Housing market vacancies are falling surprisingly strongly

Swiss real estate market in 2021: Trend reversal on housing market

The Swiss residential property market is seen as sluggish. Yet the COVID-19 pandemic has brought real movement to the most important segment of the real estate market. As well as a trend reversal in vacancies, interesting demand shifts can be seen.

Surprisingly sharp decline in vacancies

Close market watchers have known for some time that a trend reversal in housing market vacancies was under way. The scale of the movement nevertheless came as a surprise: Vacancy rates as measured by the Swiss Federal Statistical Office fell in 2021 for the first time in 11 years – from 1.72% to 1.54%.

The decrease in vacancies is partly due to the development of construction activity. Although high levels of rental apartment construction activity had led to a decoupling from tenant demand in the past, the number of building permits has been on a downward trend for around three years now. This can be explained by greater caution on the part of investors as well as the lack of available building land.

Housing market shows trend reversal in vacancies

Trend reversal after 11-year rise in vacancies 

Change in vacancies and vacancy rate (VR); in each case as of June 1

Source: Swiss Federal Statistical Office, Credit Suisse

Last data point: June 1, 2021 

COVID-19 pandemic accelerating trend reversal on housing market

The COVID-19 pandemic is nevertheless likely to be the primary factor behind the strong trend reversal in vacancies. For one thing, the disruption to the supply of key materials caused by the COVID-19 protective measures has led to delays in the completion of housing developments.

In addition, the COVID-19 crisis resulted in an increase in net immigration of more than 13,000 people last year because the numbers moving away from Switzerland fell more sharply than the new influx. Domestic demand for housing also recovered very rapidly, buoyed by fiscal support during the pandemic. In addition, the increasing numbers of people working from home led to a rise in the demand for space.

Fall in vacancies for large apartments

Growing demand for apartments with three or more rooms 

Vacant apartments by number of rooms, 2020 and 2021

Source: Swiss Federal Statistical Office, Credit Suisse

Last data point: June 1, 2021 

Pressure on housing market eases in major centers

The COVID-19 pandemic prompted many Swiss people to reconsider their housing arrangements. With urban cultural and leisure offerings largely out of use and the ability to work from home reducing the advantages of living close to work, the surrounding areas became more attractive.

This is evidenced by the shifts in internal migration: The major centers lost 14,200 people on a net basis in 2020 – 77% more than in the previous year. Contrary to the overall Swiss trend, vacancy rates consequently increased by as much as 17.3%. At 0.55%, however, rates are still well below the Swiss average. By contrast, vacancy rates in the medium-sized centers declined slightly. In the peri-urban and tourist destinations, meanwhile, the decline in the number of vacant apartments amounted to as much as 19.4% and 25.5% respectively.

Falling vacancies in conurbations and rural areas

Fewer vacancies in many conurbations and rural areas

Vacancy rate as of June 1, 2021; arrows: change on previous year

Source: Swiss Federal Statistical Office, Geostat, Credit Suisse

Last data point June 1, 2021

Decline in vacancies likely to slow soon

The turning point in vacancies has therefore come earlier and is more significant than expected. The COVID-19 pandemic has once again played the role of trend accelerator. However, the reduction in the number of empty homes is unlikely to continue at its current pace.

Although a downward trend in planning applications can still be seen, construction companies' order books are still pretty full and construction activity is likely to pick up again as soon as pandemic-related constraints on production are alleviated. In addition, the growing number of people returning to the office and participating in social activities is likely to cause the structural trend to larger apartments outside of the major centers to taper off again.

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