The coronavirus has taken a firm grip on public life in Switzerland and is dictating what we can and can’t do in our day-to-day lives. The effects are still difficult to estimate and the associated feeling of uncertainty is also impacting events on the financial and real estate markets.
Assessment of the Swiss real estate market
The measures taken to combat the spread of the coronavirus are proving challenging for the Swiss economy. The initial assessments of the effects of these exceptional circumstances predict that Switzerland’s real gross domestic product will decline by approximately -2% in 2020. This will, however, be followed by a strong upturn in economic activity in 2021. The real estate market will likewise be affected by negative growth this year. It is still unclear as to what extent the market will be impacted and this will also depend on for how long this special situation persists as well as the effectiveness of the measures taken by the government to help the Swiss economy, as part of which the sustained low Swiss interest rates should continue to support real estate values. The effects of the coronavirus crisis will vary in strength from one real estate sector to the next.
Although the growth in demand on the rentals market is set to be dulled by a probable decline in immigration, this sector is likely to remain rather robust thanks to its less cyclical drivers (longstanding demography).
The anticipated worsening of the labor market situation, a rising unemployment rate and the postponement of a number of companies’ potential expansion plans are all likely to negatively impact the absorption potential in the office space market. This means that the trend of stabilization in this sector is expected to come to a halt, with it possible that the rent level could experience slight downward pressure over the next few quarters.
The forced closure of infrastructures has had a huge impact on retailers and other commercial enterprises (gastronomy, etc.), with the exception of food stores. As a result, many of the players in the bricks and mortar retail sector, which has already been weakened by the continuous growth of e-commerce, are currently experiencing a massive drop in earnings. In light of this, rental prices in the retail property market are expected be placed under additional pressure and the likelihood of at least temporary rental losses is set to increase. This challenging market environment could lead to an accelerated adjustment of the value of individual commercial real estate in the transaction market.
Performance of listed real estate funds
The index for listed real estate funds (SXI Real Estate Funds Index) was adjusted by just under 17% between March 10 and 17. As far as we know, there has never been such a large adjustment in real estate funds in such a short period of time,
not even during the financial crisis. Consequently, we have seen a market dominated by extreme volatility and nervousness. Over the course of the month, the index has regained ground and as at the end of the quarter is approximately 3.5% down on the start of the year.
Although this affects the real economy directly, Real Estate Switzerland expects that the real estate market will also be negatively affected, should this exceptional situation persist for a longer period of time. Lower immigration, falling revenue in the bricks and mortar retail and gastronomy sectors, as well as companies potentially going bankrupt could all have a negative impact on rental income. Against this backdrop, residential properties are likely to not be impacted as severely as commercial properties. Intense discussions are currently focusing on the how to support the sectors and companies affected, with significant support measures to be expected from the Swiss government.
Further assessments of the Swiss real estate market and the real estate investment products of UBS Asset Management are available at the following link: