Swiss real estate Corona crisis: impact on real estate market

The severe recession of the Swiss economy will lead to value adjustments in individual market segments.

byUBS Insights 07 May 2020

The situation on the real estate market is marked by a high degree of uncertainty about economic developments in the coming quarters. Transaction activity has fallen sharply and many tenants of retail space, hotels and other leisure properties are not generating income, which means that rental payments are at risk. In addition, many companies are putting their expansion plans on hold, which is depressing demand for both office space and housing. The real impact of the Corona crisis on real estate market pricing is not likely to be visible until the figures for the second quarter of 2020 become available at the earliest.

No trend reversal in sight

The first quarter of 2020 was still dominated by last year’s real estate market trends. According to the Composite Index, prices for owner-occupied properties rose by around 1% compared to the previous quarter, making them almost 3% higher than a year ago.

In contrast, rents fell in all segments. In the first quarter of 2020, quoted rents for apartments fell by around 0.3% compared to the previous quarter. Rents for office properties also declined by 0.2% over the same period, despite experiencing a rise of just under 1% in the fourth quarter of 2019. The sharpest decline was recorded for retail space, where rents fell by 1% in relation to the previous quarter. Rents for commercial properties also remained under pressure – and after a quarterly correction of 0.7%, are now more than 5% lower than a year ago.

No decline in construction projects

The Corona crisis has not (yet) had any effect on the development of construction projects. The number of building permits – over 11,000 – issued in the first quarter was slightly higher than the levels seen both in the previous quarter and in the same period of the previous year. In the course of the year, around 44 thousand building permits were granted, which corresponds to just under 1% of Switzerland’s housing stock. A Corona effect was not detected in planning applications either. Even in Ticino, the number of planning applications submitted rose significantly compared to previous quarters.

Foreseeable slump in migration

Signs of weakness. In the first two months of the year, net migration was even one third higher than in the previous year. However, we expect to witness a slump in immigration and emigration from April at the latest, as international migration is severely hampered by the Corona crisis. Despite the strong start to the year, we anticipate that net immigration over the year as a whole will be lower than in 2019. Furthermore, migration to Switzerland is linked to employment growth, which is likely to be negative. Unemployment figures are also clearly on the rise as the year advances, even in Switzerland, which generally favors emigration.

Owner-occupied homes

Turbulence in the financial markets and the economic standstill are straining the assets and income of households. Larger investments such as purchasing owner-occupied housing are being postponed for now because of the economic uncertainty. Long-term mortgages have become slightly more expensive due to the rise in market interest rates.

Expectations for the next 12 months: Market activity has significantly reduced during the Corona crisis. It is likely to remain low in the coming months. In Germany, for example, search queries on the Internet have halved since mid-March. The demand for owner-occupied properties has practically collapsed in percentage terms. Anyone wanting to sell must be prepared to accept price cuts. Nevertheless, house prices will only fall slightly overall over the next 12 months. A price drop in the market average of more than 5% still seems unlikely at this point in time.

Affordability is becoming more important. Overheated centers and luxury real estate in particular are disproportionately affected. These sectors may be subject to price falls of up to 15% because of low market liquidity.

Risk: The boom in the owner-occupied housing market is over, which may correct extremes. Price reductions of up to 10% are possible throughout Switzerland within a year. Rising mortgage interest rates are also increasing the pressure on prices.

Longer-term outlook: Demand is recovering in line with the economic outlook. However, prices for locally overheated markets are unlikely to reach their previous level for the time being.

Vacation apartments

Experience shows that uncertainty in the labor market and the loss of assets will slow demand for luxury items such as vacation apartments. The frequency of domestic travel has also decreased enormously, and foreign travel has practically come to a halt due to entry bans.

Expectations for the next 12 months: The vacancy rate for tourist destinations will increase on average from almost 2.7% to over 3% since the majority of the domestic and foreign demand will disappear. The number of market transactions will recover during the course of the year, but single-digit price corrections are still possible.

The commercial rental of vacation apartments will come under pressure. The spring business was a failure, and landlords will be forced to lower prices in the summer season. Achievable rental income will be, on average, up to 20% lower this year compared to the previous year.


Based on the information currently available, we do not expect the economy to recover until the second half of the year at the earliest. If this occurs, the real estate market might be able to get off lightly. Value adjustments would primarily be expected for the most strongly exposed segments (retail and hotels). Some elevated prices in the office market and in the luxury residential sector may come under pressure in individual cases. A large part of the owner-occupied housing and investment property markets should not experience significant value corrections, however.

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