Swiss Real Estate Sentiment Index 2016

Transcription

1 Swiss Real Estate Sentiment Index 2016 English Edition kpmg.ch/realestate

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3 04 Foreword 06 Swiss Real Estate Sentiment Index 32 Volumes, Preferences and Behaviour about the Swiss Real Estate Market in Methodology and Survey Participants 72 Management Summary and Swiss Real Estate Sentiment Matrix

4 4 / Swiss Real Estate Sentiment Index 2016 Many thanks! For over five years, the Swiss Real Estate Sentiment Index (sresi ) has given investors and valuation experts a tool, supporting them in their forward-looking decisions in the Swiss real estate market. The Swiss Real Estate Sentiment Index reflects the assessments of sectoral players about future trends in the real estate investment market. The resulting qualitative forecasts allow us to recognise relationships and anticipate trends for important decisions. sresi is the only established advance indicator for real estate investments in Switzerland. Once again, a record number of market players participated in the 2016 Swiss Real Estate Sentiment Index survey. The size of the samples means that the survey provides representative responses to the current expectations of players in the Swiss real estate investment market. Advance indicators are significant, because important representatives of professional and institutional investors, developers and appraisal firms are taking the time to think about the immediate and near future by participating in the survey. Thank you very much for this. Your contribution is helping to increase market transparency. When you look at the assessments and sub-indices in the Swiss Real Estate Sentiment Index, you will notice that many of the forecasts made previously have come to pass. In retrospect, it is evident from the weighting of their assessments that respondents allowed themselves to be influenced by market developments occurring shortly before or during the sresi survey. The integration of behavioural factors within the framework of the Swiss Real Estate Sentiment Index was important to

5 Swiss Real Estate Sentiment Index 2016 / 5 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary the development of the survey. Sentiment, i.e. the feeling or the mood of the market participants, is reflected or enhanced by obvious and less obvious environmental factors, producing a conclusive, qualitative assessment. This assessment affects the decisions of market participants in the sresi forecast period and allows us to conclude that the statements of the industry s stakeholders, analysed in the context of the Swiss Real Estate Sentiment Index, reveal the direction the Swiss real estate investment market will take over the next twelve months, disregarding any external influences. consensus view into the crystal ball. Some of the trend expectations of the respondents make you stop and listen. By comparing these assessments with the statements in the Swiss Real Estate Sentiment Index, we have a strong picture of the investments which investors will prioritise in future. However, it is also clear that the industry is underestimating technological developments in terms of their impact, scope and speed of implementation. We hope you find this an interesting read. With this fifth edition of the Swiss Real Estate Sentiment Index, we have taken a further step into the future, asking market participants for their opinions regarding several assumed scenarios in We have presented these statements largely without comment to avoid clouding the Ulrich Prien Partner, Head Real Estate Switzerland Beat Seger Partner, Real Estate M&A

6 6 / Swiss Real Estate Sentiment Index 2016 Swiss Real Estate Sentiment Index

7 Swiss Real Estate Sentiment Index 2016 / 7 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

8 8 / Swiss Real Estate Sentiment Index 2016 Swiss Real Estate Sentiment Index E-commerce puts retail space under pressure Market players continue to rate real estate investments as extremely attractive. That is one of the findings of KPMG Switzerland s annual Swiss Real Estate Sentiment Index. Both the overall index and the Price Expectation Index hit record highs. The assessment of economic conditions is slightly more optimistic than it was in the previous year. The increasing regulatory burden is still cause for concern in the sector. Market players also expect e-commerce growth to trigger declines in the demand for retail space. KPMG surveyed investors and appraisers about the Swiss investment property market again this year to compile data for the Swiss Real Estate Sentiment Index (sresi ). The aggregated sresi stands at 27.1 index points (pts.) across all participant groups, 12.3 pts. higher than the previous year and the highest score since KPMG first began compiling the index in Economic outlook still negative price expectations reach a new high The respondents assessment of the economic situation is less pessimistic (-20.9 pts.) than it was in the previous year (-45.2 pts.), however the index still remains in negative territory. In addition to the all-time high seen in the overall index, the Price Expectation Index for all respondents has risen slightly over the previous year (29.8 pts.) to reach a new record high of 39.1 pts. In 2013 and 2014, the Price Expectation Index was still negative. This tells us that market players nevertheless consider real estate investments to be extremely attractive despite some concerns about the economic trend. Residential properties still hot retail spaces hit new low At 70.8 pts., the Price Expectation Index is clearly positive for residential properties, despite being down slightly compared to the previous year (-3.5 pts.). In this segment, 65% of those surveyed expect prices to rise. That leaves Residential as the only investment category where price forecasts are consistently positive. The Price Expectation Index for retail property, on the other hand, has been negative ever since the first sresi was compiled and is

9 Swiss Real Estate Sentiment Index 2016 / 9 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

10 10 / Swiss Real Estate Sentiment Index 2016 on a downward trend. It reached a new low of pts. in this most recent survey (2015: pts.). Respondents opinions reflect declining sales figures for store-based retailing. In the remaining real estate segments, prices are expected to develop similarly to the previous year. The price index for office property was up slightly to pts. (+14.6 pts.). Slight narrowing of gap between location qualities The gap between different location qualities has narrowed somewhat compared to the previous year. Coming in at 84.0 pts., clear price increases are still expected in central locations. Peripheral locations rose by 6.4 percentage points this year after bottoming out last year. Nevertheless, the index for these locations is still clearly negative (-71.3 pts.). Respondents remain cautiously optimistic about medium-sized towns (13.7 pts.). Increased price expectations for central locations are also reflected in the regional breakdown: as was already the case in the previous year, respondents in the economic centers (Zurich, Basel, Lucerne/Zug, Lausanne, Geneva and Bern) expect prices to rise everywhere except Lugano and St. Gallen. Regulatory burden a bigger risk factor than the Brexit Merely 22% of those surveyed expect returns to decline as a result of Brexit. In last year s survey, the scrapping of the minimum euro exchange rate had a much bigger impact on respondents expected returns, with nearly half of that survey s participants expecting declining or even strongly declining yields at the time. 46% of the respondents expect market risk to increase over the coming 12 months. Year-on-year there was a 12 percentage point drop in respondents assessment of the risk situation. Measured over the past five years, the general perception of risk is nearly back to its all-time low of Only the threat of a European crisis is considered to be more acute than in the previous year. As in the past, respondents identified stricter regulations as the biggest risk; however the situation seems to have relaxed somewhat over the past two years. A major decline can be seen in the perception of interest rate risks; market players seem to have accepted the new interest rate reality and do not expect any sudden interest rate hikes.

