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A Surfeit of Apartments

At 1.47%, the vacancy rate is at its highest level in 18 years. This surge is largely due to the situation in the market for rental apartments. On the other hand, vacancies in owner-occupied housing are still low.

On June 1, 2017, the housing vacancy rate peaked at 1.47%. This corresponds to 64,893 empty housing units. These levels have not been seen since 1999 (1.59%). This marks the eighth consecutive rise in the housing vacancy rate. Compared to previous years, the rate of increase has accelerated. Last year alone, vacancies rose by 8,375 housing units, which means that vacancies have risen by 61% over the last four years.

Vacancy rates by segment

As % of the corresponding stock

Source: SFSO, Credit Suisse

Rental apartments most heavily affected

As in previous years, most of the increase relates to rental apartments. Within the space of one year, vacancies have risen from 1.99% to 2.31%. This represents a jump of 7,823 units, bringing the total to 55,397 empty rental apartments. We attribute this to the growing discrepancy between supply and demand. Net migration has fallen from over 80,000 in 2013 to less than 60,000 in 2016. At the same time, new construction of rental apartments has steadily increased from year to year. There has so far been no reaction by the expanding supply to the declining demand. The scarcity of investment opportunities due to the negative interest rate environment has been too great an incentive. Under these conditions, investors are prepared to assume greater risks, not least because the dividend yields on real estate investments are clearly superior to those on alternative investments such as government bonds.

Vacancy rates for owner-occupied housing remain low

The situation is different in the owner-occupied housing sector, where vacancies in condominiums rose only slightly from 0.81% to 0.84%. The picture is similar for single-family dwellings, where the increase was from 0.39% to a mere 0.41%. Here too, a combination of high prices and stricter financing regulations has exposed this market to falling demand. However, in contrast to the rental apartment market, where institutional investors are focused, supply here has reacted to lower demand and thus prevented any substantial rise in vacancies and a collapse in prices after financing regulations were tightened twice.

Regional vacancy rates 2017

Housing vacancy rates 2017, arrows: year-on-year change

Source: SFSO, Credit Suisse, Geostat

High levels of vacancies outside the urban centers and their suburbs

Of Switzerland's 110 economic regions, 80 reported an increase in vacancies. In 21 of the regions, there was a sideways movement. Suburban municipalities located far from urban centers are disproportionately affected, as are rural communities and municipalities in general where there have been high levels of residential building. The highest vacancy rates can be found in the regions between Biel and Lenzburg, and in the Lower Valais. In Upper Aargau, for example, 5.16% of all housing units are standing empty.

Housing in urban centers remains scarce

The situation is different in most urban centers and commuter suburbs. Although the number of vacancies rose in many regions, the vacancy level remains comparatively low. In some major cities such as Zurich or Lausanne, the search for a new apartment is still difficult and time-consuming.

Vacancies poised to rise further in 2018

An end to the increase in vacancies is not in sight. Construction activity is expected to remain high, and it is likely that vacancies will continue to rise in 2018. Outside the urban centers, in particular, the market is shifting in favor of tenants, and pressure on rental prices is likely to grow.