UBS Alpine Property Focus: Comparing top destinations in the Alpine region

Zurich, 23 May 2018 – The vacation home market in the Swiss Alpine region is showing signs of recovery. Prices in Swiss resorts rose by 1% on average compared to the previous year after an extended correction phase. Domestic price trends, however, are lagging those in Austria, which is up 5%, and France, where prices climbed 3% year on year. But the vacancy rate in Switzerland remains stable at 3.3%.

St. Moritz still the most expensive destination in the Alpine region

Engadin/St. Moritz is still the most expensive tourist destination in the Alpine region. Vacation home prices in the upper segment here average around CHF 15,000 per square meter. Gstaad is a close second. Courchevel, France and St. Anton am Arlberg and Kitzbuhel, Austria round out the five most expensive vacation spots, with square-meter prices for high-quality second homes hovering near CHF 13,000.

In Switzerland, Verbier and Lenzerheide follow St. Moritz and Gstaad as the next-priciest destinations at CHF 12,000 per square meter. But average prices in the upper segment also exceed CHF 10,000 for top destinations Zermatt, Films/Laax and Davos/Klosters. A vacation home with 80 square meters of living space under a half million francs can only be found in niche locations such as Evolène, Leukerbad or Disentis/Mustér.

Prices rise in most top Swiss destinations

Engadin/St. Moritz, the Jungfrau region and Saas-Fee enjoyed price increases of more than 5% year over year. The rises in Gstaad, Flims/Laax, Andermatt, Zermatt and Davos/Klosters were more moderate. In Arosa and Engelberg, prices continued to fall, by just under 2%. The top Valais locations of Verbier and Crans-Montana suffered the sharpest price drops compared to the previous year (of around 3%).

Stock of second homes continues to grow despite Second Home Act

The Second Home Act sounds advantageous to vacation home owners since it puts tight restrictions on new construction of second homes. But most of the around 80,000 first homes in the tourist destinations (40% of the entire stock) are not subject to any restrictions on use. The number of grandfathered first homes that actually hits the market depends chiefly on the population trends in the localities. Because populations have been falling since 2013 in around two-thirds of these vacation spots, demand for first homes has suffered. If this trend continues, more second homes will come onto the market. If only 1% of the homes used as main residences is converted into second homes annually, the stock of second homes will increase 0.6% each year.

Renting only somewhat attractive

In recent years, online portals have made it significantly easier to let vacation homes, and the number of homes advertised for rent has soared. But above-average rental income can be obtained only in locations with special tourist attractions (such as Engelberg, Zermatt and the Jungfrau region) and during the peak winter season. The daily average of successfully rented properties is only around one out of three. In the low season, occupancy is a meager 20%. The achievable yields are also lower and more volatile than the average in large Swiss cities.

Short-term market outlook is optimistic

The weaker franc and Switzerland's sound economic performance should strengthen domestic and foreign demand this year as well. We expect second homes in the Swiss Alpine region to experience another slight price increase this year.

A comparison of Alpine vacation home markets

Selected results by regions

Eastern Switzerland and Grisons

Price levels: Square meter prices in Engadin/St. Moritz are at over CHF 15,000. Five-digit prices can also be expected in Lenzerheide, Flims/Laax and Davos/Klosters. The Surselva, Scuol and Arosa regions are significantly less expensive with prices between CHF 5,000 to 8,500. Price trends: Prices increased year on year in all destinations with the exception of Arosa and Breil/Brigels/Obersaxen. Engadin/St. Moritz achieved the largest increase (seven percent) among the top destinations. Prices have recovered and are as high as 2013 in most destinations. Market size: With more than 10,000 vacation homes, Davos/Klosters is the second biggest market in the Alpine region, just behind Crans-Montana. Engadin/St. Moritz with around 8,500 homes is also one of the largest markets, while Scuol with 3,000 and Arosa with 4,000 second homes are some of the smaller top destinations. Accessibility: Lenzerheide, Laax and Davos/Klosters are the most easily accessible destinations in the region. The travel times from airports and business centers are longer for Engadin and Arosa, but they are still around the average for all destinations examined. Tourist facilities: Engadin/St. Moritz has the most well developed tourist facilities. In accordance with the smaller market size, the range of facilities in Arosa and Scuol is somewhat less comprehensive when viewed over the whole year. Occupancy: Vacancy rates remained unchanged year on year at 2.3 percent. Flumserberg, Breil/Brigels/Obersaxen and Lenzerheide have the lowest rate of 1.2 percent. In Laax/Flims, however, just under four percent of all properties are empty and in Arosa and Engadin/St. Moritz three percent. Renting perspective: Potential demand for rental homes as a main place of residence could be highest in Flims/Laax. Renting to tourists, however, is difficult in Flumserberg, which is typically a one-day destination. Population growth: The permanent population in Flims/Laax could rise the most because of a lower tax burden and good accessibility. Engadin/St. Moritz also gets a good score because of its low taxes and good local infrastructure. However, in Samnaun, the population could fall. Restrictive supply: Supply increases are relatively limited in Grisons. In Engadin/St. Moritz, Breil/Brigels/Obersaxen and in Flims/Laax, the stock of second homes may only be able to grow slowly in the medium term. However, in Flumserberg and Disentis/Mustér, grandfathered homes are a large potential reserve of second homes.

