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Swiss Real Estate Market 2018: Upturn Coming Just at the Right Time

The Swiss real estate market is benefiting from the economic recovery. While prices of owner-occupied residential property are rising again, the situation remains challenging in the rental apartments, office, and retail markets. This is illustrated by the Credit Suisse study on the real estate market in 2018.

Residential property prices are rising again after a short-lived decline, with the robust economic recovery leading to greater demand across all price brackets. This is partly because mortgage interest rates are still at a very low level, despite the rising trend.

Residential property therefore remains attractive. At the same time, supply is limited. Construction activity in the owner-occupied segment has steadily declined in recent years. The Credit Suisse economists anticipate a further tightening of supply as well as persistently low vacancy rates in 2018. Prices are likely to rise by 2.0 to 2.5% this year in most regions. However, regulatory measures and demographic developments mean the real estate market is unlikely to become overheated again.

Swiss Real Estate Prices Vary Sharply

Prices vary sharply from region to region. While residential property in Geneva and along Lake Zurich is expensive, real estate in rural areas is significantly cheaper. This also affects affordability – in other words it determines where purchasers can afford to buy a property.

Our interactive information graphic shows the average price for a condominium across the different regions, and how prices have changed since 2012. By clicking on the region, it is possible to calculate whether residential property in the chosen region is affordable or not. By entering your gross monthly income and the amount of equity you have available, you can calculate your own individual affordability.

Swiss Real Estate: What Does a Condominium Cost?
Cost of a condominium in the major Swiss regions in 2017 (average advertised price for a medium-sized condominium with 110 m2 living space, 4.5 rooms). Click now, compare prices and check affordability.

1 Equity includes savings, securities, pension capital, and life insurance.
2 This calculation uses a long-term average interest rate of 5%.

Pressure on Rents Likely to Continue

The economic upcycle is likewise benefiting the residential lettings market and resulting in more stable demand for rental apartments. Construction activity nevertheless remains too high, and vacancies in the rental apartments market could rise to around 2.5% in 2018. For that reason, the authors of the study also expect a further decline in advertised rents of around 1%.

What is striking here is the increasingly wide city/country divide. Too much is being built, especially outside the centers. Construction activity in the city centers is declining sharply, to which residential high-rises could be one answer. They could potentially meet the demand in cities, and have accordingly experienced a comeback since 2010.

Demand for office space likely to rise again in 2018

Revival in Office Space, Major Challenges on Retail Side

The office property market remains challenging. Here too, however, there are increasingly clear signs of a stabilization thanks to the economic upturn. In their study, the Credit Suisse economists forecast a decline in supply rates and vacancies as well as a sideways movement in rents.

The situation on the retail property market looks more difficult. Fact is, the retail industry is in the midst of major structural change. Online retailing is expanding, and the number of physical outlets is declining. The victims are ultimately the providers of retail property, because they are losing tenants.

Swiss Real Estate Remains Attractive to Investors

Investing in Swiss real estate remains an attractive option. As long as interest rates remain at a manageable level, there is a lack of investment alternatives with a similar risk/return ratio. This is particularly true for the current year, in which a move away from negative interest rates is still not expected.

The study on the real estate market nevertheless shows that we have probably seen the end of the above-average returns of recent years. Further growth in the value of Swiss real estate is set to be limited.