11 Rising vacancies in office and retail space Nearly three quarters of those surveyed expect the market share for e-commerce to increase from its current level of 10% to more than 25% by That will not only bring declining demand for retail space but also adversely impact the returns and values of retail property. Landlords of retail space will have to expect increasing vacancies and reposition these properties as a result. Respondents of the survey also expect rising vacancies for office space: According to them, a vacancy rate of 10% for office space in metropolitan areas in 2020 will be the norm rather than any special cause for concern. A major price correction for investment property between now and 2020 is considered very unlikely: 72% of those surveyed do not expect a price correction of this nature. Swiss Real Estate Sentiment Index 2016 / 11

12 12 / Swiss Real Estate Sentiment Index 2016 Swiss Real Estate Sentiment Index Price boom continues Aggregated Sentiment Index 1 by participant group Index points Appraisers Developers Real estate funds Real estate companies The aggregated Swiss Real Estate Sentiment Index across all participant groups in 2016 stands at 27.1 points, which is an improvement of 12.3 points compared to last year. This is also the highest level recorded since the data survey began in It is due in particular to the high price expectations (39.1 points). Survey participants were more cautious in their assessments of economic trends (-20.9 points). The expectations of the various participant groups were relatively uniform across the whole of the index. One exception was insurers with an index of 70.0 points. Due to optimistic price expectations, the total index for this group is 49.2 points higher than the average for all participants. The most negative in their assessments were developers with an index level of -0.4 points. This participant group stands at the front of the real estate value added chain and is the first affected by changes in the market.

13 Swiss Real Estate Sentiment Index 2016 / 13 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Professional investors Insurers Pension funds All participants Very positive expectations Moderately positive expectations Moderately negative expectations Very negative expectations In general, it would appear that market participants continue to consider real estate investments to be very attractive, despite some concerns over economic trends. Real estate investments are becoming increasingly attractive due to the introduction of negative interest rates, weak and sometimes negative returns on bonds and volatile performance of shares. 1 In the aggregated index, the assessments of economic conditions are weighted by 20%, and the assessments of the development of property prices by 80%.

14 14 / Swiss Real Estate Sentiment Index 2016 Sub-index: Economic Conditions Economic outlook slightly more optimistic Assessment of economic conditions by participant group % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 54% 52% 63% 69% 63% 90% 81% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Index points Sub-index Index 2016 Index 2015 Economic conditions pts pts. The question: How will economic conditions in Switzerland develop over the coming 12 months? At points (last year: points), survey participants were less pessimistic in their assessments of economic conditions than last year. However, the index rate remains firmly in negative territory. The general consensus is for economic growth of 1.2% in Switzerland for the current year, which is a significant recovery of 40 basis points since last year. Forecast institutes expect that the Brexit decision will have a very limited direct impact on the Swiss economy.

15 Swiss Real Estate Sentiment Index 2016 / 15 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Assessment of economic conditions by investment volume % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 69% 56% 44% 80% 57% 67% Less than CHF 100m CHF 100m CHF 500m CHF 500m CHF 1bn CHF 1bn CHF 5bn CHF 5bn CHF 10bn More than CHF 10bn Index points Greatly improved Moderately improved Moderately deteriorated Greatly deteriorated Stable development in % Assessment of Economic Conditions Index 2016 Assessment of Economic Conditions Index 2015 Assessment of Economic Conditions Index 2014 Assessment of Economic Conditions Index 2013 Assessment of Economic Conditions Index 2012 The majority of the participant groups expect economic conditions to be stable (28% anticipate a slight deterioration and 7% a slight improvement). Only within the group with investment volumes of between CHF 500 million and CHF 1 billion less than half of the respondents (44%) expect conditions to remain unchanged. Compared to the other participant groups, professional investors (+31.3 points) and pension funds (+48.5 points) were considerably more optimistic than last year.

16 16 / Swiss Real Estate Sentiment Index 2016 Sub-index: Real Estate Price Trends Further price rises expected Expectations for investment real estate prices by participant group % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 30% 52% 37% 43% 45% 20% 42% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Index points Sub-index Index 2016 Index 2015 Price expectation 39.1 pts pts. The question: How will prices develop in the Swiss real estate investment market over the coming 12 months? The Price Expectation Index for all survey participants stands at 39.1 points, which is slightly higher than last year (29.8 points) and the highest ever result for the whole index. 48% of all participants expect price rises, and 40% expect prices to remain stable. Slightly lower price expectations were only reported by 12% of respondents.

17 Swiss Real Estate Sentiment Index 2016 / 17 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Price expectations by investment volume % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 56% 46% 64% 40% 14% 25% Less than CHF 100m CHF 100m CHF 500m CHF 500m CHF 1bn CHF 1bn CHF 5bn CHF 5bn CHF 10bn More than CHF 10bn Index points Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 In particular, professional investors (27.6 points/+37.0 points) and insurers (90.0 points/+56.7 points) have considerably better expectations than in previous years. The latter, together with pension funds, have been the most active purchasers of real estate investments over the past few years. In contrast to the other participant groups, participant groups with an investment volume of CHF 500 million CHF 1 billion had a greater share of respondents who responded negatively to the price trends (moderately falling prices 21%, moderately rising prices 14%).

18 18 / Swiss Real Estate Sentiment Index 2016 Sub-index: Development of Prices according to Location Gap between the individual locations narrows Expectations for investment property prices by location % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 24% 53% 21% Principal centres Secondary centres Peripheral areas Index points 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 study since early 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. The observed price trends in the periphery do not match the respondents forecasts. This is due to the fact that the additional capital inflows into the real estate investment market in recent years have kept demand in those peripheral areas higher than expected by the market players.

19 Swiss Real Estate Sentiment Index 2016 / 19 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-indices Index 2016 Index 2015 Principal centres 84.0 pts pts. Secondary centres 13.7 pts pts. Peripheral areas pts pts. 2 Peripheral areas are defined as all locations outside of the principal and secondary centres. Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 The gap between the various location categories has narrowed slightly since last year. The 12 point fall in the price index for principal centres (84.0 points) since 2015 is the biggest difference observed since last year, whilst the price index for peripheral areas (-71.3 points) has increased by 6.4 points and the index for secondary centres (13.7 points) has only changed by -0.8 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; however, increasingly, the scarcity of suitable properties is also encouraging investors to consider investing in real estate with a greater degree of risk, and this in turn is putting investment pressure on secondary centres.

20 20 / Swiss Real Estate Sentiment Index 2016 Sub-index: Development of Prices according to Location Analysis of participant groups Expectations for investment property prices by location Principal centres (84.0 pts.) % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 16% 33% 23% 26% 38% 0 % 17% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Index points Secondary centres (13.7 pts.) % of responses 100% 45% 57% 30% 68% 48% 33% 79% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Index points Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012

21 Swiss Real Estate Sentiment Index 2016 / 21 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Peripheral areas (-71.3 pts.) % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 19% 19% 30% 17% 14% 33% 21% Index points Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds The question: How will prices develop in the following locations over the coming 12 months? Expectations are relatively consistent for principal centres, with 71% of all respondents expecting moderate or sharp price rises. Insurers were particularly optimistic in their forecasts with a price index of points (+27.8 points); however, real estate companies have revised their expectations downwards since last year, with a price index of 71.0 points ( points). All participant groups have positive price expectations for secondary centres. Whilst professional investors and insurers forecast much improved price indices since last year (professional investors: 3.5 points/+25.3 points; insurers: 66.7 points/+25.0 points), pension funds expect less pronounced price increases compared to 2015 (4.2 points/-23.4 points). Once again, price expectations for peripheral areas are clearly in negative territory at points. Only 7% of respondents expect prices to rise; however, the consensus of opinion appears to be more optimistic in the case of real estate funds, with 20% of respondents who represent such funds expecting prices to rise.

22 22 / Swiss Real Estate Sentiment Index 2016 Sub-index: Development of Prices according to Real Estate Segment Price expectations for retail property continue to fall Expectations for investment property prices by real estate segment % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 30% 26% 16% 39% 54% Residential Office Retail Commercial/ industrial Specialpurpose property Index points The question: In your opinion, how will prices develop in the following real estate segments over the coming 12 months? At 70.8 points, the Price Expectation Index for residential property is clearly in positive territory once again, albeit slightly lower than last year (-3.5 points). 65% of all respondents expect moderate or sharp price rises. Since the data survey began in 2012, residential has been the only category with a consistently positive outlook, reaching its highest ever level last year with 74.3 points. Consequently, residential property is the most popular real estate segment by far.

23 Swiss Real Estate Sentiment Index 2016 / 23 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-indices Index 2016 Index 2015 Residential 70.8 pts pts. Office pts pts. Retail pts pts. Commercial/industrial pts pts. Special-purpose property -4.3 pts pts. Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 The Price Expectation Index for retail property has been negative since the survey began and continues to fall. In the current survey, it has reached points (-28.2 points) and therefore its lowest ever level. The decline in over-the-counter retail sales is mainly attributed to people making purchases abroad and to competition from online retailers, and this is reflected in the expectations of the survey participants. According to the Federal Statistical Office, turnover in retail fell by 3.1% in the first six months of Price trends for the other real estate segments are expected to be similar to last year. Office property recorded a slightly more positive price index with points (up 14.6 points on last year). The current over-supply does not appear to be affecting the attractiveness of this real estate segment as severely as it did in the past. This is evident from the 10.2 point reduction in the Supply Index for office property between 2015 and 2016.

24 24 / Swiss Real Estate Sentiment Index 2016 Sub-index: Development of Prices in the Economic Centres Strongest price rises expected in Zurich and Basel Expectations for investment property prices in the economic centres % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 44% 57% 35% 41% 45% 49% 53% 37% Basel Bern Geneva Lausanne Lugano Lucerne/Zug St. Gallen Zurich Index points The question: In your opinion, how will prices develop in the following economic locations over the coming 12 months? The trends observed in 2015 are more pronounced in The popularity of central locations for investments is unwavering. Prices are expected to increase in six of the eight economic centres.

25 Swiss Real Estate Sentiment Index 2016 / 25 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-indices Index 2016 Index 2015 Basel 45.3 pts pts. Bern 16.8 pts pts. Geneva 19.7 pts pts. Lausanne 32.9 pts pts. Lugano pts pts. Lucerne/Zug 43.2 pts pts. St. Gallen pts pts. Zurich 67.5 pts pts. Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 The negative price expectations for Lugano and St. Gallen are more pronounced (Lugano: points, St. Gallen: -6.9 points) and the positive price expectations for the other economic centres are more optimistic than last year. Geneva continues to recover from the downturn in price expectations in 2014 (19.7 points/+7.4 points); however, the forecast price rise is significantly lower than in the two other major cities of Zurich (67.5 points/+5.3 points) and Basel (45.3 points/+10.4 points). As in the last two years, Zurich, Basel and Lucerne/Zug are showing the strongest expectations of price rises. Accordingly, they are also the respondents preferred investment locations in 2016.

26 26 / Swiss Real Estate Sentiment Index 2016 Sub-index: Development of Prices in the Principal Regions Negative price expectations for the more rural regions Expectations for investment property prices in the regions % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 52% 34% 48% 56% 56% 36% 37% Eastern Switzerland Zurich Central Switzerland Northwestern Switzerland Espace Mittelland Region Lake Geneva Region Ticino Index points The question: How will prices develop in the principal regions over the coming 12 months? There have been few changes in the Regional Price Expectation Index between 2015 and The biggest difference was recorded for Northwestern Switzerland (+17.5 points). Here, price forecasts have returned to positive territory in 2016 following two years of pessimism.

27 Swiss Real Estate Sentiment Index 2016 / 27 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-indices Index 2016 Index 2015 Eastern Switzerland pts pts. Zurich 64.2 pts pts. Central Switzerland 26.9 pts pts. Northwestern Switzerland 15.7 pts pts. Espace Mittelland Region pts pts. Lake Geneva Region 22.1 pts pts. Ticino pts pts. Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 Whilst the Zurich Region stands out with significant expectations of price rises (64.2 points), the forecasts for Ticino are strikingly negative (-42.7 points). This contrasts with the responses received from 61% of participants who expect interest in real estate in Ticino to grow after the opening of the Gotthard Base Tunnel. Prices are expected to fall in the more rural regions of Eastern Switzerland (+20.3 points) and Espace Mittelland (-24.8 points).

28 28 / Swiss Real Estate Sentiment Index 2016 Sub-index: Availability of Suitable Opportunities Increasing supply in the retail segment Availability of investment real estate Supply Index % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 5% 45% 44% 44% 51% Residential Office Retail Commercial/ industrial Specialpurpose property Index points 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 Supply Index has changed little since The pronounced shortage of residential real estate investment opportunities continues to increase ( points/-14.3 points) and the Supply Index for office property has fallen back slightly (14.3 points/-10.2 points). In the case of retail property where availability was somewhat limited in the past, a good supply is now anticipated (13.1 points/ points). The increase in the Supply Index for retail property shows that the pressure on retail sales not only leads to more negative price expectations, but also causes the supply

29 Swiss Real Estate Sentiment Index 2016 / 29 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-indices Index 2016 Index 2015 Residential pts pts. Office 14.3 pts pts. Retail 13.1 pts pts. Commercial/industrial 17.8 pts. 9.1 pts. Special-purpose property pts pts. Very good supply Good supply Moderate shortage Significant shortage Sufficient availability in % Supply Index 2016 Supply Index 2015 Supply Index 2014 Supply Index 2013 Supply Index 2012 of such properties to increase. An increasing number of retail properties are coming onto the market either because real estate investors have decided to sell them for strategic reasons or because the retailers themselves are looking to sell their own property to generate additional liquidity. For all reporting years, the supply of residential and special-purpose property has been too low. 94% of respondents forecast a shortage in the residential segment, with 58% 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 of price trends. 50% of respondents expect that the conversion of commercial space into apartments will increase supply in the residential segment by This could shift the Supply Index for residential real estate in the direction of the stability axis in the future.

30 30 / Swiss Real Estate Sentiment Index 2016 Real Estate Sentiment Index Availability of investment opportunities and price expectations Anticipated real estate supply and price expectation indices by real estate segment Index points Residential Office Retail Commercial/ industrial Supply Index 2016 Supply Index 2015 Supply Index 2014 Supply Index 2013 Supply Index 2012 Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012 Specialpurpose property The 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 house prices.

31 Swiss Real Estate Sentiment Index 2016 / 31 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

32 32 / Swiss Real Estate Sentiment Index 2016 Volumes, Preferences and Behaviour

33 Swiss Real Estate Sentiment Index 2016 / 33 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

34 34 / Swiss Real Estate Sentiment Index 2016 Planned Acquisitions of Real Estate Fall in the volume of acquisitions Planned volume of acquisitions 4% 8% 14% 6% 10% 11% 21% 14% 12% No investments planned CHF 0m CHF 10m CHF 10m CHF 30m CHF 30m CHF 50m CHF 50m CHF 100m CHF 100m CHF 200m CHF 200m CHF 300m 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? 8% of participants announced that they had no plans to invest in real estate over the coming 12 months. 61% of respondents plan to invest less than CHF 100 million in real estate (last year: 60%). There is currently a pronounced excess demand in the Swiss real estate investment market, especially in the residential segment. Few investors are exploiting the favourable time window of lower acquisition yields to sell properties at a profit. It is therefore not surprising that many market participants have revised their acquisition expectations downwards due to the shortage of supply.

35 Swiss Real Estate Sentiment Index 2016 / 35 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Volume of acquisitions by participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Broken down between the different participant groups, most investment activity is expected to come from real estate funds, insurers and pension funds. In the past, the latter two investor types have held on to real estate as a stabiliser, mainly because of its low correlation to the other investment categories. In the current low interest rate environment, property has assumed a new role as a yield maximiser and is used to achieve inflated returns. The question for many multi-asset investors in the current market is not whether they should invest in real estate, but how it is possible to increase their quota of real estate investments. Insurers and pension funds are currently particularly active in acquiring further investment properties.

36 36 / Swiss Real Estate Sentiment Index 2016 Planned Acquisitions of Real Estate Investors continue to focus on residential property preferences 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% preferences 2016 preferences 2015 preferences 2014 preferences 2013 preferences 2012 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 the most popular investment segment. The survey participants would allocate 62.2% (last year: 61.2%) of their acquisition volume to the residential segment. s in office (13.0%, -1.6%) and retail property (5.9%, -1.4%) are less attractive options than last year. Interest in retail space has therefore reached a 5-year low; however, commercial/industrial uses are of greater interest to investors (10.6%, +1.9%). Special-purpose properties have almost managed to maintain last year s position (8.3%, -0.1%).

