Real estate is pandemic immune. In Switzerland even more so than in the rest of Europe. Corona-related, lasting price distortions or even collapses are hardly noticeable. The Swiss real estate market in particular is proving to be surprisingly resistant: interest rates are still low, space is scarce in the metropolitan areas, demand remains stable, and the economy is expected to grow again this year. In this environment, real estate is a safe investment haven for both institutional and private investors, for which there are hardly any alternatives. By renting out offices or flats, real estate investors have come through the pandemic smoothly so far. Nevertheless, the pandemic will have a lasting impact on the labour market and will also affect the real estate market.


Still a safe haven

COVID-19 also created a completely new situation in the real estate market in 2020. While the effects of the pandemic were still unclear during the initial lockdown in spring 2020, it quickly became apparent that the lack of alternatives continues to make real estate a safe haven as an asset class. Contrary to expectations, this once again drove up purchase prices in Switzerland, reports the real estate service provider CSL. Outside the city centres, however, interest in office properties has mostly declined. In contrast, the price-driving competition for residential investments intensified again in 2020. Stimulated by persistently low interest rates, demand for direct real estate investments continued unabated in 2020, notes Wüest Partner AG in its latest Swiss real estate market report.

In the case of rental flats, Wüest Partner AG sees above all the continuing trend towards more small or single households, which increases the average housing requirement per person and thus supports the demand for rental flats. Although the population will continue to grow, many new buildings will still be constructed. In the medium term, however, there could be fewer. In 2020, only CHF 11.2 billion in new building applications were submitted in Switzerland, 6.4% less than the average of the previous three years.


Home ownership remains in demand

In Switzerland, the willingness to pay for residential property remains high. Once again, sales prices for condominiums have risen by 5.1% and for single-family homes by 5.4% since the beginning of 2020. “The good financing conditions and relatively high wage increases at the beginning of the year, coupled with an increased need (due to the consequences of the Corona pandemic) for high residential quality and privacy, have increased interest in home ownership,” writes Wüest Partner AG. On the other hand, supply is thin on the ground. CSL Immo sees the situation similarly. The Swiss housing market has benefited from the pandemic: “Those who sat in the home office could not avoid taking a closer look at their own housing situation. Together with low interest rates, this fueled demand, especially in the owner-occupied segment, so that even properties in less attractive locations that had previously been difficult to market found buyers.”

In view of the difficult starting situation for the real economy, which is likely to lead to lower wages and rising unemployment figures in 2021, Wüest Partner AG assumes that prices will not continue to rise to the same extent in the current year. Nevertheless, home ownership is “increasingly out of reach” for normal earners in Switzerland, as the Neue Zürcher Zeitung notes. A household with a medium income and the minimum necessary equity capital could a home for maximum of 740,000 francs. However, such properties become rare.


Office rents not (yet) under pressure

In 2020, the traditional office sectors in Switzerland still recorded slight job growth, which means that demand for office space is not likely to stop for the time being, argues Wüest Partner AG. Although the advertised rents for office space remained stable in 2020 (+0.2%), due to the economic uncertainties and because the volume of building permits has recently risen again significantly, prices could come under greater pressure in the future, it adds.


The pandemic will permanently change the supply structure and quality of the labour market and will not leave the real estate market untouched. Because even after the end of the pandemic more and more people will work in a home office and less in an office, the demands on one’s own four walls will increase. More space is needed (an additional workroom). And since more living space is available for less money outside the conurbations, the periphery will become more attractive. According to Wüest Partner, market rents fell by 2.05% across Switzerland in 2020. This decline is likely to weaken slightly in 2021. In the portfolios of real estate companies and funds, residential properties are already valued significantly higher than commercial properties.

The demands on office space are also increasing. The classic open-plan office is likely to have had its day. Future office architecture should be designed to promote creativity, interaction and social exchange among the workforces. Claudio Saputelli, Head of Swiss & Global Real Estate at UBS, estimates that by 2030 the number of office workers in Switzerland who regularly work from home will have doubled to 38%. Only just under a third would then still be working exclusively in the office; in 2019 it was still two thirds.


Germany safe and sound

Germany, like Switzerland, remains a tenant country (although it has a higher home ownership rate of 51.1% – compared to 42.5% in Switzerland), and the ownership rate has traditionally been among the lowest in Europe. It is likely to have changed only marginally in 2020 despite high turnover figures in the residential segment, writes the international real estate consultancy Colliers. Nevertheless, the residential segment in Germany, with a recent transaction volume of around EUR 186 bn (of which EUR 58 bn is accounted for by the multi-family sector), is not only the largest real estate asset class, but also the “most emotionally charged”. In its latest report, Residential Investment 2020/2021, Colliers concludes that Germany is “one of the safest and most solid residential markets in Europe” – even at a time when the COVID pandemic is “raising unprecedented uncertainties”. However, the megatrends such as urbanisation are still intact.


The boom in the cities, which has been going on for years, has significantly increased the demand for housing in the conurbations. Rental flats remain scarce, and new construction – 293,000 rental flats were completed in 2019 – cannot come close to meeting the demand (Colliers estimates it at around 400,000). Purchase prices and rents in Germany’s metropolises have risen continuously since the post-war period, he said. The recent past confirms the long-term trends, despite COVID: Except for Berlin, where the rent cap was introduced in January 2020, in the other six largest cities in Germany (Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart and Munich) the average “new rental rents” at mid-year 2020 are 2% higher (with 0.9% inflation) than at the end of 2019 before COVID-19. The general trend in rents and purchase prices is still intact “and is likely to remain so in the coming years”, Colliers sums up.


Rethinking in Italy

Italy is the exact opposite of Germany. The home ownership rate is one of the highest in Europe (10th place). According to the Italian Ministry of Finance, a good 75% of Italian families own their own home. The housing market has been stable for years and is therefore also “pandemic resistant”. For the other real estate sectors – offices, logistics, hotels and retail – 2020 was a surprise year in terms of investment volume and a year of transition, writes Colliers Italia in its annual review. At around 8 billion EUR, the volume invested in these sectors remained 33% below the level of 2019, with the pandemic-induced temporary standstill delaying the closing of real estate deals, it adds. The new start after the first lockdown brought a revival and a realignment. Logistics is in focus.

As a result of the pandemic, not only the accommodation sector but also the retail sector suffered losses. Since online trade is booming at the same time, investors are focusing their interest on improving the infrastructure of the logistics sector. People are no longer limiting themselves to the classic warehouses near the motorway. Smaller depots in the city centres – on the “last mile” to the end customer – are now also in demand. Logistics accounted for around 12% of real estate investments (outside the residential market) in Italy between 2017 and 2019, according to Colliers. This share is likely to increase in the coming months – after all, investors looking for commitments can now fall back on a “thick liquidity cushion”.

In 2020, offices remained the most important real estate asset class in Italy with a volume share of around 40% (outside the residential market). For reasons of risk minimisation in view of the imponderables of the pandemic, investors concentrated on top properties (prime location, hardly any vacancies). Here, comparatively few compromises in yields had to be made. In contrast, a downward revaluation began in the secondary locations, which Colliers expects to continue increasingly in the current year.


Global upturn in 2021

Globally, Colliers expects an investment boom in the current year and especially in the second half of the year, namely an increase in real estate investments by a whopping 50%. While an average of US$1.65 trillion flowed into real estate worldwide between 2015 and 2019, this figure is likely to have dropped to US$1.3 trillion by 2020. For 2021, the global real estate investment volume is likely to grow to around 1.95 trillion US dollars.

Manred Kröller
Financial journalist



This post was automatically translated.