After a year 2020 full of uncertainty due to Corona pandemic, market participants in the Swiss real estate investment market are now expecting that Switzerland's economy will survive the further development of the pandemic without any bigger damage, which is expressed in a positive expectation of market participants with regard to price and economic development for the upcoming 12 months. The aggregated Sentiment Index surged by a whopping 76.8 points in 2021 to a new record high of +63.7 points (previous year: -13.1 points).
Broad impact on expected price trend
It is interesting to note that, compared to the previous year, expectations regarding price trends were consistently much more positive for all investment segments (usage) and across the three main location categories. Apart from the estimated price trend for office space, all indicators are even higher than in 2019, the year before the pandemic hit. Persistent and mounting pressure to invest is likely one main factor behind these results. TINA ('there is no alternative') is the mindset currently driving the real estate market in this low-interest environment.
Interest rates and inflation not an issue
Initial signs of nervousness started appearing on stock exchanges during the 2021 sresi survey and discussions began to emerge about the possibility of inflationary tendencies.
The fact that higher interest rates and inflation are bad for companies' values does not seem to make much of an impression on real estate players in Switzerland. 59 percent of those surveyed believe that inflation in Switzerland will remain under two percent and that price stability will prevail. A whole 78 percent are even convinced that interest rates will hover at a low level, or around zero percent, over the next three years. Interest rate risks and inflation or stagflation have advanced from being some of the lowest-ranked issues on the risk perception index in the previous year to second and third places this year. It is interesting to note that the potential for declining real estate values dropped to last place in the risk ranking.
High demand in contrast to scarce supply
The willingness to invest in real estate remains high. Of those surveyed, 91 percent intend to make acquisitions sometime in the next 12 months. Acquisition activity can still be expected to be most vigorous among insurers and real estate investment funds. One thing that stands out is that all developers surveyed intend to make acquisitions in the next 12 months. That had most recently been the case in 2017.
This demand stands in contrast to a very scarce supply. The supply index, which measures the availability of adequate investment properties, is in negative territory for all investment segments except retail properties. This holds particularly true with respect to residential properties. The supply index for this investment segment stands has only been lower in the survey's history in 2016.
Of those surveyed, 44 percent expect market risk to increase over the next 12 months with stands in contrast with the SNB's findings that risks have increased. Even if the SNB's risk identification was not performed explicitly for the real estate investment market, this market may not remain entirely unaffected by a possible trend reversal.
The widespread confidence seen in the Swiss real estate investment market, even despite the ongoing pandemic, is encouraging. According to other findings from the survey, on which I will report in due time, the sector's primary job is now to implement the Paris Climate Agreement. This undertaking and the new technological possibilities are both a challenge and an opportunity and will lead to strategic decision-making that heavily influences the real estate market.