Swiss Real Estate Sentiment Index 2017

English Edition kpmg.ch/realestate

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 04 06 30 Introduction Swiss Investment Real Estate Volumes, Sentiment Preferences and Index Behaviour

38 48 62 Risk Structural Methodology Management Changes in the and Survey Swiss Participants Labour Market

72 Management Summary 4 / Swiss Real Estate Sentiment Index 2017

Introduction

Cruising altitude reached Respondents to the 2017 Swiss Real After climbing from take-off, airliners Estate Sentiment Index (sresi®) are spend most of their flight at cruising preparing for possible turbulence, and for altitude before they commence their most of the long journey they sense that descent. The advantage of a higher the days of endless record prices are cruising altitude is that an aircraft can fly behind them. Except for the residential faster using proportionately less fuel. sector and possibly special-purpose properties, price expectations have now Looking at the current state of the begun their descent. In these two property investment market, it has now segments, small changes in altitude are reached cruising altitude. There is still still an option, but even here market room to climb a little further on certain sentiment is reaching for the landing routes in order to achieve optimal flying flaps. conditions. For a few destinations, there is no longer enough lift to safely cross the The steady inflow of capital is still oceans of capital. maintaining cabin pressure, so that the flight paths of the investment market can Travelling at cruising altitude is be navigated at high altitude. There are comfortable, far above the wind and signs of a loss of pressure across the weather. Evasive manoeuvres are rarely ocean, and this is causing investors to necessary. But when the descent starts, steer for safer havens. Peripheral things can get quite bumpy at times investment locations are no longer before a safe landing is reached. recognised as having potential. The sector Swiss Real Estate Sentiment Index 2017 / 5

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

is reasonably optimistic about central on their journey. However, they have locations. Investors are sceptical about received the first indications that their fuel commercial investment segments and are is going to run out. The time has come to even expecting a hard landing for retail run through the final approach checklist. property prices. Those supersonic jets This will ensure that future investments from the digital world advise caution. are made at the right location and in investment segments offering sustainable In sresi®, the representative statements in yields. The throttle needs to be eased relation to the current perceptions of back now in order to land safely from such players in the Swiss real estate a high altitude, without overshooting. investment market reflect the lowest average perceived risk across all risk We would like to thank all those who took classes under review since the survey part in the 2017 sresi® survey. You are was launched six years ago. In contrast, making an important contribution to the assessment of market risk has improving the transparency of the real increased. This demonstrates that estate investment market. investors and appraisers are entirely aware of the altitude at which they are flying. At Please make use of the findings of the best, they are flying additional miles in Swiss Real Estate Sentiment Index and order to meet their acquisition targets. base your actions on the collected opinions of both appraisers and investors. The pilots of the real estate investment Look carefully at the influencing factors market don’t know exactly where they are and act after analysing the trends.

We hope you find this an interesting read.

Ulrich Prien Beat Seger Partner, Head of Real Estate Switzerland Partner, Real Estate M&A 6 / Swiss Real Estate Sentiment Index 2017 Swiss Real Estate Sentiment Index Swiss Real Estate Sentiment Index 2017 / 7

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 8 / Swiss Real Estate Sentiment Index 2017 Swiss Real Estate Sentiment Index Market players expect price rally to end

The price expectations of players in the still higher than the negative scores of Swiss real estate investment market have 2013 and 2014. This index measures how dropped considerably. Nearly half of the respondents expect prices on the real respondents of the annual Swiss Real estate investment market to develop over Estate Sentiment Index survey conducted the next 12 months. The results of this by KPMG Switzerland anticipate year’s survey show that the respondents stagnating prices over the next expect the price rally on the real estate 12 months. Around a quarter expect investment market to end. Standing at prices to drop. Declining prices are 34.6 pts., the assessment of the overall anticipated for all commercial investment economic situation was considerably segments with the exception of special- more optimistic than last year (-20.9 pts.), purpose properties. thus moving the index back into positive territory following two years of negative KPMG surveyed investors and appraisers scores. about the Swiss investment property market for the sixth year in a row to Renewed widening of price gap compile data for the Swiss Real Estate between location qualities Sentiment Index (sresi®). The aggregated The gap between different location index stands at 15.2 index points (pts.) qualities opened up again in 2017. While across all participant groups, 44% the price index for principal centers fell by (-11.9 pts.) lower than the previous year. -18.5 pts. to 65.5 pts. and that for secondary centers has now dropped Optimistic economic outlook -19.4 pts. to negative territory at -5.7 pts., While the Price Expectation Index peripheral areas suffered the most experienced a sharp year-on-year decline significant year-on-year decrease with from 39.1 pts. to 10.3 pts., the index is their index falling by 37% to -97.8 pts. Swiss Real Estate Sentiment Index 2017 / 9

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

After hitting a record high of 70.8 pts. last Regulations, interest rates and year, the Price Expectation Index for declining property values as risks residential properties has declined The general risk assessment in 2017 is considerably by -34.8 pts. to 36.0 pts., the the lowest it has been over the past five lowest it has been since the survey was years. The threats posed by interest rate first conducted in 2012. 46% of all risks and declining property values, on the respondents expect prices to rise. other hand, are considered more acute than in the previous year. As in the past, The Price Expectation Index for retail respondents identified stricter regulations property, on the other hand, has been as the biggest risk, while 53% of the negative ever since the start of the study respondents expect market risk to and continues to fall. It reached a new low increase over the next 12 months. of -111.7 pts. in this latest survey (2016: -100.6 pts.). Respondents’ opinions reflect 42% of the investors surveyed are declining sales figures for store-based inclined to take on greater risks in their retailing. In the remaining commercial real real estate investments, at least to a estate segments, prices are expected to degree, over the coming 12 months develop similarly to the previous year. (previous year: 36%).

Price expectations for principal centers are 91% of those who responded to the also reflected in the breakdown by survey expect declining demand for retail economic center. Rising prices are being space. 70% anticipate ongoing decreases forecast for six of the eight economic in demand for retail space as a result of centers. Like last year, respondents of the technological transformation, whereas survey expect prices to rise in all economic 21% of the respondents even expect this centers except Lugano and St. Gallen. decline to be sharp. 10 / Swiss Real Estate Sentiment Index 2017

Swiss Real Estate Sentiment Index Growth in prices expected to slow

Aggregated Sentiment Index1 by participant group

200

150

100

Index Points -50

-100

-150

-200 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Real estate Professional investors / Appraisers Developers Real estate companies Insurers Pension funds All participants investment funds private investors

Aggregated Sentiment Index 2012 Aggregated Sentiment Index 2015 Very positive Moderately positive Moderately negative Very negative expectations expectations expectations expectations Aggregated Sentiment Index 2013 Aggregated Sentiment Index 2016 Aggregated Sentiment Index 2014 Aggregated Sentiment Index 2017

• The aggregated Swiss Real Estate Sentiment Index across all participants in 2017 stands at 15.2 points. After increasing for two consecutive years, in 2017 the index now stands -11.9 points lower than last year.

