This issue of the investor survey takes a detailed look at investors’ trust in the current Swiss residential, office and retail markets. It will also offer general predictions, identify trends, investment strategies and recommendations, and establish what defines an attractive investment in this changing socioeconomic and sociopolitical environment. Here are the 4 main results with respect to the current Swiss market:
1. Residential
Zurich remains at the top with an all-risks yield (ARY) of 2.2% for core properties, followed by Geneva at 2.3%. Basel, Berne, Winterthur, Lausanne and Lugano constitute the mid-range with minimum ARYs of 2.6%.
In the regions, only core properties have seen a considerable compression over the past six months, with an average decrease of 9 basis points (bps). Average and maximum ARYs have increased by 7 bps and 5 bps, respectively, across all regions over the past six months. The effects are most notable in Central Switzerland and the Lake Geneva region, the reason being that those regions have witnessed the strongest compression at the high end with respective decreases of 10 bps and 33 bps for maximum ARYs.
2. Office
Zurich tops the list again with a minimum ARY of 2.4%, followed by Geneva at 2.5%, and Zug at 2.6%. Basel, Berne, Lausanne and Winterthur constitute the mid-range with minimum ARYs of between 2.7% and 2.9%. St. Gallen and Lugano are yet again positioned at the low end of the list, where core properties are priced at an average ARY of 3.2%.
Compared to six months ago, high-risk properties have experienced the greatest compressions at an average decrease by 39 bps in maximum ARYs. The effects are widespread as yields for Zurich, Geneva, Basel, Berne, Lausanne and Winterthur all compressed by more than 40 bps.
3. Retail
3.1. High-Street Retail
High-street retail yields have been in constant decline over the past six months. There has been an average compression for minimum, average and maximum ARYs in the cities by around 30 bps. Yields for core properties in Zurich, Geneva and Lugano, as well as for average properties in Zurich, St. Gallen and Lugano, on the other hand, have remained stable.
In the regions, compression was even stronger at –37 bps, –46 bps and –31 bps for minimum, average and maximum ARYs, respectively. With a minimum ARY of 3.3% and 3.4%, the most significant compressions are evident in the Lake Geneva and Zurich regions, both at the top of the list.
3.2. Non-High-Street Retail
Location-independent retail properties have maintained stable yields over the past six months.We observed an increase in minimum and maximum yields for retails parks, and slight contractions for average and maximum yields in out-of-town shopping centres. The largest contraction was observed in supermarkets, where average yields in particular have decreased by 25 bps compared to the previous issue.
4. Net Operating Income Analysis (NOI)
Residential: All investors in the survey deduct non-recoverable OpEx (service charges, maintenance expenses, property management and rent loss) when calculating the NOI. However, there were differences with respect to calculating tenant improvements, determining Capex proportion, and dealing with leasing commissions.
Retail and Office: Non-recoverable OpEx is still deducted by investors. Half deduct an average 1.5% of net rental income (NRI) for tenant improvements, and three quarters of the participants deduct leasing commissions at a proportion of 1.5% of NRI for both office and retail. CapEx (capital expenditure) is deducted by 4.0% of NRI for office properties and 3.5% in the retail space by less than half
Summary & Outlook
- Residential: ARYs across all cities have decreased by an average of 25 bps, indicating a considerable compression over the past six months. The highest-yielding core properties are in Lucerne and St. Gallen, at 20 and 40 bps above the mid-range cities, respectively. Investors project a 50-bps-decrease in rents for Lugano, as it has seen the strongest compression across all three ARY levels.
- Office: High-risk properties have experienced the greatest compression within the Swiss Top 9 Cities office markets, whereas the pricing for core properties has remained relatively stable with an average compression of 12 bps. A few cities only have experienced a notable change in rental growth expectations.
- Retail:
High-Street Retail: While investors still project rental growth to remain in negative territory, expectations are significantly less pessimistic than six months ago. -1% is the projection for six out of the Top 9 cities, with expected contractions slightly weaker for Lucerne and stronger for St. Gallen and Lugano.
Non-High-Street Retail: Yields for retail properties off the high streets remained roughly stable over the past six months. However, investors are more critical about their projections on rent growth than six months ago, as they project contractions in rent levels for out-of-town shopping centres, retail parks and DIY stores.
