WHO WOULD HAVE THOUGHT....
that corona would keep the world in suspense for such a long time. Almost everything has changed since last year in March 2020. Above all, the focus has shifted to our own homes. This is not only where family life takes place, but has also become a place of work for many people since the start of the pandemic. Working from home has proved its worth and will very likely remain the norm in many industries even after the pandemic has ended, but this has had an impact on the Property marketingtheir landlords and market providers.
Vacancy rates in residential investment properties, which have risen further as a result of the coronavirus pandemic, are exacerbating the risks in the Swiss property and mortgage market. Loss of income from letting commercial and office space and weakening demand for office and retail space are further increasing price pressure in the commercial property sector. In addition, mortgage growth has proved to be more robust than expected so far this year. Due to the persistently low interest rate environment, investors are still looking for investments with higher yields. As a result, they are increasingly investing in property despite rising vacancy rates and falling rents. Investors are accepting ever lower initial yields. Surprisingly, these trends continued in 2020.
JOY IN THE PROPERTY MARKET STRENGTHENED
The optimistic expectations in the residential property sector, which were already reported six months ago, are strengthening: at 58.8 points, the price expectations index for owner-occupied flats is significantly higher than six months ago and is at around the same level as in autumn 2000 and thus at its highest level for 20 years. This is shown by an analysis of surveys on the Swiss property market. Expectations are also rising for single-family homes: The price expectation index climbed from 52.3 to 84.6 points.
This trend can be observed across all regions of the country and across both segments. Significantly more experts therefore expect prices for residential property to continue to rise: while around 40 % of survey participants expected prices to rise in the coming 12 months in autumn 2020, this figure is now around 62 %. After a brief dip in expectations in spring 2020, market players in the residential property segment appear to be unimpressed by the coronavirus pandemic. At -5.0 points, the price expectation index for residential rents is also higher than six months ago (-25.5 points). The majority of experts, totalling around 70 %, expect residential rents to remain stable. In the Jura and Eastern Switzerland regions, however, more than 20% of the experts expect flat rents to fall, and in Southern Switzerland, around 46 % even expect rents to fall. Despite rental price stability or falling residential rents, the experts expect prices for apartment buildings to continue to rise across all regions. At 72.6 points, the corresponding price expectation index is once again significantly higher than in autumn 2020 (53.6 points). The Zurich region recorded the highest index value: here, 63 % of participants expect prices to rise in the next 12 months, while 12 % even expect prices to rise sharply.
OFFICE UNDER PRESSURE
The pressure on the office market continues: Moment of truth on the global property markets: Excessively high residential property prices are now coming under pressure in many cities. We see the greatest impact of the crisis on commercial, retail and office space. We therefore expect prices for commercial space to fall. In the case of rental flats, we hardly expect any rent losses. The pandemic is causing office rents to collapse. Various sources are reporting a tightening of the situation on the office property market. We expect rents for office space to fall over 20%. Transaction figures for office property lettings have fallen in recent months.
Even in prime locations, it is no longer enough to simply offer square metres with raised floors and cooling ceilings.
Experts expect office rents to continue to fall - the price expectation index for office space remains in clearly negative territory at -78.6 points. A negative trend can also be seen in the current development of market rents: In Q1 2021, the market rent indices for office space are 3.0 % lower than in the same quarter of the previous year. Transaction prices for office and commercial properties are also likely to fall further. The corresponding index is also negative at -36.1 points, albeit slightly higher than six months ago (-51.3 points). A lack of further demand together with the space coming onto the market is likely to ensure that the decline in office rents and transaction prices for office property will continue. We assume that the world is becoming more digital. Office space will be less in demand, say our experts at WENET AG.
The Swiss office market is currently characterised by both positive and negative features. While office space is becoming scarce in the city centres and rents are rising, the outer office markets are characterised by high supply and difficult marketing. In recent years, an astonishingly high level of construction and planning activity has been observed on the office space market despite the oversupply trends. This may have been one reason why the recovery on the office space market has not yet reached all business districts equally. At the current margin, however, a marked decline in construction projects can now be recognised. The price and vacancy gap between the centre and the periphery is likely to become even more pronounced in future.
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