Switzerland's real estate market has shown resilience despite global challenges such as the pandemic, inflation, and geopolitical tensions.
The country's economy is projected to grow at a rate of 1.4% for 2024, slightly below the long-term trend of 1.6%. The chemical and pharmaceutical sectors have contributed to growth in the second quarter of 2024. However, the labor market has not fully aligned with this growth, as the unemployment rate has risen from 2.2% in January to 2.5% in September.
The Swiss National Bank (SNB) has played a crucial role in maintaining stability by keeping inflation within its target range of 0-2%. The SNB has implemented interest rate cuts, with a reduction to 1% in September 2024. Further rate cuts are expected in the future, which will boost investor confidence and stimulate economic activity, particularly in the real estate sector.
Swiss real estate investment is experiencing a renewed sense of confidence. Risk premiums have returned to just above long-term averages, making real estate investments more attractive. The risk premium for direct real estate investments stands at approximately 175 basis points in the third quarter of 2024, reflecting a significant recovery. The residential real estate segment has seen yield compression, while the office property market has faced challenges. However, yields across all segments have stabilized, and there has been a robust recovery in investor activity.
The Swiss housing market remains strong due to population growth and high demand for rental apartments. Although net immigration has decreased, it remains elevated, leading to a rise in rental demand. The construction of new residential units has not kept pace with this demand, resulting in a decline in the vacancy rate and significant rent increases.
The commercial real estate market faces challenges due to the shift towards hybrid working models and online shopping. However, employment growth has provided stability to the office market. The overall economic stability in Switzerland supports the resilience of the commercial real estate market. As the economy continues to recover, the demand for commercial spaces is expected to adapt to evolving market conditions.
In summary, Switzerland's real estate market is navigating a complex landscape marked by economic resilience, shifting investor sentiment, and evolving demand dynamics. The outlook for both residential and commercial real estate remains cautiously optimistic, driven by strong fundamentals and strategic monetary interventions.