• Beat Seger, Partner |

Has the Swiss real estate investment market hit the golden mean?

Real estate investors and appraisers expect the Swiss real estate investment market to remain stable overall. This is one of the insights gleaned from this year’s Swiss Real Estate Sentiment Index (sresi) survey by KPMG Switzerland.

The Swiss Real Estate Sentiment Index offers a qualitative assessment of the real estate investment market as rated by investors and appraisers actively operating in Switzerland. With 300 respondents representing a combined investment volume estimated at over CHF 220 billion, the sresi is the foremost prospective index of its kind.

Both the aggregated Sentiment Index and the Price Expectation Index are at the stability threshold for the first time since 2013. Even the market risk assessment is in the golden mean: 50% of the respondents expect market risk to increase over the next 12 months. These stand in contrast to 41% who expect the risk situation to remain stable.

Price expectations level out

Price expectations have continued to level out, a trend which initially began in 2016. The economy is expected to perform well over the next 12 months, although not quite as well as in the previous year.

Respondents’ forecast that price curves will flatten out is good news. Prices for certain property and location qualities have reached levels that can only be explained by the low-interest rate environment and investment pressure.

The aggregated indices’ positioning along the stability threshold conceals the fact that not everything that glitters is concrete gold.

The Price Expectation Index for the residential segment remains positive at 18.7 pts. and is at its lowest level since 2012. Respondents are increasingly indicating that they consider even slightly negative price trends likely, probably due to vacancy trends at locations outside the city centers.

The Price Expectation Index for retail space is at the lower end of the scale. Price expectations for this space profile have been negative since we first started compiling the sresi and currently stand at -115.5 pts. (with the scale extending to -200 pts.). Looking back, we can see that respondents’ forecasts were in line with actual market developments. This is partially attributable to the shift of retail sales to platforms. Accordingly, 70% of those surveyed anticipate that demand for logistics space in urban centers will be on the rise and that prices for special-purpose properties will remain stable over the next 12 months.

Estimates regarding demand for office space reflect positive economic development. While price expectations for these spaces have been on the rise over the past few years, at -51.2 pts., they are still in negative territory due to the large amount of space still available plus ongoing consolidation by large tenants. At the same time, respondents expect demand for office space to decline in the future. Well over 70% of the survey’s participants consider a 10% drop in demand for office space over the next ten years realistic.

Caution advised

Caution is therefore advised with respect to investors’ choice of segments, and the same holds true for location qualities. Respondents still see upside price potential at central locations (61.7 pts.), whereas expectations for secondary centers are in negative territory at -12.3 pts. and declining prices are clearly anticipated for peripheral locations which came in at -100.8 pts. In light of that, it comes as no surprise that the survey resulted in negative price indices of between -50 pts. and -60 pts. for the Ticino, Eastern Switzerland and Espace Mittelland regions. At least stable to rising prices are expected in more urban regions. Compared to last year, however, price expectations are down everywhere except in the Lake Geneva region.

Risk perception moderate?

While the 2018 sresi survey was underway, respondents had already anticipated the latest statements by the Swiss National Bank and the Swiss Financial Market Supervisory Authority on the need to take action with regard to investment properties. All participants in the survey see a moderate risk level in a tightening regulatory environment, with developers and private investors who rely on third-party financing expressing the most critical assessments of the current risk situation. These respondents also appraised the risks posed by changes to interest rates and declining real estate values as moderately high. What the entire pool of respondents has in common, however, is the view that declining property values pose a moderate risk.

Is the wheat now being separated from the chaff? Or are we even at a turning point for the Swiss real estate investment market?

The answer to the first question should be ‘yes’. Risk aversion has risen. Only one third of those surveyed are ready, at least in part, to take higher risks if it would benefit the acquisition strategy. The result would be an even more heightened focus on supposedly safe locations, uses and property qualities which will trigger the predicted price increases in the (economic) centers and already scarce investment segments of residential and special-purpose properties. Investors are becoming more selective. This trend will first be seen in peripheral locations and in secondary centers.


As long as investment pressure persists because of the lack of alternatives to the risk/return profile offered by real estate, there is not likely to be any reversal of the trend seen in investment properties at more central locations. Investors are well advised to stay on their toes. The fact that the Swiss National Bank has made more frequent statements on the impact of its monetary policy on the real estate investment market could cause the framework for real estate investments to change more quickly than anticipated. This could cause a shift in capital allocation. It’s a well-known fact that capital is flexible, real estate is not. So “marry in haste, repent at leisure” increasingly also applies to the commitments that an investor enters into in the real estate market.

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