• All participant groups view expected changes in prices to be lower than last year. With an index value of -20.1 points, property developers are now in moderately negative territory in terms of price expectations. Index Points -200 -150 -100 100 150 200 -50 50 0

2012 Aggregated SentimentIndex2014 Aggregated SentimentIndex2013 Aggregated SentimentIndex2012 Index Points -200 -150 -100 100 150 200 -50

2013 50 Appraisers 0 2014 2012

Aggregated SentimentIndex2014 Aggregated SentimentIndex2013 Aggregated SentimentIndex2012 2015 2013 Appraisers 2016 2014 2017 20122015 2016

Developers 2013

20142017

20152012 Aggregated SentimentIndex2017 Aggregated SentimentIndex2016 Aggregated SentimentIndex2015 Developers 20162013 20172014 2015 2012 investment funds Aggregated SentimentIndex2017 Aggregated SentimentIndex2016 Aggregated SentimentIndex2015 2016

Real estate 2013 2017 2014

20152012 investment funds

Real estate 20162013 2014 2017

Real estatecompanies 20122015 20132016

20142017 Real estatecompanies 20152012 20162013 20172014 2015 2016 2017 Swiss Real Estate Sentiment Index

Professional investors/ 2012 expectations Very positive private investors

1 • 2013

Despite increasingconcernswithregardtocurrent pricelevels, of themajority performance ofshares. interest rates,weak orinsomecasesnegative bondyieldsandvolatility inthe relative attractiveness investments ofrealestate isunderpinnedby persistentlylow players inthemarket continue toview asanattractive realestate investment. The the development of property prices at 80%. at prices property of development the of assessments and 20%, at weighted are conditions economic of assessments index, aggregated the In 2014 Professional investors/ 2012 expectations Very positive 2015 private investors 20162013 Investment Investment 2014 Behaviour

expectations Moderately positive 2017

20122015 2016 2013 Insurers

expectations Moderately positive 2017 2014

20152012 Risk Management

20162013 Insurers 2014 2017

expectations Moderately negative 20122015

Pension funds 2016 2013 20142017 Structural expectations Moderately negative Changes 20152012 Pension funds 20162013

2014 Swiss Real SentimentIndex Estate 2017 /11 2017 2015 2012 expectations Very negative Survey Participants All participants 2016 Methodology and 2013 2017 2014 2012

expectations Very negative 2015 All participants 2013 2016 2014 2017 2015 Summary 2016

2017 12 / Swiss Real Estate Sentiment Index 2017

Sub-index: Economic Conditions Optimistic economic outlook

Assessment of economic conditions by participant group

100% 48% 39% 45% 47% 51% 48% 54% 200 80% 150 60% 100

40% Index points 20% 50 0% 0 20% -50 40% % of responses -100 60% 80% -150 100% -200 funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

Sub-index Index 2017 Index 2016 Economic conditions 34.6 pt. -20.9 pt.

The question: How do you see economic conditions in Switzerland developing over the coming 12 months?

• At 34.6 points, the prospects for economic conditions are assessed substantially more optimistic than last year (-20.9 points). After two negative years, they are now back in positive territory. Swiss Real Estate Sentiment Index 2017 / 13

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Assessment of economic conditions by investment volume

100% 48% 45% 56% 56% 36% 45% 200 80% 150 60% 100 40% Index points 20% 50 0% 0 20% -50 40% -100

% of responses 60% 80% -150 100% -200 CHF 1bn CHF 5bn Less than CHF 5bn– CHF 1bn– CHF 10bn CHF 10bn More than CHF 500m CHF 100m CHF 500m– CHF 100m–

Greatly improved Assessment of Economic Conditions Index 2017 Moderately improved Assessment of Economic Conditions Index 2016 Moderately deteriorated Assessment of Economic Conditions Index 2014 Greatly deteriorated Assessment of Economic Conditions Index 2012 Stable development in %

• 48.1% of the participants believe that economic conditions are stable (8.9% expect a slight deterioration, 40.9% expect a slight improvement and 1.7% expect a substantial improvement). The only group of participants where more than half expect a slight improvement is those investing a volume between CHF 5.0 billion and CHF 10.0 billion, at 57%. All groups of participants are considerably more optimistic than last year. 14 / Swiss Real Estate Sentiment Index 2017

Sub-index: Real Estate Price Trends Price rally expected to end

Expectations for investment real estate prices by participant group

100% 68% 54% 51% 41% 36% 33% 43% 200 80% 150 60% 100

Sub-index Index 2017 Index 2016 Price expectations 10.3 pt. 39.1 pt.

The question: How will prices develop in the Swiss real estate investment market over the coming 12 months?

• The Price Expectations Index fell slightly to 10.3 points compared to last year (39.1 points). 32% of all participants expect prices to rise, and 46% expect prices to remain stable. Only 22% of respondents reported that they expected prices to fall slightly.

• In particular, insurers (38.1 points / -51.9 points) and pension funds (10.6 points / -43.5 points) have considerably worse expectations than in previous years. These two groups have been amongst the most active purchasers on the real estate investment market in recent years. Swiss Real Estate Sentiment Index 2017 / 15

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Price expectations by investment volume

100% 40% 46% 52% 45% 30% 54% 200 80% 150 60% 100 40% Index points 20% 50 0% 0 20% -50 40% -100

% of responses 60% 80% -150 100% -200 CHF 1bn CHF 5bn Less than CHF 5bn– CHF 1bn– CHF 10bn CHF 10bn More than CHF 500m CHF 100m CHF 500m– CHF 100m–

Greatly improved Price Expectations Index 2017 Moderately improved Price Expectations Index 2016 Moderately deteriorated Price Expectations Index 2014 Greatly deteriorated Price Expectations Index 2012 Stable development in %

• In contrast to the other participant groups, groups with an investment volume of less than CHF 100 million had a greater share of respondents who gave a negative answer on the issue of price trends (moderately falling prices 48%, moderately rising prices 8%). 16 / Swiss Real Estate Sentiment Index 2017

Sub-index: Price Trends by Location Focus on centrality

Expectations for investment property prices by location

100% 31% 49% 14% 200

80% 150 60% 100 40% Index points 20% 50 0% 0

20% -50 40% Greatly improved Price Expectations Index 2017 % of responses -100 Moderately improved Price Expectations Index 2016 60% Moderately deteriorating Price Expectations Index 2014 -150 80% Greatly deteriorating Price Expectations Index 2012 100% Principal centres Secondary centres Peripheral areas2 -200 Stable trend in %

The question: How will prices develop in the following locations over the coming 12 months?

• In general, there has been no change to the pattern observed in the survey since early 2012. For principal centres, there is an expectation of a sharp rise in prices, whilst falling prices are forecast for peripheral areas every year. Expectations for secondary centres correspond roughly to the average of the two other location categories.

