Switzerland

Details

  • Type: Press release
  • Date: 9/17/2013

Security issues gain priority in investment real estate 

The «Swiss Real Estate Sentiment Index» compiled by KPMG Switzerland indicates a general stagnation in price for investment real estate over the coming twelve months. However, residential real estate and centrally-located properties are likely to buck this trend.
A look at the past twelve months confirms the 2012 prediction of a slowdown of price increases in respect of investment real estate. This trend is set to continue: The latest «Swiss Real Estate Sentiment Index» stands at -1.9 index points, indicating that the next twelve months are likely to see a slight decline in price for real estate investments. This will reflect in a moderate drop compared to the previous year when the index was still positive, namely at +20.6 points. The index is based on the assessments of over 220 institutional and professional investors, developers and appraisers of Swiss investment real estate. Professional investors are proving to be particularly skeptical at present (-37.8 points), meanwhile pension funds (+13.2 points) and developers (-3.8 points) who stood out as being cautiously optimistic in 2012, are now anticipating prices to stagnate or even decline. Unlike the previous years, market players have more positive expectations when it comes to economic development (from -38.0 points to -12.0 points).

KPMG Swiss Real Estate Sentiment Index 2013

Swiss Real Estate Sentiment Index

Increased aversion to risk

A key factor in the prediction that prices will level out, lies in the market players’ aversion to risk. This can be seen in the high price expectation indices for secure residential real estate (+57.0 points) and for properties in central locations (+67.5 points). Moreover, the experts would invest some 64% of their available capital in residential properties. 53%, more than half of the surveyed participants, anticipate an increase in market risk during the next twelve months (2012: 39%). Potential interest rate rises, the European debt crisis, coupled with more stringent regulations are identified as potential hazards. Classical real estate risks on the other hand, are categorized as less threatening. Broken down by participant group, it becomes obvious that the appraisers, in particular, are anticipating higher risks.

Returns still under pressure

Over weighting of the residential segment comes at the expense of commercial properties which are reflected in their anticipated price development. While office space is particularly hard hit
(-89.4 points), the sub-indices for retail (-60.4 points) and commercial space (-69.9 points) as well as special-purpose property (-21.4 points) are also all negative. Compared to the previous year and compared to central locations, negative price expectations stand out for peripheral locations, as well (-77.6 points, 2012: -54.2 points). That represents a widening of the gap between these two location classes.

One consequence of the experts’ development forecast is that yields in central locations, particularly for residential properties are likely to remain under pressure. On the other hand, the tension can be expected to ease with regard to commercial properties as well as properties in second and peripheral locations. These tendencies are unique to the Swiss market: A look at Europe shows that investment preferences are shifting toward secondary markets and real estate properties with development potential.

Central Switzerland and Zurich prove most popular

Like in 2012, those surveyed, considered Zurich (22.9%) and Central Switzerland (21.7%) to be preferred investment locations. Accordingly, price expectation indices for these areas stand at +41.0 points and +40.3 points. The indices indicate a shift toward price stability in Basel, Geneva and Lausanne while the regions of Berne, Lugano and St. Gallen are expected to remain stable or decline slightly. Despite dropping from +60.9 points to +20.9 points, Geneva still remains within a positive range. The anticipated price development of investment real estate is generally slightly lower than that of the previous year, something which is also reflected in the index values for the individual economic centers.

Slight easing on the supply side

The main market players still feel confronted with a scarcity of good quality investment opportunities. Surveyed participants believe that there is a distinct lack of viable properties, particularly in the residential segment (-130.6 points). As in the previous year, this scarcity is most strongly felt by insurance companies and pension funds. Contrary to the past twelve months, a slight easing is expected in the availability of real estate investment opportunities in the commercial use segment. This development is reflected in an index value of +24.5 points for office space. Perceived availability has a direct impact on price expectations: the lower the supply estimated by experts, the higher the index values for price expectations.

KPMG Swiss Real Estate Sentiment Matrix 2013

Swiss Real Estate Sentiment Matrix

Swiss Real Estate Sentiment Index

The «KPMG Swiss Real Estate Sentiment Index» serves as an advance indicator for anticipated developments in the Swiss real estate investment market. Over 210 institutional and professional investors as well as appraisers of Swiss investment real estate took part in this representative survey. The index is used to measure the expectations of market players regarding developments over the next twelve months, on a scale from -200 to +200 index points. The index is compiled on an annual basis.
 

Simone Glarner

Simone Glarner

Head of Media Relations

+41 58 249 55 71

Real Estate

Teaser Image
Property holdings for companies and investors, particularly from abroad, are becoming increasingly important.
Twitter  Facebook  xing  YouTube  KPMG Blog