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Easing of the residential property market
The Credit Suisse economists are expecting a slight decline in demand for residential property in 2005, although the overall level will remain high. This is due to a lower level of immigration than in previous years, the expected modest rise in interest rates, and the stagnating level of disposable income.
Strongest increase in supply of residential units since the mid-1990s
Real estate experts are expecting around 47,000 new residential units to be completed this year. This is the strongest increase in supply since the mid-1990s. Condominiums will remain the most important sector in residential construction in 2005, but the gap compared to rented accommodation will be narrowed. This may lead to a slight rise in vacancy rates overall. However, according to the real estate experts, they will still not reach a level that would lead to expect major rent reductions in 2005. Rising interest rates will, instead, lead to an increase in existing rents, but on average rental growth for newly constructed properties is unlikely to be observed in 2005. In fact, some decline in rents at the top end of the market may be seen this year. Price growth for condominiums and single-family dwellings will continue to weaken in the current year.
Continuing overcapacity in the office property market
It looks as though 2005 will be another difficult year in the office property market. Growth in the economy as a whole is nowhere near high enough to absorb the excess floor space. Quite the opposite, in fact: vacancy rates will probably only peak - especially in the big conurbations of Basel and Zurich - in summer/fall 2005. As even then there is still no sign of any rapid reduction in overcapacity, rents will probably fall even faster this year than in 2004.
Increasing pressure on rental prices in the retail property market
The retail trade will not see any significant improvement in business this year. Low-price labels from the traditional providers and foreign discounters are the consequence of weak market performance, because volume and sales growth is only possible through price concessions. Even if no marked corrections are expected in 2005, rents for retail space will come under increasing pressure.
Real estate consolidating its position as an asset class
According to the study of the Credit Suisse economists, real estate has further consolidated its position as an asset class. Its major advantages include the low correlation with other asset classes, as well as its contrasting risk-return profile. Real estate shares and investment funds make it possible for small investors to invest in the real estate market too. More than 20 different products investing in Swiss real estate are traded on the Swiss stock exchange alone.