Switzerland has learned its lessons from the real estate crisis of the 1990s. As a result, the real estate markets are looking rather stable again in 2010 despite the economic environment. The housing markets in particular should remain immune to the crisis thanks to good matching of supply and demand. The highly cyclical office property market faces a more difficult year. While demand is set to remain weak, the volume of property is continuing to expand rapidly. According to the Credit Suisse economists, this supply overhang will push up vacancy levels and ultimately also impact on rents. In the retail property market, weak sales growth in the retail trade and societal shifts are accelerating structural change at the expense of small-scale stores and certain areas of specialist retailing. In this market environment the disparity between winners and losers is further amplified.
The Swiss real estate market has not been destabilized by the global recession, let alone by the devastating real estate crises that have hit a number of countries. The housing market in particular has remained very stable to date thanks to a solid mortgage loan market and to high, immigration-driven demand. It now faces a test, however, as the current year will be even more challenging than 2009. Rising unemployment, stagnating incomes, the fading impetus from immigration, and the imminent end of the low-interest phase are just some of the upcoming problems. The changed market environment will probably have the greatest impact on the single-family homes segment and on rents for new-build properties, especially given that housing construction is still in full spate. Overall, the housing market will be characterized by a gentle upturn in vacancy levels and moderate price falls. The Credit Suisse economists, however, assume that the development will be unspectacular as the number of planning applications is continuing to fall, which signals an imminent easing on the supply side. The situation on the commercial real estate markets is more difficult as here, unlike on the housing market, the effects of the recession and rapid expansion of floor space are not cushioned by additional demand.
Saturated Market: The Single-Family Home in a Demographic Trap
The single-family homes segment shows growing signs of market saturation. Last year, the number of building permits granted for such dwellings was lower than at any point since the mid-1970s. The proportion of vacant residential properties accounted for by single-family houses has virtually doubled in the last ten years and prices have been falling steadily for four quarters. The single-family dwelling has clearly fallen into a demographic trap: Baby-boomers are reaching the age where they tend to withdraw from the single-family homes segment. High prices and an outmoded stock of housing that no longer meets modern-day requirements are further reasons for the steadily growing demand shortfall in this segment.
Office Property Market Victim to a Pork Cycle
2010 is set to be another year of weak demand for the office property segment. Whereas last year the sluggishness was due to uncertain sentiment at many companies, this year the office segment will be hit by the expected loss of up to 9,000 jobs. The dip in demand will coincide with a major expansion of floor space, as many projects that were started during the boom are now nearing completion. The office property market is subject to such pronounced cyclical supply swings because of the long production time for commercial real estate. Investors reacted quickly to the financial crisis, as can be seen from the fall-off in planning permits for both new-build and refurbishment projects last year. As of 2012, the market should then stabilize thanks to a much smaller supply of new property. Until then, however, we should expect the supply overhang to increase, thus pushing up vacancy rates in most of the regional sub-markets. Prices will come under most pressure in areas outside of the big office property markets where supply recentl