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Greater portfolio and asset management flexibility

Greater portfolio and asset management flexibility

Greater portfolio and asset management flexibility

Beat Seger | Partner,

When compiling its Swiss Real Estate Sentiment Index, KPMG Switzerland surveyed over 340 Swiss real estate investors and appraisers on the topic of portfolio and asset management. This year’s participants answered the same questions as those asked in the 2015 survey in order to shed light on market-induced changes that might have taken place in the meantime.

The importance of adjusting investment strategies has dropped by 12 percentage points since 2015. The industry has come to terms with the new normal – low interest rates and exchange rates – established in 2015.

Reducing vacancies remains the most crucial asset and portfolio management activity and was cited by 87 percent of respondents (decline compared to 2015: -4 percentage points).
Optimizing spending on consultants has become significantly more important, causing it to jump 23 percentage points to 28 percent in this year’s survey. The importance of developing a data management system (+10 percentage points) and a risk management process (+9 percentage points) has also grown.

This is likely due to the compression of yields for real estate investments. While the impact of cost cuts increases at low yields, positive or negative changes in an investment can actually have a bigger impact by comparison.

Given the high capital inflows of recent years and ongoing investment pressure, project development (79 percent) and investments in the portfolio (78 percent) are weighted higher than portfolio growth (50 percent). The relationship between these priorities has only undergone a very minor shift since 2015 and is probably attributable to a shortage of adequate investment opportunities (-97.8 index points for residential properties, which were cited by 59 percent of respondents when asked about their investment preferences) or low purchase yields.

There seems to be a trend toward shorter terms for commercial leases, with ten-year leases becoming much less frequent. Only a quarter of those surveyed stated that these long leases are typical, compared to 45 percent in 2015. Lease terms of five years are most common and three-year leases have gained ground since 2015. Tenants leasing commercial space currently prefer having more flexibility since this lets them better respond to changes in their strategic alignment.

More than half of those surveyed feel that marketing periods for commercial space have lengthened since 2015, with this trend becoming more evident the more peripheral the location (79 percent of respondents reported an increase in marketing periods).
When negotiating new leases, landlords are still more inclined to offer rent-free periods (48 percent indicated that this was agreed frequently or very frequently), contribute toward the cost of fitting or alteration work (62 percent) or grant tenants unilateral options (32 percent) rather than offer rent reductions (18 percent). Incentive preferences are likely value-driven. Landlords’ willingness to offer incentives has declined slightly since 2015, which corresponds to the greater attractiveness of office space as revealed by the Swiss Real Estate Sentiment Index 2019.

Overall, it can be said that investors in Swiss investment properties are taking a more active approach toward property management and are leveraging the greater flexibility demanded by the market as a way of optimizing portfolio occupancy rates and yields.

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