37 Swiss Real Estate Sentiment Index 2016 / 37 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary preferences by participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Residential Office Retail Commercial / industrial Special-purpose property All investor groups would invest more than 50% of their capital in residential property. The strongest preference to invest in residential property is expressed by insurers (81.9%) and pension funds (70.5%). Both investor groups act in their own interests and are able to adapt their investment behaviour to changing market conditions without having to consider the yield expectations of third party investors. The investment behaviour of real estate funds is the complete opposite. In the survey, they registered the lowest investment rate in residential property (52.5%). This is because, in order to satisfy the yield requirements of their investors, these vehicles must also look at segments with higher risk profiles such as commercial/ industrial and special-purpose properties.

38 38 / Swiss Real Estate Sentiment Index 2016 Planned Acquisitions of Real Estate Basel making up ground Preferred investment locations by participant group % % % of responses % 15% 10% % of responses 20 5% 0 0% Zurich Basel Lucerne/Zug Appraisers Developers Real estate funds Real estate companies Lausanne Geneva Bern Professional investors Pension funds Insurers % of responses St. Gallen Lugano The question: Which investment locations will you focus on increasingly in future? Multiple responses possible Zurich remains the preferred investment location with almost 25% of responses; however, this is a fall of 5.4 percentage points since last year. New in second place is Basel (16.7%). Last year, Basel was ranked fourth with a 3.5 percentage point lower rating. Lucerne/Zug follows in third place with 16.3%, which means that its popularity has not changed since last year. In the French-speaking areas of Switzerland, Lausanne is keeping its nose ahead of the regional competition with 14.7% of responses (Geneva: 12.4%).

39 Swiss Real Estate Sentiment Index 2016 / 39 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Preferred investment locations by participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Zurich Basel Lucerne/Zug Lausanne Geneva Bern St. Gallen Lugano St. Gallen and Lugano are still the locations least favoured by investors. This assessment confirms the relatively negative price expectations of investors, but is also due to the low market liquidity of these two medium-sized investment locations. The usual significant differences emerge in the breakdown between the various participant groups which can be partly explained by the individual survey participants strategies and historic focus of existing portfolios.

40 40 / Swiss Real Estate Sentiment Index 2016 Yield Expectations Brexit decision has little effect on yield expectations Yield expectations after Brexit decision 2% 22% 76% Fallen Unchanged Increased The question: When purchasing Swiss real estate, have your yield expectations changed as a result of Britain s vote to leave the EU (Brexit Referendum)? The Brexit decision has lead only 22% of participants to reduce their yield expectations. The scrapping of the Euro/Franc exchange rate control by the Swiss Central Bank (SNB) had a much greater impact on the yield expectations of participants in the last survey. Then, almost half of the participants reported falling or sharply falling yield expectations for investment property.

41 Swiss Real Estate Sentiment Index 2016 / 41 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary According to participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Fallen Unchanged Increased Due to their role as defensive stocks, public Swiss real estate investments have registered significant gains in an immediate reaction to the Brexit vote. Indirect real estate investments have been spurred on chiefly by the further fall in bond yields. A sharp fall in bond yields normally improves price expectations for direct real estate investments. The survey participants are of the opinion that the Swiss economic growth forecasts, which have been revised downwards since the Brexit referendum, should be offset by the above-described interest rate impetus. 2% of survey participants have even noted rising yield expectations.

42 42 / Swiss Real Estate Sentiment Index 2016 Risk Management

43 Swiss Real Estate Sentiment Index 2016 / 43 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

44 44 / Swiss Real Estate Sentiment Index 2016 Decreasing assessment of risk Assessment of market risk 7% 46% 47% Increasing risk No change in risk Decreasing risk The question: Do you expect market risk to change over the coming 12 months? 46% of participants expect market risk to increase over the coming 12 months. The risk assessments of survey participants have reduced by 12 percentage points since last year. They do not appear to regard the Brexit decision as a direct risk for the Swiss real estate investment market. 47% of participants expect market risk to remain stable and 7% of participants even expect market risk to reduce. Measured over the last five years, the general risk assessment has almost reached the same all-time low level as in There has been a reduction in risk assessments in five of the six risk factors since last year. Only the risk of a European crisis is assessed as more acute since then. The greatest risk is perceived to be

45 Swiss Real Estate Sentiment Index 2016 / 45 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Possible risks for the Swiss real estate investment market High risk Moderate risk Low risk No risk Inflation, deflation or stagflation Interest rate risks Falling property prices Payment defaults European crisis Stricter regulations Risk perception 2012 Risk perception 2013 Risk perception 2014 Risk perception 2015 Risk perception 2016 Average risk perception 2012 Average risk perception 2013 Average risk perception 2014 Average risk perception 2015 Average risk perception The average risk perception is mapped by the total weighting of all risk sub-indices. 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? tighter regulations. However, according to the respondents, the regulatory risk has reduced since In 2014, market participants were confronted with the mass migration initiative and tighter regulations for mortgage lending; however, the uncertainties concerning the introduction of Corporate Tax Reform III have lifted this year. Discussions about the Federal Assembly s tightening of Lex Koller have also quietened down. A sharp fall in risk perception has been observed in the assessment of interest rate risks. Market participants appear to have come to terms with the new interest rate norm and do not expect sudden interest rate rises.

