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TrendbarometerReal Estate Investment MarketSwitzerland 2019

ContentsEditorial 4

Trendbarometer Real Estate Investment Market Switzerland 2019 6

Key statements, Switzerland 2019 34

Contacts 38

Editorial

5EY Trendbarometer Real Estate Investment Market — Switzerland 2019 |

Turning point in the Swiss real estate market — investors face new challenges

Switzerland remains an attractive location for real estate investments. This is partly because the low-interest rate phase will continue in 2019 and increasing digitalization will lead to savings in various segments. At the same time the current trend barometer for the annual real estate investment market, which we have now conducted and compiled for the ninth time, shows that the high point has essentially been reached in the development of real estate prices, and prices will generally move sideways or down in 2019.

In the context of digitalization innovative space concepts and so-called “coworking” premises will become more important. “Affordable housing” will also be in high demand in 2019 according to our internal and external sector experts, whether as student flats, micro and serviced apartments or temporary housing. This increasing flexibility will also be reflected in the structuring of future leases.

In the large Swiss cities in particular traditional hotels will continue to be challenged in 2019 by international hotel operators with innovative concepts and competitive prices. Hotel operators should prepare for additional competition and increased capacities, which will in turn up the pressure on occupancy rates of their properties. We see the best chances for successful and sustainable positioning in individual services and a local, personal character of the respective hotel.

In this final stage of the current market cycle all real estate investors whom we surveyed for this study expect to streamline their portfolios with strategic divestitures of assets and properties not conforming to strategy. Many of them are therefore planning selective acquisitions, profit-taking and foreign real estate investments.

We hope you enjoy reading our Real Estate Trend Barometer 2019 and find it a source of valuable information.

Claudio Rudolf FRICS Daniel Zaugg MRICSPartner PartnerHead Real Estate Sector Leader of Real Estate Transaction Advisory Services Hospitality & Construction

Trendbarometer Real Estate Investment Market S w i tz erland 2 0 1 9

8 | EY Trendbarometer Real Estate Investment Market — Switzerland 2019

O u r trend barometer takes ac c ou nt of a broad sp ec tru m of i nvestor g rou p s

Trend barometer real estate i nvestment market

• The results of the survey are based on our questionnaire (October 2018), in which around 45 investors who were active on the Swiss real estate market in previous years took part.

• In terms of content, the survey deals mainly with the following topics:

• General assessment of the real estate investment market in Switzerland in 2019 by active market participants.

• Investigation of the strategy of real estate investors in Switzerland with regard to the development of the real estate market.

B ac kg rou nd

• E Y R eal E s tate Switzerland is c o ndu c ting th is s u rv ey f o r th e nine tim e s inc e 2011.

• I n th e p erio d f ro m O c to b er to N o v em b er 2018 , aro u nd 4 5 inv es to rs des c rib ed th eir ex p ec tatio ns f o r th e c o m ing y ear.

O bj ec ti ve

• T o as s es s th e Swis s real es tate inv es tm ent m ark et in th e c o m ing y ear.

• T o c as t an ey e o v er th e s trateg y th at inv es to rs will p u rs u e in Switzerland in th e c o m ing y ear.

S tatements

• A s well as p rep ared ans wers , th e p artic ip ants were allo wed to m ak e indiv idu al c o m m ents in res p o ns e to ev ery q u es tio n.

• T h e f o llo wing s tatem ents are rep ro du c ed in ano ny m is ed f o rm and p artly s u m m aris ed with s im ilar es tim atio ns .

V endor g rou p s

• B ank s

• R eal es tate f u nds

• R eal es tate c o m p anies

• I ns titu tio nal inv es to rs

• I nv es tm ent c o m p anies

• O p p o rtu nity / p riv ate- eq u ity f u nds

• Private/Family Offices

• H o u s ing as s o c iatio ns

• O th er


Retrosp ec ti ve assessment of th e S w i ss i nvestment markets and ou tlook

1

1

1

2

2

3

2

3

3

P ri c e trend

• F u rth er p ric e inc reas es are ex p ec ted f o r res idential p ro p erties in p rim e lo c atio ns .

• Stable prices are expected for office and hotel p ro p erties in p rim e lo c atio ns .

• F alling p ric es are ex p ec ted f o r retail s p ac es in p rim e lo c atio ns .

Internati onal

• T h e s atu ratio n and h ig h - p ric e s itu atio n o f th e Swis s m ark et c o u ld lead to Switzerland b ec o m ing les s attrac tiv e in c o m p aris o n to f o reig n m ark ets .

