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New Swiss real estate study: UBS real estate focus 2011 - Continued upswing for the Swiss real estate market
UBS Research Switzerland expects residential real estate prices to increase again in 2011. Real estate market drivers are solid. Areas where prices have overheated will struggle to return to normality.
The Swiss real estate market began its boom in 1998. Since then, prices for condominiums have increased by 56 percent, and by 37 percent for single-family houses. Since disposable income also increased sharply during the same period, the affordability of single-family houses has remained fairly constant, although not in all parts of Switzerland.
Taking the average price increase for condominiums in the Berne region over the last 10 years, prices there would double in 24 years. In contrast, in the Lake Geneva area, real estate prices would increase more than six-fold during the same period at their current pace. In other words: These price increases are not sustainable. The same applies to the areas around Lake Zurich and Lake Zug, as well as certain high-end tourist regions south of the Alps. However, viewing these high-price regions as isolated trouble spots in the Swiss real estate market would be a mistake, according to UBS Research Switzerland. History has shown that price corrections can trigger unpredictable domino effects across multiple regions.
Commercial real estate market separates the wheat from the chaff
The Swiss commercial real estate market has weathered the global economic crisis well. While the EU's financial sector shed jobs rapidly, Switzerland's growth rate slackened over the last two years – but still remained positive. With some tenants more likely than others to experience price pressure, UBS Research Switzerland expects to see a widening of the performance gap between central and peripheral locations. Regardless of ongoing immigration, more companies still want to provide attractive work environments for their employees. Easily accessible, central office locations will gain even more importance.
In the peripheral locations, however, rental prices will remain under pressure, since these sites are predominantly used for back-office roles, where cost concerns are particularly marked. For showrooms and sales areas, too, the potential for rent increases may be limited overall. Only high-end locations and very well-managed properties could rise above the stagnant rental trend.
Indirect real estate investment as the winner during the last few years
In 2010 Swiss real estate equities benefited from a solid base: essentially no price exaggerations, a quickly recovering economy, robust demand and sinking interest rates. In addition, companies continued to make value-boosting investments in their real estate. The share price development of Swiss real estate equities reflects this. Some of these made up for the corrections of late 2008 and early 2009 and even reached all-time highs. Yet according to UBS Research Switzerland, 2011 will be considerably harder. On the other hand, more conservative real estate funds were not able to keep up with the outstanding performance of 2009, closing at low single-digit percentages. The current low interest rates are very favorable for real estate funds; a rise in interest rates, however, could have a negative influence on price behavior, at least in the short term.
Chief Economist Switzerland
Wealth Management Research
Phone: +41 44 234 25 60
Head of Real Estate
Wealth Management Research
Phone: +41 44 234 39 08
The UBS study UBS real estate focus 2011 can be viewed via the following link: www.ubs.com/realestatefocus2011_en