• After seeing a narrowing of the price differential in central and peripheral locations last year, in 2017 the gap between the different location qualities has opened up Swiss Real Estate Sentiment Index 2017 / 17

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

100% 31% 49% 14% 200 Sub-indices Index 2017 Index 2016 80% 150 Central locations 65.5 pts 84.0 pts 60% 100 Secondary centres -5.7 pts 13.7 pts 40%

Index points 2 20% 50 Peripheral locations -97.8 pts -71.3 pts 0% 0 2 Peripheral areas are defined as all locations outside of the principal and secondary centres.

once more. Whilst the price index for central locations (65.5 points) has fallen by 18.5 points and for secondary centres (-5.7 points) by 19.4 points, peripheral locations are showing the strongest fall in the index compared to last year, at 26.5 points.

• These findings by market participants would indicate that further yield compression can be expected for properties in good quality locations. Respondents continue to name centrality as an important driver of prices for investment properties. 18 / Swiss Real Estate Sentiment Index 2017

Sub-index: Price Trends by Location Analysis by participant group

Expectations for investment property prices by location

Principal centres (+65.5 points)

100% 23% 54% 31% 32% 34% 38% 17% 200 80% 150 60% 100 40% Index points 20% 50 0% 0 20% -50 40% -100

% of responses 60% 80% -150 100% -200 funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

Secondary centres (-5.7 points)

100% 59% 54% 48% 53% 40% 53% 46% 200 80% 150 60% 100 40% Index points 20% 50 0% 0 20% -50 40% -100

% of responses 60% 80% -150 100% -200 funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Peripheral areas (-97.8 points)

100% 9% 8% 29% 11% 6% 10% 15% 200 80% 150 60% 100

The question: How do you see trends in prices in the following locations over the coming 12 months?

• Expectations are relatively uniform for principal centres, with 63% of all respondents expecting moderate or sharp price rises. At around 76 points, property funds, insurers and pension funds are recording only slightly higher price expectations than the index for all participants, which stands at 65.5 points. With an index score of 42.3 points, developers are the less optimistic group. The index levels for all respondents are below those of last year.

• Price expectations for secondary centres are heterogeneous. With an index score of 23.8 points, both property funds and insurers once again expect prices to rise. The other participant groups anticipate a negative movement in prices. The most notable fall in prices is expected by property developers (-42.3 points).

• Once again, price expectations for peripheral areas are clearly much more negative, at -97.8 points. Only 2.6% of respondents expect prices to rise. 20 / Swiss Real Estate Sentiment Index 2017

Sub-index: Price Trends by Use Segment Price expectations for retail property continue to fall

Expectations for investment property by use

100% 39% 31% 13% 48% 55% 200

80% 150 60% 100 40%

50 Index points 20%

0% 0

20% -50

% of responses 40% Greatly improved Price Expectations Index 2017 -100 60% Moderately improved Price Expectations Index 2016 -150 Moderately deteriorated Price Expectations Index 2014 80% Greatly deteriorated Price Expectations Index 2012 100% -200 Stable development in % Residential Office Retail Commercial/ Special-purpose industrial property

The question: In your opinion, how will prices develop in the following use segments over the coming 12 months?

• The Price Expectations Index for residential property has fallen by almost half, by -34.8 points to 36.0 points, and after reaching a record high last year (70.8 points) it is now at its lowest level since the survey began in 2012. 46% of all respondents assume that prices will increase slightly or strongly. Swiss Real Estate Sentiment Index 2017 / 21

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Sub-indices Index 2017 Index 2016 100% 39% 31% 13% 48% 55% 200 Residential 36.0 pt. 70.8 pt. 80% 150 Office -67.1 pt. -69.8 pt. 60% 100 Retail -111.7 pt. -100.6 pt. 40%

50 Index points Commercial -43.4 pt. -56.0 pt. 20% Specialized property 6.3 pt. -4.3 pt. 0% 0

20% -50

• The trend in the Price Expectations Index for retail property has been negative since the survey began and shows a downward trend. In the current survey, it has reached -111.7 points (down 11.1 points), its lowest ever level. Poor bricks-and-mortar retail sales are impacting on respondents’ assessments.

• Similar price trends to last year are expected in the other use segments. 22 / Swiss Real Estate Sentiment Index 2017

Sub-index: Price Trends in the Economic Centres Strongest price rises expected in Zurich and Basel

Expectations for investment property prices in the economic centres

100% 48% 59% 34% 42% 47% 48% 51% 40% 200

80% 150 60% 100 40%

50 Index points 20%

0% 0

20% -50

% of responses 40% Greatly improved Price Expectations Index 2017 -100 60% Moderately improved Price Expectations Index 2016 -150 Moderately deteriorated Price Expectations Index 2014 80% Greatly deteriorated Price Expectations Index 2012 100% -200 Stable development in % Basel Bern Geneva Lausanne Lugano Lucerne/ St. Gallen Zurich Zug

The question: In your opinion, how will prices develop in the following economic centres in the coming 12 months?

• The popularity of central locations for investments is unwavering. Prices are expected to increase in six of the eight economic centres.

• The negative price expectations for Lugano are less pronounced than last year and now stand at -28.0 points.(+8.8 points). In contrast, in St. Gallen the index has fallen further, by 15.0 points to -33.0 points. This means that participants in the survey expect prices to fall furthest in St. Gallen. Swiss Real Estate Sentiment Index 2017 / 23

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Expectations for investment property prices in the economic centres

Sub-indices Index 2017 Index 2016 Basel 44.3 pt. 45.3 pt. Bern 14.4 pt. 16.8 pt.

100% 48% 59% 34% 42% 47% 48% 51% 40% 200 Geneva 5.2 pt. 19.7 pt.

80% Lausanne 28.8 pt. 32.9 pt. 150 60% Lugano -28.0 pt. -36.8 pt. 100 40% Lucerne/Zug 32.4 pt. 43.2 pt.

50 Index points 20% St. Gallen -33.0 pt. -18.0 pt. 0% 0 Zurich 49.6 pt. 67.5 pt. 20% -50

% of responses 40% Greatly improved Price Expectations Index 2017 -100 60% Moderately improved Price Expectations Index 2016 -150 Moderately deteriorated Price Expectations Index 2014 80% Greatly deteriorated Price Expectations Index 2012 100% -200 Stable development in % Basel Bern Geneva Lausanne Lugano Lucerne/ St. Gallen Zurich Zug

• As in the past two years, Zurich and Basel (49.6 points / 44.3 points) are amongst the centres where prices are expected to rise the most. The index for Lucerne/Zug has slipped a little to 32.4 points and is no longer amongst the leaders.

• With the exception of Lugano, the index in all of the economic centres under review is below last year’s level. 24 / Swiss Real Estate Sentiment Index 2017

Sub-index: Price Trends in the Principal Regions Prices falling in all regions

Expectations for investment property prices in the regions

100% 44% 42% 51% 52% 46% 40% 43% 200

80% 150 60% 100 40% Index points 20% 50 0% 0

20% -50 Greatly improved Price Expectations Index 2017 40% Moderately improved Price Expectations Index 2016

% of responses -100 60% Moderately deteriorated Price Expectations Index 2014 80% -150 Greatly deteriorated Price Expectations Index 2012 100% -200 Stable development in % Ticino Zurich Region Region Central Espace Eastern Mittelland Switzerland Switzerland Switzerland Lake Geneva Northwestern

The question: How will prices develop in the principal regions over the coming 12 months?