A ttrac ti veness

• I n an internatio nal c o m p aris o n, Switzerland is s till s een as an attrac tiv e c o u ntry f o r real es tate inv es tm ents .

Th ree- y ear trend

• Switzerland is s till s een as an attrac tiv e lo c atio n f o r real es tate inv es tm ents .

• D em o g rap h ic c h ang e and dig ital trans f o rm atio n are s een as im p o rtant m eg atrends .

• A s ideway s m o v em ent is g enerally ex p ec ted in real es tate p ric es .

2 0 1 7 Switzerland remains an attractive location for real estate investments.

2 0 1 8The low-interest phase will continue in 2018.

stable, while the price of retail spaces will fall.

Lease incentives are an important instrument and

2 0 1 9Investments in own portfolio (development) are gaining in importance due to the high price level in comparison to acquisitions.

to positive development, while prices of retail spaces will continue to fall.

The high price level within the core area will cause investors to engage in value added and opportunistic strategies.


9 4 p erc ent of resp ondents see S w i tz erland as an attrac ti ve or very attrac ti ve i nvestment lo c at i on …

A ttrac ti veness of S w i tz erland as a loc ati on f or real estate i nvestments

Very attractive Attractive Less attractive

S tatements made by th e su rvey p arti c i p ants

• “ T h e Swis s real es tate m ark et is s u p p o rted b y a s tab le ec o no m ic env iro nm ent with s tro ng f u ndam entals . ”

• “ T h e do m es tic m ark et is s till c h arac terized b y a h ig h deg ree o f reg u latio n, h is to ric ally lo w retu rns and a s m all m ark et v o lu m e. I n additio n, th e real es tate m ark et in Switzerland is m ainly do m inated b y natio nal p lay ers . ”

• “ I n c o m p aris o n to o th er as s et c las s es th e do m es tic real es tate m ark et rem ains attrac tiv e, des p ite h is to ric ally lo w retu rns . F u rth er g ains in v alu e are no t f o res eeab le, h o wev er, as th e p eak h as p ro b ab ly b een reac h ed. ”

• “ T h e c u rrent y ield s p reads ( dif f erenc e b etween real es tate y ields and ten- y ear f ederal b o nd) are s till v ery h ig h . ”

K ey statements

• T h e o v erwh elm ing m aj o rity o f p artic ip ants ( 94 % ) s till c o ns ider Switzerland an attrac tiv e o r v ery attrac tiv e lo c atio n f o r real es tate inv es tm ents in 2019.

• A s im ilarly h ig h attrac tiv enes s is ex p ec ted in c o m p aris o n to th e p rev io u s y ear ( 2018 : 97 % ) . W h ereas in th e p rev io u s y ear’ s s u rv ey 17 % o f inv es to rs c o ns idered th e market very attractive, this figure is aro u nd 29 % f o r 2019.

W ordi ng of th e q u esti on: “ H ow w ou ld y ou rate th e attrac ti veness of S w i tz erland as a loc ati on f or real estate i nvestments i n 2 0 1 9 , vi ew ed i n absolu te terms? ”

29 %

65 %

6 %


… also i n c omp ari son w i th oth er Eu rop ean c ou ntri es

A ttrac ti veness of S w i tz erland as loc ati on f or real estate i nvestments i n th e Eu rop ean c omp ari son

Very attractive Attractive Less attractive


• “ I n c o m p aris o n to f o reig n real es tate m ark ets th e y ields o f th e Swis s real es tate m ark et are m o re s tab le and les s v o latile. ”

• “ I n f o reig n m ark ets an o v erarc h ing s ec to r diversification proves challenging. This is due in particular to country-specific regulations.”

• “ T h e natio nal m ark et, with lim ited trans ac tio n o p p o rtu nities , is do m inated b y m any p lay ers . I nteres ting inv es tm ent p ro p erties are m u c h easier to find in major foreign cities. Financial retu rn and dev elo p m ent o p p o rtu nities ab ro ad c an th eref o re o u tp erf o rm th o s e in Switzerland. ”

K ey statements

• C o m p ared to o th er E u ro p ean c o u ntries , a m aj o rity o f res p o ndents ( 8 1 % ) reg ard Switzerland as an attrac tiv e o r v ery attrac tiv e inv es tm ent lo c atio n.

• T h e res u lt o f th is y ear’ s s u rv ey ap p ears u nc h ang ed in c o m p aris o n to th e p rev io u s y ear ( 2018 : 8 1 % ) .

