...but Heading for Stormier Weather...
10/03/2009
The Gstaad Real Estate Market is different from the Swiss
Market. Nevertheless, the following article found in the
Finacial might help your analysis:
Switzerland's real estate markets will not emerge from
the global financial crisis unscathed. However, the economists at Credit
Suisse do not expect any major upsets in 2009, especially given that
the Swiss real estate markets are in a good state of
health and that there
have been virtually no excesses here in the last years.
The housing market is the most stable segment. Here, the wave of immigration
into Switzerland is still having beneficial effects. Although these will
be less pronounced than in 2008 - a record year - they will prevent any
sharp fall-off in demand. On the market for commercial space, however,
the prospect of substantial job reductions coupled with the end of the
consumer boom will bring about a slump in demand. Besides, the market
will have to cope with an increasing supply of office space for cyclical
reasons. In the retail sector, the current downsizing of existing space
is set to accelerate due to ongoing floorspace expansion.
Stable Conditions in the Residential Property Markets
Thanks to unexpectedly high immigration, the residential property market
has not yet seen the sort of supply overhang that typifies the late
stages of the house-building cycle. As a result, this segment currently
enjoys healthy conditions and can face the economic downswing without
major structural problems. In the Lake Geneva region, a cooling of
demand is actually welcome. This will not have any serious impact for
the Swiss residential market initially, as population growth is estimated
to reach an above-average 1% again this year despite an easing of inward
migration. However, given the high level of construction activity to
date, coupled with waning demand, newly built houses will probably
not sell so easily any more. In view of construction projects already
planned, the output of new housing units is unlikely to fall significantly
below the 40,000 mark until 2011. This year will see a growing volume
of rental accommodation coming onto the market. With the number of
immigrants declining and with low interest rates making condominiums
increasingly attractive, it may become more difficult to find tenants
for these apartments. The economists at Credit Suisse are thus expecting
vacancies to rise back above 1% in 2009, with price falls in some regions.
However, such falls would still be in the lower single-digit range
and would not be comparable to the price slide on various real estate
markets abroad. Switzerland does not have a price bubble to contend
with, nor is there a supply overhang on its housing market.
Commercial Property Markets Hit by Economic Downturn
The outlook
for the commercial property markets is less hopeful. The dramatic deterioration
in the Swiss business climate will already impact
negatively on employment in the office segments during the current
quarter. The economists at Credit Suisse expect about 18,000 jobs to
be lost during the year. As a result, the office property market will
face a serious downturn in demand. Although the Credit Suisse experts
are not expecting office users to downsize their floorspace drastically,
only very few companies are now planning to expand their office accommodation.
In terms of supply, construction projects reached a new peak at end-2008
just as the economy began cooling. The growing volume of accommodation
coming onto the market will thus trigger a turnaround in the vacancy
rate, which has been falling for three years. The upward trend in rents,
observable since 2007, will come to an end. Properties in lower-quality
locations will be especially hard hit by the downturn in demand.
Respite in the Retail Property Market Nearing an End
2009 the retail sector reaches a turning point. So far, the growing internationalization
of the sector along with consumer boom has obscured a number of structural
problems. Both of these factors will be running out of momentum this
year, thus bringing the rapid expansion of retail floorspace to a halt.
With growth in retail turnover slowing down to a gentle pace, the problem
of dwindling sales-space productivity will move into focus again, prompting
the retail trade to step up its efforts to rationalize. Where supply
is concerned, the expansion of floorspace will continue for the time
being, especially given that sizeable investments in new-build and
refurbished properties are still planned. However, the number of major
projects is gradually declining. As a result, the trend toward decreasing
vacancies will probably be halted in the current year. Only prices
for prime locations will very likely continue to rise this year, though
not as rapidly as they have done. At the less desirable sites, the
growing supply of property should more and more push prices down.
Swiss Real Estate Funds Solid Even at Times of Crisis
The chief criterion for including a new investment class in an existing
portfolio is its correlation with existing portfolio returns. In many
cases, such correlations prove not to be stable over time. Diversification
attributes often fail to materialize just when they are most needed
- i.e. at times of crisis - as many asset classes tend to respond in
an unexpectedly similar way during such phases. According to calculations
considering a period of twelve years performed by the economists at
Credit Suisse, real estate funds also forfeit some of their risk-attenuating
properties at times of crisis, but are still fundamentally useful as
a means of diversification and remain impressively stable. The slightly
positive performance of the real estate funds in 2008 - a grim year
for equities - confirms this finding.
Source:
The FINANCIAL
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