• Compared to last year, prices are expected to fall in all regions, even if only slightly in some areas. The greatest change can be seen in the Espace Mittelland region (-17.8 points). Swiss Real Estate Sentiment Index 2017 / 25

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Sub-indices Index 2017 Index 2016 Eastern Switzerland -32.5 pt. -20.3 pt. Zurich 50.0 pt. 64.2 pt. Central Switzerland 14.7 pt. 26.9 pt. Northwestern Switzerland 12.1 pt. 15.7 pt. 100% 44% 42% 51% 52% 46% 40% 43% 200 Espace Mittelland Region -42.6 pt. -24.8 pt. 80% 150 Lake Geneva Region 7.7 pt. 22.1 pt. 60% 100 40% Ticino -41.8 pt. -42.7 pt. Index points 20% 50 0% 0

20% -50 Greatly improved Price Expectations Index 2017 40% Moderately improved Price Expectations Index 2016

• Whilst the Zurich region stands out with a Price Expectations index of +50.0 points, forecasts for Ticino (-41.8 points), the Espace Mittelland region (-42.6 points) and Eastern Switzerland (-32.5 points) are negative. 26 / Swiss Real Estate Sentiment Index 2017

Sub-index: Availability of Suitable Investment Opportunities Suitable investment opportunities still in short supply

Availability of investment real estate – Supply Index

100% 14% 39% 46% 45% 41% 200

80% 150 60% 100 40% Index points 20% 50 0% 0

20% -50 40% Very good supply Supply index 2017 % of responses -100 Good supply Supply index 2016 60% Moderate shortage Supply index 2014 -150 80% Severe shortage Supply index 2012 100% -200 Stable development in % Residential Office Retail Commercial/ Special-purpose industrial property

The question: In your opinion, will there be sufficient investment property to satisfy your investment objectives in terms of their value for money (condition / cash flows etc.) offered on the market over the coming 12 months?

• The pronounced shortage of residential real estate investment opportunities is easing somewhat (-133.5 points / -16.8 points). After three positive years, the Supply Index for office property (-7.8 points / -22.1 points) and retail property (-0.5 points / -13.6 points) is once more showing a moderate shortage. All sub-indices are negative. Swiss Real Estate Sentiment Index 2017 / 27

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Sub-indices Index 2017 Index 2016 100% 14% 39% 46% 45% 41% 200 Residential -133.5 pt. -150.3 pt.

80% 150 Office -7.8 pt. 14.3 pt. 60% 100 Retail -0.5 pt. 13.1 pt. 40%

Index points Commercial -5.4 pt. 17.8 pt. 20% 50 Specialized property -47.5 pt. -29.7 pt. 0% 0

• For all reporting years, the supply of residential and specialized property has been too low. 84% of respondents forecast a shortage in the residential segment, with 52% even expecting this to be severe. The limited supply of residential real estate corresponds to the investment focus of the survey participants and the expectations for price trends. 28 / Swiss Real Estate Sentiment Index 2017

Real Estate Sentiment Index Availability of investment opportunities and price expectations

Anticipated real estate supply and price expectation indices by use

200

150

100

Index points -50

-100

-150

-200 Residential Office Retail Commercial/ Special- industrial purpose property

Supply Index 2017 Price Expectation Index 2017 Supply Index 2016 Price Expectation Index 2016 Supply Index 2014 Price Expectation Index 2014 Supply Index 2012 Price Expectation Index 2012

• A comparison of the supply and price expectation indices produces a symmetrical graph which confirms the logical link between the two indices, i.e. the lower the supply of suitable properties, the higher the price expectations. In the residential property segment in particular, the current supply is insufficient to satisfy demand and, in turn, this will lead to a trend of rising residential property prices. Swiss Real Estate Sentiment Index 2017 / 29

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 30 / Swiss Real Estate Sentiment Index 2017 Investment Volumes, Preferences and Behaviour Swiss Real Estate Sentiment Index 2017 / 31

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 32 / Swiss Real Estate Sentiment Index 2017

Planned Acquisitions of Investment Real Estate Appetite for investment remains strong

Planned volume of acquisitions in CHF

5% 9%

11% 7%

No investments planned 12% 13% CHF 0m–CHF 10m CHF 10m–CHF 30m CHF 30m–CHF 50m CHF 50m–CHF 100m 13% 13% CHF 100m–CHF 200m CHF 200m–CHF 300m 17% CHF 300m–CHF 1bn More than CHF 1bn

The question: What is your estimate of your company/investment vehicle/clients’ total volume of acquisitions over the coming 12 months?

• 91% of survey respondents indicated that they are planning acquisitions in the next 12 months. This is practically unchanged from last year. 9% (last year: 8%) are not planning any acquisitions in the coming year. 59% of participants are planning to purchase properties with a total volume of less than CHF 100 million (last year: 61%). Swiss Real Estate Sentiment Index 2017 / 33

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Volume of acquisitions in CHF by participant group

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% funds funds Insurer Pension investors / companies Real estate investment Real estate Developers Professional private investors

• Broken down between the different participant groups, most investment activity is expected to come from real estate funds, insurers and pension funds. For many investors needing to invest similarly large volumes, investment in real estate has become an alternative to low-yielding fixed interest investments. 34 / Swiss Real Estate Sentiment Index 2017

Planned Acquisitions of Investment Real Estate Investors continue to focus on residential property

Investment preferences

100%100% 9090%% 8080%% 7070%% 6060%% 5050%% 4040%% 3030%% 2020%% 1010%% 00%% 2017 2016 2015 2014 2013 funds funds Pension Insurers investors / Appraisers companies Investment Investment Investment Investment Investment Real estate Real estate Developers preferences preferences preferences preferences preferences Professional private investors

Residential Office Retail Commercial/industrial Special-purpose property

The question: Please imagine that you have CHF 100m in capital which you can / must invest over the coming 12 months. How would you invest this capital, split into the following real estate segments?

• Residential property remains by far the most popular investment segment. Survey participants would allocate 60.1% (last year: 62.2%) of their acquisition volume to this segment. Plans to invest in office (14.8%, last year: 13.0%) and special-purpose property (9.2%, last year: 8.3%) have increased slightly compared to last year. Interest in retail space has fallen further, to 10.1%, a new low.