W ordi ng of th e q u esti on: “ H ow w ou ld y ou rate th e attrac ti veness of S w i tz erland as a loc ati on f or real estate i nvestments i n 2 0 1 9 , c omp ared to th e rest of Eu rop e? ”

21 %

60 %

19 %


A c onti nu i ng h i g h i nvestment volu me i s ex p ec ted…

D evelop ment of i nvestment volu me i n S w i tz erland


• “ Switzerland is s till s een as a s af e h av en. Therefore, a great deal of capital will also flow into Switzerland in 2019, s o th e interes t rate s itu atio n will rem ain th e s am e. T h is trend will res u lt in a c o ntinu ing h ig h inv es tm ent v o lu m e. ”

• “ I nv es to rs , p artic u larly ins u ranc e c o m p anies , will s till b e c o nf ro nted with a lac k o f inv es tm ent alternativ es . ”

K ey statements

• 7 7 % o f res p o ndents ex p ec t a c o ntinu ing h ig h inv es tm ent v o lu m e at a s im ilar lev el f o r 2019, as in rec ent y ears .

• O nly 11 % o f inv es to rs s u rv ey ed ag ree with th e s tatem ent th at th e inv es tm ent v o lu m e will dec line in 2019.

W ordi ng of th e q u esti on: “ H ow w i ll th e i nvestment volu me develop i n S w i tz erland i n 2 0 1 9 ? ”

Sideways movement at a high level

Increase in volume Decrease in volume

I totally agreeI totally disagree

77 %

23 %42 %

58 %

11 %

89 %


O verp rodu c ti on i n th e c onstru c ti on i ndu stry , smart i nf rastru c tu res and a su stai ned low - i nterest p h ase are the main factors influencing the real estate market

W ordi ng of th e q u esti on: “ W h i c h of th e f ollow i ng statements abou t th e S w i ss real- estate transac ti ons market do y ou w i th f or 2 0 1 9 ? ”

K ey statements

• M o s t res p o ndents ex p ec t real es tate ris k s to inc reas e in 2019 du e to o v erp ro du c tio n in th e c o ns tru c tio n indu s try ( 90 % ) .

• 90 % o f inv es to rs s u rv ey ed b eliev e th at p ro j ec t dev elo p ers will h av e to tak e ac c o u nt o f s m art inf ras tru c tu re req u irem ents ( c o nnec tiv ity , c ar c h arg ing p o ints and s m art energ y c o nc ep ts ) in f u tu re.

• T h ere is a u nanim o u s ex p ec tatio n th at th e lo w- interes t p h as e will c o ntinu e in 2019 ( 90 % ) .

• A ro u nd 5 9 % o f res p o ndents th ink th at a c o ntinu ing h ig h c ap ac ity u tilizatio n in c o ns tru c tio n will delay dig italizatio n with in th e c o ns tru c tio n s ec to r.

Overproduction by the construction industry will lead to an oversupply of space and thus increase real estate risks.

Project developments will have to meet the requirements of a smart infrastructure in future (connectivity, car charging points, smart energy concepts).

The low-interest phase will continue in 2019.

Legally established allocation ratios of public sector real estate to subsidized

Political and global economic instabilities (Brexit, punitive tariffs, CHF currency risks) could also impact on the Swiss real estate market.

A persistently high capacity utilization in construction will also delay modernization/digitalization of the construction industry (e.g. introduction of BIM).

I totally agreeI partly agree I totally disagree

I tend to disagree


P ortf oli o develop ments, asset deals and lease i nc enti ves f or retai l sp ac es c h arac teri z e th e S w i ss real estate transac ti ons market

W ordi ng of th e q u esti on: “ W h i c h of th e f ollow i ng statements abou t th e S w i ss real estate market envi ronment do y ou ag ree w i th f or 2 0 1 8 ? ”

K ey statements

• A lm o s t all res p o ndents ( 98 % ) b eliev e th at inv es tm ents in th eir o wn p o rtf o lio are g aining in im p o rtanc e du e to th e h ig h p ric e lev el in c o m p aris o n to ac q u is itio ns .

• 98 % o f th e inv es to rs s u rv ey ed are o f th e o p inio n th at as s et deals are s till p ref erred o v er s h are deals .

• L eas e inc entiv es are an im p o rtant ins tru m ent in relatio n to v ac anc y m anag em ent in th e retail s p ac e s eg m ent ( 94 % ) .

• M o s t res p o ndents ( 8 9 % ) b eliev e th at inv es to rs are m o tiv ated to eng ag e in h ig h er ris k s trateg ies ( v alu e added and o p p o rtu nis tic ) du e to th e h ig h p ric e lev el.

• T h e m aj o rity o f res p o ndents ( 6 5 % ) b eliev e th at f o reig n real es tate inv es tm ents are b ec o m ing inc reas ing ly attrac tiv e du e to th e s atu ratio n and h ig h - p ric e s itu atio n in Switzerland.

