Gloomy real estate investment market

in Advisory, Real Estate, 16.09.2014

Participants in the Swiss real estate investment market generally have a neutral assessment of future trends. The mood is however slightly negative. A declining trend is predicted for individual regions and real estate segments.

Where will the Swiss real estate investment market journey end?

A year ago, I wrote here about a state of superposition. A state which, at the beginning of 2014, led to a perceived vacuum in the real estate investment transaction market. On 9 February 2014, the existing uncertainty when assessing the factors affecting price and value was increased by the Swiss State’s adoption of the Swiss Popular Initiative “Against mass immigration”. In addition, the repeated calls for caution have also led to further prudential measures. The extent of these regulations’ impact on the Swiss real estate investment market is currently unclear. In the meantime, the impending corporation tax reform (USR III) has also found its way into the considerations of property investors.

Survey: KPMG Swiss Real Estate Sentiment Index

In summer 2014, more than 210 experts involved in Swiss real estate investment expressed their opinions on the direction the market may possibly take in the next 12 months as part of the KPMG Swiss Real Estate Sentiment Index (sresi®) survey. The sresi® measures the mood of the Swiss real estate investment market on a scale of -200 to +200.

For the first time since the survey was conducted, feelings about the economic trend were slightly positive (+10.1 pt); the survey was, however, completed before the Swiss State Secretariat for Economic Affairs (SECO) published the quarterly forecast for GDP in Q2/2014. On the other hand, the negative trend in the real estate pricing index has continued. Since 2012, this index component (all real estate segments) has fallen from +35.2 pts to -9.1 pts, but still borders on the stability threshold.

The sentiment concerning the trend in office property prices has worsened. For the first time, the consensus held by survey respondents is extremely negative, at -101.8 pts. The indices for the other commercial use segments are also in the red, but have improved slightly compared with the previous year. The sentiment index for residential property is still positive, but even this use segment is trending towards the stability threshold. After the 22% fall in 2013 compared with the previous year in the residential property pricing index, the current index, at +43.9 points, is now 40% below the estimate when the survey was first conducted in 2012.

The real estate pricing index for the individual economic regions is altogether lower than last year, with the exception of a tiny improvement in the expectation for north-west Switzerland, although it remains negative. The indices only show continued moderately positive expectations for the economic areas of Zurich and Central Switzerland. However, market participants’ consensus on how they feel about these regions has fallen by 50% in two years. The negative trend in expected prices for the Lake Geneva region has accentuated. At -13.3 pts, for the first time, survey respondents expect that prices for investment in real estate in the Lake Geneva region will fall moderately.

When comparing risk/return with other asset classes, real estate investments still exhibit an interesting yield spread. Predominantly in the residential segment, the supply of investment properties is inadequate to meet the resulting demand, which market participants reflect with an availability index of -126.9 pts. Demand and supply in commercial and retail space are roughly balanced. Not surprisingly, the positive trend in the availability of office properties continues. It is interesting to note that the availability of investment opportunities in special purpose real estate has further reduced. This could be a consequence of the lack of supply in the favored investment segments noted in recent years, which has resulted in investors showing increasing interest in alternative real estate investments.

Focus topic: International property investments

Looking further afield, there are other options for real estate investment allocation. This year’s sresi®survey focused on property investments abroad. Take a look at the sresi® 2014 analysis to see why, after many years of focusing on the home market, Swiss real estate investors are increasingly turning to international investment opportunities too. Which hurdles have to be overcome and what do investors expect from their foreign investments? Last, but not least, Swiss real estate investment experts have also provided information on the foreign investors they encounter in Switzerland.

The Swiss Real Estate Sentiment Index provides you with a tool that enables you to anticipate trends in the Swiss real estate investment market and to decide accordingly. After you have consulted the combined wisdom of appraisers and investors, you will be in a position to act based on the trends revealed by the analyses.

SRESI 2014 - Index

(Click graphic to enlarge)

Guide: the lower the supply index, the lower the availability of suitable property – the higher the price index, the more positive the assessment of price trends.

Swiss Real Estate Sentiment Index 2014 – Deutsch from KPMG Switzerland

 

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