Bernese Oberland and Central Switzerland

Price levels: Gstaad is the most expensive destination in the region with square meter prices of around CHF 14,000. Real estate in the Jungfrau region costs CHF 11,000 per square meter and costs around CHF 9,000 in Engelberg, Andermatt/Sedrun and Adelboden/Lenk. Hasliberg is the least expensive destination with a price level of around CHF 7,000 per square meter. Price trends: Among the top destinations, the Jungfrau region achieved the largest annual price increase of just under five percent. In other regions, the prices changed between minus two to plus two percent. Second homes rose in price in the last five years in all regions (with the exception of Gstaad). In Hasliberg, price behavior continued to soar. Market size: Adelboden/Lenk and the Jungfrau region are the biggest vacation home markets with around 5,000 units each. We count just under 4,000 units in Gstaad. The market in Engelberg and Andermatt is significantly smaller with around 2,000 second homes in each case. Accessibility: All the destinations benefit from an above-average catchment area size. Engelberg is slightly ahead, thanks to the proximity of the City of Lucerne. Tourist facilities: The tourist facilities in Engelberg and Andermatt are around the average of the destinations examined. In Gstaad, the Jungfrau region and Adelboden/Lenk, the facilities are above-average standard. Occupancy: Vacancy rates are the lowest in Switzerland with an average of 1.4 percent and even fell year on year. No more than two out of 100 homes are empty in any region. Renting perspective: Engelberg and the Jungfrau region are the most suitable for renting vacation homes. The relatively seasonal demand, frequent tourist visits and expensive rent are factors in favor of these locations. In Gstaad, however, tourist rental returns are clearly below average. Population growth: The population could grow most strongly in Engelberg. At best, the other destinations will have average appeal to move ins. The increasing prices in Andermatt/Sedrun led to locals being pushed out. No turnaround is expected in view of the relatively high tax burden and poor accessibility. Restrictive supply: The supply of second homes can be increased relatively easily in the Hasliberg region. The use of grandfathered homes in Meiringen is currently subject to few restrictions. Other regions have average conversion potential. Almost everywhere construction activity is more dynamic than population growth, which favors conversions.

Valais and Vaud

Price levels: In Verbier, square meter prices of about CHF 12,000 can be expected for second homes, and square meter prices of approximately CHF 11,000 can be anticipated in Zermatt for second homes. In Saas-Fee and Crans-Montana, the price level is substantially lower at CHF 9,000. Villars-Gryon-Les Diablerets is the most expensive destination in Canton Vaud with just under CHF 8,000 per square meter. Price trends: Prices declined at most destinations during the year. Anniviers recorded the strongest correction with minus six percent. Even in the top destinations Verbier and Crans-Montana, second homes significantly decreased three percent. However, prices increased year on year in Zermatt and Saas-Fee. Prices stagnated or dropped at all destinations in Valais and Vaud with the exception of Saas-Fee over the last five years. Market size: With more than 10,000 second homes, Crans-Montana is the biggest market in the Alpine region. In Verbier we count around 6,000 properties; in Zermatt around 4,500. Accessibility: The destinations Leysin-Les Mosses and Villars-Gryon in Vaud have the best accessibility because of their closeness to airports and centers. The trip to Zermatt takes the longest time. Tourist facilities: Zermatt offers the most comprehensive range of tourist facilities. Saas-Fee and Verbier also have above-average tourist facilities. Occupancy: These destinations have the highest vacancy rates in the Alpine region with an average of 4.6 percent. Ovronnaz, Crans-Montana, Leukerbad and Nendaz/Veysonnaz are at the top with over five percent. Zermatt has the lowest vacancy rate. Renting perspective: Renting to tourists seems to be the most promising in Zermatt. Renting on the first home market is also an option in many destinations in Lower Valais and Canton Vaud. Population growth: Proximity to work centers and the regions' good economic potential favor strong population growth for destinations in Vaud and Lower Valais. Destinations in Upper Valais are in a substantially worse position. Restrictive supply: Grandfathered homes can be reclassified without restrictions in most destinations. The high availability of building zones puts no restrictions on new construction of first homes. The largest potential supply increase is currently in Zermatt. However, there is hardly any potential in the Aletsch-Arena region where four out of five homes are already being used as second homes.

UBS Switzerland AG

Media contact

Dr. Matthias Holzhey, Head Swiss Real Estate Investments, Chief Investment Office WM
Tel. +41-44-234 71 25, matthias.holzhey@ubs.com

Maciej Skoczek, Swiss & Global Real Estate Analyst, Chief Investment Office WM
Tel. +41-44-234 68 09, maciej.skoczek@ubs.com

Claudio Saputelli, Head Swiss & Global Real Estate, Chief Investment Office WM
Tel. +41-79-513 50 45, claudio.saputelli@ubs.com

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