Investments in own portfolio (development) are gaining in importance due to the high price level in comparison to acquisitions.

Swiss investors continue to favor asset deals (as opposed to share deals).

Lease incentives are an important instrument for vacancy management in the retail space sector.

Due to the pressure to invest for many investors and a stable economy, Switzerland remains a sellers’ market.

The high price level within the core area will cause investors to engage in value added and opportunistic strategies.

Foreign investments are becoming increasingly attractive due to the saturation and high-price situation of the Swiss market.


I tend to disagree


Portfolio streamlining, selective acquisitions and profit-taking th rou g h sales are p ref erred i nvestment strateg i es at th e end of a market c y c le ( “ L ate C y c le” )

W ordi ng of th e q u esti on: “ W h i c h i nvestment strateg y i s p ref erred at th e end of a market c y c le ( “ L ate C y c le” ) ? ”

K ey statements

• D iv es tm ent o f as s ets no t c o nf o rm ing to s trateg y ( p o rtf o lio s tream lining ) are u nanim o u s ly p ref erred as an inv es tm ent s trateg y at th e end o f a m ark et c y c le ( 100 % ) .

• T h e m aj o rity o f res p o ndents als o p ref er s elec tiv e acquisitions (94 %) and profit-taking (83 %).

• T h e m aj o rity o f res p o ndents b eliev e th at f o reig n real es tate inv es tm ents are als o a p ref erred s trateg y at th e end o f a m ark et c y c le ( 6 5 % ) .

• T h e m aj o rity o f res p o ndents do no t b eliev e th at waiting f o r lo wer p ric es , s u p er- c o re s trateg ies and inv es tm ents in m ezzanine/ deb t f u nds are p ref erred “ L ate C y c le” s trateg ies .

Portfolio streamlining (divestment of assets not conforming to strategy)

More selective acquisition

Purchase of forward deals

Manage-to-Core strategy

Wait for lower prices

Foreign investments

Super-Core strategy

Focus on niche products

Investment in mezzanine/debt funds

The percentage sum can deviate from 100 % if not all respondents have answered the question.


I tend to disagree


Retai l sp ac es sti ll u nder p ressu re ac c ordi ng to real estate i nvestors su rvey ed…

W ordi ng of th e q u esti on: “ H ow do y ou assess th e p u rc h ase- p ri c e trend i n S w i tz erland i n 2 0 1 8 , dep endi ng on ty p e of u se and loc ati on? ”

K ey statements

• R etail s p ac es c o ntinu e to s h o w a neg ativ e trend: O nly o ne in ten res p o ndents ex p ec ts ris ing p ric es f o r retail s p ac es ( p rim e lo c atio n) . T h e m aj o rity ex p ec t p ric es to f all ( 5 2 % f o r p rim e lo c atio n, 8 3 % f o r s u b p rim e lo c atio n and 90 % f o r p erip h ery ) .

• Over half of respondents expect stable prices for office p rem is es in p rim e and s u b p rim e lo c atio ns ( p rim e lo c atio ns : 6 3 % , s u b p rim e lo c atio ns : 6 1 % ) .

• 73% of respondents expect prices for office real estate in p erip h eral lo c atio ns to f all in 2019.

Office Retai l

Prices are rising Prices are remaining stable Prices are falling Prices are rising Prices are remaining stable Prices are falling

Prime location Subprime location Periphery

33 %

10 %

63 %

38 %

61%

13 %

21 %

6 %4 %

52 %

28 %

83 %

73 %

90 %

11 %

4 % 4 %6 %


Resi denti al: S table to ri si ng p ri c es ex p ec ted to c onti nu e i n p ri me loc ati ons

W ordi ng of th e q u esti on: “ H ow do y ou assess th e p u rc h ase- p ri c e trend i n S w i tz erland i n 2 0 1 8 , dep endi ng on ty p e of u se and loc ati on? ”

K ey statements

• I n th e res idential s ec to r, ris ing o r s tab le p ric es are ex p ec ted in p rim e lo c atio ns ( 4 6 % , 4 4 % , 2018 : 3 4 % , 5 9 % ) .

• W h ereas in 2018 , 8 0 % o f res p o ndents ex p ec ted res idential real es tate p ric es to rem ain th e s am e in subprime locations, this figure is 50 % for 2019.

• I n th e h o tel s ec to r, m o s t res p o ndents ex p ec t a s tab le p ric e trend in p rim e lo c atio ns ( 6 4 % , 2018 : 6 9 % ) .

