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Switzerland has made tremendous efforts to reduce its buildings’ CO2 emissions – partly due to political pressure. A total of over CHF 75 billion may be necessary to renovate existing apartment buildings, for example, as over two thirds of them continue to use oil- or gas-fired heating.

When do energy-saving apartment building renovations pay off?

  1. Are energy-saving renovations economically viable? Most of the costs can be added to the monthly rent as a value-adding investment. Given that energy-saving investments are also tax-deductible, any increase in net rents (excluding service charges) usually covers the costs involved. If not, it is better to hold off on renovating.
  2. Do energy-saving renovations lead to lower gross rents? As explained in point (1), such renovations usually lead to an increase in net rents. However, lower energy consumption leads to lower ancillary costs. If a great deal of energy is saved – as is the case with old buildings in need of renovation – gross rents decrease, to the benefit of tenants. However, if gross rents were to rise, the following question would need to be answered.
  3. Will the market allow for higher gross rents to be charged? Higher gross rents should be achievable if market rents (average rents for new lettings) are higher than the property’s current rental price. This is especially true of older buildings in large city centers and booming urban areas. Major investments in energy-saving renovations pay off less in less central locations where a greater number of properties are unoccupied. If higher gross rents cannot be achieved, the effective rental yield disappears and the investment would not be financially worthwhile for the owner.

Energy-saving renovations can be carried out as part of a partial or full renovation. The latter may be more cost-effective in some circumstances, especially if it is crucial to the structure of the building. It is mainly worthwhile in the case of older, centrally located buildings requiring renovation, where quality and market rent premiums are likely to be particularly high.

Investors should bear these five key points in mind

  • Energy-saving renovations can yield high returns: Thanks to subsidies, potential rent increases and significant tax breaks. In the current low interest rate environment, debt financing can often generate yields in the low double-digit percentage range.
  • Rising carbon taxes mean higher yields: Higher CO2 taxes raise energy costs, making renovated homes more appealing to prospective tenants. Owners of property away from city centers especially would also see higher yields, as they could potentially charge higher net rents. There would also be more incentive for local authorities to carry out full renovations in city centers.
  • A better renovation doesn’t always mean better yields: the more spent on a renovation, the lower the return. It is up to the investor to decide what they want to achieve with the renovation: maximum possible cost-efficiency, net-zero emissions or an “energy-plus building,” i.e., one which produces more energy than it consumes.
  • Ensure you have the necessary certifications: Energy certificates such as the cantonal building energy performance certificate (GEAK) and Minergie are likely to become standard in the near future. However, they can entail substantial costs depending on the complexity of the certification. This is likely to result in a higher price (or at least no reduction) when the property is sold, or for stock market valuations, as in the case of real estate stocks and funds.
  • Improved rentability: in the long term, energy-saving buildings are likely to be more attractive to potential tenants, who will pay greater attention to this in future.

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