Switzerland's property market has continued its unbroken streak of nine-consecutive years of capital appreciation, with 1.4% in 2010, according to the IPD Switzerland Annual Property Index.
The principal driver of capital growth was squarely rental growth across each of the four main sectors, with modest yield compression. Over the year, rental growth was 1.3%, while yields compressed by 10 basis points to 5.9%.
The best and worst performing parts of the market were seperated by 180 basis points, with the retail sector topping the table, with annual returns of 6.8%, while the industrial sector returned 5.0%. Overall, the commercial sectors (retail and offices) performed better than the market with residentials posting a below-average performance.
The Switzerland property market has a track record of low volatility. This is primarily determined by the large weight of the residential sector in the index coupled with limited asset supply and a dominant stock ownership local pension and insurance funds and other institutional investors which take long-term positions in the market thereby creating genuine market stability.
As a result, annual capital growth and total returns tend not to suffer the volatility seen in other real estate investment markets.
As the chart below shows, two of the three retail districts outperformed the all property 6.1% average with shopping centers underperforming by 10 basis points, at 6.0%, while retail in major cities and other retails returned 7.7% and 6.7% respectively. Of the six major office districts, Geneva was the top performer, at 7.3%, while Berne was the worst performing office segment, returning 3.4%, driven by a -1.9% capital depreciation.
Only two of the five residential segments outperformed the all property market average Zurich, at 6.3%, and Lausanne, at 6.7%. The residential district of Berne delivered the weakest performance across all market segments, at 3.1%.