Single-family homes Condominiums
2020 2020

Price growth
Growth in transaction prices in %

Single-family homes Condominiums

+5.5% +5.1%
+4.0% +3.0%
+2.3% 2020
2021 +2.1% 2020
2021
2019 2019

2021: Price growth expected to remain strong

Swiss Real
Swiss Real Estate
Estate Market 2021 | March
March 2021
2021 15
Digital real estate – data analytics

Digitalization as decoder of
demand
The digitalization of all walks of life opens up opportunities, allowing key information to
be more easily compiled and evaluated. For example, the consequences of COVID-19
for the housing market can be better evaluated.

Demand data has Lots of information has long been available on housing supply, but demand has remained largely
been a long time in the shadows. For decades, demand preferences were mostly only indirectly measurable (e.g.
coming via vacancy data). While statistics such as the structural survey of the Swiss Federal Statistical Of-
fice provide indications on household living space, they suffer from the problem that households
do not necessarily have the amount of living space that they would like. In addition, the time lag
between survey and publication of the corresponding data is often significant. Surveys on demand
behavior – such as the NZZ's Real Estate Barometer – are helpful up to a point, but are based on
small sample sizes and thus make regional conclusions difficult to draw.

From the analysis of The precursors of digitalization in the real estate market were property websites. As these made
clicks ... huge inroads into the residential property advertising market around the turn of the millennium,
new data analysis opportunities started opening up, particularly as home seekers left a trail in
these digital channels. Analysis initially focused on what online searchers were clicking on. This
allowed conclusions to be drawn as to what was eliciting interest. The information remained in-
complete, however, as in the absence of the desired offer, there was nothing to click on. Moreo-
ver, this approach did not yield information on a searcher’s price ceiling.

… to the evaluation The growing number of residential property advertisements then gave rise to registrations for
of online property online property searches, as these give users rapid and customized information on properties of
search registrations interest. Users have to enter their true preferences to obtain meaningful information. The Swiss
proptech company Realmatch360 was the first company to perceive the value of this information:
Since February 2014, it has been (anonymously) analyzing the search registrations of the largest
Swiss property websites and promptly making this data available to clients. More than a million ac-
tive search profiles are now investigated every day, facilitating detailed regional analyses. The spe-
cific focus here is the data available on the rental and owner-occupied housing markets.

Data cleansing a But in order for meaningful results to be arrived at, a number of challenges needed to be cracked.
challenge To identify and “cleanse” (i.e. correct) missing, duplicate, and misleading information, smart algo-
rithms are required. The dreamer searching for a large, modern, single-family home in the city of
Zurich for less than CHF 700,000 tells us nothing about actual demand or real price ceilings. In
addition, real estate marketers and brokers who themselves maintain property search registrations
in order to observe the market need to be removed from the dataset. Ultimately, only around
200,000 search profiles are really used every day.

Data extremely up Modern data processing methods allow property demand data to be made available promptly. For
to date example, Realmatch360 updates its products on a weekly basis, and for good reason: Around
10,000 adjustments to property search registrations are made across Switzerland every day (new
registrations or adjustment/deletion of existing registrations). On average, these run for between
two and three months for rental property and at least twice that long for property to buy.
Case study 1: The COVID-19 pandemic showed how important it is to access data as rapidly as possible when
Demand shifts due to evaluating a situation. Thanks to the valuable assessment of search profiles, statements backed
COVID-19 by real data can now be made on whether and how COVID-19 has changed demand for housing.
For example, there has been an increase in searches for apartments and houses to buy, and
fewer for rentals (Fig. 17).

16 Swiss Real Estate Market 2021 | March 2021

 “Home sweet home” Moreover, a shift in preferences is also evident within individual segments. Demand is increasingly
reigns supreme focused on medium-sized and large homes (rental/condominium: ≥ 3 rooms, single-family home:
≥ 5 rooms) (Fig. 17). In other words, aspirations have risen, meaning less frequent searches for
cheaper properties compared to those in the middle and upper price segments. Furthermore, the
desire for rental apartments to have outside space (balcony/terrace) spiked briefly following the
lockdown. Explicit demand for parking spaces with property to buy or rent has also become more
common. All of this suggests that as people have spent more time at home since the onset of
COVID-19, there has been a marked increase in the desirability of properties that meet specific
user needs, are compatible with changed user behavior (more time spent at home, home work-
ing), and deliver that feel-good factor.

COVID-19 has also Since the outbreak of the pandemic, residential property hunters have shown greater interest in
produced spatial municipalities outside of the large centers and surrounding urban areas (Fig. 18). However, as
shifts 50.4% of all searches remain focused on rental apartments in a large center or surrounding area,
with the decline in demand amounting to just 1.9 percentage points here, it can hardly be said that
people are looking to move out of the city. Where buyers are concerned, by contrast, the move
toward the periphery is more pronounced. As we explain in the “Owner-occupied housing” section
(page 9 f.), this trend could even become more accentuated due to high real estate prices in cen-
tral locations and the paradigm shift toward home working.

Demand tracking The COVID-19 pandemic has changed demand preferences, at least temporarily. The sustainabil-
essential ity of such trends will not become clear for several quarters or even years, however. It will there-
fore remain crucial to observe demand continuously, rather than drawing false conclusions based
on snapshot pictures.

Rapid delivery of Detailed analysis of search profiles can also throw up fascinating results regarding local demand.
findings – thanks to However, developers and brokers frequently do not have the time to conduct their own analyses.
simple tools Simple (web) apps such as the one we describe below can provide these market participants with
the information they desire with just a few clicks of the mouse.

Case study 2: As mentioned earlier, search registrations provide local information on what residential property
Identifying price hunters can afford to pay. As just a few francs more or less per square meter can make the differ-
ceilings ence between how easy or difficult it is to rent out a property, precise information is gold dust for
owners, property developers, marketers, and brokers. And thanks to modern web apps, this need
can be met. We demonstrate this below using the example of Realmatch360’s “Pricesetter”, an
application that gives information on searcher’s willingness to pay.

Identifying “price Figure 19 shows local affordability (as per Pricesetter) of a rental apartment with four rooms in
cliffs” Zurich Oerlikon, Uster, und Wetzikon. This shows that a targeted gross rent of CHF 2,500 will
reach 68.7% of all online searchers in Zurich Oerlikon. The proportion sinks to 37.7% in Uster,
and to just 17.6% in Wetzikon. What matters here are so-called “price cliffs”, where the propor-
tion of searchers suddenly drops dramatically with just a slight rise in price. In Zurich Oerlikon,
price cliffs of this kind can be observed above CHF 3,000 and CHF 3,500 (Fig. 19). In other
words, significantly fewer home-seekers will get to see a property advertisement that is only
slightly more expensive.

Fig. 17: Large apartments in greater demand since COVID-19 Fig. 18: Large centers (incl. wider urban areas) less in demand
since COVID-19
Change in demand indices: 02/2020 – 12/2020 Distribution of rental property search registrations by municipality type

30% 2019 June – Aug. 2020 Sept. – Nov. 2020

35%
25%
20% 30%
15%
25%
10%
5% 20%
0%
15%
-5%
-10% 10%
Size: large

Size: large
Price: low

Size: large
Price: low
All

Price: medium
All

Rent: low

All

Price: medium

Size: medium
Size: medium

Size: medium
Rent: high

Size: small
Size: small

Rent: medium

Size: small

Price: high

Price: high

5%

0%
Large Mid-sized Urban Urban Periphery
centers (LC) centers (MC) area LC area MC
Rental apartments Condominiums Single-family homes

Source: Realmatch360 Last data point: 12/2020 Source: Realmatch360 Last data point: 11/2020

Swiss Real Estate Market 2021 | March 2021 17

 Ascertaining the If additional information on the marketed property is provided – such as age, condition, area, loca-
optimum rent tion, and fitout/features – the optimum rent can be ascertained. This involves use of a hedonic
price model that takes into account a property’s qualitative features. Figure 20 illustrates this us-
ing an example of a four-room rental apartment in the town of Bienne. For a newbuild offering
110 m² of living space in an average micro-location with standard features, a gross monthly rent
of CHF 1,850 is recommended. By contrast, the optimum newbuild rent in a very good micro-lo-
cation with upscale features is CHF 2,090.

Property-seekers Statistical models such as those used in Pricesetter have their limits, however. For example, they
typically enter a are ill-suited to evaluating luxury or “must-have” properties. When it comes to what searchers’ will-
higher price ceiling ingness to pay, it should also always be borne in mind that people typically enter a ceiling that is
than they can afford somewhat above what they can or want to afford. On average, the maximum price entered in
property searches is 6.7% above what is feasible. Why? Because people do not want to miss out
on their dream home just because it was slightly beyond their budget.

Only integration While an app can provide valuable services for individual inquiries, using such tools manually is
untaps full potential time-intensive for high data volumes, and often inexpedient. What’s more, with the inexorable rise
of digitalization, an ever-increasing number of tools may offer companies interesting services, but
they frequently remain stand-alone applications. In other words, such tools cannot communicate
with one another, and the results can often only be integrated into proprietary data holdings manu-
ally.

API solutions For this reason, large companies in particular expect such products to be made available via a so-
increase value of data called application programming interface – API. This facilitates the automated execution of inquir-
ies and the transfer of results to proprietary systems, thereby avoiding system discontinuities.
Realmatch360 already offers precisely such APIs. For example, a bank can use the Pricesetter
application automatically for the risk monitoring of mortgage loans. If the price ceiling in a particu-
lar municipality falls below a defined threshold, this automatically triggers an alarm for properties in
this location, and the bank can then seek out the underlying reasons.

Conclusion: Digital analysis of demand behavior can act as a “third eye” – alongside supply and market data –
Digitalization closes to eliminate knowledge gaps in project planning and marketing. However, local property market
knowledge gaps expertise remains irreplaceable and other indicators should also be taken into account. Thanks to
the increasing spread of APIs, the linking of different data sources is becoming easier, thus in-
creasing the value of data analyses significantly and opening up new linking possibilities. Specifi-
cally, there is plenty of research left to be done in the area of demand behavior. For example, inte-
gration of the “Sinus-Milieus” (social/target group typology developed by the Sinus Institute) will
help to deliver more precise analysis of the target audience. Furthermore, thanks to modern tech-
niques such as machine learning and the incorporation of additional sources of data, it should be
possible to generate new findings from search behavior – including for other segments. This is
very much to be welcomed, particularly as – given the growing challenges facing the office and
retail property markets – it is becoming increasingly important to learn more about demand behav-
ior in these areas too.

Fig. 19: Identification of price cliffs Fig. 20: Determining the optimum rent
Price ceiling (gross rent in CHF/month) for four-room apartments Price ceiling (gross rent in CHF/month) for four-room apartments in Bienne

100% 100%
Zurich Oerlikon Red lines:
90% 90%
Uster Newbuilds with 110 square meters of living space
Proportion of property seekers

Proportion of property seekers

80% 80%
Wetzikon
70% 70%
Location: poor
60% 60% Features: standard
50% Price cliffs
50%
Location: medium
40% 40% Features: standard
30% 30%
Location: very good
20% 20% Features: upscale
10% 10%
0% 0%
1000 1500 2000 2500 3000 3500 4000 4500 5000 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800 3000
Price ceiling Price ceiling

Source: Realmatch360, Credit Suisse Last data point: 12/2020 Source: Realmatch360 Last data point: 12/2020

18 Swiss Real Estate Market 2021 | March 2021

Rental apartments – demand

Demand extremely robust

Demand for rental apartments has remained remarkably stable throughout the COVID-
19 pandemic. The feared slump in immigration never materialized. That said, a slight
weakening of demand – if only temporary – is becoming apparent in the large centers.

High net For a number of years now, demand for rental accommodation in Switzerland has failed to keep
immigration ... up with supply. Accordingly, many observers feared that the coronavirus crisis would exacerbate
the oversupply problem in the rental apartment market – via weak consumer sentiment and a de-
cline in immigration. Over the last year, however, immigration has proved astonishingly robust.
Overall, we estimate the net migration of the permanent residential population (including the Swiss
themselves) to amount to 62,000 people. In other words, the net migration of the previous year
2019 (53,200) is likely to have been exceeded by some margin (Fig. 21).

... thanks to “safe However, this rise is not attributable to the number of foreigners moving to Switzerland (2020:
haven” effect -2.6%), but to the significant decline in the number of people leaving the country (-12.1%). Not
least thanks to short-time working, bridging loans, and fiscal stimulus, the Swiss labor market has
proved itself to be more resilient in the face of the crisis than other potential destination countries
for Swiss and foreign emigrants, such as Portugal (2020: employment growth of -2.8%) and Italy
(-1.7%). In the current situation, many potential emigrants are likely to have opted to stay in the
safe haven that is Switzerland rather than risk the “return to the unknown”.

Fewer short-term On the other hand, a sharp decline is evident in the net migration of short-term residents (those
residents residing for up to 12 months; non-permanent residential population). These immigrants often work
in seasonal industries (e.g. hotels & catering), or are recruited to plug temporary gaps. The net mi-
gration of the non-permanent residential population declined by 11,800 persons in 2020. What’s
more, the accommodation needs of these short-term residents are often likely to be met by staff
accommodation or temporary arrangements with people they know. However, many (on average
around a quarter) ultimately settle in Switzerland in the longer term. If the non-permanent foreign
residential population is taken into account, it emerges that a majority of 75 out of 110 regions
have recorded a decline in net immigration since the start of the pandemic (Fig. 22). This decline
has been relatively pronounced in and around the large centers, with only the Lausanne region
bucking the trend. Moreover, net immigration increased in Ticino because many Italian citizens re-
turned to their native country in the previous year. Emigration flows of this kind to a country heavily
afflicted by the pandemic were much rarer in 2020.

Fig. 21: Due to the pandemic, many fewer people leaving Switzer- Fig. 22: Net migration lowering in most regions since start of pan-
land demic
Net migration of permanent resident population (excluding registry corrections); Net migration (including short-term residents) Mar. – Oct. 2020, year-on-year
2020: extrapolation; 2021: forecast change

Swiss citizen emigration + + + (Increase)

Swiss citizen immigration ++
Foreigner emigration +
Foreigner immigration Sideways movement
Net immigration –
Employment growth: CH-Eurozone difference (rhs) ––
180,000 3.6% – – – (Decrease)
150,000 3.0%
120,000 2.4%
90,000 1.8%
60,000 1.2%
30,000 0.6%
0 0.0%
-30,000 -0.6%
-60,000 -1.2%
-90,000 -1.8%
-120,000 -2.4%
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Source: State Secretariat for Migration, Swiss Federal Statistical Office, OECD, Source: State Secretariat for Migration , Credit Suisse, Geostat
Credit Suisse Last data point: 12/2020 Last data point: 10/2020

Swiss Real Estate Market 2021 | March 2021 19

2021: Immigration to The development of immigration going forward is likely depend on how quickly the economies of
weaken slightly Switzerland and the main native countries of the foreign residential population recover from the
slump triggered by the pandemic. Immigration should remain constrained as a result of modest
employment growth (2021 forecast: 0.2%). However, the labor markets of a number of countries
in Europe are suffering from the consequences of the pandemic even more than Switzerland. For
2021, the OECD is expecting a strong rise in unemployment in France (2021 forecast: 10.5%),
Italy (11.0%), and Portugal (9.5%). As a consequence, the number of Swiss and foreigners leav-
ing Switzerland should remain low in 2021 too. At the same time, due to the decline in the num-
ber of short-term residents, there should be fewer changes of status from the non-permanent to
the permanent residential population. All in all, we are expecting net migration to decline this year
to some 55,000 persons (Fig. 21).

Moderate decline in Domestic demand has also recovered following a temporary slump at the start of the pandemic.
demand for rental However, the extent of the economic impact of the current crisis differs significantly from house-
accommodation hold to household. Employees and company owners in sectors hard-hit by the coronavirus
measures can be expected to suffer declines in income, despite the rapid support provided by the
state, or are at least exposed to heightened uncertainty. This stands in contrast to the great ma-
jority of households, which have actually saved more due to their inability/reluctance to holiday
abroad, lower commuting costs, and restrictions on leisure activities. In addition, the significant ob-
stacles to the acquisition of residential property ownership remain a source of support for rental
apartment demand (Fig. 23). We are therefore anticipating a moderate decline in rental apartment
demand of around 1,000 to 1,500 residential units for both 2020 and 2021.

Slight weakening of Although the decline in demand is likely to be temporary, the question nonetheless arises as to
demand in large how the coronavirus crisis is influencing the structure of demand. Due to lower net immigration
centers from abroad (see above) among other things, Switzerland’s large centers – with the exception of
Basel – saw population growth slow in 2020 (Fig. 24). Furthermore, the growth of the Swiss resi-
dential population has exhibited a strongly declining trend in Zurich and Geneva. Analyses of prop-
erty search registrations for rental apartments on real estate platforms also appear to show a slight
shift in rental apartment demand from smaller apartments in the large centers and their surround-
ing urban areas to larger apartments in the mid-sized centers and rural regions (p. 16 f.).
Permanent shift in Many of the attractions that characterize the large urban centers, such as the wide spectrum of
structure of demand? cultural, leisure, and gastronomic options, have been unavailable over the last few months. During
lockdown, the focus has switched to other characteristics of accommodation – such as a balcony
or terrace, the suitability of an apartment for home working, and proximity to greenery and local
recreation areas. However, the coronavirus restrictions will be of a temporary nature. The question
therefore arises as to whether the pandemic will also have longer-term repercussions for the
structure of demand. This could above all be the case in the event of the shift toward home work-
ing proving an enduring phenomenon. The potential repercussions of such a scenario are dis-
cussed on page 23.

Fig. 23: Decline in demand likely to prove moderate Fig. 24: Declining population growth in large centers
Absorption of rental apartments and employment growth (full-time equivalents), 2019 Growth in residential population of large centers, annualized
– 2021: estimate/forecast

Employment growth (rhs) 1.5%

Observed absorption Swiss Foreigners Total
Modeled absorption
Forecast 1.0%
36,000 Observed absorption, owner-occupied housing 4.5%
32,000 4.0% 0.5%
28,000 3.5%
24,000 3.0%
0.0%
20,000 2.5%
16,000 2.0%
12,000 1.5% -0.5%
8,000 1.0% Zurich Geneva Basel-City (Canton) Lausanne Bern
4,000 0.5% -1.0%
0 0.0%
2000 – 2010
2010 – 2018
2019

2000 – 2010
2010 – 2018
2019

2000 – 2010
2010 – 2018
2019
2020

2000 – 2010
2010 – 2018
2019
2020

2000 – 2010
2010 – 2018
2019
2020
2020 (Q3)

2020 (Q3)

-4,000 -0.5%
-8,000 -1.0%
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 2019 Source: Official statistical sources, Credit Suisse Last data point: Q4/2020

20 Swiss Real Estate Market 2021 | March 2021

Rental apartments – supply

Construction peak passed

The boom in rental apartment construction of the last few years has passed its peak.
From a geographical perspective too, a convergence of supply and demand can be
tentatively discerned.

Strong decline in Much like in 2019, building permits were issued for 26,000 rental apartments in Switzerland over
planning applications the course of 2020 (Fig. 25). This is significantly less than in the years 2016 to 2018, but it is
probably still too many to bring down vacancy levels any time soon. On the other hand, a sharp
decline in the volume of newly submitted planning applications suggests that the gradual slow-
down in construction activity is actually a trend that could persist for at least two to three years. In
2020, newbuild applications were submitted for 27,000 rental apartments – the lowest figure
since 2014.

