Switzerland has become the Europe's first real estate market to produce positive capital growth for 2008, at 1.2%, according to the IPD Switzerland Annual Property Index. According to the Index, Switzerland has also produced the Continent's highest nominal total returns for 2008, at 6.1%, a full percentage point down on 2007 but surpassing the 5.9% return recorded in 2006 the last of the full calendar 'boom' years for the majority of global property markets.
While other European countries have recorded resilient total returns, including Germany's 3.5% and the Netherland's 3.3%, the reasons for Switzerland's property markets insulation from the credit crunch are different.
"The uniqueness of the Swiss market must be borne in mind when reflecting on these numbers. Switzerland has a limited supply and with pension and insurances funds investing considerably in domestic property over the long-term there is, therefore, genuine market stability," explains Nassos Manginas, Director of IPD Europe. "However, early indicators over the year to date point to a mounting pressure on commercial property prices in 2009."
The Index which measures approximately CHF59.6bn, or 44%, of the circa CHF135bn Swiss real estate market reveals the Retail sector for the third consecutive year produced the top sector returns, with 6.5%. However, despite this growth the return signifies a notable drop from 2007's 10.0%, which could be the first sign of a slowdown in the sector. Residential total returns followed, with 6.1%, while Offices returned 5.8% and Industrial sector 6.0%.
Capital growth was recorded among all but one of the four main sectors, the Industrial sector, which recorded -0.8% for 2008. This was, however, counterbalanced by the market's strongest income return, at 6.8%. Capital growth for Retail, Residential and Offices were 1.5%, 1.2% and 0.9%, respectively. All property income was 4.9%, for which apart from the Industrial sector's return, Retail was level with, while Offices and Residential produced a 10 basis points deviation, both returning 4.8%.
In the Residential sector the bedrock of the Index accounting for 48% of all properties capital growth fell by only 13 basis points, compared to 2007, returning 1.2% in 2008. Within the Offices sub-sectors, there are signs of a slowdown within the smaller cities, such as Bern and Basel, which collectively produced a capital depreciation of 40 basis points in 2008. The bigger cities, such as Zurich and Geneva, have also returned lower annual capital growth than 2007, ending last year at 1.6% and 1.1%, respectively.