• I n 2018 , p ric e inc reas es were o nly ex p ec ted f o r h o tels in p rim e lo c atio ns ( ac c o rding to 3 % o f res p o ndents ) . F o r 2019, 21 % o f res p o ndents ex p ec t h ig h er p ric es in p rim e lo c atio ns ( 11 % f o r s u b p rim e and 2 % f o r p erip h eral lo c atio ns ) .

Resi denti al H otel

Prices are rising Prices are remaining stable Prices are falling Prices are rising Prices are remaining stable Prices are falling

Prime location Subprime location Periphery

46 %

21 %

44 %

64 %

50%43 %

35 % 28 %

10 %

15 %25 %

46 %59 %

70 %

25 %

11 %

2 %6 %


Credit requirements

Interest

Term of loan

Margin

RisingRemaining stable

Falling

W ordi ng of th e q u esti on: “ H ow w i ll th e c ondi ti ons f or real- estate loans develop du ri ng 2 0 1 9 ? ”

A th i rd of th ose su rvey ed ex p ec t i nterest rates to i nc rease i n 2 0 1 9 …

C ondi ti ons f or real- estate loans

K ey statements

• T h e v as t m aj o rity o f res p o ndents ag ree th at c redit req u irem ents f o r real es tate lo ans will inc reas e ( 5 6 % ) o r rem ain th e s am e ( 4 4 % ) in 2019.

• T h e m aj o rity ex p ec t interes t rates to rem ain th e s am e in 2019 ( 6 5 % ) . H o wev er, a th ird ex p ec t interes t rates to ris e ( p rev io u s y ear’ s v alu e: 14 % ) . O nly 2 % ex p ec t interes t rates to f all.

• A c c o rding to th e inv es to rs s u rv ey ed, th e interes t m arg in and lo an du ratio n will b e at a s im ilar lev el to 2018 ( 6 7 % , 5 8 % ) .


Residential

Other

Retail real estate

High Medium

Low Not at all

Residential and office real estate w i ll remai n i n f oc u s…

W ordi ng of th e q u esti on: “ H ow strong ly w i ll y ou r i nvestment f oc u s be on th e f ollow i ng ty p es of u se i n 2 0 1 9 ? ”

Ty p es of u se as a f oc u s of i nvestment

K ey statements

• T h e m aj o rity o f real es tate inv es to rs s u rv ey ed will f o c u s s tro ng ly o n res idential real es tate in 2019 ( 5 2 % ) . F o r aro u nd 3 0 % o f res p o ndents th e f o c u s will o nly p artially b e o n th e ty p e o f u s e.

• T h e res p o ndents will als o f o c u s o nly p artially ( 5 6 % ) to strongly (23 %) on office real estate.

• Stro ng ( 15 % ) to o nly p artial ( 4 4 % ) f o c u s will b e p lac ed o n o th er ty p es o f u s e, ac c o rding to th e m aj o rity o f inv es to rs s u rv ey ed.

• 8 0 % o f th e inv es to rs s u rv ey ed, h o wev er, will no t ( 3 0 % ) o r will o nly s lig h tly ( 5 0 % ) f o c u s o n retail s p ac es .


Retail trade

Zurich Geneva Basel Berne Lucerne Lausanne Lugano Zug St. Gallen

23 %

12 %13 % 13 %

4 %

16 %

0 %

14 %

5 %

7 % 7 % 7 %

21 %

29 % 29 %

0 %0 %0 %

In th e c ase of retai l sp ac es, th e f oc u s i s now on C entral S w i tz erland ( Z u g and L u c erne)

K ey statements

• I n c o m p aris o n to th e p rev io u s y ear, Z u ric h h as o v ertak en G enev a as th e m o s t attrac tiv e lo c atio n f o r investments in office real estate (22 %, 2018: Geneva with 20 % ) .

• Z u g and L u c erne are rated th e m o s t attrac tiv e in term s o f inv es to rs ’ dem and f o r retail s p ac es ( b o th 29 % ) .

W ordi ng of th e q u esti on: “ W h i c h S w i ss loc ati ons w i ll be a sp ec i al f oc u s of y ou r i nvestments i n 2 0 1 9 ? ”

Office and retail real estate


Residential

Zurich Geneva Basel Berne Lucerne Lausanne Lugano Zug St. Gallen

15 %

10 %

13 % 13 % 13 %

11 % 11 %

7 % 7 %

L ow g eog rap h i c al p ref erenc e f or resi denti al real estate

K ey statements

• T h e dem and f o r res idential real es tate s h o ws no c lear f o c u s , as in th e p rev io u s y ear.