46 46 / Swiss Real Estate Sentiment Index 2016 Consensus in risk perceptions Possible risks for the Swiss real estate investment market by participant group High risk Moderate risk Low risk No risk Appraisers Developers Real estate funds Real estate companies 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? There appears to be relatively broad consensus in the risk perceptions of the various participant groups. However, it is also clear that professional investors, pension funds and insurers perceive the current risk situation to be more significant than the other investor groups. These participants assess the risk of tighter regulations and the spread of the European crisis to be particularly acute. Real estate companies have the most conservative assessments of the current risk. At first glance, this is surprising as the market participants are particularly focused on retail properties. The market environment can be described as particularly challenging, given the over-supply in this investment segment. Nevertheless, major real estate companies have managed to present very good business results in the

47 Swiss Real Estate Sentiment Index 2016 / 47 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Inflation, deflation or stagflation Interest rate risks Falling property prices Payment defaults European crisis Stricter regulations Average risk perception according to investor group Professional investors Insurers Pension funds first half of this year. The rental incomes which these investors generate from traditional letting activities have lost some ground in the total performance due to diversification. Moreover, some real estate companies are using the current favourable time window to sell certain portfolio properties at a profit. In addition, these market participants have large reserves of building land in good locations, which is another reason for their optimism. Increasing interest rates are being identified as a risk factor, particularity by real estate funds, professional investors and appraisers. The assessment of (public) real estate funds is explained by the heightened sensitivity of their share prices to interest rate changes. The assessments of residential real estate funds have reached new heights. Premiums normally lie at 15 20%, but at the end of October they were in the order of 20 45%. The potential height of the drop in the event of rising interest rates is therefore increased.

48 48 / Swiss Real Estate Sentiment Index 2016 Risk-averse investors Greater inclination to take on risk in investments (investors) 9% 27% 64% Yes Partly No The question: Compared to last year, are you more inclined to take on higher risk investments? 36% of investors are inclined to take on greater risks, to a degree, in their real estate investments over the coming 12 months (last year: 44%). However, 70% of the appraisers report a (partially) lower risk aversion of their clients compared to last year (61%).

49 Swiss Real Estate Sentiment Index 2016 / 49 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Greater inclination to take on risk in investments (appraisers) 30% 20% 50% Yes Partly No The question: Compared to last year, are you more inclined to take on higher risk investments? Year-on-year, the inclination of market participants to take on risk has reduced again. The lower inclination to take on risk is reflected in the strong preferences for residential properties and central locations. These are considered to offer higher value stability. One contributor to the lower inclination to take on risk is probably the improving supply of commercial investment properties. This improvement means that investors are once again able to focus on low-risk investments. The apparent contrast between the opinions of appraisers and investors can be grounded in behavioural economics.

50 50 / Swiss Real Estate Sentiment Index 2016 Cautious view over the border Plans to change investment behaviour/real estate allocation 2% 29% 19% Less exposure on the real estate market Sale of specific properties Extension of repayment terms 3% 2% 5% 11% 7% 10% 12% Deleveraging (debt reduction) Change of investment approach International diversification Diversification into indirect investments Use of real estate derivatives Other change in investment behaviour 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? 29% of respondents do not intend to change their investment behaviour over the coming 12 months. The second most popular strategy mentioned was the sale of specific properties (19%), although this strategy has lost some ground since 2015 (21%) and 2014 (24%). Most properties considered surplus to a company s strategy have already been sold. Real estate companies and insurers mentioned ongoing requirements for optimisation. The importance of diversifying into foreign real estate (11%) is gaining ground (2015: 10%; 2014: 8%; 2013: 6%). Supply is low in the local direct investment market and therefore investors are focusing increasingly on foreign properties. A glance at the

51 Swiss Real Estate Sentiment Index 2016 / 51 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Responses by participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Less exposure on the real estate market Sale of specific properties Extension of repayment terms Deleveraging (debt reduction) Change of investment approach International diversification Diversification into indirect investments Use of real estate derivatives Other change in investment behaviour No change anticipated Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds figures shows that pension fund investments in foreign property have doubled over the last two years. At a cumulative 1.3% of the total allocation, this remains far below the 10% permitted under the BVV2 investment directive. Almost 80% of foreign investments are undertaken via indirect products such as funds or REITs. However, over recent years, many suppliers of investment products have launched new, tailor-made foreign products which are targeted at Swiss pension funds and insurers. Given the sustained appeal of Swiss real estate investments, the target groups have tended to react with caution to this new supply. According to the survey participants, favourable refinancing conditions should be used to extend loan terms. Examples of this include the recent bond placements by PSP (interest rate: 0.00%) and SPS (interest rate: 0.25%).

52 52 / Swiss Real Estate Sentiment Index 2016 about the Swiss Real Estate Market in 2020

53 Swiss Real Estate Sentiment Index 2016 / 53 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

54 54 / Swiss Real Estate Sentiment Index 2016 about the Swiss Real Estate Market in 2020 Economy The economy in the year % 90% Strongly 3 agree % of responses 80% 70% 60% 50% 40% 30% 20% 2Agree Do not 1 agree 10% 0% Interest rates Exports Immigration Inflation Finance industry Strongly 0disagree In terms of interest rates, exports and immigration, there was no clear consensus amongst respondents. 46% agreed with the assumptions on future interest rate changes, 48% with the likelihood of the fall in exports and 57% with net migration tendencies. Topical issues such as the introduction of the mass migration initiative and a 17.5% reduction in net immigration in the first half of 2016 could have contributed to the general agreement with the immigration assumption.

55 Swiss Real Estate Sentiment Index 2016 / 55 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Interest rates Exports In the year 2020, interest rates for 10-year Government bonds in Switzerland will increase above the 1% threshold. In the year 2020, the strength of the Franc will not only have led to a fall in exports but also to a reduction in wages across Switzerland, compared to its neighbours. Immigration In the year 2020, annual net immigration will no longer exceed 50,000. Inflation In the year 2020, the annual inflation rate will exceed 2%. Finance industry In the year 2020, the finance industry will remain one of the most important sectors of the Swiss economy. Strongly agree Agree Do not agree Strongly disagree Average approval However, there is clear consensus amongst the participants in terms of the assumptions about inflation and the finance industry. Only 15% agree with the statement about inflation, whilst 72% agree with the statement about the finance industry. Despite the challenging environment and increasing pressure on traditional business models in the finance industry, the respondents are still of the opinion that Switzerland is an attractive finance centre.