Stronger focus on The oversupply situation that has become established over the years in the rental apartment mar-
major urban areas ... ket has been caused not just by high construction volumes, but above all by the geographical dis-
tribution of this activity, which has been out of kilter with demand. With this in mind, the recent
building permit issuance figures raise hopes of an improvement, as the number of approved apart-
ments in the large centers (+41.8%) and their surrounding urban municipalities (+14.3%) has in-
creased significantly in 2020 (Fig. 25). However, this should be qualified by the observation that
there is virtually no more building land available in the major centers, and many of the most attrac-
tive brownfield sites have already been converted into residential developments. In other words, an
increasing number of projects are replacement newbuilds, which means that the net addition of
residential units will be lower than construction figures would suggest.
… and central It is not just in the major urban areas that numerous construction cranes can be seen. In central
Switzerland Switzerland too, a significant amount of new living space is being created (Fig. 26). By contrast,
fewer apartments are set to be built in a majority of 63 of the 110 economic regions than the av-
erage construction figure for the last five years. Based on expected expansion, past absorption
rates, and active search registrations, we have tried to identify the 15 regions with the highest cur-
rent absorption risk. In these regions, which are geographically widespread, we are anticipating
rising vacancy rates. They largely comprise regions that already exhibit high vacancy rates
(Mendrisio, Bellinzona, Surselva, Laufental, Solothurn, and La Vallée), but also those in which
there is little or only modest oversupply at the moment (Furttal, Mittelbünden, Uri). By contrast, a
number of regions characterized by strong rises in vacancies in recent years now appear to be un-
dergoing a degree of normalization (e.g. Lower Valais, western areas of Aargau).

Fig. 25: Construction activity more focused on major centers Fig.26: Rental apartment construction slows in majority of regions
Building permits for rental apartments (newbuild) by municipality type Expected expansion of rental apartments stock in 2021 compared to 5-year average;
triangles: regions with highest absorption risk (horizon of 1–2 years)

Rural/tourist municipalities Periurban municipalities > 40%

Schaffhausen
Small/mid-sized centers, urban area Small/mid-sized centers 20 – 40%
Large centers, urban area Large centers 5 – 20%
-5 – 5% Furttal Wil
35,000 100% -20 – -5% Laufental
22.3% 20.7% 11.0% 17.7% 14.0%

22.6% 18.5% 13.5% 17.9% 14.2%

Proportions 2002 – 2020 (rhs) Planning applications

-40 – -20%
Proportions 2018 – 2020 (rhs) Freiamt
28,000 80% < -40% Solothurn

Sarganserland
21,000 60%

Glâne/Veveyse Uri
La Vallée Surselva
14,000 40% Mittelbünden

7,000 20%
14.4%

13.3%

Bellinzona
0 0% Lugano
2003 2006 2009 2012 2015 2018
Mendrisio

Source: Baublatt, Credit Suisse Last data point: 12/2020 Source: Baublatt, Realmatch360, Federal Statistical Office, Credit Suisse, Geostat
Last data point: 11/2020

Swiss Real Estate Market 2021 | March 2021 21

Rental apartments – market outcome

Calming in the centers

So far, the coronavirus crisis has hardly exacerbated the oversupply problem in the
Swiss rental apartment market. It is nonetheless likely to leave a lasting mark, as well
as cooling the market to a certain extent in the major centers.

COVID-19 changes Vacancy rates in the rental apartment market have been rising steadily for the last decade. Nega-
structure of demand tive interest rates since 2015 have accelerated this development, as well as putting rents under
more strongly than increasing pressure (Fig. 32). Since 2019, the downturn in this market – primarily as a result of
volume of demand the robust economy along with stabilization of immigration and construction activity – has finally
slowed somewhat. In other words, COVID-19 has encountered a rental apartment market in a
fragile situation. That said, demand for rental apartments has proved remarkably stable in the evo-
lution of the pandemic thus far. Up until now, the coronavirus crisis has had a greater impact on
the structure of demand than on demand volumes. The former has shifted slightly in the direction
of larger apartments (when measured by number of rooms) and locations outside of the large cen-
ters (p. 16 f.). Below we analyze these structural changes and their repercussions for the market.

Marketing still Alongside vacancy rates, another proven indicator of the market situation and the relationship be-
easiest in the large tween supply and demand is the duration of advertising (“time on market”) of a vacant apartment.
centers, ... In 2020 the relative scarcity of rental accommodation in the large centers was reflected in a short
average time on market of just 26 days (Fig. 27). The lowest figure of all – 21 days – was rec-
orded by the city of Zurich. In other words, the market has hardly cooled in the major centers.
Compared to the long-term average of 24 days, the 2020 figure is just two days higher. Proper-
ties in the outer and periurban municipalities of the major urban centers likewise exhibit a relatively
short time on market, namely 32 days and 39 days respectively. Outside of the major urban areas,
marketing periods work out at an average of between 45 and 50 days. A rule of thumb that ap-
plies in all municipality types is that the more rooms an apartment has, the longer the time on mar-
ket.
... but supply has During the first lockdown in March/April 2020, the number of apartments advertised for rental de-
recently shrunk clined (Fig. 28). As apartment viewings and moves were at times almost impossible, the marketing
elsewhere of apartments was in many cases deferred or interrupted. Following a recovery in the summer,
supply remained relatively stable in the larger centers in the fourth quarter too, whereas there was
a significant decline in the number of apartments being offered outside of the main centers. This
would suggest that fewer apartments are being vacated and coming back onto the market outside
of the main centers. In other words, less central areas appear to have gained in appeal.

Fig. 27: Advertising takes longer outside of main urban areas Fig. 28: Supply declines outside of the large centers
Average time on market by number of rooms and municipality type, 2020 Weekly development of the number of advertised rental apartments from January
2020, index: week of January 6 – 12, 2020 = 100

Total Total average since 2004 2 rooms 3 rooms 4 rooms Large centers Mid-sized centers Suburban municipalities
60 Periurban municipalities Other municipalities
50 120

40 115

30 110

20 105

10 100

0 95
Small centers

Rural mun.
Large centers,

Mid-sized centers,
Mid-sized centers

Tourist mun.

Periurban mun.

Other periurban
Large centers

agglomerations

90
urban area

urban area

of large

mun.

85

80
01/2020 03/2020 05/2020 07/2020 09/2020 11/2020

Source: Meta-Sys, Credit Suisse Last data point: Q4/2020 Source: Meta-Sys, Credit Suisse Last data point: 13.12.2020

22 Swiss Real Estate Market 2021 | March 2021

Pandemic prompts The reasons for the slight market shift toward larger apartments outside of the main centers can-
re-evaluation not be directly derived from the data itself. However, it may be assumed that the restrictions im-
of living situation posed on economic and private life in connection with COVID-19 have played a role. During lock-
down, the appeal of a spacious apartment with dedicated office area, large balcony, and proximity
to greenery over a small older apartment in the inner city became evident for all to see. True, the
coronavirus restrictions will only be temporary in nature, but there is broad consensus in both the
private sector and the world of academic research that home working will be a more commonplace
phenomenon once the pandemic is behind us.

“Home office” widens The more a person works from home, the more likely they are to accept longer commutes, and
catchment area the more a separate office room in the apartment becomes a necessity. Employees who now en-
joy greater freedom of choice when it comes to their place of work must re-evaluate their current
living situation. Put simply, they have two options: To live centrally and work in the office, or to live
further away and do a proportion of their workload remotely – in a larger apartment more suited to
this scenario. Which option they choose will depend on their personal preferences – with the at-
tractions offered by the city being rather different to those that come with rural living. Against
these respective benefits must be set the costs of the two options. Primarily these come down to
living costs, travel costs, taxes, and other levies. The greater the time spent working from home,
the lower the travel costs (including time costs) for commuting the same distance between work
and home.

Model calculation: We have tried to illustrate the optimum choice of place of residence based on a simple model cal-
moving out of the city culation for the Zurich area. Our starting scenario is a double-earning couple who live and work in
to a larger apartment the city of Zurich. Let us assume that both spouses now have the option of spending a significant
part of their week working from home, which in turn influences their ideal apartment setup. In the
initial scenario, this household has an income of CHF 125,000 a year, which is broadly equivalent
to a Swiss median income for a total working week of 180% for a couple. Our couple currently
live in a 2.5-room rental apartment of the medium price segment, and are looking at moving to a
larger rental apartment (one extra room) outside of the city.

Fig. 29: Larger apartment an option with move out of town Fig. 30: Move out of Zurich becomes more attractive for high in-
comes
Model calculation: Cost difference in CHF/year (income tax and net rent) for a move Model calculation: cost difference in CHF/year (income tax and net rent) for a move
out of the city of Zurich to a rental apartment with an extra room; assumption: dou- out of the city of Zurich to a rental apartment with an extra room; assumption: dou-
ble-earning couple without children, income CHF 125,000/year (gross), move from ble-earning couple without children, income CHF 250,000/year (gross), move from
medium 2.5-room apartment to medium 3.5-room apartment upmarket 3.5-room apartment to upmarket 4.5-room apartment

Schaffhausen Schaffhausen

Travel time = 20 min Travel time = 20 min

Travel time = 40 min Travel time = 40 min

Basel Frauenfeld Basel Frauenfeld

Liestal Liestal
St.Gallen St.Gallen
Aarau Zürich Herisau Aarau Zürich Herisau
Appenzell Appenzell

Solothurn Solothurn
Zug Travel time = 60 min Zug Travel time = 60 min

> 10'000 > 10'000

5000 – 10'000 Luzern Glarus 5000 – 10'000 Luzern Glarus
0 – 5000 Schwyz 0 – 5000 Schwyz
-5000 – 0 -5000 – 0
Stans Stans
-10'000 – -5000 -10'000 – -5000
-20'000 – -10'000 Sarnen Altdorf -20'000 – -10'000 Sarnen Altdorf
< -20'000 Chur < -20'000 Chur
No data No data

Source: Meta-Sys, Federal Tax Administration, Credit Suisse, Geostat Source: Meta-Sys, Federal Tax Administration, Credit Suisse, Geostat
Last data point: Q4/2020 Last data point: Q4/2020

Moving makes most Fig. 29 illustrates the consequences of such a move for living costs and taxes. Despite a larger
sense with wider apartment, this household would actually make savings in the majority of municipalities in the
search radius catchment area due to the high rents and (in a regional comparison) high tax rates that apply in
the city of Zurich. The only exceptions are a number of lakeside municipalities where the lower
taxes do not make up for the higher rental costs. However, the financial upside in most of the
nearby catchment area of the city of Zurich (travel time of no more than 20 minutes) amounts to
less than CHF 5,000 annually. And if this saving is then set against the higher travel costs that
apply, the move is unlikely to be worthwhile financially in the majority of cases. In certain commu-
nities such as Kloten, Urdorf, and Volketswil, however, the savings would be more than CHF
5,000, meaning that a move could be worthwhile, particularly given a higher proportion of time
Swiss Real Estate Market 2021 | March 2021 23
 spent working from home, depending on opportunity costs and the couple’s preferences. In order
to achieve savings of at least CHF 10,000, the search radius needs to be expanded to around 40
minutes’ commuting time. This then brings municipalities such as Birr (Aargau), Menzingen (Zug),
and Schlatt (Thurgau) into play.
The higher the In a second scenario (Fig. 30) we consider the situation of a household with a higher income of
income, the more CHF 250,000 occupying a 3.5-room apartment with upmarket features in Zurich, in this case
attractive the move wanting to move to a similar-quality 4.5-room apartment in another municipality. In this scenario, a
saving of more than CHF 10,000 is achieved simply by moving to a majority of municipalities
within a 20-minute radius. Due to its higher income, however, this household is also likely to incur
greater opportunity costs for its commute. The lower-tax municipalities of central Switzerland be-
come much more appealing in this scenario. Municipalities such as Wangen (Schwyz) and Hünen-
berg (Zug) lie within a commuting radius of less than 40 minutes, and the household in question
would save CHF 20,000 or more a year through a move.
Strong rent divide Based on the above calculations, we conclude that savings can be made in living costs and taxes
opens up as distance for even average incomes with a move out of Zurich to a rental apartment with an extra room. The
to urban center main reason for this is a steep and continuously increasing difference in rents between city and
increases countryside (Fig. 31). Nonetheless, a switch of residential location within the inner urban ring is
seldom likely to prove worthwhile due to commuting costs. Moreover, due to the advantages en-
joyed by long-term renters under Swiss rental law, the rents paid are below the level of the adver-
tised rates used in our analysis. It is actually possible that significant savings would be made for a
move to a municipality within a 40-minute perimeter and a high proportion of the working week
spent at home. In that case, however, many households would be likely to consider buying their
own home. In addition, as incomes rise a move to a low-tax municipality makes increasing sense.
Conclusion: In a world where many people spend a greater proportion of their time working from home, expen-
No reversal of sive city centers could lose some of their appeal. That said, we are in no way anticipating an exo-
urbanization trend dus from the city or a reversal of the urbanization trend. A number of important factors that were
not taken into consideration in the (cost-side) model calculations set out above favor urban living in
the future. Cities have been the drivers of economic growth since time immemorial. Trends such
as digitalization and sustainability can be expected to provide further support to urbanization. The
large centers have gained hugely in appeal in recent years, and many households will be prepared
to pay a premium for the attractions and infrastructures that a city offers in the future too.

2021: Downturn in While first signs of the structural effects unleashed by the pandemic can now be observed in the
rental apartment rental apartment market, the economic impact has been modest so far. The downturn in this mar-
market to continue ket will continue for now, without being significantly accelerated by the pandemic. Factors that
support this argument include the remarkable stability of demand and construction activity levels
having passed their peak. For 2021, we are anticipating a further increase in the rental apartment
vacancy rate to around 2.85%. However, some of this increase will take place in the main urban
centers, where it will provide a welcome (albeit only slight) cooling of the market – mainly in the
medium to high price segments. Across Switzerland as a whole, the pressure on advertised rents
is expected to continue. Here we are anticipating an average decline of 1.5% (Fig. 32).

Fig. 31: Gulf between rents in centers and elsewhere Fig. 32: Steady pressure on advertised rents
Advertised median net rent for a four-room apartment, in CHF per m² and year, Year-on-year change in rental apartment vacancy rate (VR) and rents, 2021: fore-
2019/2020; arrow: trend since 2009/2010 casts

> 330 VR Advertised rents (Wüest Partner) Consumer price index (SFSO)
300 – 330
270 – 300
5%
240 – 270
210 – 240
4%
180 – 210
150 – 180
3%
< 150
2%
No data

1%

0%

-1%

-2%
Strong rise
Rise -3%
Sideways movement 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021*
Decline
Sharp decline

Source: Meta-Sys, Credit Suisse, Geostat Last data point: Q4/2020 Source: BFS, Wüest Partner, Credit Suisse Last data point: Q4/2020

24 Swiss Real Estate Market 2021 | March 2021

Heading
Rental 1 – chapter
apartments title 2021
– outlook

Outlook Mietwohnungen
Consequences of COVID
manageable Heading 3 – lead text

Demand Text text text Supply

Net immigration Planning applications Building permits

53,200 62,000 55,000 12 – 1%

2019 2020 2021 2020 2020

• Net immigration expected to decline by around 10% • Number of approved apartments remains stable
• Larger apartments outside of centers more in demand • Strong decline in newbuild planning applications
2021: Demand declines by 1,000 to 1,500 2021: Expansion slows by around 1,000
residential units apartments, decline to accelerate from 2022

Vacancies Rental prices

As % of rental apartment inventory Increase in rents offered in %

2.75% 2.85%
–1.5% –1.5%

2020 2021 2020 2021

• Vacancies rise by a further 3,000 to 4,000 apartments • Price growth declines in major centers
• Slight increase in large centers too • Further price declines in regions with high vacancies
Vacancies grow at reduced tempo Pressure on rents persists

Supply rate Performance

As % of rental apartment inventory Total return on residential investment properties

5.5% 5.9% 6 – 6.5% 4 – 4.5%

2021
2019 2020 2021

• Supply rate rises to more than 6% • Capital growth weakens

• Tenant turnover rises • veragenetcashflo yieldof .1%
More smaller apartments and urban apartments Investment pressure remains high, but risk awareness
in supply on the rise
heseforecastsarenotrelia leindicatorsoffutureperformance.

Swiss Real
Swiss Real Estate
Estate Market 2021 | March
March 2021
2021 25
Digital real estate – data analytics

Rethinking micro-location
“Today’s way of evaluating micro-location is a historic relic”, reckons the CEO of Ur-
banDataLab, a spin-off of ETH Zurich. Specifically, new approaches make it possible to
develop locational criteria in a much more data-supported and user-specific way. This
facilitates the creation of more individual portfolio strategies that are also scalable inter-
nationally.

Measurement of In the world of real estate, location is viewed as absolutely critical, defining the value, risk, and
locational quality even the potential of a property site. Accordingly, the importance of evaluating locational quality
deserves greater objectively can hardly be overstated. It has a key impact on real estate valuations, portfolio strate-
attention gies, and the market success of real estate projects. However, measuring locational quality is any-
thing but child’s play, and the evaluation process typically comprises numerous dimensions. Con-
ventional locational ratings are based on a selection of locational attributes that are weighted and
aggregated to create an index. However, if the methodology is not transparent, key influential fac-
tors are missing, or there is a lack of consistency in their measurement, standardization can lead
to misunderstandings.
Segmentation of For example, if user preferences are explained solely by price differences or are insufficiently fac-
location by users tored into the locational rating, this can prove problematic. Locational potential differs not just by
makes sense principal use (e.g. residential, office, retail), but also by individual user segment (e.g. students,
seniors, or families on the residential side, and fast food restaurants and luxury restaurants on the
catering front). Segmentation of user preferences therefore makes sense, but often fails in prac-
tice due to the lack of available data or analytical instruments.
Urban morphology as Studies carried out at ETH Zurich have shown that a distinction can be made between five dimen-
new explanatory sions of descriptive micro-data when modeling the reasons for property switching:1 social econ-
dimension omy (e.g. household structure, tax burden), points of interest (e.g. schools, public transport con-
nections), accessibility, topography (e.g. sunlight, views), and urban morphology. The latter de-
scribes the spatial composition of buildings and transport networks, e.g. building form, building
depth, street width, and street interconnectivity. The use of urban morphology requires special
geo-processing, and has yet to become very widespread due to its great complexity. The starting
point is geographical data – i.e. maps of buildings and street networks. Morphological information
is then extracted and processed through various process steps. A start-up that is mastering this
technology is UrbanDataLab. This proptech company has proved in scientific studies and publica-
tions that its technology is well-suited to explaining differences in price levels, as well as mobility
and relocation behavior, and can therefore also quantify the underutilized potential of development
premises – rather than just their actual use.

