A stable anchor in a volatile environment

Elevated uncertainty continues to define the economic environment. In 2025, attention was primarily focused on economic policy uncertainty, driven by the import tariffs imposed by the US administration. At the beginning of 2026, geopolitical risks once again moved to the forefront. The US intervention in Venezuela, the dispute over Greenland, and the outbreak of conflict in the Middle East on 28 February led to a significant increase in uncertainty levels. With the escalation in the Middle East, concerns about stagflation have also re‑emerged. As a result, commodity prices have risen sharply and are exhibiting exceptionally high volatility. The European economy has been particularly affected. In March, the European Central Bank revised its inflation forecast for 2026 upward – from 1.9% expected in December to 2.6% - while simultaneously lowering its growth forecast from 1.2% to 0.9%.

The Swiss economy is less directly affected by these developments. This is reflected in the lower weighting of energy in the consumer price basket, regulated electricity prices – which already had a cushioning effect in 2022 and 2023 – and the strength of the Swiss franc. The latter has also contributed to inflation in Switzerland remaining at a very low level. In 2025, inflation averaged 0.2%. During the first two months of 2026, it stood at 0.1% before rising to 0.3% in March and to 0.6% in April. Owing to higher energy prices, inflation is expected to increase further in the coming months and to be higher for the year as a whole than previously anticipated, while remaining within the SNB’s target range. Consequently, we expect interest rates to move sideways in 2026, even though financial markets are pricing in a high probability of a policy rate hike.

Nevertheless, the Swiss economy is also expected to come under increasing pressure should the conflict persist. While the strength of the Swiss franc has a dampening effect on inflation, its role as a safe‑haven currency simultaneously reinforces appreciation pressures, thereby further weighing on the export sector. As an open economy, Switzerland is also not immune to an economic slowdown abroad. In 2025, the Swiss economy grew by 1.4% on a sports‑event‑ and calendar‑adjusted basis, with the annual outcome supported by a strong first quarter driven by pull‑forward effects. Growth in 2026 is expected to be lower than in the previous year and below earlier forecasts, coming in at below 1.0%. The anticipated acceleration in growth in 2027 could also prove somewhat weaker, depending on revisions to the outlook for the euro area.

Labor market dynamics are also expected to remain subdued. The seasonally adjusted unemployment rate stood at 3.0% in April 2026, 0.3 percentage points higher than a year earlier. Despite a contraction in the industrial sector, overall employment growth in 2025 remained positive; however, at around 10,800 full‑time equivalents, it was significantly below both the previous year’s level (‑71%) and the average of the past ten years (-79%).

Supported by its safe‑haven characteristics and the return to a low‑interest‑rate environment, Swiss real estate experienced exceptionally strong investor demand over the past year. This was reflected in a record year for capital market transactions, which, according to data compiled by alphaprop, amounted to approximately CHF 7.5 billion. Of this total, around CHF 3.7 billion was attributable to listed real estate funds. Despite the high volume of new capital raised, premiums on listed funds continued to widen over the course of 2025, increasing from an average of around 31% at the beginning of January to approximately 36% by year‑end. Products with a residential focus were particularly in demand.

After strong momentum carried into the first two months of 2026, the SWIIT corrected by 5.3% in March amid rising stagflation concerns and a broader correction across financial markets. The average premium declined from 38.2% at the end of February to 30.2% by the end of March. In addition to heightened geopolitical tensions, the listing of a large residential vehicle likely also contributed to the correction. Nevertheless, the decline in the real estate index was less pronounced than that of the Swiss equity index SMI (–8.8%), reflecting investors’ continued focus on the domestic and stable income‑generating characteristics of real estate. Volatility also remained high in April. After the SWIIT temporarily reached an all-time high of just under 616 points, the rise in long-term interest rates has since put real estate stocks under pressure again.