56 56 / Swiss Real Estate Sentiment Index 2016 about the Swiss Real Estate Market in 2020 Politics and regulations Politics and regulations in the year % 90% Strongly agree 80% 70% 60% Agree % of responses 50% 40% 30% 20% Do not agree 10% 0% Corporate location Stricter tenancy law Lex Koller Capital gains tax Strongly disagree The introduction of charges on capital gain as a planning instrument was agreed on by the majority in terms of the assumption about politics and regulations. Cantons are required to have implemented the Raumplanungsgesetz (planning act) by This includes a levy of at least 20% on the capital gain realised from real estate due to planning benefit resulting from changes in zoning. This charge on capital gain is not a new tool. The city of Basel has been levying a charge of 50% on capital gain realised through the expansion of floor space for almost 50 years. Thurgau has been levying a charge of 20% on capital gain realised through zoning changes since According to a report by the Swiss association for regional planning (Schweizerische Vereinigung für Landesplanung), the governments of Vaud, Uri, Freiburg and Schaffhausen are proposing a levy of 30%. Wallis is looking at 40% and Bern at

57 Swiss Real Estate Sentiment Index 2016 / 57 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Corporate location Stricter tenancy law Lex Koller Capital gains tax In the year 2020, as a result of its fiscal reforms, Switzerland will become a much more attractive international business destination. In the year 2020, regulations in tenancy law will have led to a significant reduction in investment in rental properties for residential use. In the year 2020, the restrictions on acquisitions of real estate and shares in real estate investment vehicles by people from abroad will be much greater than at present. In the year 2020, capital gains tax on planning benefit gained from zoning changes will be levied across Switzerland. Strongly agree Agree Do not agree Strongly disagree Average approval 40-50%. In the cantons of St. Gallen, Aargau, Lucerne and Zurich, a levy of 20% is being discussed, but municipalities will be at liberty to increase the levy under certain circumstances. Survey participants have an ambivalent opinion on the issue of Corporate Tax Reform III, with around half assuming that the reform will strength Switzerland as a business location. The respondents consider there to be a lower likelihood of the tightening of Lex Koller and tenancy laws, and therefore a reduction of investment in rental apartments.

58 58 / Swiss Real Estate Sentiment Index 2016 about the Swiss Real Estate Market in 2020 Technology Technology in the year % 90% 3Strongly agree 80% % of responses 70% 60% 50% 40% 30% 2Agree Do not 1 agree 20% 10% 0% Location factor Centrality Online retail Consolidation of construction industry Property management Consolidation of the hospitality sector Strongly 0disagree There is clear consensus amongst respondents with regard to the assumptions on the aspect of centrality as a location factor and online retail. 74% of participants do not agree with the statement relating to the aspect of centrality as a location factor, whilst 70% agree with the assumption about online retail, with 23% even strongly agreeing. According to the market research institute GfK, the share of total retail sales held by online retail in Switzerland in 2015 was 6.8%, an increase of 8.5% since last year. The survey participants therefore expect a similar development in future. This trend is also evident in the falling prices and improving supply of retail property. Landlords of retail space must anticipate increasing vacancy rates and/or the need to reposition their properties.

59 Swiss Real Estate Sentiment Index 2016 / 59 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Location factor Centrality Online retail Consolidation of construction industry Property management Consolidation of the hospitality sector In the year 2020, the aspect of centrality as a location factor in the case of real estate will be less significant due to changes in mobility (online business, networking, delivery services). In the year 2020, online retail will account for over 25% of total retail sales (2015: around 10%). In the year 2020, digital technologies will have led to a consolidation of the Swiss construction industry (major construction companies). In the year 2020, technological changes in the case of property managers will have led to significant job losses and changes in job descriptions. In the year 2020, alternative brokerage platforms such as AirBnB in Switzerland will have resulted in the death of hotels and led to a consolidation of the hospitality sector. Strongly agree Agree Do not agree Strongly disagree Average approval A great deal of importance continues to be attached to the aspect of centrality as a location factor. Accordingly, real estate prices are expected to rise in central locations (Price Index 2016: 84.0 points). A possible explanation for this could be the future densification tendencies in the centres. There was no clear sentiment expressed by the survey participants in respect of the other three statements. Sentiment varies between 40% and 49% (strongly agree and agree).

60 60 / Swiss Real Estate Sentiment Index 2016 about the Swiss Real Estate Market in 2020 Real estate trends Real estate trends in the year % 90% Strongly agree % of responses 80% 70% 60% 50% 40% 30% 20% Agree Do not agree 10% 0% Attractiveness of Ticino Office space vacancy Crowd funding Conversion into residential space Foreign real estate investments Price correction Strongly disagree The respondents are of the opinion that the opening of the Gotthard Base Tunnel will make real estate investments in Ticino more attractive. So far, very few major institutional investors are present in Ticino. Another accepted assumption is that office vacancy of 10% will become the norm in the principal centres. Higher vacancy is not regarded by the survey participants as a temporary phenomenon, but one which they believe will continue over the longterm. Instead of the current scarcity and tight office market, there is perceived to be an open and expansive market with more intense competitive pressure.