From morphology to Figure 33 shows how the morphology of buildings is used to automatically identify building typolo-
locational quality gies along Zurich’s Langstrasse. Buildings that are similar in respect of their morphological criteria
– such as building form, exposure, size, and interconnectedness – are displayed here in the same
color. The various different building types identified in this way are designed to appeal to different
user types, and among other things also have different development potential. A simple locational
index can be calculated purely through the exploitation and processing of morphological infor-
mation, for example in respect of a location’s suitability for retail premises. Here, centrality meas-
urements are used in combination with building information and then calibrated in UrbanDataLab’s
proprietary Machine Learning Framework, using reference data such as actual locations of nearby
retail premises. The result is a locational index that makes few demands of data availability and
can be automatically calculated in any location where the corresponding map data is available –
which to all intents and purposes means anywhere in the world. This locational index can be used
for the pre-selection of potentially suitable locational areas. In further steps, additional data –
where available – such as spatial economic and demographic information as well as points of in-
terest can be included to refine the results of the automated evaluation of locational suitability.

1
Schirmer, Patrick M., Michael AB van Eggermond, and Kay W. Axhausen. “The role of location in residential location choice models: a
review of literature”. Journal of Transport and Land Use 7.2 (2014): 3–21.
26 Swiss Real Estate Market 2021 | March 2021
Use-specific location In the past, evaluation of locational qualities has come up against its limits, primarily due to the re-
evaluation – thanks to stricted availability of data and the difficulty of processing whatever data does exist. By contrast, in
big data view of the steadily growing number of datasets, the question that increasingly arises nowadays is
how these datasets can be utilized and integrated into a company’s own processes. However,
new technology such as machine learning and artificial intelligence make it possible to capture the
multifaceted nature of user preferences, and thereby significantly improve the evaluation of loca-
tional quality for a variety of uses. Crucial to this is access to basic data for the description of loca-
tions and behavioral analysis. The ongoing rise in the number of available datasets at micro-level is
boosting data-based decision-making and risk appraisal. However, the processing of geo-data –
i.e. its use in machine learning models – requires specific knowledge and a level of IT infrastruc-
ture that many companies simply do not have. For this reason, all sorts of potential often goes un-
exploited, such as the possibility of deriving strategic recommendations from proprietary data, e.g.
through the evaluation of vacancies and rental prices.

Tools for an individual The proptech provider UrbanDataLab assists companies with precisely such applications. Interac-
real estate strategy tive tools make it easier to access data and use research-based analysis methods. Clients are
thus empowered to undertake in-depth assessment of their own datasets. The overriding priority is
to facilitate individual assessment and strategy, and then integrate these into tools for day-to-day
work. If needed, the user can also obtain specialist support in the modeling of their data, in keep-
ing with the motto: “book your data scientist”. Figure 34 shows one of the application modules
created by UrbanDataLab. The Scout module assists with locational search and acquisition by in-
teractively defining micro-location profiles and calling up locational information. To this end, the
user filters locations by a variety of characteristics (accessibility, noise levels, proximity to public
transport, points of interest, etc.). This then allows them to evaluate how well a selected strategy
fits the company’s own portfolio, and how that portfolio could ideally be expanded. Another mod-
ule is the Manager, which allows a portfolio to be digitally captured and enriched with information.
The applications are modular and the content dynamic, i.e. they adapt to the user’s purpose.
Application areas of In the real estate industry, there are basically three areas of application in which micro-location
micro-location plays a key role: (1) When looking for a location, developers and investors try to identify ideally sit-
uated sites or sites that exhibit a high probability of conversion of use or acquisition. (2) In the due
diligence phase, a specific property and its location are analyzed in respect of target group defini-
tion and expected return. (3) Successful portfolio management seeks to optimize investments, on
the one hand through diversification and the minimization of risks, and on the other through the
maximization of return.

Integration of appli- These areas of application are frequently tackled by separate departments of a company, with the
cations creates effect that valuable potential can be left unexploited. Integrated approaches such as the modular
added value applications of UrbanDataLab focus on merging these data silos and generating value through in-
ternal feedback loops. The observations of day-to-day management can thus also support the
strategic positioning of portfolios or the acquisition process.

Fig. 33: Morphological segmentation Fig. 34: Interactive definition of micro-location ratings
Among other things, the form of buildings makes it possible to differentiate between Drawing up micro-location profiles independently and using these for acquisition
building types

Source: UrbanDataLab, Swisstopo Last data point: 2013 Source: UrbanDataLab Last data point: 2021

Swiss Real Estate Market 2021 | March 2021 27

 Case study 1: The best locations for business apartments

Special properties Newly emerging niche markets permit portfolio diversification not just by geographical location, but
require use-specific also by usage. However, special properties require their own separate appraisal of micro-location,
location evaluations as can be illustrated in the case of business apartments, for example. Apartments of this kind in
Switzerland are managed by a range of providers such as Vision Apartments, Swiss Star, and
Glandon Apartments, and promise the property owner a guaranteed return over a fixed timeframe.
Apartments can also be marketed via platforms such as Airbnb. However, locational requirements,
demand, and the target return have to be evaluated differently for business apartments than for
rental apartments.

Determining a A distinction can be made between three types of locational evaluation: (1) location-based, (2) de-
locational rating mand-based, and (3) model-based. A location-based appraisal (1) allows the user to define a lo-
for business cational rating interactively. In the case of business apartments, the decisive factors include a cen-
apartments ... tral location, local amenities in the leisure, gastronomy and retail spheres, proximity to public
transport and the freeway, and in some cases also the development of the number of jobs in the
vicinity. By filtering according to specific characteristics and defining ranges of values, locations
can be classified interactively and particularly suitable geographical scopes identified. A demand-
based evaluation (2) investigates the catchment areas of a location and determines demand arith-
metically. In the case of business apartments, the anticipated need for apartments is defined in
advance, taking into account the corresponding sector and company size. It is then investigated in
detail how many companies are potential clients in the catchment area, and how many employees
such an offering can be expected to appeal to. Finally, the model-based location rating (3) uses
reference objects to arrive at values such as the price level through use of a statistical model.

... facilitates In one UrbanDataLab project commissioned by Immobilien Basel-Stadt, publicly placed advertise-
forecasting of ments were used to model the maximum potential rental price of business apartments across
rental income Switzerland. This map extract shows the Oerlikon – Glattbrugg – Wallisellen region. The darker
red the location, the more suitable it is from the perspective of the expert-determined criteria (Fig.
35). In the Zurich-North area, for example, locations in close proximity to Oerlikon and Wallisellen
stations were identified as being particularly suitable, but so too were locations close to the airport.
The grey markers designate the locations of various providers of business apartments, and were
used as reference objects for the calibration of the model.

Fig. 35: Locational ratings for business apartments in Zurich Fig. 36: Price forecasts for the city of Medan
Interactively produced, user-based locational qualities for business apartments Modeled level of purchase prices for a 3-room apartment in Medan (Indonesia)

Source: UrbanDataLab, Credit Suisse Last data point: 2021 Source: UrbanDataLab Last data point: 2020

Case study 2: International comparability

“Home bias” leaves A well-diversified institutional real estate portfolio not only encompasses properties from various
return opportunities usage segments, but also takes into account the need for geographical spread. International diver-
unexplored ... sification is now the norm for equity and bond portfolios. Even securities from emerging markets
offering higher potential returns but with the corresponding risk typically have a fixed place in the
asset allocation of major investors. Where real estate portfolios are concerned, by contrast, a
strong “home bias” continues to be evident. To give an example: The foreign holdings of the real

28 Swiss Real Estate Market 2021 | March 2021

 estate portfolios of Swiss pension funds – which also takes into account indirect investments –
amount to just 12% according to the Credit Suisse Pension Funds Index (equities: 58%). Moreo-
ver, the investments of large international real estate companies and real estate investment trusts
(REITs) typically focus on a few global metropolises, which are accordingly well covered on the
data side.

... and is frequently a Due to this strong home bias, investors fail to limit exposure to their own domestic market, partic-
consequence of a ularly in late phases of the economic cycle. And due to the systematic neglect of less established
lack of locational but nonetheless strongly growing locations, additional return opportunities are missed. This home
information bias and the failure to consider less established locations are ultimately a consequence of the
dearth of reliable locational information across national borders.

Locational ratings can In a pilot project with an Asian developer, UrbanDataLab demonstrated for the Medan metropolis
be compared across (Indonesia) that a price model for apartments can be set up and integrated into applications in just
borders with the three weeks. As part of implementation, 100 attributes of urban morphology were used and inte-
morphological grated into a price model, which facilitated efficient analysis within a very short space of time
approach thanks to machine learning. In this specific case, the model was calibrated using around 12,000
property sale advertisements and then made available as an interface and a map in the application
(Fig. 36). In the future, approaches of this kind could significantly improve international portfolio
management and location evaluation, thereby giving portfolio managers and companies an edge in
the hunt for locations and properties.

Conclusion and outlook

Technological and Urban spaces as well as social norms and behavioral patterns are changing ever more rapidly,
social trends are eluding standard administrative regulations. It therefore follows that planning regulations can no
molding the use of longer fully define the use of urban space, while new reference planes are increasingly gaining in
space ... influence. The reasons for this are multifaceted, and extend from digital interconnectivity (the
home as new place of work), to new modes of transport (the final miles by e-scooter or autono-
mous vehicle), and to the demographic and economic transformation of society itself.

... and call for active As objects tied by definition to a specific location, real estate will have to lend itself to ever more
data-based real flexible use as a result, which in turn necessitates a change in mindset on the part of portfolio and
estate management property managers: Only active management – such as through repositioning or interim use con-
cepts – can respond to changes in demand, and even long-term return forecasts can change rap-
idly. This much was becoming clear even in the years prior to COVID-19: Platforms such as
Airbnb are now exerting a direct influence on property prices, and sharing economy concepts –
think co-working or co-living – are likewise impacting on demand for space. A further catalyst of
urban space usage has now manifested itself in the form of the coronavirus pandemic, which is
changing the structure of demand. A number of the resulting changes can be expected to endure
even after the pandemic has been mastered. Even now, it is becoming apparent that micro-loca-
tion will become an even more important factor going forward. The navigation of all these trends
requires dynamic tools that can continuously adapt, as well as efficient usage of the available data
– in short, integrated real-estate management.

Swiss Real Estate Market 2021 | March 2021 29

Office property – demand

Demand being recalibrated

Demand for office space remains very weak, as companies hold back from renting
premises and review the extent to which they can make long-term savings on office
costs through home working.

Short-time working Following the difficult economic situation last year caused by COVID-19, hopes are heavily pinned
cushions labor on the success of coronavirus vaccines as 2021 gets under way. However, we do not expect the
market slump recovery to prove strong enough to restore Swiss gross domestic product (GDP) to its pre-crisis
levels before the end of the year. Thanks to a combination of COVID-19 bridging loans and com-
pensation for short-time working, the economic slump has not yet fed through into the labor mar-
ket to the same extent. Employment was down just 0.06% year-on-year at the end of the third
quarter of 2020. That said, the impact of the pandemic on individual sectors of the economy has
differed considerably (Fig. 37). Due to coronavirus restrictions, the most significant decline in em-
ployment has been suffered by the hotels and catering industry (-9.3%). By contrast, the IT sector
(+4.3%) has benefited greatly from the boost to digitalization.

Demand for office The COVID-19 pandemic is nonetheless greatly suppressing demand for office space. For 2020
space currently very and 2021, we are expecting demand to decline by around 700,000 m² (Fig. 38). To a lesser ex-
low tent, this decline is attributable to the fact that the number of (office) employees has come down
as a result of the crisis, and hence less office space is required. But the principal cause of the de-
cline is that companies have been focusing on cost savings rather than growth since the crisis
broke. Large service providers in particular are looking to see how higher levels of home working
will change their requirement for office space.
Return to office In the medium term, the importance of the office as a place of work is likely to rise again, as the
working in medium high levels of productivity initially observed in home working are likely to fall back in time due to a
term lack of “social control” and restricted communication. In addition, productivity is likely to be im-
paired by lower innovation output with a home-based workforce, which should refocus attention on
the importance of a centralized office. Even before the second wave of infection, there was evi-
dence of a slight but steady return to office working – albeit not at the explicit behest of employ-
ers.
Demand for space to As centralized office working and home working both have their own undisputed advantages, we
stagnate in long term believe hybrid forms of working will increasingly emerge. As a result, we estimate demand for of-
fice space will decline by 15% over the next ten years. However, this fall in demand will be offset
by other developments such as economic growth, digitalization, and the tertiarization of industry;
hence we believe overall demand for office space will only stagnate in the long term.

Fig. 37: Sectors affected by COVID-19 to differing degrees Fig. 38: Lower demand for office space
Employment growth (annual growth as per end Q3) of selected service providers on a Estimated additional demand compared to prior-year quarter in 1,000 m²;
full-time basis forecasts for Q4 2020 and for 2021

Annual growth 2019 – 2020

Telecommunications

Industry Construction Trading

Hotels and catering

Average annual growth 2015 – 2020

5% Transportation Hotels and catering IT/communication
4% Financial services Business services Health/public services
3% 2,000 Rest Total
2% Forecast
1% 1,500
0%
Public administration

1,000
Tertiary sector (total)
Social services
IT
Education

Architects/engineers

Total

-1%
Business services
Automotive trade

Wholesaling
Healthcare

Retailing

Transportation/logistics
Insurance

Secondary sector (total)

-2%
500
-3%
Banks

-4% 0
-5%
-6% -500
-7%
-8% -1,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

-9%
-10%

Source: Swiss Federal Statistical Office, Credit Suisse Last data point: Q3/2020 Source: Credit Suisse, Swiss Federal Statistical Office Last data point: Q3/2020

30 Swiss Real Estate Market 2021 | March 2021

Office property – demand

Central premises in demand

When companies choose their office premises, in addition to ease of accessibility, the
quality of the immediate environment – ideally with a wide range of local amenities –
should not be underestimated as a criterion. Office properties in locations with a high
density of so-called “points of interest” (POI) are more sought after and achieve higher
rents.

COVID-19 increases In the post-COVID-19 world, companies will be confronted with the challenge of coaxing their em-
significance of office ployees back to the office after a prolonged spell of working at home. In this context, an attractive
location office location will play a role that should not be underestimated. Even in the years prior to the
pandemic, centrally located premises were enjoying a powerful surge in demand. Part of the rea-
son for the focus on central locations is the growing importance of environmental quality. Wider
social trends – such as the desire to achieve a better balance of work and leisure time, along with
a higher proportion of the population in work – have increased the appeal of offices close to local
amenities.
POI boost quality Opinions differ when it comes to defining the reason for the inherent appeal of central locations.
of environment But there is agreement that a greater density of so-called points of interest (POI) is generally more
attractive. Accordingly, the number and diversity of nearby points of interest serve as an indicator
of the environmental quality of office locations. However, precisely what a spectrum of amenities
needs to offer to make a key contribution to locational quality and indeed quality of life remains an
open question, which would probably be answered differently by individual respondents, depending
on their preferences. But a wide variety of POI is evidently important.
Offices in locations Our analyses reveal that office properties in locations with few POI are advertised disproportion-
with numerous POI ately more often, as they are less in demand. The disproportionately high supply of office space at
more coveted ... locations with a low POI density therefore means greater supply rates at these locations. In Lau-
sanne, for example, this is reflected in supply rates at per-hectare level (Fig. 39). With a few ex-
ceptions, high supply rates are restricted to those hectares that exhibit a weak POI offering within
a radius of 400 meters. By contrast, hectares that boast a large POI offering very rarely exhibit
high supply rates. A similar situation exists in Zurich.
... and achieve Office properties in locations with high POI densities not only attract greater demand and are let
higher rents more quickly, they also generate higher rents. The positive correlation between the number of POI
within 400 meters and the level of advertised office rents also emerges clearly from a scatterplot
(Fig. 40, cf. also our “Swiss office property market 2021” study published in December 2020).

Fig. 39: High supply rates correlate with fewer POI Fig. 40: Breadth of local POI offering goes hand in hand with rising
rents
At hectare level in Lausanne, only hectares with at least one advertisement in 2019, Average gross rents at hectare level in Zurich, number of POI within 400 m of mid-
number of POI within 400 m of hectare mid-point point of each hectare
100% 1200
90% Trend line (linear)
1000
80%
Gross rent in CHF per m²

70%
800
Supply rate

60%
50% 600
Trend line (logarithmic)
40%
400
30%
20%
200
10%
0% 0
0 100 200 300 400 500 600 700 800 900 0 100 200 300 400 500 600 700
Number of POI Number of POI

Source: HERE, BFS, Meta-Sys, Credit Suisse Last data point: 2019 Source: HERE, Meta-Sys, Credit Suisse Last data point: 2019

Swiss Real Estate Market 2021 | March 2021 31

Office property – supply

Supply of space remains high

Despite good absorption of space in recent years, the office property supply rate re-
mained close to the prior-year level in 2020. Whereas supply has fallen in the (inner) cit-
ies, the outer business districts have plenty of surplus space as they confront the con-
sequences of the coronavirus crisis.

Center-periphery Weak demand for office space will lead to a rise in supply over the coming quarters, dashing
divide hopes of a substantial reduction of available space following the higher demand of the last three
years. When the space primarily marketed by brokers or individual websites is also taken into ac-
count (some of which has sat on the market for quite some time), the total office space advertised
across Switzerland in the summer of 2020 was 3,043,000 m² – a similar level to that of 2019
(Fig. 41). The supply rate, which reflects the availability of space as a proportion of the total office
property market, therefore amounted to 5.5%. Thanks to good absorption of office premises in
urban centers, supply differences have widened. In the five major centers in particular, there is a
striking gap between inner city and peripheral office markets. The stronger demand for centrally
situated premises in attractive locations is reflected in the lower supply rates of central and some
middle business districts (particularly Zurich, Geneva, and Lausanne), whereas the outer business
districts of all large centers are struggling with oversupply (Fig. 42). This divide is likely to widen
further going forward.
Geneva exhibits by There are also significant differences between individual large and mid-sized centers. Geneva
far the highest supply stands out in particular with its very high supply rate of 11.5% (Fig. 44). Demand here is simply
rate not dynamic enough to rectify the oversupply problem. That said, the situation has improved
slightly since 2019, when the supply rate stood at 11.9%. The second-highest supply rate of the
major centers is to be found in Lausanne (7.9%) – primarily due to the scale of new office prop-
erty development in the locality. A substantial amount of office space is currently being freed up in
Basel (7.7%), which is driving up the supply rate here. By contrast, space is in short supply in
Zurich (7.0%) and Bern (5.7%), especially in the city centers, whereas there is plenty of space
awaiting tenants on the periphery of these cities.
Supply rates In Switzerland’s mid-sized centers, supply rates are typically lower than in the large centers
predominantly low in (Fig. 44). Office property construction projects are rarely launched in the former without high pre-
mid-sized centers letting rates or an anchor tenant in place, as the demand for space in these markets is less dy-
namic. The only mid-sized centers with a supply rate higher than the Swiss average of 5.5% are
Schaffhausen (5.6%), Lugano (5.9%), and Zug (7.8%). The consequences of the ready availabil-
ity of capital are thus reflected even in Zug. Despite a reasonable level of demand, the market
equilibrium is skewed toward the supply side and dominated by various large-scale projects such
as the Quadrolith in Baar.

Fig. 41: Supply of office space similarly high to 2019 Fig. 42: Oversupply in outer business districts
Total of quarterly (online) advertised space (existing stock and newbuilds), in m² Total of quarterly (online) advertised space (existing stock and newbuilds), in m²

3,500,000 Zurich Geneva 2,000,000 Major centers central business district (CBD)
Bern Basel Major centers middle business district
1,800,000
Lausanne Outside major centers Major centers outer business district
3,000,000 Total 1,600,000 Total supply
2,500,000 1,400,000
1,200,000
2,000,000
1,000,000
1,500,000 800,000

1,000,000 600,000
400,000
500,000
200,000
0 0
2006 2008 2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020

Source: Credit Suisse, Meta-Sys Last data point: Q2/2020 Source: Credit Suisse, Meta-Sys Last data point: Q2/2020

32 Swiss Real Estate Market 2021 | March 2021

Office property – supply

Too much space in the pipeline

Starting from relatively low levels building permit issuance rose again in 2020, and given
the gloomier prospects for demand this makes an end to high supply rates unlikely.

Building permit Construction approvals for office property paused for breath in 2019 and declined to their lowest
issuance currently in level since 2000, but then increased in 2020 despite COVID-19. In December 2020, the 12-
line with long-term month total stood at CHF 2,145 mn, which is above the long-term average (Fig. 43). The reason
average for this relatively high level of projected activity, in spite of a comparatively high supply rate, is pri-
marily the ongoing low-interest environment, which means low financing costs and limited invest-
ment alternatives, thereby providing a strong incentive for investors to buy into newbuild projects.
For that reason, building permit issuance only rarely dipped much below its long-term average in
the years prior to 2019 too.

Planning activity likely Ever since the onset of the coronavirus crisis and the resulting boost to home working, investors
to decline further due and developers have increasingly been fretting over the future commercial viability of new office
to COVID-19 properties. Office property planning activity is thus set to slacken in the future. Moreover, it is pos-
sible that a number of planned office developments will not go ahead. That said, the current 12-
month total of building permit issuance includes a number of major projects for large companies
(e.g. Swiss Re and Helvetia) and for the federal administration in Bern, with a view to amalgamat-
ing currently dispersed workforces in single building complexes. These projects will be completed,
as owner occupancy eliminates vacancy risk.

No excessive The individual office markets of Switzerland’s mid-sized and large urban centers are illustrated in
expansion of space Figure 44. The vertical axis illustrates the anticipated future expansion of space, whereby the val-
expected in major ues indicate the percentage by which construction approvals over the last two years lie either
centers above or below the long-term average. It is apparent that the expected expansion of space in all
five major centers is below average, which is above all explained by the low volume of building per-
mits issued in 2019. Further information on the situation in the office markets of the individual
large centers can be found in our study “Swiss office property market 2021” published in Decem-
ber 2020.
Construction activity In most mid-sized centers, planning activity has also long been languishing at low levels. The ex-
subdued in majority ceptions are Neuchâtel and Olten, where the anticipated expansion is comparatively high, just like
of mid-sized centers last year. Furthermore, planning activity compared to 2019 has risen above all in the office mar-
too kets of Winterthur and Zug. In Zug, for example, the two office buildings Suurstoffi 43 and 45 in
Rotkreuz and the office building on Grabenstrasse (in Baar) were approved. In Winterthur, the Ri-
eter campus (future headquarters of the eponymous textile machine manufacturer) received the
go-ahead.

Fig. 43: Office construction activity set to fall back once again Fig. 44: Anticipated expansion for the most part below average
Building permits and planning applications, moving 12-month total, in CHF mn Circle circumference: total office space; expansion (y-axis): building permits
2019/2020 compared to long-term average; supply rate as % of total space 2020
New construction permits New construction applications
Conversion permits Conversion applications
New construction permits, average Conversion permits, average
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1995 1998 2001 2004 2007 2010 2013 2016 2019

Source: Baublatt, Credit Suisse Last data point: 12/2020 Source: Credit Suisse, Meta-Sys, Baublatt Last data point: 11/2020

Swiss Real Estate Market 2021 | March 2021 33

Office property – market outcome

Center-periphery divide widens

The negative effects of the COVID-19 pandemic have yet to really feed through into the
official office vacancy statistics. Overall, vacancies are at the same level as 2019, but
should rise over the next few quarters.

Vacancies overall at The repercussions of the COVID-19 pandemic for Switzerland’s office property markets are for
2019 level the most part not yet visible in vacancy rates. Although the reference date (June 1, 2020) came
after the first lockdown, the effects of such crises typically only feed through into the office prop-
erty market with a certain time lag. Office vacancy rates are therefore at similar levels to those of
2019 (Fig. 45). However, major differences are apparent in the regions and cities included in the
statistics, with Canton Geneva having published no vacancy data at all last year due to the difficult
COVID-19 situation.
Significant decline in There was a decline in vacancies in 2020 above all in the city of Zurich (-23%) and in Canton
vacancies in Zurich, Vaud (-19%), where the market recovery in place prior to the onset of COVID-19 is quite evident.
Lausanne, and Basel- Indeed, Zurich reported its sixth decline in succession since 2014 (total decline of 61%). In cen-
Landschaft tral locations, vacancies typically declined even more sharply last year. In Zurich’s central business
district (CBD) they declined by 40%, and in the district of Lausanne by 27%. At the moment,
Canton Basel-Landschaft (-19%) is faring better than Basel-Stadt (+24%). Significant rises in of-
fice vacancies are also apparent in Canton Neuchâtel (+74%) and the city of Bern (+78%). How-
ever, while vacancies have surged in these cities they have done so from relatively low levels, with
both areas having benefited from an impressive decline in vacancies between 2018 and 2019.
An end to rent rises In the office markets under review, rents have developed broadly in step in recent years. Following
a period of sideways movement, rents rose strongly in the second half of 2019 in particular
(Fig. 46), following the recovery in office property demand in previous years. Between the second
and fourth quarters of 2019, the city of Geneva recorded the strongest rise in rents (+6.3%) and
the city of Lausanne the weakest (+4.1%). In 2020, however, these upward movements were ab-
ruptly halted by the COVID-19 outbreak.
COVID-19 likely to This year, the decline in demand for office property is increasingly likely to feed through into rising
lead to higher vacancy rates and declining rents, as construction activity broadly in line with the long-term aver-
vacancies and lower age when demand is weak leads to overcapacity. At less central locations, the difficult current sit-
rents uation is only likely to deteriorate, particularly in the outer business districts of the urban centers.
In central locations we expect the repercussions to be much less severe. As such, the already
striking divide in respect of supply, vacancies, and rental prices between the centers and the pe-
ripheries of Switzerland’s office property markets is likely to widen further over the next few years.

Fig. 45: Office vacancy levels unchanged from 2019 Fig. 46: An end to the rise in office rents
Vacant office space as per June 1, in thousand m² Hedonic rental price index on the basis of signed contracts, index: 2005 = 100
City of Zurich Canton of Basel-Stadt 160 City of Zurich
Canton of Basel-Landschaft City of Bern City of Geneva
Canton of Neuchâtel Canton of Vaud City of Lausanne
150
Canton of Geneva* Basel region
700
Bern region
140 Rest of Switzerland
600

500 130

400 120
300
110
200
100
100

0 90
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2005 2007 2009 2011 2013 2015 2017 2019

* Canton Geneva published no vacancy data in 2020 due to COVID-19.

Source: Various statistical sources, Credit Suisse Last data point: 06/2020 Source: Wüest Partner, Credit Suisse Last data point: Q4/2020

34 Swiss Real Estate Market 2021 | March 2021

Heading
Office 1 – chapter
property title
– outlook 2021

Outlook applies
Demand Büroflächen
the brakes
Heading 3 – lead text

Demand Text text text Supply

Additional demand for office space (in 1,000 m²) Building permits for office space (in CHF mn, 12 months)

1500 3500
2020
3000
1000 CHF 2,145 mn
2500
Long-term average Long-term average
500
2000

1500
0
1000
–500 2020 und 2021 500
– 700,000 m2
–1000 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2005 2007 2009 2011 2013 2015 2017 2019

• Demand collapses due to wait-and-see approach of • Temporary reduction in space increase, as building permit
many companies issuance has been below long-term average until recently
• Demand brake not likely to be released until H2 2021 • Planning activity at current level too high for sluggish demand
2021: Demand for premises weak 2021: Below-average construction activity

Advertised office space Supply rates 2020

In m2 By degree of centrality

1,200,000 French-speaking German-speaking

Large centers: Switzerland Switzerland
1,000,000
central business districts (Geneva, Lausanne) (Zurich, Bern, Basel)
middle business districts
800,000

600,000
outer business districts
6% 3%
central business districts central business districts

400,000 7% 5%
middle business districts middle business districts
200,000

0
15% 11%
outer business districts outer business districts
2009 2011 2013 2015 2017 2019

• Supplyraterisesslightlyto5.5% • Inner cities exhibit low supply rates

• Strongerdevelopmentininnercitiescomparedtoofficemarkets • The large centers of French-speaking Switzerland, particularly
based on the periphery of large centers Geneva, are struggling with higher supply rates than those of
German-speaking Switzerland
Price and vacancy gap between center and periphery
grows Gap between inner and outer office markets to
widen further

Vacancies Rental prices (contractual rents)

• COVID-19crisisnotyetreflectedin2020 • Rises in rents come to an end in 2020 in

vacancy levels allfivelargecenters
• Decline in Zurich, Lausanne, and • Rents expected to decline in 2021, above
Basel-Landschaft in 2020, above all in allontheperipheryofofficemarkets
central locations (inner cities: sideways movement)
2021: Increase in vacancies 2021: Growing pressure on rents

Swiss Real
Swiss Real Estate
Estate Market 2021 | March
March 2021
2021 35
Digital real estate – Internet of Things (IoT)

IoT changes office use

New technologies based on the Internet of Things (IoT) are facilitating innovative
solutions for the management of office buildings. The benefits include the more
efficient use of premises, improved air quality, and better services. In a similar way, IoT
technologies are also being used in the development of “smart cities”.

Requirements of Over the last few years, the digitalization trend has established itself in almost all walks of life. The
office properties are outbreak of the coronavirus pandemic and the subsequent surge in demand for digital solutions
changing have accelerated this trend dramatically. Office buildings have also been affected, particularly as
changing work habits are allowing greater flexibility in terms of work location and working hours.
Start-ups such as the Zurich-based proptech company Akenza are developing innovative platforms
based on the Internet of Things (IoT) for the management of office premises, thereby helping of-
fice property owners and managers meet the new requirements being made of office space.

Internet of Things The IoT essentially enables almost any physical or virtual object to be connected to and communi-
(IoT) offers innovative cate with another object via a network. IoT users have already proved that the use of connected
solutions devices opens up new horizons for business processes and models, as well as for smart products
and services. The interconnectedness and integration of things facilitate the development of inno-
vative solutions for any number of key challenges of the modern world.

IoT platform as key to Building an IoT solution is a complex undertaking, however. Akenza has therefore built an IoT plat-
integration of “things” form that allows companies and indeed entire cities to easily develop their own smart solutions.
The platform acts as a bridge between the physical world and the cloud. It makes it possible to
connect very different types of sensors (e.g. for monitoring air quality, human presence, and tem-
perature) via different technologies (e.g. LoRaWAN, NB-IoT, LTE-M, 5G) and manage the result-
ing data in a single location such as a public or private cloud (Fig. 47). The corresponding data
can then be visualized directly on the platform itself or in an app. This in turn enables users from
all kinds of different areas (such as transportation, retail, healthcare) to develop their own intelli-
gent solutions with minimal IT knowledge.
Optimization of office An area where IoT can deliver numerous efficiency gains is facility management. The management
buildings of office premises is becoming increasingly complex for facility managers, particularly as tenants
have been seeking greater working flexibility since the outbreak of COVID-19. The installation of
occupancy sensors, for example, can help with the management of office premises and provide
employees with a better working environment. For example, infrared sensors can be fitted to
desks or in meeting rooms. The sophisticated business intelligence module designed by Akenza
can read the data from thousands of sensors, and then display this in user-defined office maps to
provide a real-time snapshot of both desk and room occupancy, as well as the corresponding KPIs
on their usage (Fig. 48). Employees and departmental heads can therefore see where desks are

Fig. 47: Akenza’s IoT technology Fig. 48: “Desk occupancy” digital signage
Principal components Red markings indicate occupied desks

Source: Akenza Source: Akenza

36 Swiss Real Estate Market 2021 | March 2021

 free on the corresponding electronic screens. Tools of this kind are popular with companies as
they help employees with the changeover to flexible desk-sharing models. Such models could be-
come more widely accepted and promoted as a result.
Saving on office The monitoring of office premises facilitates the identification of unexploited space potential, which
space can in turn reduce the total amount of space required. Through the tracking of desk and meeting
room occupancy, statistics can be produced that can help evaluate optimization potential (Fig. 49).
Based on these evaluations, empty or underused meeting rooms or collaborative working areas
can be eliminated, and new space usage concepts validated. For example, one client of Akenza
had an ongoing problem of insufficient meeting rooms. With the help of occupancy monitoring, it
was identified that the company’s meeting rooms were not actually being used in 20% of book-
ings. This gave the client a crucial insight into the need to optimize internal processes. Another ex-
ample of the use of Akenza’s IoT technology was the new global headquarters of Zurich Insurance
Group. As part of an overall renovation, building monitoring and other facility management func-
tionalities were implemented to increase the convenience and wellbeing of employees and visitors
alike.
Air quality important The importance of a healthier office environment for the wellbeing of a workforce has become
to employee particularly apparent since the outbreak of COVID-19. Recent studies2 have shown that the level
wellbeing of carbon dioxide (CO2) indoors can impair a person’s wellbeing and ability to perform. Poor air
quality due to high concentrations of CO2 has been linked to detrimental cognitive effects such as
poor decision-making, a lack of focus, and drowsiness. Humans typically start exhibiting physical
effects at concentrations of 900 parts per million (ppm) – by way of comparison, outdoor air typi-
cally has a CO2 concentration of around 400 ppm. Indeed, there have been frequent recordings of
indoor office concentrations in excess of 1,000 ppm, with peaks of over 2,000 ppm. In order to
tackle this problem, companies need to be able to measure air quality on their own premises.
Dedicated climate monitoring sensors can be used to track CO2 levels, temperature, and humidity
in indoor areas (Fig. 50). An IoT platform monitors air quality continuously and reacts automatically
when a set of predefined rules has been met. The corresponding alert can be transmitted via text,
email, or visual notification (e.g. change in the color of a connected source of light). In an ideal
scenario, the IoT system will be connected to the facility management system that operates the
window blinds and ventilation system.
IoT delivers services As home working and flexible working hours have become more widespread, facility managers
more rapidly, also need to adapt to greater fluctuation in the usage of washrooms and common areas. IoT solu-
expediently, and tions can help here. For example, magnetic sensors can count the number of times a door opens
efficiently and therefore track toilet usage. This makes it easier to manage cleaning cycles and optimize per-
sonnel deployment. In addition, “service-on-demand” solutions are an efficient tool for increasing
service quality and efficiency. Service-on-demand is based on a very simple piece of hardware: a
connected button (Fig. 51): By touching the button, clients and employees can notify personnel
and trigger a predefined process. The potential areas of application are almost limitless, extending
from cleaning to reporting a faulty printer or triggering an alarm. By integrating buttons of this kind
into workflow reporting, processes can be automated, reactions to a delicate situation accelerated,
and satisfaction levels of employees improved. To bring this technology speedily to a wide variety
of clients, Akenza has teamed up on a long-term basis with ISS, one of the world’s largest facility
management companies, to make plug&play IoT applications available to ISS clients.

Fig. 49: “Desk occupancy” dashboard Fig. 50: “Indoor climate” dashboard
Data on the use of desks Data on the climate situation in rooms

Source: Akenza Source: Akenza

2
Kristopher B. Karnauskas, 2019: Fossil fuel combustion is driving indoor CO2 toward levels harmful to human cognition, GeoHealth,
Research Article (https://doi.org/10.1029/2019GH000237)
Swiss Real Estate Market 2021 | March 2021 37
IoT also deployed in In Switzerland, the Federal Council responded to the growing number of COVID-19 infections by
fight against imposing strict measures to contain the pandemic. Companies had to take measures to increase
COVID-19 the physical distance between employees, particularly in communal areas such as work canteens
and other places where queues form. People-counting is an effective prevention tool for tracking
human traffic flows and avoiding overcrowding. This is made possible by counting sensors – such
as those developed by the high-tech company Xovis based in Bern, which has grown its business
by installing such sensors in airports around the world. This type of sensor counts human traffic
and transfers the latest figures to the cloud. The solution does not capture personal data and is
compliant with the EU’s General Data Protection Regulation. Employees and visitors to office
buildings are informed about human traffic flows in real time via dedicated signage screens, a web
app, or directly on their mobile phones (Fig. 52). While transmission of the virus obviously cannot
be wholly avoided through this mechanism, people are sensitized to crowd flows and can adapt
visiting times accordingly.
IoT as basis for The Internet of Things is being used not just for the digitalization of office buildings, but also for
smart cities the digital transformation of entire cities. All across Europe, municipalities and utility companies are
launching “smart city” initiatives to improve quality of life, manage resources more efficiently, opti-
mize processes, and deliver innovative services. The digitalization of our cities will open up an array
of opportunities with numerous areas of application, such as intelligent parking systems, smart en-
ergy metering (electricity, heat, water), and outdoor monitoring of air quality and water levels. An-
other area of application open not just to private companies but also municipalities is asset track-
ing in connection with mobile infrastructures. For example, the police and other emergency ser-
vices can pinpoint their vehicles and equipment at all times, and therefore deploy them in an expe-
dient way.
Zurich evolving into In Zurich, the city-owned utility provider (ewz) has implemented an energy-efficient communication
smart city network (Low Range, Wide Area Network or LoRaWAN) as part of its digital “smart city” strategy,
the aim being to deploy sensors across the city – particularly in areas where there is no electricity
supply or fiber-optic data connection infrastructure. This enables data to be transferred between
the numerous sensors installed in public areas (including buildings) and the corresponding compu-
ting centers. The application for managing the sensors is produced by Akenza and made available
through Microsoft’s local Azure cloud. Users and operators can manage their sensors and analyze
data on this scalable platform. On this basis, the city of Zurich has been testing the implementa-
tion of a smart parking system for an e-car station that displays the current availability of outside
parking spaces (including charging stations). Given such innovative developments, it is not surpris-
ing that the IMD Business School ranked Zurich in an outstanding third place in its 2020 Smart
City index.

Fig. 51: Service button of facility manager ISS Fig. 52: “Canteen occupancy” signage screen
Pushing the button triggers a cleaning request Evaluation of canteen utilization

Source: ISS Source: Akenza

38 Swiss Real Estate Market 2021 | March 2021

Retail property

A bad start to the year for retail

Changes in mobility behavior that will translate into less footfall even after COVID-19 are
likely to accelerate the structural change in bricks-and-mortar retailing. This
phenomenon is also being driven by the pandemic-instigated shift in sales to the online
channel.

