CBRE Switzerland organized a conference yesterday in Lausanne on the evolution and trends of the real estate market in Switzerland.
In a new macroeconomic and financial context marked by an increase in inflation and interest rates in 2022, the Swiss market had experienced a period of slowdown in investment activity in investment property, nevertheless on a lesser scale than elsewhere in Europe and in the world. A window of opportunity then appeared for private investors in 2023 and 2024 in the real estate sector. This dynamic was mainly driven by a temporary withdrawal of institutional investors from the real estate investment market, combined with still attractive financing conditions.
Since mid-2024, a return of these institutional investors seems to be taking shape, with the real estate sector once again considered a relatively “attractive” investment following successive reductions in key rates by the Swiss National Bank. Indeed, the real estate risk premium (the difference between the real estate “prime” yield rate and the 10-year Confederation bond rate) has returned to a level close to its long-term average since mid-2024. (figure 1).
An investment market in clear rebound in Switzerland
The recent capital raising successes by real estate funds and investment foundations observed over the last six months demonstrate this recovery. Beyond the new acquisitions and developments that they would enable, these capital raisings focus primarily on financing renovation work and bringing the existing stock up to energy standards. This new capital will also be dedicated to reducing the debt ratios of listed real estate funds, which have increased significantly since 2022.
The interest of institutional investors continues to focus primarily on residential real estate, favoring well-located assets and especially those compliant with ESG criteria. However, the market faces a limited offer of products meeting these criteria: in fact, CBRE is already observing a compression of yield rates in this “prime” segment only.
Although buffeted by headwinds (teleworking, strong franc, slowdown in growth), commercial real estate is not left out and continues to benefit from solid market fundamentals, particularly in central areas. Thus, the volume of transactions carried out by CBRE in this sector reaches almost one billion francs per year, for the years 2021 to 2023 and with similar or even higher forecasts for 2024.
Some significant challenges remain: the more limited availability of mortgage loans since mid-2024 and/or the increase in margins, the appreciation of the Swiss franc penalizing the competitiveness of Swiss companies in certain sectors, and the restricted supply of “core” residential assets for sale in the face of capital to invest in this area. Opportunities will nevertheless be there, considering the forecast of one or two additional cuts in key rates in the coming quarters, which should strengthen the return of institutional investors to the real estate market and consolidate the concentration of capital flows.
Figure 1: “Prime” rate of return in Geneva vs. 10-year bond rate (Conf.)
Source: CBRE, 2024
