Swiss Real Snapshot!
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Swiss Real SnapShot! In extra time Current developments in the Swiss real estate investment market Autumn 2017 Content Macroeconomic 04 Overview Office Property 06 Market Retail Property 08 Market Residential Property 10 Market Direct Property 13 Investments Indirect Property 15 Investments New territory for 16 provident institutions – the property share deal Swiss Real SnapShot! 1 2 Swiss Real SnapShot! Introduction Dear Sir or Madam KPMG Swiss Real SnapShot!, published every 6 months, provides you with an overview of the current developments in the Swiss real estate market and its influencing factors. The Swiss real estate market is a heterogeneous and strictly segmented structure. Thus, KPMG Swiss Real SnapShot! limits itself to global observation, without addressing regional deviations in detail. KPMG Real Estate has both, Swiss specific and global expertise in the real estate markets. Our extensive data pools in local markets along with competent and in-depth consultation generate added value for our clients in all areas connected to real estate. Turn to page 18 of KPMG Swiss Real SnapShot! to see what we can do for you and how you can benefit from our services. We wish you a pleasant and informative reading. With kind regards, Ulrich Prien Beat Seger Partner, Head of Real Estate Switzerland Partner, Real Estate M&A Swiss Real SnapShot! 3 In extra time Macroeconomic Overview In the second half of 2017, the global economic cycle was on an upward path. Impetus from abroad has also led to growth in demand for Swiss products and services. The State Secretariat for Economic Affairs (SECO) expects GDP to grow by 0.9% in 2017. During the first three quarters of 2017, there has been a positive trend in Swiss exports. In Q3 2017, exports rose by 2.5% (nominal) compared to the same quarter last year. Compared to Q3 2016, the strongest growth was in textiles, clothing and shoes, at 26.9%, and metals, at 12.1%. As in previous years, chemicals and pharmaceutical products accounted for the most significant share of Swiss exports, at 45% of total sales. Whilst the balance of trade lost some momentum in the third quarter when compared with the surplus of CHF 10.5 billion in the first quarter, at CHF 8.5 billion it still recorded a significant surplus. The consensus forecast reflects confidence that economic activity in Switzerland will continue to increase, and projects GDP growth of 1.8% for 2018. Against this background of economic expansion, but also slower population growth, the situation on the Swiss labor market is easing. The unemployment rate is expected to fall to 3.2% in 2017 (2016: 3.5%). The federal economic experts forecasting group assumes that employment will grow by 0.3% this year and 0.8% in 2018. The unemployment rate could therefore fall further by 2018. A slight upward movement in the Consumer Prices Index is expected, with an increase of 0.4% for 2017 as a whole. According to the Federal Statistics Office (BFS), the main reasons for this are increases in rents and higher prices for petroleum products. Macroeconomic indicators1 5% Forecast average 4% 3% 2% 1% 0% -1% -2% and Consumer Prices Index GDP growth, unemployment rate -3% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P GDP growth Unemployment rate Consumer Prices Index Sources: BAKBasel, Credit Suisse, KOF, SECO, UBS and KPMG 1 P = Consensus forecast based on BAKBasel, UBS, Credit Suisse, KOF and SECO 4 Swiss Real SnapShot! The International Monetary Fund’s economic growth Net migration forecast for industrialised countries, of 2.2% for 2017 and 120,000 2.0% for 2018, is slightly more positive than it was even in 100,000 October 2016. From the mid-point of the year, the strong economic situation in the Eurozone has led to a partial 80,000 correction of the Euro. The ECB doesn’t manage to reach its 60,000 inflation target of just under 2% with its monetary policy. In spite of the economic growth, the EU’s quantitative easing Net migration 40,000 will not be halted just yet. The ECB has extended the 20,000 programme until September 2018, but from January 2018 - the volume of monthly purchases is to be reduced from EUR 60 billion to EUR 30 billion. In the USA, the -20,000 government is pushing for reductions in business taxes and 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 wants to increase domestic infrastructure spending, which Q3 2017 could lead to a new impetus in that sector. For these Germany France Italy reasons, the IMF anticipates solid GDP growth of 2.2% for Spain Portugal Asia 2017 and 2.3% for 2018 in the USA. This autumn, the Fed Other Countries Africa Total confirmed its intention