Second lockdown The stationary retail trade has endured a very bad start to the year. High infection rates and fears
hits non-food retailers of mutant versions of coronavirus have led to a second lockdown for non-essential goods retailers.
Mobility in Switzerland has not slumped as dramatically as it did during the first lockdown (Fig. 56),
since schools are to be kept open as long as possible, certain service businesses have remained
open (e.g. hair salons), and people have learned how to cope with the virus in their day-to-day
lives (masks, physical distancing). But although the months of January and February are typically
low in revenues, the potentially prolonged lockdown phase could have a serious impact on the
non-food sector, whereas the food segment is benefiting from the closure of restaurants and
empty canteens.
Abnormal sales In other words, 2021 has kicked off in the topsy-turvy manner that characterized the whole of
growth in the topsy- 2020. A look back at last year helps to give a better idea of the consequences of the latest lock-
turvy year of 2020 down. After the first lockdown, in which shops remain closed for almost two months and suffered
appalling slumps in sales, the retail trade recorded a surprisingly strong recovery (Fig. 53). Overall,
nominal sales last year rose by 7.2% in the year-on-year comparison – a growth rate not seen for
decades.
Lockdown eliminates Following a relatively stable start to 2020 (Phase 1, Fig. 54), sales in the food segment then
competition of food picked up strongly toward the end of February. A dramatic spike in COVID-19 infections and the
retailers first cases in Switzerland then prompted consumers to start hoarding products. The closure of
borders, all bars and restaurants, and large parts of the non-food retail trade by the Federal Coun-
cil from March 17, 2020 ushered in a second phase that could hardly have affected the various
segments more differently. For food retailers, the competition from bars, restaurants, and cross-
border shopping was suddenly removed from the equation. Between March and May, the sales of
the food and near-food segment recorded a rise of some 20%. Although food sales then drifted
down slightly once restaurants and bars were able to open from May 11 and country borders were
reopened on June 15, they remained above pre-crisis levels (Phase 3). And as a second wave of
infection began to build in the fall, food sales then resumed their upward trajectory (Phase 4). The
closure of restaurants as well as cultural, sporting and leisure facilities from December 22 is likely
to have boosted food sales to a similar extent as during the first wave.

Fig. 53: Surprising sales growth in retailing in 2020 Fig. 54: Yo-yo trajectory of retail sales by area
Nominal retail sales growth (seasonally and number-of-sales-days adjusted) Nominal retail sales, indexed (Jan. 2012 = 100), seasonally adjusted

15% 2016 2017 2018 2019 2020 Total Food/near-food Non-food

10% 160
5%
0% 140
-5%
-10% 120
-15%
Non-Food 100
-20%
Food/near-food

Non-food

Household and living

DIY/gardening/auto

Leisure
Total

Personal care and health

Home electronics
Clothing/shoes

80
accessories

60

Phase 1 Phase 2 Phase 3 Phase 4

40
09/2019 11/2019 01/2020 03/2020 05/2020 07/2020 09/2020 11/2020

Source: GfK, Credit Suisse Last data point: 12/2020 Source: GfK, Credit Suisse Last data point: 12/2020

Swiss Real Estate Market 2021 | March 2021 39

Lockdowns have In the non-food area, by contrast, the shutdown of the stationary sales channel from mid-March to
drastic consequences mid-May led to a historic year-on-year collapse in sales in March (-21%) and April (-40%,
for non-food Fig. 54). In May, the fine weather and a catch-up effect following the reopening of stores trig-
gered a sales boom, above all in the DIY/garden/auto accessories (full-year: +10.3%) and leisure
(+8.3%) segments, which manifested itself in record-high sales increases of almost 58% and
45% respectively. For the year as a whole, there were also strong rises in the personal care and
health (+7.7%) and home electronics (+10.2%) segments. Overall, this helped the non-food seg-
ment to record a sales rise of 23% in May. During the third and fourth phases too, the above-
mentioned areas developed well, with the result that the non-food segment ultimately recorded an
annual sales rise of 2.7%.

Strong polarization But this aggregated picture of retail segments conceals a number of very different developments.
According to a survey of retailers and manufacturers carried out by Fuhrer & Hotz, more than a
third performed above their budgeted level, whereas 46% fell short. Polarization of this kind has
not been seen at any other point in the last decade. The contrast is particularly apparent in the
clothing/shoes area, which suffered a full-year slump in sales of 15.4%. Also among the losers
were jewelry, watch, and cosmetics stores, which missed out not only on the steady stream of of-
fice workers, but most crucially on foreign tourists. The difference in profitability figures is less
pronounced, which can be explained by government support measures (e.g. compensation for
short-time working), among other things.

Rapid recovery not The rapid recovery of the retail trade is not a purely Swiss phenomenon – neighboring countries
just a Swiss recorded similar developments. In Germany, the retail trade recorded a nominal sales increase of
phenomenon 5.3% over the same period. Unlike in its neighboring countries, however, retail trade sentiment
had risen well above pre-crisis levels by the end of 2020, buoyed by the higher sales figures.

Drivers of the strong Over the last year, consumers have concentrated their spending above all in Switzerland. A combi-
sales growth in 2020 nation of the slump in foreign holidays and the effective ban on cross-border shopping in the wake
of border closures had the effect of rerouting a huge proportion of purchases that would normally
be made abroad back to Switzerland. In the case of cross-border shopping (“retail tourism”), the
value of Swiss purchases abroad slumped by 25%. But there was also evidence of a rerouting of
consumer spending within Switzerland itself: As households spent much less on concerts, sporting
events, restaurant meals, etc., they had more income at their disposal to spend on traditional re-
tail. Shopping – be it in-store or online – was one of the few leisure activities that was possible
and relatively safe for the great majority of the year.
Changed purchasing The pandemic nonetheless changed consumer purchasing behavior. Consumers are now purchas-
behavior ing less often, but in greater volumes when they do. Particularly in demand are products for living
and working at home, whereas there is barely any demand for office clothing or clothes to go out
in. Fewer spontaneous/opportunistic purchases are being made – above all because mobility pat-
terns have changed. As mobility behavior plays a key role in the world of shopping, we have sub-
jected the pandemic’s influence on mobility to special analysis.

Fig. 55: Slump in worker/student commuting activity Fig. 56: Disproportionate decline in use of public transport
Proportion of persons commuting to a fixed place of work/education in % 7-day average relative to the starting value (0%) for the period 10.01. – 29.02.2020

60% 40%

50% 20%

0%
40%
-20%
30%
-40%
20%
-60% Motor vehicle
10% Public transport
-80% On foot
Other
0% -100%
01/2020 03/2020 05/2020 07/2020 09/2020 11/2020 01/2021 01/2020 03/2020 05/2020 07/2020 09/2020 11/2020 01/2021

Source: intervista Last data point: 31.01.2021 Source: intervista Last data point: 31.01.2021

40 Swiss Real Estate Market 2021 | March 2021

 Repercussions of lockdown for mobility behavior

Mobility behavior During the first lockdown, a significant proportion of the population either did not work, or worked
changes from home. As a result, the proportion of commuters almost halved (Fig. 55). In the second, par-
tial lockdown from January 18, 2021, non-essential stores have remained closed. Restaurants as
well as cultural, sporting, and leisure facilities were forced to close just before Christmas. By con-
trast, educational institutions (with the exception of universities) have remained open, as have cer-
tain providers of personal services such as hair salons (true as of start of February 2020).

Applying Senozon’s In order to model the repercussions of the various scenarios for frequencies, we have been given
simulation technology access to the simulation technology of Senozon AG, an engineering company with offices in Zur-
ich and Berlin that specializes in the model-based calculation of frequencies. For the illustration of
frequencies during the initial lockdown, when non-food businesses as well as educational estab-
lishments were closed, we have assumed for the purposes of the model calculations that only
50% of workers and no pupils/students at all were commuting.
Hard lockdown saw Based on these assumptions, per-hectare pedestrian frequencies work out some 30–70% lower
pedestrian than usual (Fig. 57). In a few areas, a decline as high as 80% can be discerned. The decline is
frequencies more more pronounced in urban areas than in rural regions, where the decline per hectare works out at
than halve 35–50%. This makes sense insofar as universities, universities of applied science, and secondary
schools are typically located in towns or cities. Switzerland’s inner cities, home to numerous office
buildings and providers of personal services, were also much less visited during the first lockdown.
By contrast, the decline in per-hectare pedestrian frequencies in residential districts and in rural
regions was much less stark, as these are primarily the areas in which people live.

Partial lockdown cut The difference between town and country is no longer so clearly visible once the return of stu-
frequencies by dents to their educational establishments and a 50% decline in the number of workers based at
around a third home is fed into the model. The slump in per-hectare pedestrian frequencies in this scenario of a
partial lockdown – which broadly corresponds to the situation of the second lockdown from Janu-
ary 18, 2021 onward – in most cases still amounts to between 20% and 50%. The partial lock-
down leads to a more even reduction in mobility in towns and cities, which means the differences
between inner-city and residential districts are no longer so clearly apparent (Fig. 57). Only at
purely commercial sites is a slump of more than 50% still evident.

Lockdown also In addition to pedestrian frequencies, car passenger frequencies also decline. According to the
reduces car model, the partial lockdown leads to a decline of between 25% and 45% in per-hectare car pas-
passenger senger frequencies. Furthermore, vehicle traffic appears to be clustered along the main axes, i.e.
frequencies the decline is more tangible on the roads of residential districts than on major roads. While a direct
town-country comparison once again works out in favor of the former, there are still differences
evident within urban centers themselves. Inner-city areas record a greater slump in per-hectare
car passenger frequencies than areas on the periphery. In the former, the modeled lockdown
leads to a decline in per-hectare car passenger frequencies of up to 70%. Once again, the model
implies that residential districts are less severely affected. By contrast, given the epidemiological
situation, the use of public transport (PT) was significantly down during the second lockdown
(Fig. 56).
Post-coronavirus: In a post-coronavirus scenario, in which the proportion of home working is determined individually
Frequencies will not by the sector in question and the income level of employees, the decline in per-hectare pedestrian
recover fully frequencies amounts to between 5% and 30%. Here we see how urban areas such as St. Gallen,
for example, are more greatly affected than rural regions. Within the cities themselves, the decline
in footfall is less pronounced in residential areas than it is in districts with a particularly high pro-
portion of office buildings, or in mixed areas. In St. Gallen, the inner city experiences a slump in
per-hectare pedestrian frequencies of between 20% and 30%. The same is true for the area
around the university. In other words, it is likely that – even when the pandemic is over – pedes-
trian footfall and spontaneous purchases will tend to increase in residential districts but decline
slightly in city centers, above all in districts that are home to numerous office complexes. The de-
cline in rural communities is likely to be some 5% to 10% lower across the board.

Swiss Real Estate Market 2021 | March 2021 41

Post-coronavirus: In the case of per-hectare car passenger frequencies, the post-coronavirus scenario envisages a
Average frequency decline of between 5% and 25%. Here too, there is a significant difference between town and
declines of 15% to country. Whereas the decline on rural roads amounts to around 5% to 10%, it is much more ap-
20% expected parent on key urban transport axes, namely 15% to 25%. Inner-city areas are particularly hard-hit.
The analysis of per-hectare car passenger frequencies provides important findings for retailers
with businesses on key transport axes or major streets, and whose consumers travel by car. Ac-
cording to the model, sites on major or connecting roads are likely to suffer the least from reduced
mobility. In urban areas, the negative repercussions are likely to be less keenly felt on the periph-
ery and in outer suburbs than in the city center.

Consequences for From this modeling process it can be inferred that frequencies in the post-COVID-19 era will not
stationary retail return to pre-crisis levels. Higher levels of home working will reduce pedestrian frequencies by be-
tween 5% and 30%, and the frequencies of drivers by between 5% and 25%. The reduced num-
ber of employees in the office will above all weigh on spontaneous and opportunistic purchases,
which are likely to be less numerous in the inner cities in particular. But as people spend less
money in the inner city, the outer urban areas and rural regions are set to benefit. By contrast,
regular purchases at the local supermarket or shopping mall are unlikely to be threatened. Shop-
ping malls, whose catchment areas rely much more heavily on local residents than on local work-
ers, can be expected to benefit most of all. The greater their relative appeal compared to other
shopping centers, the greater this benefit will be. In other words, the reduction in mobility will favor
shopping locations that can function as a one-stop shop. Due to their strong pulling power, the
key high streets are likewise likely to suffer less than other inner-city shopping areas. Local shops
will also be among the winners of the reduction in mobility entailed by greater home working,
whereas stationary retailers typically frequented by consumers on their way home from work will
be at a disadvantage. A similar effect will arise due to the efforts of consumers to increasingly do
their shopping on foot or by bike, with a view to doing their bit for climate protection.

Online retailing If COVID-19 had occurred just a few years ago, consumers would simply have had to do without
surges ahead many of their desired goods, whereas during the 2020 lockdown they were able to switch seam-
lessly to the online channel. The consequence was an unprecedented flood of parcels, with logis-
tics operators working close to the point of system collapse. Over 2020 as a whole, online traders
are likely to have booked a year-on-year sales increase of 35% across all ranges (Fig. 58). Of this
figure, around 10% is likely to have been structural growth (as in previous years), with 25% at-
tributable to COVID-19. As a result of the online boom, Swiss Post delivered 23% more parcels
last year. The repeated lockdown of bricks-and-mortar retailers therefore drove a large number of
new customers into the arms of online traders. This is likely to have lasting consequences. Some
brick-and-mortar retailers have kept their stores open during the partial lockdown in early 2021
despite losses, in order to remind clients of their presence. But the risk of customers who have
headed elsewhere due to COVID-19 never coming back is very real. Even in the summer of
2020, following the reopening after the first lockdown, online purchases continued to record a
year-on-year rise of 30%.

Fig. 57: Mobility to be reduced even in a post-COVID-19 world Fig. 58: Diverging sales development of online and offline trade
Frequencies in % of pre-coronavirus level by scenario Nominal sales growth in retailing (*estimate)

Lockdown Partial lockdown Post-coronavirus 35%

100%
90% 30% 2020*
Pedestrians rural

80%
Car passengers rural

25% 2015 – 2019

70%
20%
Car passengers urban

60%
Pedestrians urban

50%
Pedestrians rural

15%
Car passengers

40%
Pedestrians rural

30% 10%
Pedestrians urban

20%
Pedestrians urban

5%
10%
0% 0%

-5%
Retail trade total Online trade Stationary trade

Source: Senozon, Credit Suisse Source: GfK, Association of Swiss Commerce, Credit Suisse Last data point: 2020

42 Swiss Real Estate Market 2021 | March 2021

Consequences for The additional boost to online trading notwithstanding, the stationary retail segment has generally
the retail property recovered well. After seven years of successive declines in revenues, it recorded an increase of
market 3.6% in 2020. But this is a deceptive statistic: Bridging loans, forbearance measures, and com-
pensation for short-time working may have put the brakes on structural change in the short term,
but this phenomenon is likely to bounce back even more strongly after COVID-19. In addition, the
healthy sales figures of the retail sector overall conceal a number of significant differences be-
tween individual retailers. International retailers, who generally fared less well, are reducing their
footprint all around the world, which can also be expected to have consequences for Switzerland.
The financial situation of many companies has now deteriorated again following a brief improve-
ment in the late summer. Retailers have responded to the situation by slashing inventories to the
minimum and letting staff go. In the major centers in particular, which are traditionally magnets for
shoppers, stores have had to reduce headcount due to lower footfall.

Supply rates rise Cutbacks are also being made on the premises front. Expiring rental agreements are in some
again cases not being extended, or are only being re-signed in exchange for rent concessions. This reti-
cence has driven the volume of vacant retail premises to record highs (Fig. 59). For a while, a
combination of use conversion and the letting of premises to less financially robust tenants led to a
reduction. But with the advent of the coronavirus crisis, the volume of advertised space has now
risen once again – and in almost all size categories. Most striking has been the increase in adver-
tised premises offering 2000 m² or more (Fig. 60). This is a reflection of the trend towards
smaller shop premises against a backdrop of surging online sales.

Outlook for 2021: The impressive sales figures of 2020 have set the bar very high in many segments. As wide-
Phenomenon of spread normalization is unlikely to occur until the second half of 2021, shifts in consumer spend-
space reduction to ing can be expected to influence sales figures positively in the current year too. This is first and
continue foremost true of the food/near-food segment. However, rising unemployment and an expected
decline in purchasing power are likely to hinder any dramatic catch-up effect after the pandemic.
The decisive factor for the development of sales is likely to be what the Swiss choose to do with
their vacations in the summer and fall. If summer vacations are once again predominantly taken in
Switzerland, the figures recorded in 2020 will be within reach. But if not, a decline is likely. The
2020 sales boom triggered by COVID-19 is then likely to be remembered as just one – albeit
unique – bright spot in a long succession of disappointing sales developments. When it comes to
the individual segments, developments are likely to be turned on their head once the pandemic
has been mastered, i.e. retail areas that have enjoyed strong growth due to the exceptional cir-
cumstances are likely to lose ground compared to the previous year, and vice versa.

Structural change to In addition to the pure online traders, omni-channel providers are also likely to number among the
last for years winners this year. These retailers, who have both a stationary and an online presence, recorded
disproportionate growth in online sales during lockdown, thereby at least partly offsetting their in-
store losses. COVID-19 has contributed to the increasing fusion of these two formats, to the point
where they cannot even be separated in many companies. Quite where the sweet spot will ulti-
mately come to lie between physical presence and online visibility remains to be seen. But if the
experiences of other countries are anything to go by, the share of online sales in Switzerland is
only likely to rise further over the coming years. And as long as this remains the case, retail prop-
erty will remain under pressure.

Fig. 59: Supply of available retail space reaches new high Fig. 60: Larger stores increasingly being relinquished
Advertised supply of space per quarter in m² Advertised supply of space (wider definition) per quarter by premises size in m²

700,000 Q4 2018 Q4 2019 Q4 2020

Shopping (wider definition) 100,000
600,000 Shopping (narrower definition) 90,000
80,000
500,000 70,000
60,000
400,000
50,000
300,000 40,000
30,000
200,000 20,000
10,000
100,000 0
0 – 50 50 – 100 – 150 – 200 – 300 – 400 – 500 – 750 – 1000 >
0 100 150 200 300 400 500 750 1000 – 2000
2006 2008 2010 2012 2014 2016 2018 2020 2000

Source: Meta-Sys, Credit Suisse Last data point: Q4/2020 Source: Meta-Sys, Credit Suisse Last data point: Q4/2020

Swiss Real Estate Market 2021 | March 2021 43

Logistics real estate

Real estate segment of the hour

The COVID-19 pandemic has strengthened investor interest in logistics real estate all
around the world. In Switzerland too, this segment is increasingly forcing its way into
the spotlight. But vibrant demand is matched by only limited supply.

Logistics real estate a The coronavirus crisis has triggered a worldwide decline in demand for commercial property, and
winner ... transaction volumes have been developing weakly in many locations as a result. Moreover, invest-
ments geared around retail space, hotels, or office property have taken a pummeling on stock ex-
changes. But logistics real estate is another story: Contrary to the general trend, listed invest-
ments in global logistics and industrial properties have surged by 15.4% over the last year (see
also “Real estate investments” section, Fig. 68).
… of the pandemic- The confidence of investors in the future of logistics properties is based on the remarkable boost
driven boost to online that COVID-19 has given to online trading. Due to lockdowns imposed around the world, the re-
trading lentless growth of this distribution channel has accelerated sharply once again. In Switzerland,
plenty of upward potential remains in the shift of retail sales to the online channel. Over the past
year, the proportion of sales generated online is likely to have increased by more than a third (cf.
“Retail property” section, page 42). In order to avoid having to do without certain goods, a number
of households are likely to have made their first online purchases ever, or at least increased the
proportion of such purchases significantly. It is only reasonable to assume that a significant part of
this shift will remain in place even when the pandemic is over.
Logistics as USP The growth of online trading presents a major challenge on the logistical front. The key to this
business is to provide an ever-increasing volume of small packages to end clients as rapidly as
possible. In Switzerland, the trend is highlighted by the exponential growth in the volume of parcels
handled by Swiss Post since 2014 (Fig. 61). In 2020, this rose by a stratospheric 23.3%. But the
competition between the various online retailers has long been about more than just price – logis-
tics has become a key part of strategy. Next-day delivery is now standard, while same-day delivery
is on the rise. Furthermore, customers now expect a growing spectrum of additional services – in-
cluding being able to return goods free of charge.