• Whilst last year all investor groups would invest more than 50% of their capital in residential property, for property funds and property companies the proportion Swiss Real Estate Sentiment Index 2017 / 35

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Investment preferences by investor group

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

Residential Office Retail Commercial/industrial Special-purpose property

accounted for by residential property is now below 50% for the first time. The strongest preference to invest in residential property is now expressed by pension funds (81.9%). Insurers’ strong preference last year for residential investments has reduced significantly, by 20.1 percentage points to 61.7%. In the survey, property funds (49.5%) and property companies (46.7%) recorded the lowest proportion of residential property in their investment plans. The low proportion of residential property in the responses of the property funds and companies could be accounted for both by their specific yield requirements and also by the regulatory framework. 36 / Swiss Real Estate Sentiment Index 2017

Planned Acquisitions of Investment Real Estate Zurich remains the preferred investment destination

Preferred investment locations by investor group

160 25% 160 25% 140

140 20% % of responses 120 20% % of responses 120 100 15% 100 80 15% 80 60 10% 60 10% Number of responses 40 Number of responses 40 5% 20 5% 20 0 0% 0 0% Zug Bern Basel Zurich Zug Lugano Geneva Bern Basel Lucerne/ Zurich St. Gallen Lausanne Lugano Geneva Lucerne/ St. Gallen Lausanne Developers Insurers RealDevelopers estate funds PensionInsurers funds Real estate companiesfunds %Pension of responses funds RealProfessional estate companies investors % of responses Professional investors

The question: Which investment locations will you focus on increasingly in the future? Multiple responses possible

• Despite a slight fall (-3.0 percentage points), with almost 22% of responses, Zurich remains the preferred investment location. Lucerne/Zug follows in second place (16.4%), fractionally ahead of Basel (16.1%). In the French-speaking areas of Switzerland, Lausanne is keeping its nose ahead of the regional competition with 15.2% of responses (Geneva: 11.6%). Swiss Real Estate Sentiment Index 2017 / 37

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Preferred investment locations by investor group in %

100% 90% 80% 70% 60% 50% 40% % of responses % of responses 30% 20% 10% 0% funds funds funds funds Pension Insurers Pension Insurers investors / companies investors / Real estate Real estate Developers companies Real estate Real estate Developers Professional Professional private investors private investors

Zurich Basel Geneva St. Gallen Lucerne/Zug Lausanne Bern Lugano

• St. Gallen and Lugano continue to be favoured by only a few investors. This assessment is associated with relatively negative price expectations.

• The usual significant differences emerge in the breakdown between the various participant groups. 38 / Swiss Real Estate Sentiment Index 2017 Risk Management Swiss Real Estate Sentiment Index 2017 / 39

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 40 / Swiss Real Estate Sentiment Index 2017

Risk Management Perceived risk decreasing but rising expectations of market risk

Assessment of market risk

53% 40%

Increasing risk No change in risk Decreasing risk

The question: Do you expect market risk to change over the coming 12 months?

• 53% of participants expect market risk to increase over the coming 12 months. Participants’ assessment of market risk has increased by 7 percentage points compared to last year. 40% of participants expect market risk to remain stable. 7% of participants expect risk to reduce. Swiss Real Estate Sentiment Index 2017 / 41

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Possible risk for the Swiss real estate investment market

High risk

Moderate risk

Low risk

No risk rate risks prices Falling Stricter Interest defaults property Inflation, Payment European stagflation regulations deflation or environment

Risk perception 2013 Average risk perception 2013 Risk perception 2014 Average risk perception 2014 Risk perception 2015 Average risk perception 2015 Risk perception 2016 Average risk perception 2016 Risk perception 2017 Average risk perception 2017

The question: In your opinion, how great is the risk that the following factors will have an effect on the Swiss real estate investment market ?

• Measured over the last five years, in 2017 the general perception of risk has reached an all-time low. The perception of risk has reduced compared to last year in respect to four of the six risk factors. In contrast, the risk of the impact of interest rates and falling property values is adjudged to be more acute than last year. Stricter regulation is still seen as the greatest risk; however, according to the survey participants, the risk of stricter regulation has reduced since 2014. 42 / Swiss Real Estate Sentiment Index 2017

Risk Management Consensus in risk perceptions

Assessment of possible risks for the Swiss real estate investment market by participant group

High risk

Moderate risk Inflation, deflation or stagflation Interest rate risks Falling property prices Low Payment defaults risk European environment Stricter regulations

Average risk perception by No investor group risk funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

The question: In your opinion, how great is the risk that the following factors will affect the Swiss real estate investment market over the coming 12 months?

• Once again, there is a broad consensus in the risk perceptions of the participant groups this year. The current risk situation is perceived as greatest by insurers, appraisers and property companies. These participants assess the risk of stricter regulation, interest rate risk and the risk of falling property prices as moderately high. Swiss Real Estate Sentiment Index 2017 / 43

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

High High risk risk

Moderate Moderate risk risk Inflation, deflationInflation, or stagflation deflation or stagflation Interest rate risksInterest rate risks Falling property Fallingprices property prices Low Low Payment defaultsPayment defaults risk risk European environmentEuropean environment Stricter regulationsStricter regulations

Average risk perceptionAverage byrisk perception by No No investor group investor group risk risk funds funds funds funds Pension Insurers Pension Insurers investors / Appraisers investors / companies Appraisers companies Real estate Real estate Developers Real estate Real estate Developers Professional Professional private investors private investors

• General risk is perceived as lowest by real estate funds.

• Increasing interest rates are being identified as a risk factor, particularly by professional and private investors, insurers and pension funds. 44 / Swiss Real Estate Sentiment Index 2017

Risk Management Risk-averse investors

Greater appetite for risk in investments (investors)

36%

58%

Yes To some extent No

The question: Compared to last year, are you more inclined to take on higher risk investments?

• 42% of investors are inclined to take on greater risks, at least to some extent, in their real estate investments over the coming 12 months (last year: 36%). In contrast, in 52% of responses, appraisers report a slight reluctance on the part of their clients to take on greater risks (last year: 70%). Swiss Real Estate Sentiment Index 2017 / 45

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Greater appetite for risk in investments (appraisers)

46% 43%

Yes To some extent No

The question: Compared to last year, are you more inclined to take on higher risk investments?

• Thus, appraisers are reporting a greater sensitivity to risk on the part of investors than last year. 46 / Swiss Real Estate Sentiment Index 2017

Risk Management Slight changes in options

Plans to change investment behaviour / real estate allocation

19% 32%

Less exposure on the real estate market Sale of specific properties 5% Extension of repayment terms Deleveraging (debt reduction) 7% Change of investment approach 1% 6% International diversification 10% Diversification into indirect investments 15% Use of real estate derivatives No change anticipated

The question: Over the coming 12 months, will you change your investment behaviour / real estate allocation in view of your current risk assessment?

• 32% of respondents do not intend to change their investment behaviour over the coming 12 months (last year: 29%). The second most popular strategy mentioned was the sale of specific properties (19%) unchanged from last year.