to continue with the cycle of gradual Source: BFS, SEM and KPMG interest rate increases. Interest rates in the Eurozone and Switzerland are likely to follow this course over the medium At the end of October, the Purchasing Managers’ Index term. closed at 62.0, its highest level since February 2011, and 7.4 points higher than at the end of January 2017. The robust Global GDP growth industrial situation in particular means that the PMI now Emerging and stands well above the growth threshold of 50 points. This developing countries trend can also be seen from the KOF economic barometer, Japan which is above its long-term average, at 105.8. Therefore, the outlook for the Swiss economy is promising, and Eurozone positive growth rates can be expected over the short to medium term. UK USA Purchasing Managers’ Index, KOF economic barometer and EUR/CHF exchange rate Industrialised countries 140 1.8 1.6 Global growth 120 1.4 EUR/CHF exchange rate 100 0% 1% 2% 3% 4% 5% 6% 1.2 80 1 2017 2018 60 0.8 Source: IMF and KPMG 0.6 40 0.4 Due to the economic upturn in the major European PMI and KOF barometer 20 0.2 immigration destinations, a continued fall in immigration figures can be expected in Switzerland over the short to 0 0 medium term. In 2016, net immigration was lower than in the previous year for the third year in a row since 2013 Jan. 2000 Jan. 2001 Jan. 2002 Jan. 2003 Jan. 2004 Jan. 2005 Jan. 2006 Jan. 2007 Jan. 2008 Jan. 2009 Jan. 2010 Jan. 2011 Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015 Jan. 2016 Jan. 2017 when it reached its most recent high point. According to the State Secretariat for Migration (SEM), net immigration for EUR/CHF exchange rate the year to-date (January-September 2017) stands at 37,000. PMI KOF barometer PMI growth threshold KOF barometer 10-year average If immigration remains at this level for the remainder of the year, the net figure will have reached around 49,000 by the Source: Procure, Credit Suisse, SNB, KOF and KPMG end of 2017, a reduction of 11,000 compared to 2016. Swiss Real SnapShot! 5 unchanged, high vacancy rates must be expected in the Office Property Market office sector in 2018 across the whole of Switzerland. Capital continues to flood into office developments. Firms establishing themselves in Switzerland In the first half-year (H1) of 2017, the total volume of office 350 1,200 buildings approved over the preceding twelve months 300 1,000 Number of jobs exceeded its long-term average of CHF 2 billion. Figures 250 800 from the Federal Statistics Office show that office 200 600 employment fell by 0.5% over the same period. Demand 150 400 has not grown as much as the projected increase in supply. 100 200 Number of businesses 50 The main reasons for the stagnating office employment 0 0 figures are the headcount reductions in the ICT sector 2012 2013 2014 2015 2016 (-1.4%) and the miscellaneous business services sector Number of businesses Number of jobs (-1.9%). At the start of 2017, the number of full time Source: Conference of Directors of the Cantonal Economies and KPMG equivalent office jobs remained around 1.2 million. According to the analyses in the Swiss Real Estate Vacancy levels remain a challenge in the office market. In Sentiment Index (sresi®), there has been a reduction in fact, in 2017 the vacancy rate increased indeed further political uncertainty in Switzerland. According to the only in Basel (+9.4%), and it fell in Zurich (-9.7%), Geneva cantonal promotion agencies, positive indicators can be (-12.9%) and Bern (-7.1%). However, with total office detected mainly in the Basel economic region and Greater space supply of around 460,000 sq. m in these four cities, Zurich. The upturn has yet to reach western Switzerland. vacancy is still high in absolute terms. The stable overall performance of the Swiss economy can In recent years, Switzerland as a business location has be explained by the stable political situation (by international faced numerous challenges because of the exchange rate standards) and also by favourable infrastructure conditions situation as well as political and regulatory developments. and the high levels of education. One example of the Whilst the Swiss Franc has recently weakened again successful arrival of a foreign company is Google. It already following the abolition of the minimum Euro exchange rate employs 2,000 people in Zurich and wishes to set up a in 2015, it is still seen as overvalued. Nonetheless, in 2016 further 3,000 jobs by 2021. The reason given by Google for around 265 businesses were set up in Switzerland as a its expansion in Zurich is a better environment compared to result of the federal inward investment programme (2015: other European locations.