Fig. 61: Exponential growth in parcel volumes Fig. 62: Demand clustered in major urban areas
Volume of parcels transported by Swiss Post Number of search registrations for warehousing space on online portals, per MS re-
gion: excluding registrations for premises < 200 m²
Parcel volumes (mn items) Growth in % (lhs) Main transport axes
24% 200 > 100
50 – 100
21% 175
30 – 50
18% 150 10 – 30
15% 125 < 10

12% 100
9% 75
6% 50
3% 25
0% 0
-3% -25
-6% -50
2006 2008 2010 2012 2014 2016 2018 2020

Source: Swiss Post, Credit Suisse Last data point: 2020 Source: Realmatch360, Credit Suisse, Geostat Last data point: 05.12.2020

Growing need for Not only has the logistics behind online trading become much more complex, it now also requires
space ... more space. Prologis, a global leading developer and operator of logistics properties, estimates
that online traders need at least three times the space of traditional bricks-and-mortar retailers.3
The reasons for this include the enormous breadth and depth of product ranges, the absence of
3
Prologis Research (2020): “Accelerated retail evolution could bolster demand for well-located logistics space”.
44 Swiss Real Estate Market 2021 | March 2021
 store shelving, as well as the space required for order picking, returns processing, and other sup-
plementary services. But it is not just online traders who are likely to be expanding their logistics
space over the coming years – many manufacturing companies were caught on the wrong foot by
the coronavirus crisis, as the pandemic led to bottlenecks and disruption of supply chains.

… above all in An indication of the geographical distribution of demand for warehousing space in Switzerland can
proximity to urban be obtained from analysis of online property search registrations (Fig. 62). These show that space
centers is most in demand in the major conurbations – particularly the wider Zurich region. In the urban
centers themselves, it is above all smaller premises that are likely to be in demand, such as for the
fine distribution of goods (“the final mile”) and to cover short-term storage needs. As well as the
centers, demand is strong along the main transportation axes. These are typically home to distri-
bution and transport centers, which require significant space.

Swiss logistics real estate market has significant investment need

Much of existing In view of the increasing significance of business-to-client (B2C) supply chains, the automation of
building stock intralogistics, and the growing sustainability trend, the demands made of logistics properties are
outdated on the rise. Much of the existing building stock in Switzerland can no longer meet these needs.
Analysis of a portfolio of properties valued by Wüest Partner reveals that 47% of existing proper-
ties are more than 40 years old (Fig. 63). As a consequence, logistics companies, traders, and
producers all began to ramp up their investment in logistics space around 15 years ago. A peak
was reached in 2015 with a construction investment volume of around CHF 1 billion. Construction
investment then declined again up until 2018 (Fig. 64).

Significant hurdles But the development of major distribution and cross-docking facilities in Switzerland is becoming
for larger challenging. The ideal scenario of a large site with expansion potential together with freeway and
newbuilds rail connections is rarely achievable any longer. Available sites with these characteristics are often
jealously guarded by municipalities – in the hope of major residential developments springing up in
the future in connection with the creation of a high number of jobs. Accordingly, companies are
increasingly settling on a compromise for their logistics projects, and resorting to multi-story prop-
erties or decentralized warehousing, for example.

Fig. 63: Almost a half of logistics space is more than 40 years old Fig. 64: Construction investment has declined again in recent years
Logistics properties by building period (sample size: 193) Construction investment in warehousing and depots, in CHF mn

< 1940 Newbuild Conversion Retail space (rhs)

1940 – 1959 1,000 2,000
6.2% 9.3%
1960 – 1969 900 1,800
1970 – 1979 14.5% 800 1,600
9.3%
1980 – 1989
700 1,400
1990 – 1999
2000 – 2009 600 1,200
> 2009 500 1,000
15.5%
400 800
16.6%
300 600
200 400

13.0% 100 200

15.5% 0 0
1994 1997 2000 2003 2006 2009 2012 2015 2018

Source: Wüest Partner Last data point: 2020 Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 2018

Swiss rental market Given the high demand for space, construction activity can be expected to pick up again over the
remains relatively next few years. Analysis of planning applications reveals that some CHF 2.2 billion of major ware-
small housing and logistics projects were initiated across Switzerland between 2016 and 2020. The fo-
cus of this planning lies on the major conurbations and the main transportation axes along the A1
and A2 freeways (Fig. 65). A striking aspect of Swiss logistics development is that companies
themselves are the developers in the majority of projects. Only a minority of properties are being
built by construction and real estate companies (10.9%), or by banks, insurers and pension funds
(2.6%), with a view to later rental.

Swiss Real Estate Market 2021 | March 2021 45

Traders facing Almost a half of the investment planned over the period 2016–2020 was driven by trading or by
logistical bottlenecks logistics/transport companies. Some of the largest developers are the major Swiss retailers. For
example, Migros is currently investing several hundred million francs in capacity expansion at its
distribution centers in Mosseedorf (Canton Bern) and Neuendorf (Canton Solothurn). Moreover,
the fast-growing Swiss online retailers have announced a slew of logistics projects for which plan-
ning applications have not even been submitted yet in some cases. The largest Swiss online re-
tailer, Migros subsidiary Digitec Galaxus, is planning a new distribution service center in Utzen-
storf, Canton Bern, with a Swiss Post parcel sorting center to be built right next door. This project
is scheduled to complete in 2023. The company Competec, which operates the second-largest
Swiss online shop (brack.ch), is also currently expanding its logistics capacities in Willisau (Canton
Lucerne): Last summer, it announced that its dramatically growing need for space was forcing it
to abandon the planned phasing of the project in favor of rapid completion.

Fig. 65: Focus on urban agglomerations and freeway interchanges

Planned construction investment (planning applications) with warehousing/logistics as principal form of use, by developer category, 2016
– 2020 (projects with investment volume of CHF 10 mn or more)

9.7% 10.9%
Developer category 2.6%
Schaffhausen
Construction/real estate
Basel
Trading/Retail
Winterthur 24.0% 27.1%
Logistics/transport
Olten
Pharma Zürich St. Gallen
Production
Biel/Bienne 4.7%
Financial industry 21.0%
Other
Neuchâtel Luzern
Bern
Chur
Fribourg Thun

Lausanne

Sion
Genève
Planned construction invest.
Lugano CHF 10 – 20 mn
CHF 20 – 30 mn
CHF 30 – 50 mn
Chiasso > CHF 50 mn
Main transport axes
Source: Baublatt, Credit Suisse, Geostat Last data point: 12/2020

Logistics real estate delivers yield and increases diversification

Yields under pressure The combination of high demand and limited supply has led to rising prices and downward pres-
sure on yields in the market for logistics rental properties too. According to an evaluation of 200
logistics investment properties valued by Wüest Partner, the median gross yield declined from
8.0% to 5.9% between 2011 and 2020 (Fig. 66). Furthermore, market observers believe the
transaction market has pretty much dried up. For the few attractive properties that are still chang-
ing hands – such as parcel distribution centers at top locations – gross initial yields of 3.5% or
less are no longer a rarity. Accordingly, buyers are showing a preference for industrial properties
that can subsequently be repurposed as logistics properties.
High demand creates The general trend of declining yields is not just the result of rising prices. Although there is a scar-
rental income city of available supply at attractive locations, particularly when it comes to large-scale premises,
potential market rents for warehouse facilities in Switzerland – running counter to international develop-
ments – exhibited a downward trend until 2018. In recent years, the median target rent for ware-
housing premises has settled at around CHF 75/m² (Fig. 66); if properties with integrated office
premises are included, the cost lies at around CHF 90–100/m². However, the rents of modern,
spacious premises in good locations or close to urban centers are far higher. One of the reasons
why rental income has not managed to keep up with price growth – in addition to the widespread
problem of outdated properties – was because many logistics and transport companies operate
with low margins. However, advertised rents for warehouse space have risen recently. Particularly
in the case of modern and larger warehouse space in good locations, effective rental income can
also be expected to increase again in the future and thus put a brake on the yield compression
somewhat.
46 Swiss Real Estate Market 2021 | March 2021
Direct market access While logistics real estate has long been on the radar of real estate investors in the Anglo-Saxon
requires expertise world, as well as in Germany, it has only been discovered gradually by Swiss investors in the last
few years. The first Swiss investment products have now been created that target this asset class
segment. Thanks to these products, investors who do not possess profound knowledge of the lo-
gistics market – which is essential for successful investing in this niche – can gain exposure to the
market nonetheless. In order to be suitable as an investment property, a logistics property must
fulfill specific criteria. The key factor here is third-party usage. Large premises are typically rented
by just a few companies, making dependency on individual tenants high in many cases, which
makes the question of re-letting when a contract term approaches its end a serious concern. In
order to minimize the long-term risk of rent income losses and improve the chances of a property
retaining its value, investment properties should offer space that appeals to the greatest possible
number of potential tenants. This presupposes a macro-location and micro-location that are ad-
vantageous from a logistics perspective, and a design that facilitates the flexible use of space. Ac-
cordingly, the more specific the requirements of the tenant, the longer the agreed contract term
should be.

Conclusion: Appeal There are a number of reasons why investors with large real estate portfolios in particular should
from both a yield and think of adding logistics property to their portfolios. For one thing, logistics properties can continue
a diversification to make a positive contribution to the overall return of a portfolio, even if the yield premium com-
standpoint pared to other commercial property types is disappearing. According to the MSCI Swiss Real Es-
tate Index, the yield premium (based on net cash flow yield) of logistics/industrial properties over
office and retail properties amounted to more than 150 basis points in 2019. Second, logistics
properties make a significant contribution to the diversification of a real estate portfolio, as the
yields here are driven by different factors to those of residential or office properties. Total returns
on logistic premises exhibit a negative correlation with the former, and have virtually no correlation
at all with the latter. Once upon a time, logistics yields had a positive correlation with retail property
yields. But with the rise of online trading, which favors logistics property at the expense of retail
property, this has simply disappeared (Fig. 67). Third, a combination of scarcity of supply and the
healthy long-term demand outlook makes logistics real estate attractive. Unlike in the case of of-
fice property and multi-family dwellings, no oversupply has built up here in recent years, and there
are no structural reasons pointing to any decline in demand in the future.

Fig. 66: Persistent pressure on rental income and gross yield Fig. 67: Decoupling of logistics and retail property yields
Target rent and gross return of logistics properties by year of valuation (median); Total return as per Swiss Real Estate Index (MSCI)
sample size: 200

Gross yield entire property (rhs) Warehousing space target rent (CHF/m²) Multi-family dwellings Office space Retail space Industrial/logistics
90 9% 16%

80 8% 14%
70 7% 12%
60 6%
10%
50 5%
8%
40 4%
6%
30 3%
4%
20 2%

10 1% 2%

0 0% 0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2002 2004 2006 2008 2010 2012 2014 2016 2018

Historical performance data and financial market scenarios are no reliable indicator of Historical performance data and financial market scenarios are no reliable indicator of
future results future results

Source: Wüest Partner Last data point: 2020 Source: MSCI Last data point: 2019

Swiss Real Estate Market 2021 | March 2021 47

Real estate investments – direct investments

Limited COVID losses

The COVID-19 pandemic has led to dislocations in real estate investments all around
the world – particularly for commercial property. For the time being, Swiss investors are
likely to remain faithful to this asset class given the lack of more appealing alternatives.

Massive upheaval in At the start of 2020, the first reports started circulating in the media about a “mysterious lung dis-
global markets for ease” in the Chinese city of Wuhan. Within just a few weeks, what looked like a local issue had
real estate evolved into the certainty that an unstoppable pandemic was spreading around the world. The dis-
investments locations in financial markets triggered by this development were accordingly extreme. Uncertainty
quickly spread to the world of real estate, and the prices of listed real estate investments suffered
a dramatic slump. On the one hand investors feared a long deep recession that would drag down
the real estate market too; on the other, global lockdowns were imposed that temporarily made it
impossible for tenants to generate sufficient sales on their rented premises.

Uncertainty over long- Thanks to comprehensive fiscal support measures, however, the concerns of investors soon
term repercussions switched to the long-term repercussions of the pandemic. Thanks to the rapid production of vac-
cines, the direct effects of the pandemic should subside in a few months, thereby lifting re-
strictions on the use of real estate and triggering an increase in income from rental premises.
What now remains is the uncertainty over the longer-term consequences of the pandemic, which
are likely to affect the various segments of the market to differing degrees. The expectations of
market participants in this respect can be most directly gleaned from the global performance of
listed real estate investments (Fig. 68). In the second half of March 2020, these had already
started to recover from their initial reverses. That said, a number of sector indices were still well
below their prior-year levels at the start of 2021. Most notable here was the performance of retail
and office premises (-23.7%). By contrast, investors consider the “winners” of this crisis to be the
segment of logistics real estate (+15.4%).
Ongoing skepticism In Switzerland too, investors turned their backs on commercial property at the start of the pan-
over commercial demic, as can be seen from the negative performance of real estate shares (-13.1%) and com-
property mercial real estate funds (-8.0%) over the last twelve months. By contrast, direct investments in
residential and mixed investment properties recorded a positive performance (+3.2%), as did resi-
dential property funds (+6.0%). Moreover, the owners of commercial premises affected by the
lockdown, primarily from the areas of retailing, hotels & catering, and leisure/sport, found them-
selves confronted with demands for rent waivers. The wrangling over state-decreed concessions

Fig. 68: COVID-related exodus from commercial property Fig. 69: Damage due to rent waivers is kept within limits
12 month total returns of global REIT indices (MSCI) by sector compared to Swiss COVID-19-related rent waivers at Swiss real estate funds and investment compa-
real estate investment, *residential and mixed investment properties nies, as % of rental income, according to semi-annual/annual reports.

Retail REITs 7%
80% percentile
Office REITs 6%
Hotel REITs
5%
Healthcare REITs Median
Swiss real estate shares -13.1% 4%
20% percentile
Residential REITs 3%
Swiss real estate funds: commercial -8.0%
2%
Direct investments CH* 3.2%
All Swiss real estate funds 3.4% 1%
SPI 0%
Real estate co.:

Real estate co.:

Funds: other

Total listed
residential

commercial

Funds: total

retail/hospitality
Real estate co.:

Swiss real estate funds: residential

real estate

6.0%
securities
Funds:

Funds:

MSCI World
> 20%

other

total

Industrial REITs

-30% -20% -10% 0% 10% 20%

Historical performance data and financial market scenarios are no reliable indicator of
future results
Source: Annual reports of real estate funds and investment companies, Credit Suisse
Source: Datastream, IAZI, Credit Suisse Last data point: 01.02.2021 Last data point: Q3/2020

48 Swiss Real Estate Market 2021 | March 2021

 from landlords gave rise to heightened legal uncertainty until the corresponding bill was rejected by
the Council of States at the start of December 2020. But even before this point, numerous land-
lords had come to amicable agreements for rental relief with affected tenants.

Rent waivers The total extent of these waivers is not known. An indication can be gleaned from the business
tolerable reports of real estate companies, however. According to the annual (and semi-annual) reports of
listed real estate funds and real estate investment companies published up to mid-January 2021,
these companies have forgone rental income amounting to some CHF 36 mn, which equates to
1.7% of rental income (or 2.8% if only the rental income from commercial premises is taken into
account). In the case of commercial real estate funds, the median rent waiver amounted to 3%,
but in the case of some funds it was substantially more (Fig. 69). The actual lost income is likely
to be even higher, as in many cases only figures for the first half of 2020 were available, and a
number of planned (but not yet granted) waivers have not yet been taken into consideration. Quite
a few landlords are likely to have been waiting for parliament’s decision on the commercial rents
bill before negotiating individual solutions with hard-hit tenants. Accordingly, rent waivers are likely
to reduce income of certain commercial property landlords in the current year too. However, these
temporary disruptions to rental streams are unlikely to feed through into the market values of the
properties themselves. What matters are the long-term prospects and thus in particular the ques-
tion of how the accelerated rise of online shopping, a persistent boom in home working, and a
slump in business tourism will impact on rental income streams in the long term.

Impact on the trans- The first repercussions of this changed income outlook are also evident in the transaction market.
action market limited In 2020, for example, the gross initial yields on office property rose for the first time since 2015
so far (from 2.9% to 3.0%, Fig. 70). By contrast, the initial yields on multi-family dwellings in the major
centers (2.7%) as well as outside of the centers (3.7%) fell to new lows. Also falling to a new low
in 2020 were the net cash flow returns on investment properties, which according to IAZI declined
to 3.2%. Here the ongoing negative interest rate environment continues to offer scope for higher
market values, which allows for positive valuation returns going forward. Away from the major ur-
ban areas, however, these value increases lose momentum – this being particularly true to date in
eastern Switzerland and Ticino, where a number of regions actually recorded a decline in values in
2019 (Fig. 71).
Multi-family dwellings The pandemic has led to uncertainty regarding the future demand for commercial property. Out-
remain the focus of side of the top locations, longer-term declines in demand remain a threat whose magnitude can
investors hardly be predicted from today’s standpoint. Given this backdrop, residential investment properties
are being even more strongly targeted by investors, despite vacancies rising further. However, in
view of the resurgence in oversupply risks in the rental apartment market and the difficult eco-
nomic situation, future value increases are likely to work out lower than in recent years, for which
3% or more has been the norm. We are therefore anticipating a total return of 4.0% to 4.5% in
2021.

Fig. 70: Initial yields of multi-family dwellings fall again Fig. 71: Residential segment: waning price growth to the east and
south
Transaction-based gross initial yields (median) of institutional investors; urban: large Growth in market values of multi-family dwellings by MS region, 2019; arrows: trend
centers including Lucerne, Lugano, St. Gallen, Bellinzona, and Chiasso compared to long-term average since 2010
> 4%
6%
3 – 4%
2 – 3%
5% 1 – 2%
0 – 1%
< 0%
4% No data

3%

2%
Residential rural Residential urban Office
1%
Strong increase
0% Increase
Sideways movement
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Decline
Strong decline

Historical performance data and financial market scenarios are no reliable indicator of Historical performance data and financial market scenarios are no reliable indicator of
future results future results

Source: REIDA, Meta-Sys, Credit Suisse Last data point: 12/2020 Source: REIDA, Meta-Sys, Credit Suisse, Geostat Last data point: 12/2019

Swiss Real Estate Market 2021 | March 2021 49

Real estate investments – indirect investments

Residential property: false sense

of security?
Listed Swiss real estate securities have once again proved to be a safe haven during the
coronavirus crisis. In particular, residential real estate funds are more popular than ever
and correspondingly expensive.