• Z u ric h , B as el, B erne and L u c erne are s till th e p ref erred c ities ( 15 % , 13 % , 13 % , 13 % , 2018 : 12 % , 11 % , 15 % , 14 % ) .

• St. G allen and L u g ano are les s o f a f o c u s f o r inv es to rs , at 7 % .

W ordi ng of th e q u esti on: “ W h i c h S w i ss loc ati ons are p arti c u larly w i th i n y ou r i nvestment f oc u s f or 2 0 1 9 ? ”

Resi denti al


Segments of the real estate industry (incidental costs, accounting, leasing and brokerage etc.) are also being digitalized, leading to a reduction in personnel.

Transaction and valuation processes are made quicker and more transparent through digitalization.

Connectivity will be just as important as location in future.

The implementation of concrete digitalization projects is very slow.

“Digital newcomers” are becoming increasingly important and putting the big, established investors visibly under pressure.

Data protection/regulation and digitalization are slowing each other down.


I tend to disagree

S low i mp lementati on of c onc rete di g i tali z ati on p roj ec ts…

W ordi ng of th e q u esti on: “ H ow do y ou rate th e f ollow i ng di g i tali z ati on trends? ”

K ey statements

• T h e v as t m aj o rity o f res p o ndents ( 93 % ) ag ree o r tend to ag ree th at dig italizatio n will lead to s av ing s in v ario u s s eg m ents ( inc idental c o s ts , ac c o u nting , leas ing and b ro k erag e etc . ) .

• 7 9 % o f res p o ndents ex p ec t th at dig italizatio n will m ak e trans ac tio n and v alu atio n p ro c es s es m o re efficient.

• 7 7 % ag ree th at c o nnec tiv ity will b e j u s t as im p o rtant as lo c atio n in f u tu re.

• T h e m aj o rity o f res p o ndents b eliev e th at th e im p lem entatio n o f c o nc rete dig italizatio n p ro j ec ts will b e v ery s lo w ( 7 4 % ) .

D i g i tali z ati on trends


Cities which are more focused on the trend towards digitalization have location advantages (e.g. increased demand).

car-sharing.

to established central locations.


I tend to disagree

L oc ati on advantag es f or S mart C i ti es

W ordi ng of th e q u esti on: “ W h i c h i nvestment op p ortu ni ti es does di g i tali z ati on bri ng ? ”

K ey statements

• T h e v as t m aj o rity o f res p o ndents ag ree o r tend to ag ree th at c ities th at are m o re f o c u s ed o n th e trend to wards dig italizatio n h av e lo c atio n adv antag es ( 91 % ) .

• T h e m aj o rity o f res p o ndents b eliev e th at lo c atio ns with high immission levels benefit from E-mobility and c ar- s h aring ( 6 5 % ) .

• W ith 5 3 % , a narro w m aj o rity ag ree ( o r tend to ag ree) that decentralized office locations in trendy areas benefit compared to established central locations.

Investment op p ortu ni ti es th rou g h di g i tali z ati on


Coworking space

Prime location

Decentralized location


I tend to disagree

“ C ow orki ng sp ac es” as a f oc u s of i nvestment in the office sector thanks to digitalization

W ordi ng of th e q u esti on: “ W h i c h asset c lasses w i ll h ave a strong er i nvestment f oc u s i n f u tu re th anks to di g i tali z ati on? ” The office sector

K ey statements

• T h e v as t m aj o rity o f res p o ndents ( 8 9 % ) ag ree o r tend to ag ree th at c o wo rk ing s p ac es will h av e a stronger investment focus in the office sector in f u tu re th ank s to dig italizatio n.

• A m aj o rity o f 5 8 % o f res p o ndents ex p ec t th at p rim e lo c atio ns will h av e a s tro ng er f o c u s in f u tu re as a result of digitalization (office sector). A similar nu m b er o f res p o ndents ( 5 7 % ) als o ex p ec t th is to be the case for decentralized office locations.

Investment f oc u s du e to di g i tali z ati on


High Street

Discounter

Retail park


I tend to disagree

Th e h i g h street as a f oc u s of i nvestment f or retai l p remi ses

W ordi ng of th e q u esti on: “ W h i c h asset c lasses w i ll h ave a strong er i nvestment f oc u s i n f u tu re th anks to di g i tali z ati on? ” Retai l p remi ses

K ey statements

• T h e m aj o rity o f res p o ndents ( 5 8 % ) ag ree th at h ig h s treet p rem is es will b ec o m e a s tro ng er inv es tm ent f o c u s f o r retail s trateg ies as a res u lt o f dig italizatio n.