• Diversification abroad (15%) is continuing to gain ground (2016:11%, 2015:10%, 2014: 8% and 2013: 6%). Supply is low in the local direct investment market and therefore investors are focusing increasingly on foreign properties. Swiss Real Estate Sentiment Index 2017 / 47

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Responses by participant group

100%

90%

80%

70%

60% Less exposure on the real estate market 50% Sale of specific properties Extension of repayment terms 40% Deleveraging (debt reduction) 30% Change of investment approach International diversification 20% Diversification into indirect investments 10% Use of real estate derivatives 0% No change anticipated funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

• It seems that financing terms have largely been optimised, as shown by a reduction in the responses for “Loan terms” and “Deleveraging” compared to the same period last year. Increasing by 2% to 5% of responses, reducing exposure to the real estate market is an option which is being increasingly adopted. 48 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Swiss Real Estate Sentiment Index 2017 / 49

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 50 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Structural change across the board

Impact of technological developments on the labour market

100%

80%

60%

40% yes rather yes 20% rather no 0% no

20%

% of responses 40%

60%

80%

100% Data & Analytics Robotics / Automation Artificial intelligence Virtual / Augmented 3D-Print Blockchain Physical-Digital Reality Integration

The question: Will the following technological developments make lasting changes to the Swiss labour market?

• With more than 90% in agreement, the majority of respondents to the survey are in no doubt as to the significance of data & analytics and robotics / automation for the Swiss labour market. At 89% and 86% respectively, high importance is also attached to the development of artificial intelligence and physical-digital integration. Swiss Real Estate Sentiment Index 2017 / 51

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

100% 100%

80% 80%

60% 60%

40% 40% yes yes rather yes rather yes 20% 20% rather no rather no 0% 0% no no

20% 20%

% of responses 40% % of responses 40%

60% 60%

80% 80%

100% 100% Data & Analytics DataRobotics & Analytics / AutomationRoboticsArtificial / Automation intelligenceArtificialVirtual intelligence / AugmentedVirtual / Augmented 3D-Print 3D-PrintBlockchain BlockchainPhysical-Digital Physical-Digital Reality Reality Integration Integration

• The outcome is less obvious when it comes to virtual / augmented reality, 3D printing and blockchain, at around 70% in each case. Whilst a fairly similar proportion answered “agree somewhat” across all these areas, there is less clear-cut support for these categories. At the other extreme, fewer than 5% answered “disagree” and around 30% answered “disagree somewhat”.

• In conclusion: it is thought that all these influences will have a significant impact on developments in the Swiss labour market. 52 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Effects on overall employment not clear

Impact of technological developments on employment

100% 49% 22% 36% 26% 33% 14% 48% 69% 33% 68% 25% 9% 80% sharply increase 60% increase 40% decrease 20% sharply decrease Stable development in % 0% 20% 40% % of responses 60% 80% 100% and Retail Public Health market industry Tourism services and care Financial Logistics business Research Consulting & education and services Construction Swiss labour administration Manufacturing communication Computer Science

The question: How will employment change in the following areas as a result of technological developments?

• There is a much clearer consensus about the impact on the Swiss labour market of these technological developments than there is about their significance.

• In the fields of financial services (73%), manufacturing industry (62%) and retailing (82%), the majority of respondents to the survey anticipate a fall in employment.3

3 Portion of responses of decrase or sharply decrease Swiss Real Estate Sentiment Index 2017 / 53

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

100% 10049%% 49% 22% 22% 36% 36% 26% 26% 33% 33%14% 14% 48% 48% 69% 69% 33% 33%68% 68% 25% 25% 9% 9% 80% 80% sharply increasesharply increase 60% 60% increase increase 40% 40% decreasedecrease 20% 20% sharply decreasesharply decrease Stable developmentStable development in % in % 0% 0% 20% 20% 40% 40% % of responses % of responses 60% 60% 80% 80% 100% 100% and and Retail Retail Public Public Health Health market market industry industry Tourism Tourism services services and care and care Financial Financial Logistics Logistics business business Research Research Consulting Consulting & education & education and services and services Construction Construction Swiss labour Swiss labour administration administration Manufacturing Manufacturing communication communication Computer Science Computer Science

• Prospects for employment are viewed as substantially more positive in the fields of health and care (59%), consulting and services (55%), education and research (72%) and information technology and communications (86%).4

• Viewed across all employment sectors, 23% of respondents to the survey expect employment to increase and 27% expect it to reduce (the remainder expect it to remain stable). By weighting the responses on the basis of employment statistics, it is possible to derive an indication of the overall trend which cannot be seen by simply looking at the answers of the participants in the survey.

4 Portion of responses of increase or sharply increase 54 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Change in store for the real estate sector

Impact of technological developments on areas of work within the real estate industry

Letting

Real estate transactions / sales

Appraisal

Facility management

Property Management

Portfoliomanagement

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

very strong influence strong influence moderate influence no influence

The question: Within the real estate industry, which areas of business and work will be affected by technological change, and to what extent?

• Technological developments are expected to have a significant effect on the work of the real estate industry. Over 60% of responses anticipate that the impact will be significant or very significant in each of the fields of lettings, facility management and property management. Swiss Real Estate Sentiment Index 2017 / 55

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• In the fields of real estate transactions / disposals, valuation and portfolio management, whilst the responses of participants on the anticipated impact of technology are not as definitive (40% to 50% of responses expect the impact to be significant or very significant), these areas are also expected to undergo change.

• There is no area in which more than 2% of survey respondents expect that technological change will have no effect on the real estate industry. 56 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Falling demand for office, retail and commercial space

Changes in demand for space requirements as a result of technological developments, by use category

100% 57% 34% 8% 58% 25% 80% 60% 40% 20% 0% 20% 40% % of responses 60% 80% 100% Residential Office Retail Commercial/industrial Logistics

sharply increase increase decrease sharply decrease Stable development in %

The question: How will requirements / demand for the following types of space change as a result of technological developments?

• Analysed according to property type, an increase in requirements or demand is anticipated in the residential segment (39%) and the logistics segment (70%).

• In the other commercial segments, 58% of participants in the survey expect reduced demand for office space and 33% expect reduced demand for retail space. Swiss Real Estate Sentiment Index 2017 / 57

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• Respondents do not see a rosy future for retail space. 91% of participants forecast falling demand for retail space (70% predict a reduction, 21% a major reduction). 8% of participants anticipate that demand will remain stable and just two respondents (1%) took a slightly positive view of future requirements.

• Owners and investors will need to adapt their premises and their investment activity to these significant changes in predicted demand. 58 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Centrality and public transport are the most important location factors for office properties

Assessment of the significance of selected property criteria for office properties

Technological intensity

Energy efficiency

Potential for new usage

Flexibility

Area and management efficiency

Representativity

Technical building quality

Accessibility with individual transportation and parking posssibility Accessibility with public transportation

Centrality in the economic area

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

very important important moderately important not important

The question: Imagine you were investing in an office property. Which of the following property criteria would be decisive for you?

• Access by public transport is viewed as the most significant quality criterion for an office property, classed as important or very important in 99.5% of responses. Access by private transport and parking are accorded slightly less importance, with 81.7% classing them as important or very important, but it remains a pivotal criterion.