Swiss real estate Viewed at a global level, listed real estate investments are among the losers of the COVID-19
funds the star pandemic, particularly as they have recovered more slowly than other asset classes from the mar-
pupils ... ket crash at the start of the crisis. For example, the MSCI World Real Estate Index closed 5.9%
down at the end of 2020 (Fig. 72). Similar falls were recorded by Swiss real estate shares
(-6.7%), although these were very highly valued just before the correction and contain a high pro-
portion of commercial property, unlike real estate funds. But the picture for listed Swiss real estate
funds is very different: After an impressive year-end rally these ended up 10.8% in positive terri-
tory at the close of 2020, having already recorded a rise of 20.7% the year before. With this per-
formance, they have left other “COVID-resistant” markets such as Germany (+3.9%) and the US
(+4.6%) well behind.

… and residential real The darlings of investors in 2020 were Swiss residential real estate funds (+12.5%), although the
estate funds were the shares of real estate companies with a high residential component in their portfolios also proved
best of the best … very popular. By contrast, securities with a high proportion of office or retail property, as well as
properties from the hotel & catering sector, were relatively scorned – a pattern that was repeated
globally due to the gloomy long-term income outlook for these segments (Fig. 68).
… and this despite a The latest upward trajectory of Swiss real estate funds cannot be explained by any improvement in
difficult letting their income outlook. Although COVID-19 is not likely to have any detrimental long-term impact
situation on overall demand for residential property – unlike demand for retail or office property – the rental
market has been on a downward trajectory for years, as evidenced by rising oversupply tendencies
and downward pressure on rental income. In actual fact, the risk of lost income has increased
even further over the last year (Fig. 73). At 6.2%, the rent default rate of listed Swiss real estate
funds reached a new high. The rise was particularly strong in the case of commercial real estate
funds, where a total of 9.5% of target income fell victim to vacancies or rent waivers. But in the
case of residential real estate funds too, the rent default rate has risen noticeably to 5.5%.

Fig. 72: Real estate funds outperform despite COVID-19 Fig. 73: Acceleration in real estate fund vacancy growth
Total performance of indirect real estate investments, index: 1.1.2016 = 100 Rent default rates (as % of target rental income) of listed Swiss real estate funds
SXI Real Estate Funds SXI Real Estate Shares Total return Median Total residential Total commercial Total all funds
200 10%
Swiss Performance Index MSCI World Real Estate 2020
MSCI World: Office REIT MSCI World: Retail REIT 9%
180
8%
160 -6.7% 80% percentile
+3.8% 7%
140 +10.8% 6%
-5.9%
120 5%

100 -19.1% 4%
3%
80
-27.4% 2%
20% percentile
60 1%
40 0%
01/2016 01/2017 01/2018 01/2019 01/2020 01/2021 2007 2009 2011 2013 2015 2017 2019

Historical performance data and financial market scenarios are no reliable indicator of
future results
Source: Annual and semi-annual reports of real estate funds, Datastream, Credit
Source: Datastream, Credit Suisse Last data point: 01.02.2021 Suisse Last data point: 30.09.2020

50 Swiss Real Estate Market 2021 | March 2021

Vacancies even high Where the increasing vacancy rate of the Swiss rental apartment market is concerned, many ob-
in an international servers like to point out that vacancy levels are still modest in an international comparison. Unfor-
comparison tunately, this assertion can only be reviewed to a limited degree due to the lack of comparable in-
ternational surveys of rental apartment vacancies. But it can be clearly dismissed as incorrect in
the case of listed real estate investments. This much is apparent from a comparison of the rent
default rates of Swiss residential real estate funds with the vacancy figures in the portfolios of in-
ternational real estate investment trusts (REITs) and real estate companies (Fig. 74). The compa-
nies used for the purposes of this comparison are contained in the global real estate indices of
MSCI and EPRA, and focus mainly on residential property. From this comparison it emerges that
the average rent default rate of Swiss funds amounts to 5.4%, which is far higher than the va-
cancy levels apparent in the portfolios of German and US companies, or those in other countries.
That said, the difference is likely to be somewhat exaggerated as the rent default rates published
by funds typically include rent waivers and payment default, as well as vacancies. But even the
few Swiss real estate investment companies with a residential focus are recording vacancy rates
of 3% to 4%, which is rather high in a European comparison. This is – at least in part – likely to
be attributable to structural factors, however. Particularly in countries such as the UK or the US,
owner-occupied housing is traditionally dominant, and rental apartment blocks are often clustered
in major cities where demand for housing is high. Moreover, a greater role is played in these mar-
kets by special types of rental apartments, such as student and serviced apartments.

High premiums The year-end rally of Swiss real estate funds has pushed the corresponding premiums to net as-
indicate high set values to heady levels. In the case of residential real estate funds, this premium stood at
valuations 43.4% at the end of 2020, its highest level for twelve years. At the end of January 2021, it was
still at 37.8% (Fig. 75). But even commercial funds are relatively highly valued with a premium of
23.8%, particularly given the clouds on the future income horizon due to COVID-19. However,
there are huge differences between the individual funds themselves, with the spectrum of premi-
ums ranging from almost -5% to +70%. These significant valuation differences reflect not just the
quality of individual portfolios but above all their composition (e.g. Zurich region versus Ticino; fo-
cus on logistics or sustainability versus retail property and hotels & catering).
Conclusion: not much Another aspect was the year-end rally of real estate funds, played out against a backdrop of con-
upside for funds siderable activity in the capital market. Overall, capital increases and launches in the fourth quarter
of 2020 encompassed a volume of CHF 1,235 billion, of which CHF 768 million related to listed
funds. Capital increases of this kind typically dilute returns. Furthermore, the rally took place with-
out any noteworthy increase in trading volumes – an indicator of a buyer surplus. Given the dearth
of investment alternatives in the entrenched low-interest environment, many market players have
clearly refrained from taking profits, with some even increasing their positions. As such, this looks
to us like an overly expensive market entry point for Swiss residential real estate funds. On the
other hand, we see opportunities in real estate investment companies and commercial property
funds, which are more modestly valued, particularly if the focus of the portfolio is on office prop-
erty in central locations, sustainable real estate, or logistics properties.

Fig. 74: Vacancies high in an international comparison Fig. 75: Swiss residential real estate funds look expensive
Rent default rate of Swiss residential real estate funds compared to the vacancy rates Premiums of real estate funds and real estate shares, as % of net asset value; com-
of leading international residential real estate operating companies and REITs. mercial real estate funds including special properties, excluding mixed funds
9% 60%
75% percentile
8%
50%
7%
Median 40%
6%
5% 30%
4%
20%
3%
10%
2%
25% percentile
1% 0%
0% -10%
Real estate

USA (n = 11)
Switzerland

other Europe

global (n = 37)
companies
Residential

Real estate
Germany

companies

Real estate
companies
(n = 23)

Real estate

Residential–commercial difference Commercial real estate funds

companies
(n = 8)
funds

(n = 8)

-20%
Residential real estate funds Real estate shares
-30%
2009 2011 2013 2015 2017 2019 2021

Historical performance data and financial market scenarios are no reliable indicator of
future results
Source: Annual reports of real estate companies, Credit Suisse
Last data point: 30.09.2020 Source: Datastream, Credit Suisse Last data point: 31.01.2021

Swiss Real Estate Market 2021 | March 2021 51

Real estate investments – outlook 2021

Low interest rates make real

estate a coveted asset
COVID-19 Real estate is directly affected by the COVID-19 pandemic, as containment measures and lock-
consequences to downs have led to temporary closures of restaurants, hotels, leisure facilities, and other busi-
weigh on real estate nesses all around the world. This has led to income losses for the corresponding owners – in the
market for some time form of forfeited revenue shares and lost rental income, including through rental waivers. If vac-
cine programs proceed at the planned tempo, things should gradually return to normal over the
course of the second semester of 2021. In the meantime, the longer-term repercussions of the
pandemic – which are increasingly preoccupying investors – will be much weightier.

Focus switches to It is only reasonable to assume that the structural shifts apparent in the market may well persist
structural effects long after the coronavirus crisis has been mastered. Home working will continue to be supported
by a much greater number of companies, and demand for office property can be expected to fo-
cus on the most attractive premises in easily accessible locations boasting plentiful local amenities.
A substantial proportion of the retail sales that have shifted to the online channel will probably have
been lost to bricks-and-mortar retailers for good. This will mean a lasting decline in demand for
retail premises, particularly away from the key “high streets”, whereas demand for logistics prem-
ises will receive a further boost. It will probably be several years before business tourism volumes
get back to pre-crisis levels, as the pandemic has made it starkly clear that remote collaboration
using digital tools functions well. That said, the magnitude of these effects remains shrouded in
uncertainty. Meanwhile, overall demand for residential property has barely been impacted by the
pandemic, and will fully recover. But here too, structural shifts in demand could emerge, for exam-
ple if employees continue to spend a significant proportion of their working week at home, and re-
spond to the new parameters by optimizing their living situation.

Direct investments: Net cash flow yields are likely to record another slight fall, and in the case of residential invest-
time for a review of ment properties approach the 3% threshold in the course of this year. Nonetheless, in the event
investment strategy of negative interest rates remaining in place – as is currently expected by the great majority of in-
vestors – real estate investments still offer very attractive returns compared to the available alter-
natives. In the longer term, the combination of ultra-expansionary fiscal policy and the ongoing
flood of liquidity from central banks is likely to increase inflationary risks. Interest rate rises there-
fore remain the greatest risk from the investor’s perspective, as at current price levels these could
trigger sharp corrections. For now, however, we see slight increases in value as the most likely
scenario, such as for commercial properties in top locations and logistics real estate, as well as
residential property. For the latter, we are anticipating a total return in 2021 of 4.0% to 4.5%.
Over the next few years, careful monitoring of demand trends and the corresponding adjustment
of individual investment strategies will be crucial to the success of real estate investors.

Indirect investments: At a global level, indirect real estate investments could not escape the downward trend that set in
low interest rates to at the start of the COVID-19 pandemic. Quite the opposite: In a comparison of asset classes,
outweigh con- they remain among the overall losers, as although the massive correction in the first quarter of
sequences of 2020 was followed by a recovery, it was nothing like as strong as that of equity markets. In Swit-
pandemic zerland too, real estate shares geared around cyclical sectors suffered reverses. The prices of real
estate funds however, particularly those with a residential focus, reached giddy heights despite a
further rise in vacancy risks. Having said this, the enormous discrepancies in premiums and rental
income losses point to major differences between the various funds in respect of portfolio quality,
diversification, and vacancy management. We see only limited potential for further increases in
value in Swiss real estate funds at the moment. As the economic recovery gains momentum as
the year progresses, demand is increasingly likely to shift to cyclical sectors. As such, real estate
shares, commercial real estate funds and international real estate investments could benefit at the
cost of residential real estate funds.

52 Swiss Real Estate Market 2021 | March 2021

Sustainable real estate

No sustainability without
transparency
Investors expect greater transparency in the area of sustainable real estate investments,
as this is crucial to trust. Recognized building labels and international benchmarking re-
sults were just the start in this respect. Investors are increasingly looking for specific
energy ratios at portfolio level and a commitment to ambitious targets for the reduction
of environmentally-damaging emissions.

COVID-19 may be For wide swathes of the population, the COVID-19 pandemic has pushed climate concerns into
the most pressing the background. But while coronavirus has slowed the momentum of the environmental move-
problem, … ment, the latter issue can be expected to be back on the front pages very soon. The trend toward
sustainability is becoming increasingly established among the Swiss population. This has been
demonstrated not just by the 2019 elections to the National Council, but also by the Credit Suisse
Worry Barometer, which has been identifying the most pressing concerns of the Swiss electorate
for many years now. On average, the topic of the environment has been cited as one of the most
important concerns by 17.3% of survey respondents annually since 2001 (Fig. 76). In most years,
this has not been enough for it to make the top ten worry rankings. The issue enjoyed a public
spike of awareness briefly in 2007 due to the publication of a gloomy UN Climate Report. But in
2018 the environment then rocketed back into the top five biggest worries of the Swiss with a
score of 23%. The hot and very dry summer of that year sparked off discussions over climate
change, and is therefore likely to have sensitized the population to this issue all the more.
… but the climate is In 2019, 29% of voters viewed climate change and environmental protection as one of the five
the most important most pressing problems. This was a rise of six percentage points, the second-largest of any Swiss
worry. While the coronavirus threat far outstripped all other problems in 2020, the issue of the en-
vironment nonetheless remained in fourth place with 29% of citations once again. But if voters
had been asked to identify only the most urgent problem, rather than the five most urgent prob-
lems, environmental protection/climate change would have ranked second behind the coronavirus,
the same position as in 2019. The accumulation of natural catastrophes and extreme weather
phenomena, together with global climate demonstrations, have led to an appreciation of this issue
by wider swathes of society. Under the slogan “climate strike”, young people and children have
started to take their anger over climate change to the streets all around the world, forcing society
to sit up and take notice. The environmental issue has therefore been prominent in the media, po-
litical debate, and discussion forums.

Fig. 76: Growing relevance of the environment as a theme Fig. 77: Global increase in regulatory requirements
Credit Suisse Worry Barometer: Proportion of Swiss voters who cite the environment Cumulative number of political interventions in favor of sustainable investments in the
as one of the five most pressing concerns 50 largest global economies
35% 550
Environmental protection/climate change 500
30%
450
25% 400 Number of political interventions (cumulative)
350
20%
300

15% 250
200
10% 150
100
5%
50
0% 0
2001 2004 2007 2010 2013 2016 2019 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Source: Credit Suisse Last data point: 2020 Source: UN Principles for Responsible Investment (PRI) Last data point: 2019

Swiss Real Estate Market 2021 | March 2021 53

Sustainability as The Worry Barometer makes it clear that the issue of sustainability has finally come to the atten-
megatrend tion of the wider masses. Many Swiss have already started to adapt their behavior. This can be
seen in the surge in the number of people traveling by bike – and not just since the onset of the
COVID-19 pandemic – and in the high growth rates being recorded by organic products, even
though these are more expensive. This wider social development is increasingly being reflected in
the behavior of investors too. The popularity of sustainable investments is rising strongly, and the
corresponding market is recording very high double-digit growth rates.
Transparency One of the greatest problems for sustainability is that sustainable goods or services are typically
emerges as not identifiable as such from the outside. As a result, consumers do not know if they are acting
competitive factor sustainably by purchasing this or that product. This prompted a number of providers to start desig-
nating their products with quality labels some years ago. They recognized the competitive ad-
vantage that greater transparency would give their products. Things have been no different in the
world of real estate: Building “labels” now document compliance with certain sustainable parame-
ters. These labels have subsequently risen to prominence, particularly as they have improved
transparency – at least to a certain extent. But their success also gave rise to an extreme prolifer-
ation of labels and ratings, which has delivered more confusion than enlightenment in recent
years. In the real estate area, such labels are often based on twenty or more factors, greatly com-
plicating the process of comparing different labels. For that reason, calls for more far-reaching
transparency soon became widespread. Because ultimately, transparency must be comprehensi-
ble if it is to engender trust.
Investors demand The change in consumer and user behavior is ultimately also reflected in changed investor behav-
sustainable real ior. The move towards sustainability has grown above all in connection with property investments,
estate investments particularly as real estate and the corresponding investments are responsible for a large proportion
of global energy, CO2, and resource consumption, making them an inevitable focus of attention.
The key drivers of greater sustainability are first and foremost institutional and private investors,
who have been calling for greater transparency in connection with real estate investments.
Growing regulatory Another driver is the more engaged stance of regulators, other public institutions, governments,
pressure and supervisory authorities, who are promoting sustainable investment in the financial sector in a
targeted way in the wake of the global climate movement, while insisting on greater transparency
in the form of sustainability criteria, along with disclosure of the corresponding integration. At the
same time, governments and supervisory authorities are actively involving the financial sector in
the financing of measures to combat climate change. Figure 77 shows how dramatically the num-
ber of political interventions relating to sustainable investment is rising worldwide. Switzerland is no
exception here. In many cases, this is to introduce additional transparency and disclosure obliga-
tions, which on the one hand lead to a better and uniform understanding of sustainable real estate
investments, while on the other actively promoting and improving investor protection. A further ob-
jective is to attract greater institutional and private capital to sustainable financial investments gen-
erally, and to sustainable real estate in particular
Portfolio managers The third driver is the change in portfolio managers themselves, who are recognizing the growing
discover competitive demand and need for innovative, sustainable real estate. Providers of real estate investments in-
advantage of ESG creasingly apply environmental, social, and governance (ESG) criteria and integrate comprehensive
sustainability aspects into their investment options. In other words, not only are they reacting to
increasing competition in the supply of convincing investment solutions, they are also pushing for
the holistic integration of ESG criteria along the entire real estate value creation chain. In this way,
sustainability targets can be effectively displayed in addition to return ratios and used to establish a
competitive advantage.

From qualitative Greater transparency in all sustainability matters is going hand in hand with a clear professionaliza-
features to tion of the real estate industry when it comes to ESG and sustainability. A look at developments
measurable over the last few years shows how far the industry has come. To start with, sustainability aspects
indicators were only sporadically mentioned in conventional annual reports, and often restricted to purely
qualitative statements and declarations of intent with respect to sustainable use of resources. But
investors now expect a great deal more – namely the transparency, measurability, and compatibil-
ity of key indicators. Sustainability reporting is a good indicator of the professionalization of the real
estate industry, which is increasingly applying uniform sustainability standards such as the Global
Reporting Initiative (GRI) or Sustainability Best Practice (cf. INREV, EPRA). This increasing trans-
parency is evident from the fact that a growing number of market participants do not just report on
qualitative criteria, but systematically track measurable and therefore comparable indicators such
as energy efficiency, CO2 emissions, water and waste consumption, and the proportion of renew-
able energies, before then setting this information out in detail in separate sustainability reports

54 Swiss Real Estate Market 2021 | March 2021

 (Fig. 78). Comprehensive disclosure of this kind in turn puts pressure on competitors who are not
so far advanced to publish the same information. All this has dealt a severe blow to so-called
“greenwashing”, as pure marketing exercises are now easily identifiable as such.
Credit Suisse an The real estate investments of Credit Suisse are market leaders in terms of sustainability. Real Es-
early mover in tate Management adopted a comprehensive sustainability approach at an early stage, initially fo-
sustainability cusing on sustainability labels not just for existing property portfolios, but also real estate projects.
Credit Suisse has also developed a proprietary sustainability standard – “greenproperty”, in which
properties are subject to an independent and certified sustainability quality audit process involving
more than 50 ESG criteria. Investors and tenants can therefore immediately recognize the quality
differences compared to traditional real estate. In addition to the greenproperty seal of quality, la-
bels that feature commonly in the market such as SNBS, Minergie, LEED, and BREEAM are also
used. This required the build-up of a comprehensive measuring system for recording consumption
figures. Thanks to this process, valuable findings have been accumulated over many years that
highlight what really matters for sustainable real estate investments.
No managing Sustainability indicators were consistently measured and recorded in the context of all building op-
without measuring timization measures with a view to further increasing the measurability and compatibility of sustain-
ability criteria. After all, something that cannot be measured also cannot be managed. For exam-
ple, it was only thanks to the transparency gained with regard to the real estate portfolio that the
basis was laid for optimizing energy efficiency and systematically reducing environmentally-damag-
ing CO2 emissions. Many of these indicators are now available to investors in annual business re-
ports. In addition, sustainability indicators are increasingly being presented in standardized form in
integrated or independent sustainability reports. In the future, there is likely to be a link established
between these measurable sustainability indicators and balance sheet reporting. As a conse-
quence, a company’s assets and liabilities will have a stronger connection with sustainability fac-
tors in the future, as well as being incorporated into company profitability evaluations.
Sustainability bench- A successful sustainability strategy is characterized by the integration of ESG criteria across the
marks facilitate entire real estate value creation chain, as well as the entire real estate life cycle. ESG benchmarks
competitive have been established in the real estate sector in order to ensure standardization of track records.
comparisons The aim here is to provide investors and portfolio managers with a transparent picture of sustaina-
bility performance through structured and comparable evaluations, and to provide a comparative
rating through use of a benchmark. At an international level, the Global Real Estate Sustainability
Benchmark (GRESB) has emerged as by far the largest – and in our view therefore the most pro-
fessional – benchmark initiative in the industry. The GRESB has recorded strong growth in recent
years in connection with the benchmarking of investment real estate portfolios.