• T h e inv es to rs s u rv ey ed s ee th e f u tu re o f dis c o u nt s to res and s p ec ialis t c enters les s o p tim is tic ally . 3 7 % ag ree o r tend to ag ree th at dis c o u nt s to res will b ec o m e a f o c u s o f inv es tm ent in f u tu re as a res u lt o f dig italizatio n. F o r s p ec ialis t c enters th is is o nly 3 0 % .



Serviced Apartment

Micro apartment

Trendy central locations


I tend to disagree

S ervi c ed ap artments and mi c ro ap artments a f oc u s of i nvestment i n th e resi denti al sec tor th anks to di g i tali z ati on

W ordi ng of th e q u esti on: “ W h i c h asset c lasses w i ll h ave a strong er i nvestment f oc u s i n f u tu re th anks to di g i tali z ati on? ” Resi denti al

K ey statements

• T h e m aj o rity o f res p o ndents ag ree o r tend to ag ree th at s erv ic ed ap artm ents ( 8 0 % ) , m ic ro ap artm ents ( 8 0 % ) and trendy c entral lo c atio ns ( 6 9 % ) will h av e a s tro ng er inv es tm ent f o c u s in f u tu re th ank s to dig italizatio n ( res idential real es tate) .



Last Mile Storage

Hubs/centralized warehouses


I tend to disagree

L ast mi le storag e as a f oc u s of i nvestment f or log i sti c al real estate th anks to di g i tali z ati on

W ordi ng of th e q u esti on: “ W h i c h asset c lasses w i ll bec ome a strong er i nvestment f oc u s i n f u tu re th anks to di g i tali z ati on? ” L og i sti c s

K ey statements

• T h e v as t m aj o rity o f res p o ndents ( 8 4 % ) ag ree o r tend to ag ree th at las t m ile s to rag e p rem is es will b ec o m e a s tro ng er inv es tm ent f o c u s f o r lo g is tic s s trateg ies in f u tu re as a res u lt o f dig italizatio n.

• T h e inv es to rs als o v iew th e f u tu re o f h u b s / c entralized wareh o u s es with s im ilar o p tim is m . 7 2 % o f res p o ndents ag ree o r tend to ag ree th at h u b s / c entralized wareh o u s es will b e a f o c u s o f inv es tm ent in f u tu re th ank s to dig italizatio n.



Demographic change

Interest rate development

Digitalisation

Currency trend

Political instabilities/uncertainties

Climate change


I tend to disagree

A s i n 2 0 1 8 demog rap h i c c h ang e, di g i tali z ati on and i nterest rate develop ment are c onsi dered c lear meg atrends

W ordi ng of th e q u esti on: “Which megatrends will influence the Swiss real estate market most i n th e nex t 5 — 1 0 y ears? ”

K ey statements

• T h e v as t m aj o rity o f th e res p o ndents ag ree th at demographic changewill significantly influence the real es tate m ark et in 2019 ( 98 % ) .

• 91% o f res p o ndents reg ard interes t rate dev elo p m ent as a relev ant m eg atrend f o r th e real es tate m ark et.

• O th er p erc eiv ed trends o n th e real es tate m ark et inc lu de dig italizatio n ( 91 % ) , c u rrenc y dev elo p m ents ( 6 2 % ) , p o litic al ins tab ility ( 6 1% ) , c lim ate c h ang e ( 5 4 % ) and the globalization of investment flows (48 %).

Meg atrends 2 0 1 9

3 0 | EY Trendbarometer Real Estate Investment Market — Switzerland 2019

Trends in the office segment: Innovative floor area concepts and human experience factors as key factors influencing building attractiveness

W ordi ng of th e q u esti on: “What will the trends be in the respective classes of use in the office sector in 2019?”

“Talented employees are also won by

the attractiveness of working environments

(“War for Talent”).”

“Human experience factors (quality of living, feel-good factors, “cool” atmosphere) increasingly

attractiveness.”

“Not only the building, but also lease contracts

will have to be made more

(terms, decor, size etc.).”

to coworking providers

will also increase in the medium and long term.”

“Innovative retail space concepts: Despite higher

can increase for the users.”


I tend to disagree

3 1EY Trendbarometer Real Estate Investment Market — Switzerland 2019 |

Trends i n retai l sp ac es: Trend tow ards a tenants’ market du e to th e ai li ng stati onary tex ti les trade and tarni sh ed i mag e of th e retai l trade

W ordi ng of th e q u esti on: “ W h at w i ll th e trends be i n th e resp ec ti ve c lasses of u se f or retai l sp ac es i n 2 0 1 9 ? ”

“The stationary textiles trade is suffering.”

“The image of the retail trade is tarnished. Renters seek to capitalize on it (rents, terms,

incentives).”