• At 94.5%, centrality of location within an economic area is the second most significant location factor in the assessment of survey participants, after access by public transport. Swiss Real Estate Sentiment Index 2017 / 59

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• 94.5% of participants rate a building’s flexibility as important or very important. This makes flexibility the most important quality criterion for office buildings, followed by space and operating efficiency at 90.8% and the technical quality of the building at 84.9%. 60 / Swiss Real Estate Sentiment Index 2017

Structural Changes in the Swiss Labour Market Location remains the decisive quality factor for retail

Assessment of the significance of selected property criteria for retail buildings

Technological intensity

Energy efficiency

Potential for new usage

Flexibility

Area and management efficiency

Representativity

Technical building quality

Accessibility with individual transportation and parking posssibility Accessibility with public transportation

Centrality in the economic area

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

very important important moderately important not important

The question: Imagine you were investing in a retail property. Which of the following property criteria would be decisive for you?

• For retail space too, the location factors to which the greatest significance is attached are access and centrality. Whilst access by public transport is most important for office properties, for retail premises access by private transport and parking was classed as important or very important in 94.4% of responses.

• With 91.2% of responses, building flexibility is also the most important building criterion for retail premises. Swiss Real Estate Sentiment Index 2017 / 61

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• At 38%, the prestige of a building is accorded greater importance for retail premises than for office buildings.

• The lowest significance is attributed to the level of technology (63.0%) and energy efficiency (61.6%). 62 / Swiss Real Estate Sentiment Index 2017 Methodology and Survey Participants Swiss Real Estate Sentiment Index 2017 / 63

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants 64 / Swiss Real Estate Sentiment Index 2017 Methodology

Qualitative indices When explaining and forecasting Indices are generated from a qualitative economic relationships and processes, survey of experts consisting of real estate they are just as helpful as quantitative investors and appraisers of investment statistics which record objectively properties in Switzerland. ascertainable values. They have a strong forecasting character, especially in real Similar to the EU-compatible Consumer estate investment markets with a Sentiment Index by SECO, the survey relatively small number of market players focuses exclusively on issues relating to such as Switzerland. the future (forthcoming 12 months). The responses represent participants’ Representativeness macroeconomic assessments and 258 people participated by invitation in expectations of price trends in the Swiss the 20175 survey. The size of the sample real estate investment market. makes it possible to provide representative statements as to the The objective of qualitative statistics is current expectations of players in the to determine subjective benchmarks. Swiss investment market.

5 The 2017 survey took place between 23rd June and 9th August 2017. Swiss Real Estate Sentiment Index 2017 / 65

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Indices posed, which permitted detailed The participants responded to seven responses on anticipated economic questions posed; the responses to two conditions and price trends arranged by sub-questions were evaluated to create location, use, city and region. The last sub- an aggregated index. index illustrates the assessment of the available real estate supply for investors. Sub-indices Weighting 1. Economic conditions 20% Sub-indices 2. Price trends in the real 80% 3. Price trends in the real estate market estate investment market by location 4. Price trends in the real estate market by use Aggregated Swiss Real Estate 5. Price trends in the real estate market Sentiment Index (sresi®) by major economic centre 6. Price trends in the real estate market by economic region A sub-index was created from the responses to each of the seven questions 7. Availability of investment properties 66 / Swiss Real Estate Sentiment Index 2017 Swiss Real Estate Sentiment Index 2017 / 67

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Sample calculation of a (sub-)index Question: How will prices develop in the Swiss real estate investment market over the coming 12 months?

Expectation No. of Weighting Product Index responses factor6 Sharply increasing prices 4 2 8 80 Moderately increasing prices 2 1 2 20 Stable prices 1 0 0 0 Moderately falling prices 2 -1 -2 -20 Sharply falling prices 1 -2 -2 -20 Total 10 - 6 60

100 x 6 = 10

6 The weighting factor is a whole number between -2 and +2 and is multiplied by the number of corresponding responses. The total of the products is multiplied by 100 and divided by the total number of responses, which produces the index. This figure can lie between -200 and +200. 68 / Swiss Real Estate Sentiment Index 2017

Methodology Guide

11% of participants 39% of participants anticipate sharply increasing anticipate stable prices prices (left axis)

100% 200 30% 26% 16% 39% 54% 80% 150 60% 100 40% Index points 20% 50 0% 0

-20% -50 % of responses -40% Strongly increasing prices Price Expectations Index 2017 -100 Moderately increasing prices Price Expectations Index 2016 -60% Moderately falling prices Price Expectations Index 2014 -150 -80% Sharply falling prices Price Expectations Index 2012 -100% -200 Stable development in % Retail Office Special- purpose Residential Commercial Price Expectations Index 3% of participants (right axis) (derived from the anticipate sharply participants’ expectations) falling prices (left axis)

Important: Stable price expectations (nil weighting) are not illustrated to avoid confusing the reader. Swiss Real Estate Sentiment Index 2017 / 69

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Sub-index 2017 index 2016 index Price expectation -X pt. -Y pt.

11% of participants 39% of participants anticipate sharply increasing anticipate stable prices Price trends over the past 12 months prices (left axis) Change by more than +25 index points 100% 200 30% 26% 16% 39% 54% 80% 150 Change by between -25 and +25 index points 60% 100 40% Change by more than -25 index points Index points 20% 50 0% 0

Methodology Survey Participants

Participants by type of activity

10% 19%

12%

9% Appraisers Developers 18% Real estate investment funds

16% Real estate companies Professional investors / private investors 16% Insurers Pension funds

Participants by investment and valuation volume in CHF

10% 20%

23%

12% moins de CHF 100 mio CHF 100 mio–CHF 500 mio CHF 500 mio–CHF 1 mrd 11% CHF 1 mrd–CHF 5 mrd 24% CHF 5 mrd–CHF 10 mrd plus de CHF 10 mrd Swiss Real Estate Sentiment Index 2017 / 71

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

Participant groups by investment and valuation volume in CHF

100% 90% 80% 70% 60% 50% Less than CHF 100m 40% CHF 100m – CHF 500m 30% CHF 500m – CHF 1bn 20% CHF 1bn – CHF 5bn 10% CHF 5bn – CHF 10bn 0% More than CHF 10bn funds funds Pension Insurers investors / Appraisers companies Real estate Real estate Developers Professional private investors

• 258 representatives of the Swiss real estate investment market participated in this survey. Of these, 250 questionnaires were analysed. The following groups took part in the survey: appraisers (10%), developers (12%), real estate funds (18%), real estate companies (16%), professional investors (16%), insurers (9%) and pension funds (19%). Institutional investors represent over three fifth of the participants (62%).

