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 50 0 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