Swiss real estate market in 2022: The pandemic is slowing down urbanization
The COVID-19 pandemic has longer-term consequences than originally assumed; the blurred lines between office and home have shifted house-hunter demand to less central locations. While this does not mark the end of urbanization, it will likely be slowed down in major urban centers. The 2022 real estate study also shows the other ways in which changed demand behavior affects the Swiss real estate market.
The real estate study shows that cities are losing appeal
Sooner or later, the pandemic will be behind us and the coronavirus will be just another virus. The restrictions will most likely be slowly but surely lifted. However, certain behavioral changes that have been set in motion by the pandemic are likely to remain in the future. These include people's desire for more work-from-home options. This leads to a demand for more living space and housing in less central locations.
In other words: The domestic net immigration/emigration balance of regions has changed due to the pandemic, as illustrated by the 2022 Credit Suisse real estate study. While the Swiss residential population grew by 0.75 percent in 2020, it grew by only 0.3 percent in major urban centers. At the same time, these centers are continuously losing residents to surrounding areas. In 2020, net migration out of the five major urban centers amounted to around 14,200 persons – more than ever before in the past 40 years. Instead, population growth has accelerated in the metropolitan areas of major and mid-sized urban centers, as well as in rural communities.
Real estate market: Major urban centers are seeing departures
Departures from major urban centers have had positive effects elsewhere. The most growth took place in periurban communities that are within the influx area of metropolitan areas but otherwise rather rural. Domestic migration has also increased in rural communities outside metropolitan areas and in suburban communities in major and mid-sized urban centers.
Furthermore, rural and tourist regions had a better domestic migration balance in 2020 compared with previous years. Examples of this are the Glarus Hinterland, Mittelbünden and several Valais regions.
2022 real estate study: Price differences make it more attractive to move away from city centers
Communities in the surrounding suburbs are benefiting the most from the exodus away from major centers. Apartment hunters can see significant savings in their cost of housing simply by moving a few kilometers further out on account of the steep drop in prices. For example, rent levels for a 4-room apartment in Winterthur are an average of 26 percent lower than in Zurich. The price difference is even wider for residential properties. The gap between a newly built condominium with four rooms in city centers and the most popular suburbs can be as high as 40%.
However, particularly for a clear majority of the residents of Zurich or the two major centers on Lake Geneva, residential properties could remain unaffordable even in the surrounding communities. Therefore, moving even farther away is increasingly becoming an option for many people thanks to more flexible work arrangements. Longer commuting distances play less of a role in people's choice of a place to live when workers no longer have to travel them as often. The money they save allows them to choose a larger apartment, for example.
Demand for homes for sale is shifting on the real estate market
The demand for owner-occupied homes is likely to settle at a level higher than before the pandemic. This is attributable first and foremost to low mortgage interest rates. Other demand drivers are negative interest rates and a trend towards more working from home.
An important driver of the strong desire for residential property is the COVID-19 pandemic and its consequences. The greater importance of high-quality housing has increased the desire for homeownership, and the growing prevalence of working from home enables many households to expand their searches to include cheaper, peripheral regions. The purchase of residential property is therefore becoming topical once again.
Slowed-down urbanization: Vacancy rates provide information
The initial impact of household location decisions that were changed due to the COVID-19 pandemic can already be seen on the real estate market. For instance, the improved net immigration/emigration balance, combined with lower construction activity outside of major urban centers, has led to a drop in vacancy rates and a sharp decrease in advertising periods, especially in periurban, rural, and tourist regions. It appears that the urban-rural divide on the housing markets has narrowed slightly as a result of the pandemic.
The reduced appeal of urban centers described above during the first year of the coronavirus was also observed in 2021. Figures for the first three quarters of 2021 show population momentum that remains weak, with population decreases in three of the five major urban centers. The population balance of Swiss citizens has worsened again in all five cities, compared with 2020.
No end in sight for urbanization
Quite honestly, does the coronavirus pandemic mean the end of the urbanization megatrend? It seems too early still to answer that question. Cities remain the hotspots of economic, social and cultural life. Therefore, many people will continue to want to live in cities and take advantage of their diverse offerings in the future. Accordingly, urbanization is likely to continue, albeit at a reduced speed, thanks to immigration from abroad and a significant increase in quality of life.
And while the extent to which companies will rely on work-from-home and flexible work arrangements in the future is still unclear, it seems evident that a trend toward more settledness and less commuter mobility will likely receive tailwind, including from the political world. After all, this could lead to a significant reduction of the ecological footprint.