“Experience and gastro concepts are on the rise.”

“The trend towards shopping as an experience is

changing competition and leading to a realignment in

the retail trade.”


I tend to disagree


Resi denti al trends: S tu dent and mi c ro li vi ng as w ell as “ af f ordable h ou si ng ” w i ll remai n i mp ortant trends

W ordi ng of th e q u esti on: “ W h at w i ll th e trends be i n th e resp ec ti ve c lasses of u se i n th e resi denti al sec tor i n 2 0 1 9 ? ”

“Affordable housing is a major trend in the big cities.”

“Student and micro living or temporary living

(serviced apartments) remains a trend.”

“Additional services are increasingly in demand

(concierge, care etc.).”

“Charging infrastructure (E-mobility) is becoming

increasingly more important than location factor.”

“Large-scale projects in urban centers will lead to a

stagnating to slightly declining rent trend in 3 — 5 years.”


I tend to disagree


Trends i n th e h otel seg ment: G row i ng f orei g n c omp eti ti on, i ndi vi du ali ty and loc al c h arac ter as f u tu re su c c ess f ac tors

W ordi ng of th e q u esti on: “ W h at w i ll th e trends be i n th e resp ec ti ve c lasses of u se i n th e h otel sec tor i n 2 0 1 9 ? ”

“The individuality and local character of a hotel

will become more important in future.”

“The average occupancy rate of

the Swiss hotel industry will come under pressure from additional foreign competition in future.”

“The sustainability of a hotel is becoming

a decisive criterion for booking decisions.”

“More hotel projects will be designed as

“dual branding concepts”.”


I tend to disagree


K ey statements, S w i tz erland 2 0 1 9

A ttrac ti veness• The overwhelming majority of participants still see the Swiss real estate market

as an attractive market in 2019.

P u rc h ase p ri c e ex p ec tati ons• Prices of retail spaces in subprime and peripheral locations are expected to decline.•

(prime and subprime). Falling prices are expected for peripheral properties.• For residential real estate the investors surveyed only expect declining prices in peripheral locations.

Otherwise a stable to positive outlook is generally forecast for this segment.• For hotels a different price trend is forecast, depending on location. Declining prices are expected

in peripheral locations, and otherwise stable to rising prices are expected.

B i g g est obstac les to transac ti ons• The focus is increasingly moving towards real estate developments. This is partly resulting in fewer transactions.• Investors will remain under pressure. A sellers’ market is therefore still expected.

Real estate market envi ronment• The respondents believe that the low-interest phase will continue in 2019.

However, one third of respondents expect interest rates to rise in 2019.• It is expected that digitalization will lead to savings in various segments (incidental costs,

accounting, leasing and brokerage).

Real estate transac ti on market• The assumption is that the price peak has essentially been reached and prices will mainly

move sideways or downwards in 2019.•

for prices to rise, in line with expectations.• The volume of investments in 2019 should develop similarly to the previous year,

corresponding to a lateral movement at a high level.

S u mmary

C ondi ti ons f or real estate loans• The respondents expect to see an increase in credit requirements in 2019, in contrast to the previous year.• Interest rates, margin and loan duration are likely to remain at the same level.

Investment f oc u s by ty p e of u se• Residential real estate will remain strongly in focus in 2019 with a substantial gap between it and

other types of use.•

to the previous year (focus: moderate to strong). • The vast majority expects to set little or no investment focus on retail spaces in 2019.

P ref erred i nvestment loc ati ons• • For investments in retail spaces the focus is on Zurich, Lucerne and Zug.• The highest demand for residential real estate is shown in Zurich, Bern, Lucerne and Basel,

although a clear trend is not yet in evidence.

Most i mp ortant meg atrends•

on the Swiss real estate market.• Digital transformation will change the real estate markets and challenge previous business models.• Interest rate and currency developments as well as political uncertainties and climate change

are regarded as relevant megatrends.• Innovative retail space concepts and coworking spaces will gain in importance. In addition,

• “Affordable housing”, student and micro apartments as well as temporary accommodation will remain on trend.

• Foreign competition in the hotel segment will depress average occupancy rates. A hotel’s individuality andlocal character will become increasingly important.


Contacts


Claudio Rudolf FRICS

PartnerHead Real EstateTransaction Advisory Services

Ernst & Young AGMaagplatz 1 CH-8010 Zurich

[email protected]

Daniel Zaugg MRICS

PartnerSector Leader of Real Estate Hospitality & Construction

Ernst & Young AGMaagplatz 1 CH-8010 Zurich

[email protected]

EY | Assurance | Tax | Transactions | Advisory

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