61 Swiss Real Estate Sentiment Index 2016 / 61 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Attractiveness of Ticino Office space vacancy Crowd funding Conversion into residential space Foreign real estate investments held by pension funds Price correction In the year 2020, real estate in Ticino will have become much more attractive since the opening of the Gotthard Base Tunnel under the Alps. In the year 2020, the 10% vacancy rate for office space in the major centres will no longer be cause for particular concern, but has become the norm. In the year 2020, crowd funding or other direct forms of financing will have become established means of financing real estate investments. In the year 2020, the conversion of commercial space to residential use will have significantly increased the supply of available accommodation. In the year 2020, the proportion of foreign real estate investments held by pension funds will have climbed to over 20% of total real estate investment volume. In the year 2020, there will already have been a major price correction in the Swiss market for investment real estate. Strongly agree Agree Do not agree Strongly disagree Average approval The survey participants assume that Swiss pension funds will continue to focus strongly on local real estate. Few participants expect that 20% of holdings will be invested in foreign real estate. According to the CS Pension Fund Index, foreign properties currently account for 7.1% of the total real estate portfolio of Swiss pension funds. In comparison, foreign shares account for 57% of the total share portfolio. This points to a home bias in the allocation of real estate investments. A significant price correction for investment real estate by 2020 is assessed as less likely. Of the 72% of survey participants who do not agree with the assumption about a price correction, 26% disagree strongly.

62 62 / Swiss Real Estate Sentiment Index 2016 Methodology and Survey Participants

63 Swiss Real Estate Sentiment Index 2016 / 63 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary

64 64 / Swiss Real Estate Sentiment Index 2016 Methodology Qualitative indices Indices are generated from a qualitative survey of experts consisting of real estate investors and appraisers of investment properties in Switzerland. Similar to the EU-compatible Consumer Sentiment Index by SECO, the survey focuses exclusively on issues relating to the future (forthcoming 12 months). The responses represent participants macroeconomic assessments and expectations of price trends in the Swiss real estate investment market. The objective of qualitative statistics is to determine subjective benchmarks. Similar to quantitative statistics which record actually definable benchmarks, they are also helpful in explaining and forecasting economic relationships and trends. They also have a strong forecasting character, especially in real estate investment markets dominated by a relatively small number of market players such as Switzerland. Representativeness 236 people took part in the survey. The participant group comprised 189 investor representatives and 47 appraisers of investment properties, and covered all important investor groups. The size of the sample means that the survey was able to provide representative responses to the current expectations of market players. Indices The participants responded to seven questions posed, whereby the responses to two sub-questions were evaluated to create an aggregated index. Sub-indices Weighting 1. Economic conditions 20% 2. Price trends in the 80% real estate market Aggregated Swiss Real Estate Sentiment Index (sresi ) 4 The 2016 survey took place between 6th July and 17th August 2016.

65 Swiss Real Estate Sentiment Index 2016 / 65 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary A sub-index was created from the responses to each of the seven questions posed, which permitted detailed responses on anticipated economic conditions and price trends split between location, use, city and region. The last sub-index illustrates the assessment of the available real estate supply for investors. Sub-indices 3. Price trends in the real estate market according to location 4. Price trends in the real estate market according to use 5. Price trends in the real estate market according to major economic centre 6. Price trends in the real estate market according to economic region 7. Availability of investment properties

66 66 / Swiss Real Estate Sentiment Index 2016

67 Swiss Real Estate Sentiment Index 2016 / 67 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary 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 responses Weighting Product Index factor 5 Sharply increasing prices Moderately increasing prices Stable prices Moderately falling prices Sharply falling prices Total = 100 x The weighting factor is a whole number between -2 and +2 and is multiplied by the respective number of appropriate responses. The sum 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 68 / Swiss Real Estate Sentiment Index 2016 Methodology Guide 11% of participants anticipate sharply increasing prices (left axis) 39% of participants anticipate stable prices % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 30% 26% 16% 39% 54% Residential Office Price Expectation Index (right axis) (derived from the participants expectations) Retail Commercial Specialpurpose % of participants anticipate sharply falling prices (left axis) Index points Important: Stable price expectations (nil weighting) are not illustrated in the column chart to avoid confusing the reader.

69 Swiss Real Estate Sentiment Index 2016 / 69 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Sub-index Index 2016 Index 2015 Price expectations -X pts. -Y pts. Price trends over the past 12 months Change by more than +25 index points Change by between -25 and +25 index points Change by more than -25 index points Sharply increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable price expectation in % Price Expectation Index 2016 Price Expectation Index 2015 Price Expectation Index 2014 Price Expectation Index 2013 Price Expectation Index 2012

70 70 / Swiss Real Estate Sentiment Index 2016 Methodology Survey Participants Participants by type of activity 13% 20% 5% 16% 17% 16% 13% Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Participants by investment and valuation volume in CHF 15% 15% 11% 24% 8% 27% Less than CHF 100m CHF 100m CHF 500m CHF 500m CHF 1bn CHF 1bn CHF 5bn CHF 5bn CHF 10bn More than CHF 10bn

71 Swiss Real Estate Sentiment Index 2016 / 71 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary Participant groups by investment and valuation volume in CHF 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Less than CHF 100m CHF 100m CHF 500m CHF 500m CHF 1bn CHF 1bn CHF 5bn CHF 5bn CHF 10bn More than CHF 10bn Appraisers Developers Real estate funds Real estate companies Professional investors Insurers Pension funds Almost 240 representatives of the Swiss real estate investment market participated in this study. The following groups took part in the survey: appraisers (20%), developers (13%), real estate funds (16%), real estate companies (17%), professional investors (16%), insurers (5%) and pension funds (13%). Over half of the participants represented institutional investors. The rest consisted of appraisers, developers and professional investors. Exactly half of the participants (50%) handle investment and valuation volumes of more than CHF 1 billion. Institutional investors (insurers, real estate funds, pension funds and real estate companies) are the group with relatively high investment volumes. Whilst developers, appraisers and professional investors form the group which handle lower investment volumes. The survey participants are representative of the players in the Swiss real estate investment market.

72 72 / Swiss Real Estate Sentiment Index 2016 Management Summary

73 Swiss Real Estate Sentiment Index 2016 / 73 Swiss Real Estate Sentiment Index Behaviour Methodology and Survey Participants Summary