Figure 1: Development of premiums of listed Swiss real estate funds (%)

Following the recovery in 2025, activity in the direct transaction market may lose some momentum in the short term amid elevated uncertainty, as investors partially move to the sidelines in response to the geopolitical environment and financing conditions. Against the backdrop of high price levels, property owners in particular benefit from secure and predictable rental income in volatile times. As a result, organic growth – namely value creation and development within the existing portfolio – is increasingly moving into focus.

In recent years, the Swiss residential market has been characterized by strong demand, driven primarily by immigration. In 2025, net immigration amounted to around 74,700 people – below the exceptionally high levels recorded in the three preceding years, but still above the long‑term average of approximately 65,000 people over the past 25 years. Beyond immigration, a number of long‑term structural trends continue to shape housing demand in Switzerland. These include the increasing individualization of households, a trend further reinforced by population ageing. Urbanization also plays a central role: demand is growing disproportionately in cities and their agglomerations, where supply – and the scope for its expansion – remains limited.

On the supply side, planning activity has picked up slightly. In 2025, building permits were issued for around 40,500 residential units. However, it typically takes time for these permits to translate into effective market supply. This is reflected in the continued decline in the vacancy rate published by the Federal Statistical Office, which fell from 1.08% to 1.00% in 2025. In urban centers, vacancy rates remain well below the national average. As of the reporting date of 30 June 2025, for example, only 0.10% of apartments in the city of Zurich were vacant, compared with 0.36% in Geneva.

Building applications – an even earlier indicator of future supply developments – declined by around 9% in 2025 compared with the previous year, but has since started to trend upward again. The sharp increase in construction and financing costs between 2021 and 2023 has had a lasting dampening effect on planning activity. Against this backdrop, the ongoing conflict in the Middle East has raised concerns that costs could rise again, potentially leading to renewed restraint in the initiation of new projects. In addition, political uncertainty continues to weigh on supply developments. Discussions surrounding housing‑policy initiatives, such as the tenant protection initiative in the city of Zurich, as well as generally lengthy approval procedures, are further delaying construction projects. As a result, a strong acceleration in supply dynamics is not expected in the short term.

Similarly, no reversal in the trend for asking rents is expected, even though growth slowed markedly to 1.8% in 2025, following an increase of 4.7% in the previous year. In the first quarter of 2026, year‑on‑year rent growth stood at 0.9%. After two reductions in March and September 2025, the mortgage reference interest rate is currently unchanged at 1.25%. In light of the rise in long‑term interest rates, the likelihood of a renewed increase in the reference rate has risen further.

Over the past decade, commercial occupier markets worldwide have faced a range of challenges. Structural shifts – most notably the growing prevalence of remote working – have dampened demand for office space, while the expansion of e‑commerce has continued to weigh on the retail segment. At the same time, the logistics sector has benefited from these trends. These structural developments have been compounded by generally subdued economic momentum since the Covid‑19 pandemic. In both an international comparison and a historical context, however, Switzerland’s commercial real estate markets continue to demonstrate resilience. Population growth not only supports the residential segment, but also has a positive impact on employment and consumption, which in turn underpins demand across Switzerland’s commercial rental markets.

In the office segment, the floor‑space‑weighted average vacancy rate declined further, reaching around 5.2% at the first quarter of 2026, compared with 5.6% at the beginning of 2025. After several years of declining asking rents, 2025 saw a renewed increase of around 2.3%, according to Wüest Partner. Prime rents also recorded a clear upward trend in most markets, as reported by JLL, underscoring sustained demand for modern, well‑located office space. Basel and Lausanne were notable exceptions to this trend in prime rent growth last year, as both markets had previously experienced rising vacancy rates amid elevated construction activity. Overall, however, construction activity in the office segment is declining nationwide, and the development pipeline for the coming years remains manageable. At the same time, the market is not without risks. Supply indicators suggest that further home‑office‑driven space consolidation could occur in certain markets, a development that is not yet fully reflected in current vacancy figures. Conversely, an increasing number of initiatives encouraging employees to return to the office have been observed over the past one to two years, which could partially offset this trend. The impact of AI on the labour market—and therefore also on the office market—is another source of uncertainty, although it has not yet had any visible consequences for the market.

