SWISS INVESTMENT MARKET

Real estate investments have become a substitute for bonds with negative yields, especially for multi-asset investors. In 2020, as in the previous year, they were able to count on the yield spread between the two asset classes, making them much more willing to pay for these properties. This is above all true for top properties, which offer secure rental income and returns, even during times of crisis. As a result, the net initial yield for top properties fell again slightly in 2020. Yields fell further in other real estate classes as well, although the market and tenant risks for these properties rose. This shows that yields not only reflect market developments in the individual segments, they are also driven by the financial markets and their investment alternatives.

The portfolios of Swiss real estate investors grew in 2020 by an average of 2%, not only due to purchases, but also – with few exceptions – due to increases in value. Around a third of investors increased their investments in existing property once again. Another third invested more in development projects in order to participate in value creation in the current low interest rate environment and achieve higher yields.

There will continue to be investment pressure in 2021 as capital from other asset classes moves into the real estate investment market. However, the property market continues to vary in terms of the quality of location and segment, and investment properties are becoming increasingly heterogeneous. The effects of the pandemic will also accelerate structural change in the various market segments during the current year, affecting location and property preferences. Moreover, the implementation of strategic topics related to environmental and social sustainability will represent a challenge for real estate investors in the medium term.