• More than half of the participants (58%) handle investment and valuation volumes of more than CHF 1 billion. Institutional investors (insurers, real estate funds, pension funds and real estate companies) and appraisers are the groups with relatively high investment volumes. Developers and professional investors form the groups which handle lower investment volumes. 72 / Swiss Real Estate Sentiment Index 2017 Management Summary

74 / Swiss Real Estate Sentiment Index 2017

Overview KPMG Swiss Real Estate Sentiment Matrix Main index index Aggregate Economic conditions development Price development Price Central locations centres Medium sized locations Peripheral Residential Office Retail Commercial/industrial Special-purpose property Basle Berne

Appraisers

Developers

Real estate funds

Real estate companies

Professional investors / private investors

Insurers

Pension funds

All participants Swiss Real Estate Sentiment Index 2017 / 75

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants Geneva Lausanne Lugano Lucerne/Zug St. Gallen Zurich Region Zurich Central Switzerland Switzerland Northwest Espace Midland Geneva Lake South Switzerland East Switzerland Availability Residential Office Retail Commercial Special-purpose property

Significantly increasing Moderately increasing Moderately falling Significantly falling expectations expectations expectations expectations

200 150 100 50 0 -50 -100 -150 -200

Index points 76 / Swiss Real Estate Sentiment Index 2017 Management Summary

Key conclusions • The aggregated Swiss Real Estate • Whilst a reduction in the price Sentiment Index across all participant differential between central and groups stands at +15.2 points. This peripheral locations was expected last represents a drop of 11.9 points year, the gap between different quality compared to last year. locations opened up once again in 2017. The price index for central locations has • At +34.6 points, developments in the fallen by 18.5 points to +65.5 points economic situation are viewed much and that for secondary centres has more positively by respondents fallen by 19.4 points to -5.7 points, but compared to last year (-20.9 points) the drop in the index is most obvious in and, after two negative years, they are peripheral locations, down 26.5 points now back in positive territory. to -97.8 points compared to last year.

• At +10.3 points, the Price Expectations • The Price Expectations Index for Index for all survey participants has residential property has fallen by almost fallen compared to last year half, by 34.8 points to +36.0 points, and (+39.1 points), but it is still above the after reaching a record high last year negative figures of 2013 and 2014. (+70.8 points) it is now at its lowest level since the survey began in 2012. 46% of all respondents assume that prices will increase slightly or strongly. Swiss Real Estate Sentiment Index 2017 / 77

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• The trend in the Price Expectations • The pronounced shortage of suitable Index for retail property has been investment opportunities in the negative since the survey began. In the residential segment is easing current survey, it has reached somewhat (-133.5 points / -111.7 points (last year: -100.6 points), +16.8 points). After three years in its lowest ever level. Poor bricks-and- positive territory, the Supply Index has mortar retail sales are impacting on fallen to a level of relative scarcity for respondents’ assessments, whereas office properties (-7.8 points / similar price trends to last year are -22.1 points) and retail properties expected for the other real estate (-0.5 points / -13.6 points). The figures segments. are negative for all the sub-indices.

• The improved price expectations for • Compared to last year, at 9% there is central locations are also reflected in practically no change in the number of the break down between economic respondents to the survey who report centres. Prices are expected to rise in that they do not intend to make any six of the eight economic centres. acquisitions in the next twelve months. Similar to last year, survey participants 59% of respondents plan to purchase expect to see price rises in all properties with a total volume of less economic centres with the exceptions than CHF 100 million (last year: 61%). of Lugano and St. Gallen. 78 / Swiss Real Estate Sentiment Index 2017

• Compared to the past five years, the • With more than 90% in agreement, the average perception of risk reached a majority of respondents to the survey low point in 2017. Perceived average are in no doubt as to the significance of risk fell in comparison to last year in data & analytics and robotics and respect to four of the six risk factors. In automation for the Swiss labour contrast, the effect of interest rate risk market. At 89% and 86% respectively, and the danger of falling property high importance is also accorded to the values is adjudged to be more acute development of artificial intelligence than last year. Stricter regulation is still and physical-digital integration. seen as the greatest risk. 53% of respondents anticipate an increase in • The outcome is less obvious when it market risk over the coming 12 months. comes to virtual / augmented reality, 3D printing and blockchain, at around • 42% of the investors surveyed are 70% in each case. Whilst a fairly similar prepared to accept higher risks, at least proportion answered “agree in part, in their real estate investments somewhat” across all these areas, over the coming 12 months (last year: there is less clear-cut support for these 36%). categories. At the other extreme, fewer than 5% answered “disagree” and around 30% answered “disagree somewhat”. Swiss Real Estate Sentiment Index 2017 / 79

Swiss Real Estate Investment Structural Methodology and Risk Management Summary Sentiment Index Behaviour Changes Survey Participants

• In the fields of financial services (73%), • Access by public transport remains the manufacturing industry (62%) and most significant quality criterion for an retailing (82%), the majority of office property, classed as important or respondents to the survey anticipate a very important in 100% of responses. fall in employment. Prospects for At 95%, centrality of location within an employment are viewed as substantially economic area is the second most more positive in the fields of health and significant location factor. Access by care (59%), consulting and services private transport and parking are (55%), education and research (72%) accorded less importance, with 82% and information technology and classing them as important or very communications (86%).7 important.

• 91% of respondents anticipate falling • For retail space too, the location factors demand for retail space. 70% expect a to which the greatest significance is reduction in demand for retail space attached are access and centrality. because of technological change, 21% Whilst access by public transport is even expect a sharp decline and only most important for office properties, for 8% expect that the trend will remain retail premises access by private stable. transport and parking was classed as important or very important in 94% of responses.

7 Portion of responses of increase or sharply increase, respectively decrase or sharply decrease in percentage of total responses. 80 / Swiss Real Estate Sentiment Index 2017 All-encompassing Real Estate Advisory from one Source Swiss Real Estate Sentiment Index 2017 / 81

M&A/Capital Market • Structuring and execution of transactions (Lead Advisory) All-encompassing – Asset deals: Acquisition and disposal of properties and portfolios – Share deals: Mergers, spin-offs, IPOs, private placements • Arrangement of indirect investments, such as funds or trusts • Fund raising for specific projects Real Estate Advisory • Debt & Capital Market Advisory Investment Advisory • Investment advisory for national or international indirect real estate investments • Structuring of real estate investments within portfolios • Qualitative and quantitative analysis of investment products from one Source • Monitoring and investment controlling, portfolio performance measurement

Strategy/Organization • Strategy development and implementation – Business planning/business modelling – Corporate/public real estate management – Asset and portfolio management • Analysis of organization and processes; organizational development, internal control system • Performance management/MIS/investment monitoring • Risk management and financial modelling • Turnaround and financial restructuring • Support in digital transformation

Valuation/Due Diligence • DCF -valuations of properties and real estate portfolios or companies • Independent valuation reports for financial statements • Valuations for acquisitions or disposals • Feasibility studies and valuation of real estate developments • Transaction-focused due diligence and process management • Major Project Advisory

We are also pleased to answer your tax-related, legal and regulatory questions regarding real estate and we support you in process and cost optimization as well as solutions for your technological infrastructure. Contact

KPMG AG Ulrich Prien Beat Seger Badenerstrasse 172 Partner Partner PO Box Head of Real Estate Real Estate M&A CH-8036 Zurich Switzerland +41 58 249 29 46 +41 58 249 62 72 [email protected] Rue de Lyon 111 [email protected] CH-1211 Genève 13

Bogenstrasse 7 René Büchi CH-9001 St. Gallen Senior Consultant Real Estate +41 58 249 57 96 [email protected]

kpmg.ch/realestate

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