The retail market has also developed positively despite a challenging environment. Consumer sentiment remains below average and volatile, with job security in particular perceived as weak. Nevertheless, retail sales have increased overall, supported by population growth, rising real wages, and a strong tourism sector. The non‑food segment, in particular, recorded a marked increase in sales in 2025. After several years of declining rents, asking rents in the retail market also returned to growth in 2025, rising by around 2.9%. Although rent levels remain below those seen ten years ago, this development sends a positive signal. Prime rents in absolute top locations such as Zurich and Geneva increased by around 3.7% in 2025, marking the fifth consecutive year of growth.

The logistics market continues to benefit from structural tailwinds such as the growth of e‑commerce and efforts to strengthen supply‑chain resilience. However, in Switzerland, the market remains comparatively small despite this supportive backdrop and is largely characterized by owner‑occupied space. In 2025, the vacancy rate stood at around 2.1%, down from 2.5% in the previous year, despite the challenging conditions facing the export‑oriented industries closely linked to the logistics sector. As a result, the structural tailwinds supporting the logistics segment remain intact. In the short term, however, some headwinds are likely to emerge in light of the global economic environment, US import tariffs, and the strength of the Swiss franc.

The Swiss hotel sector performed exceptionally well in 2025. According to the Federal Statistical Office, another record year was recorded, with 43.9 million overnight stays – an increase of 2.6% compared with the previous year. Growth continued to be driven primarily by foreign guests, whose overnight stays rose by 3.7%. At the same time, domestic demand also reached a new high, with 21.1 million overnight stays, up 1.4%. The first two months of the year also showed continued momentum, with overnight stays increasing by 2.6% in January and, according to provisional figures, by 2.9% in February. Despite a weaker economic outlook, a potentially higher savings rate driven by inflation concerns, and the strength of the Swiss franc, a slight increase in overnight stays is expected for 2026. By contrast, March posted a marked decline of -5.2% year-on-year.

The Swiss economy is facing a challenging year amid an exceptionally difficult global environment. A noticeable improvement is not expected before 2027 and will also depend on a recovery in the European economy, particularly in Germany. In this context, the recent increase in commodity prices represents an additional downside risk. In contrast, the Swiss real estate market was characterized by very strong demand in 2025, supported by the safe‑haven qualities of Swiss property and the return to a low‑interest‑rate environment. Under the base‑case scenario, these framework conditions are expected to remain broadly unchanged in 2026, with demand for Swiss real estate investments staying at a high level. Capital‑market activity remains robust, as evidenced by announced and completed capital raisings as well as new listings in the year to date. At the same time, supply in the direct transaction market remains scarce, resulting in continued strong price momentum, particularly in the residential segment.

Despite rising long‑term interest rates as a result of geopolitical tensions, we continue to expect positive value development in 2026, albeit at a more moderate pace than in the previous year. Fundamentals in the residential segment remain particularly robust. Following a value increase of 3.2% in 2025, we expect growth of around 2.1% in 2026. In the commercial segment, value appreciation is likely to be more subdued. After increases of 0.7% for office properties and 1.6% for retail properties in 2025, we anticipate value changes of around 0.2% and 0.6%, respectively, in 2026.

While residential properties are therefore expected to deliver stronger value appreciation than commercial real estate, the latter continues to offer attractive opportunities through active asset management. In addition to higher ongoing income yields, commercial assets are particularly compelling in the current environment due to the availability of significantly more attractive acquisition yields and risk premia. Against the backdrop of robust fundamentals, moderate valuations, increasing regulatory pressure in the residential market, and inflation‑linked, long‑term lease structures, commercial real estate continues to represent an attractive investment opportunity, even in the current environment.