Fig. 78: Transparency with regard to environmental data Fig. 79: Comparison of a portfolio with GRESB peer group
CO2 emissions and energy efficiency in a property comparison GRESB rating of a hypothetical portfolio by categories

50 Building Certifications Leadership

100
Average

Sample portfolio Policies

Data Monitoring 100
81 Reporting
Greenhouse gas emissions in kg

40 & Review 75
100 100
Waste Risk Management
30
50 100
90.1
CO2eq/m², a

25
Water
20 57.3 100
Average Stakeholder
73.8 Engagement
10
Greenhouse Gas 98.7
0 78
100 Risk Assessment
-10 100
Energy Targets
0 50 100 150 200 250 300
Tenants & Community
Final energy in kWh/m²
This Entity Peer Group Average

Source: Credit Suisse Last data point: 2019 Source: GRESB, Credit Suisse Last data point: 2020

Swiss Real Estate Market 2021 | March 2021 55

International More than 1,200 real estate portfolios with a combined value of USD 4.8 trillion from more than
GRESB benchmark 64 countries currently participate in the annual GRESB survey in order to have their sustainability
performance measured. For investors, obtaining detailed insights into the sustainability perfor-
mance of real estate investments and comparing investment products with the relevant peer
groups provides important decision-making criteria when it comes to selecting sustainable real es-
tate funds (Fig. 79). GRESB offers portfolio managers a transparent basis for deciding which ar-
eas of a portfolio still have a need for development in terms of sustainability, and which areas are
already competitive. This transparency and the disclosed competitive comparisons are increasingly
becoming a success factor for active portfolio management in the Swiss real estate market.
Swiss REIDA Further comparison options are emerging in Switzerland thanks to the energy and CO2 bench-
benchmark marking initiative being set up by the industry association REIDA (Real Estate Investment Data As-
sociation). The first key figures were unveiled in August 2020. In the future, the energy consump-
tion and CO2 emissions of real estate portfolios will be directly comparable with the REIDA uni-
verse. This will show portfolio managers how well their properties match up against others,
whether their own annual improvements are similar to those of other portfolios, and which proper-
ties exhibit the greatest deviations from target values. Portfolio managers will therefore receive an
informative analysis of the status quo, as well as specific information that can be used to make the
measures they take as effective as possible.
No conflict of The much-discussed conflict of objectives between return metrics and sustainability indicators has
objectives between never been proven. Quite the opposite: Those who take into account sustainability criteria and re-
return and port transparently achieve certain advantages. Here too, measurability – and the corresponding
sustainability track record in the area of sustainability – is a prerequisite for achieving higher letting and transac-
tion prices. The rapid growth in the popularity of sustainable investments among private and insti-
tutional investors can also be explained by the fact that capital invested according to environmental
and social principles is often exposed to fewer risks and can frequently generate a higher return.
Numerous studies have provided evidence of just that.4
Sustainability making If real estate and property portfolios are to be managed in accordance with sustainability criteria,
inroads into risk the integration of CSG factors into risk management will ultimately be essential. Here too, trans-
management parency is key. Two perspectives in particular have evolved in the area of ESG risk management
for real estate investments: The first is the “inside-out” perspective, where all relevant sustainability
criteria that result from the operation or use of a property and have an impact on its environment
are measured and evaluated. This includes the usual key figures such as energy efficiency, CO2
emissions, water and waste consumption, and the proportion of renewable energies. The second
is the “outside-in” view, in which all sustainability criteria that impact on the property from outside –
and can therefore influence valuation and value stability – are determined. For example, this would
include all the physical risks that result from the effects of climate change, such as the risk of
flooding and frequently recurring extreme weather events. Last but not least, regulatory risks play
an increasingly important role in the holistic view of ESG risks. Although the transparent tracking
and quantification of ESG risk factors remains a huge challenge for the real estate industry, ongo-
ing professionalization of the sector through greater transparency and disclosure can be expected
in the area of ESG risk management too.
Conclusion: If the goal of sustainable real estate is to be attained, there is no alternative to greater transpar-
Transparency the ency – properties must be systematically measured and compared, and the right conclusions
only way forward drawn. This will also help to absorb the growing pressure coming not just from investors and regu-
lators, but also increasingly from competitors who have grasped the benefits of a sustainable ap-
proach. In the medium term, there is likely to be particular pressure to reduce CO2 emissions fur-
ther. At an international level, portfolio managers of numerous real estate investments are already
trying to outdo one another with their plans to reduce real estate portfolio emissions. Binding com-
munication of “downward trajectories” of this kind can soon be expected to become the norm in
Switzerland too.

4
See for example G. Clark, A. Feiner, M. Viehs (2015): “From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial
Outperformance”; University of Oxford and Arabesque Partners
56 Swiss Real Estate Market 2021 | March 2021
Factsheets : Regional real estate markets at a glance

INVESTMENT SOLUTIONS & PRODUCTS

Swiss Economics
Periodically updated key indicators for the 110 economic regions
Factsheet | Region Oberengadin Page 1
What are the locational qualities of the Oberengadin economic region? What sectors
are particularly important for the region? How high are house prices in the region's
Glarus Sargans
Oberengadin GR CH

Elm
Population 2016 23'206 197'550 8'419'550 Klosters
Chur
Employment 2015 16'500 98'648 3'999'207

municipalities? The Credit Suisse Factsheets answer these and many other questions
Davos
Arosa
Net number of commuters 2014 160 -1'055 - Ilanz
Zernez
GDP (bn CHF) 2014 2.2 13.9 643.8 Thusis
Tiefencastel
GDP per employee (CHF) 129'806 138'855 161'857
Net income p.c. 2016 42'404 46'204 52'988

concerning the regional economy, demographic developments and housing markets.

Employment rate 2014 67.7% 66.3% 66.4% St. Moritz
Net migration 2016 28 998 71'030
Unemployment rate 2016 - 1.8% 3.2%
Biasca
Home ownership rate 2016 47.5% 45.7% 39.2%

Regularly updated statistics are presented in the form of meaningful diagrams, tables
Total housing stock 2016 26'239 170'177 4'420'829
Roveredo
Total area (ha) 121'096 710'540 4'129'075 Bellinzona
Locarno
Share of developed land 1.7% 2.0% 7.5%
Number of municipalities 2015 14 125 2'324

and maps.
Lugano

Source: Geostat, Credit Suisse

Mendrisio
Source: Swiss Federal Statistical Office, Credit Suisse

Economy

Locational quality Components of locational quality

Synthetic indicator, CH = 0, 2017 Synthetic indicator, CH = 0, 2017
Population accessibility
Oberengadin Employee accessibility
LQI: -1.4 Access to airports
Rank: 85 / 110

Engiadina bassa

INVESTMENT SOLUTIONS & PRODUCTS

Regional economy and demographic developments
LQI: -1.5 Availability of well-qualified
personnel
Rank: 97 / 110
Swiss Economics Avalability of
specialist labor

Factsheet | Region Oberengadin

Are you planning to tap into new locations with your com-
Fiscal attractiveness for
legal entities Page 2
GR
LQI: -1.1 Fiscal attractiveness for
private individuals
Rank: 24 / 26
Sectoral structure Opportunity-risk-profile

Source: Credit Suisse

Share of jobs of 10 largest sectorsSwiss

Accomodation
in percent,
average2015 Overall evaluation

high
Oberengadin: -1.2 GR: -0.5 CH: 0.0
pany or would you like to gain a picture of an economic
region? The Credit Suisse Factsheets offer you up-to-
Retail trade
Accessibility of population Traffic congestion Finishing trades
Per developed square kilometer, individual and public transportation combined extens of journey Construction
Relative traffic-related extension of buildings
time at 7.15 a.m.

date statistics on topics such as locational quality, acces-

Health care
Education
low
Gastronomy
Land transport -10% 0% 10% 20% 30%

sibility and population developments.

Employment: Deviation from CH average
Wholesale trade
Accomodation Retail trade
Architects, engineers
Finishing trades Construction of buildings
0% 5% 10% 15% 20% 25% 30% Health care Education
Gastronomy Land transport
Oberengadin GR CH Wholesale trade Architects, engineers

Source: Swiss Federal Statistical Office Source: Swiss Federal Statistical Office, Credit Suisse

Employment development Start-up rate

Secondary and tertiary sectors, in percent, specialization categories, 2011-2015 Share of newly established companies as percentage of existing companies

Traditional industry 8% 9%
High-tech industry
7% 8%
Construction
Factsheet | Dezember 2017
6% 7%
Energy supply
5% 6%
Trading and sales
Transportation, postal services 5%
4%
ICT 4%
Financial services
3% INVESTMENT SOLUTIONS
3%
& PRODUCTS
Corporate services 2% Swiss Economics
2%
Entertainment, hotels, catering 1%
Admin. and social services Factsheet | Region
1%
Oberengadin Page 3
0% 0%
-20%-10% 0% 10% 20% 30% 40% 50% 2013 2014 2015 2013–
Oberengadin GR CH Oberengadin Net
GR migration
CH 2015 Migration by age group
Total number of people Total number of people, 2016
Source: Swiss Federal Statistical Office Source: Swiss Federal Statistical Office

600 60
40
Housing | Structure and demand 400
20
200 0
Financial residential attractiveness Population growth
-20
RDI indicator, including commuting and childcare costs, 2016 Indexed, 2005 = 100; boxplot: average annual0growth rate 2005–2016
-40
130 -200 2% -60

-400 -80
120
-100
-600
0–4
5–9
10–14
15–19
20–24
25–29
30–34
35–39
40–44
45–49
50–54
55–59
60–64
65–69
70–74
75–79
80–84
85–89
90–94
95+
110
2000 2002 2004 2006 2008 2010 2012 2014 2016
100 National 1% International Total National International Total

90 Source: Swiss Federal Statistical Office Source: Swiss Federal Statistical Office

80
2005 2008 2011 Commuters
2014 2017 2020 Net household income
0%
Inward commuters, commuters within region, outward commuters, 2014 Net income 2014, median and mean, in CHF/year
Oberengadin GR CH 2005–2016
80'000
Source: Swiss Federal Statistical Office, Forecast Credit Suisse 70'000
60'000
Factsheet | December 2017
Inward Outward 50'000
commuters commuters 40'000
4'143
636 475
#REF!

30'000
20'000 INVESTMENT SOLUTIONS & PRODUCTS
10'000 Swiss Economics
0
Median Factsheet
Mean | Region Oberengadin Page 4

Regional housing markets

Oberengadin Engiadina bassa GR CH
Planning activity Expansion and average absorption
Source: Swiss Federal Statistical Office Source: Swiss Federal Tax Administration, Credit Suisse
New construction, number of residential units, total over 12 months By type of housing, as percentage of stock

Are you planning to relocate or would you like to Housing | Inventory and supply
600

500
Oberengadin

Engiadina bassa

buy a home or investment property? The Credit

Age of housing stock Construction zone reserves for400
housing
Domleschg/Hinterrhein
Share of construction period in total housing stock, 2015 Ø Age in years As percentage of total for construction zones with residential
300 usage, 2012
Bündner Rheintal
35% 65 200

Suisse Factsheets provide you with key facts 30%

25%
60

55
100

0
Davos

CH

about the regional housing market including indi-

20% 1995 1998 2001 2004 2007 2010 2013 2016
0.0% 0.5% 1.0% 1.5% 2.0%
50 Building permits SFD Building permits MFD Rental apartments Condominiums
15% Planning applications SFD Planning applications MFD
Mean bldg. permits MFD Mean bldg. permits SFD Single-family dwellings Average previous absorption
10% 45

cators such as the age of existing housing, va- 5%

0%
before 1919– 1946– 1961– 1981– 2001– 2011–
40

35
Source: Baublatt, Credit Suisse SFD: Single-fam. dwellings, MFD: Multi-fam. dwell. Source: Baublatt, Swiss Federal Statistical Office, Credit Suisse

Housing | Market outcome

cancy rates, planning activity and much more be-

1919 1945 1960 1980 2000 2010 2015 30
Oberengadin GR CH 2015
Property prices (SFD and condominiums) Property prices: Price-income gap
Source: Swiss Federal Statistical Office, Credit Suisse

sides.
Right scale: Index, Q1 2000 = 100. Left scale: growth rate in percent (YoY) Relationship of property price development to household income development

14% Factsheet | December 2017 200

12% 190
10% 180
8% 170
6% 160
4% 150
2% 140
0% 130
-2% 120
-4% 110
-6% 100
-8% 90
-10% 80
2000 2002 2004 2006 2008 2010 2012 2014 2016
Growth rate Oberengadin Price index CH
Price index Oberengadin

Source: Wüest Partner, Credit Suisse. Spatial dimension: MS regions

House prices and rents Property prices and rents

In CHF, SFD and condominiums: Q3 2017; rents: Q2 2017
Vacancies and vacancy rates
Vacancies in residential units (left scale), VR: vacancy rates

Would you like to gain an overview of regional house prices and their development Most populous municipalities
of region
Net rent
2
per m / year
Condos price
per m
2
SFD price
per m
2
600

500
3.0%

2.5%

or compare the prices of different municipalities of the region? This information can St. Moritz
Poschiavo
Samedan
305
148
255
13'290
5'890
12'350
11'700
6'850
11'320
400

300
2.0%

1.5%

also be obtained from the Credit Suisse Factsheets.

Pontresina 280 12'650 11'020 200 1.0%
Bregaglia 225 12'510 6'580
100 0.5%
Scuol 209 8'740 7'850
0 0.0%
Thusis 209 6'440 8'140 2003 2005 2007 2009 2011 2013 2015 2017
Condos Oberengadin SFD Oberengadin
CH (Median) 193 6'000 7'080 Rent Oberengadin VR Oberengadin
VR GR VR CH

Source: Wüest Partner. Condos: condominium; SFD: single-family dwelling Source: Swiss Federal Statistical Office, Credit Suisse

Factsheet | December 2017

Please contact your Credit Suisse client advisor to order factsheets on the individual economic regions in your pre-
ferred language (English, German, French or Italian).
You will find a list of Switzerland's 110 economic regions on the next page.

Swiss Real Estate Market 2021 | March 2021 57

Appendix : Switzerland’s economic regions

Credit Suisse Swiss Economics has defined these economic regions on the basis of the Mobilité
Spatiale regions used by the Swiss Federal Statistical Office. Political borders play less of a role in
the definitions than economic phenomena, geographical and demographic features, and mobility
patterns. Consequently, some of these economic regions straddle cantonal borders.

Switzerland’s economic regions

54

12 81
51 80
75 82
13
52 79 10 11
76 3 63 57
28 53 2
110 77 4 1 8 55 58
49 48 74 9 56
78 5 7 62
17 50 30 6 61
18 41 59
42
16 27 31
36
107 29 39
106 15 19 35 60
14 34 40
108 46 65
20 32 38 64
21 37
95 45 67
43 22 33 66 71
97
23 70
94 26
47 68
96 44 69
89 88
25 72
91 93 24 98 83
90

92 73
101 99 84
109 105 102 85
103 100
86
104

87

1 Zürich-Stadt 23 Thun 45 Sense 67 Schanfigg 89 Morges/Rolle

2 Glattal 24 Saanen/Obersimmental 46 Murten 68 Mittelbünden 90 Nyon
3 Furttal 25 Kandertal 47 Glâne/Veveyse 69 Domleschg/Hinterrhein 91 Vevey/Lavaux
4 Limmattal 26 Berner Oberland-Ost 48 Olten/Gösgen/Gäu 70 Surselva 92 Aigle
5 Knonaueramt 27 Grenchen 49 Thal 71 Engiadina bassa 93 Pays d'Enhaut
6 Zimmerberg 28 Laufental 50 Solothurn 72 Oberengadin 94 Gros-de-Vaud
7 Pfannenstiel 29 Luzern 51 Basel-Stadt 73 Mesolcina 95 Yverdon
8 Oberland-Ost 30 Sursee/Seetal 52 Unteres Baselbiet 74 Aarau 96 La Vallée
9 Oberland-West 31 Willisau 53 Oberes Baselbiet 75 Brugg/Zurzach 97 La Broye
10 Winterthur-Stadt 32 Entlebuch 54 Schaffhausen 76 Baden 98 Goms
11 Winterthur-Land 33 Uri 55 Appenzell A.Rh. 77 Mutschellen 99 Brig
12 Weinland 34 Innerschwyz 56 Appenzell I.Rh. 78 Freiamt 100 Visp
13 Unterland 35 Einsiedeln 57 St. Gallen/Rorschach 79 Fricktal 101 Leuk
14 Bern 36 March/Höfe 58 St. Galler Rheintal 80 Thurtal 102 Sierre
15 Erlach/Seeland 37 Sarneraatal 59 Werdenberg 81 Untersee/Rhein 103 Sion
16 Biel/Seeland 38 Nidwalden/Engelberg 60 Sarganserland 82 Oberthurgau 104 Martigny
17 Jura bernois 39 Glarner Mittel- und Unterland 61 Linthgebiet 83 Tre Valli 105 Monthey/St-Maurice
18 Oberaargau 40 Glarner Hinterland 62 Toggenburg 84 Locarno 106 Neuchâtel
19 Burgdorf 41 Lorzenebene/Ennetsee 63 Wil 85 Bellinzona 107 La Chaux-de-Fonds
20 Oberes Emmental 42 Zuger Berggemeinden 64 Bündner Rheintal 86 Lugano 108 Val-de-Travers
21 Aaretal 43 La Sarine 65 Prättigau 87 Mendrisio 109 Genève
22 Schwarzwasser 44 La Gruyère 66 Davos 88 Lausanne 110 Jura

Source: Credit Suisse

58 Swiss Real Estate Market 2021 | March 2021

Important Information generally involve a significant degree of financial and/or business risk. Invest-
ments in PEfunds are not principal-protected nor guaranteed. Investors will be
required to meet capital calls of investments over an extended period of time.
This report represents the views of the Investment Strategy Department of CS Failure to do so may traditionally result in the forfeiture of a portion or the
and has not been prepared in accordance with the legal requirements de- entirety of the capital account, forego any future income or gains on invest-
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Risk Warning Interest rate and credit risks
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Private Equity
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the contrary, all figures are unaudited. All valuations mentioned herein are subject
they are complex, usually illiquid and long-lasting. Investments in a PE fund

Swiss Real Estate Market 2021 | March 2021 59

to CS valuation policies and procedures. CONFLICTS: CS reserves the right to (the “France branch”) which is a branch of Credit Suisse (Luxembourg) S.A., a
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60 Swiss Real Estate Market 2021 | March 2021

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62 Swiss Real Estate Market 2021 | March 2021
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Swiss Real Estate Market 2021 | March 2021 63

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