Swiss Real Estate Sentiment Index 2017

Transcription

1 Swiss Real Estate Sentiment Index 2017 English Edition kpmg.ch/realestate

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3 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary 04 Introduction 06 Swiss Real Estate Sentiment Index 30 Volumes, Preferences and Behaviour 38 Risk Management 48 Structural Changes in the Swiss Labour Market 62 Methodology and Survey Participants 72 Management Summary

4 4 / Swiss Real Estate Sentiment Index 2017 Introduction Cruising altitude reached After climbing from take-off, airliners spend most of their flight at cruising altitude before they commence their descent. The advantage of a higher cruising altitude is that an aircraft can fly faster using proportionately less fuel. Looking at the current state of the property investment market, it has now reached cruising altitude. There is still room to climb a little further on certain routes in order to achieve optimal flying conditions. For a few destinations, there is no longer enough lift to safely cross the oceans of capital. Travelling at cruising altitude is comfortable, far above the wind and weather. Evasive manoeuvres are rarely necessary. But when the descent starts, things can get quite bumpy at times before a safe landing is reached. Respondents to the 2017 Swiss Real Estate Sentiment Index (sresi ) are preparing for possible turbulence, and for most of the long journey they sense that the days of endless record prices are behind them. Except for the residential sector and possibly special-purpose properties, price expectations have now begun their descent. In these two segments, small changes in altitude are still an option, but even here market sentiment is reaching for the landing flaps. The steady inflow of capital is still maintaining cabin pressure, so that the flight paths of the investment market can be navigated at high altitude. There are signs of a loss of pressure across the ocean, and this is causing investors to steer for safer havens. Peripheral investment locations are no longer recognised as having potential. The sector

5 Swiss Real Estate Sentiment Index 2017 / 5 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary is reasonably optimistic about central locations. Investors are sceptical about commercial investment segments and are even expecting a hard landing for retail property prices. Those supersonic jets from the digital world advise caution. In sresi, the representative statements in relation to the current perceptions of players in the Swiss real estate investment market reflect the lowest average perceived risk across all risk classes under review since the survey was launched six years ago. In contrast, the assessment of market risk has increased. This demonstrates that investors and appraisers are entirely aware of the altitude at which they are flying. At best, they are flying additional miles in order to meet their acquisition targets. The pilots of the real estate investment market don t know exactly where they are on their journey. However, they have received the first indications that their fuel is going to run out. The time has come to run through the final approach checklist. This will ensure that future investments are made at the right location and in investment segments offering sustainable yields. The throttle needs to be eased back now in order to land safely from such a high altitude, without overshooting. We would like to thank all those who took part in the 2017 sresi survey. You are making an important contribution to improving the transparency of the real estate investment market. Please make use of the findings of the Swiss Real Estate Sentiment Index and base your actions on the collected opinions of both appraisers and investors. Look carefully at the influencing factors and act after analysing the trends. We hope you find this an interesting read. Ulrich Prien Partner, Head of Real Estate Switzerland Beat Seger Partner, Real Estate M&A

6 6 / Swiss Real Estate Sentiment Index 2017 Swiss Real Estate Sentiment Index

7 Swiss Real Estate Sentiment Index 2017 / 7 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

8 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 Swiss real estate investment market have dropped considerably. Nearly half of the respondents of the annual Swiss Real Estate Sentiment Index survey conducted by KPMG Switzerland anticipate stagnating prices over the next 12 months. Around a quarter expect prices to drop. Declining prices are anticipated for all commercial investment segments with the exception of specialpurpose properties. KPMG surveyed investors and appraisers about the Swiss investment property market for the sixth year in a row to compile data for the Swiss Real Estate Sentiment Index (sresi ). The aggregated index stands at 15.2 index points (pts.) across all participant groups, 44% (-11.9 pts.) lower than the previous year. Optimistic economic outlook While the Price Expectation Index experienced a sharp year-on-year decline from 39.1 pts. to 10.3 pts., the index is still higher than the negative scores of 2013 and This index measures how respondents expect prices on the real estate investment market to develop over the next 12 months. The results of this year s survey show that the respondents expect the price rally on the real estate investment market to end. Standing at 34.6 pts., the assessment of the overall economic situation was considerably more optimistic than last year (-20.9 pts.), thus moving the index back into positive territory following two years of negative scores. Renewed widening of price gap between location qualities The gap between different location qualities opened up again in While the price index for principal centers fell by pts. to 65.5 pts. and that for secondary centers has now dropped pts. to negative territory at -5.7 pts., peripheral areas suffered the most significant year-on-year decrease with their index falling by 37% to pts.

9 Swiss Real Estate Sentiment Index 2017 / 9 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary After hitting a record high of 70.8 pts. last year, the Price Expectation Index for residential properties has declined considerably by pts. to 36.0 pts., the lowest it has been since the survey was first conducted in % of all respondents expect prices to rise. The Price Expectation Index for retail property, on the other hand, has been negative ever since the start of the study and continues to fall. It reached a new low of pts. in this latest survey (2016: pts.). Respondents opinions reflect declining sales figures for store-based retailing. In the remaining commercial real estate segments, prices are expected to develop similarly to the previous year. Price expectations for principal centers are also reflected in the breakdown by economic center. Rising prices are being forecast for six of the eight economic centers. Like last year, respondents of the survey expect prices to rise in all economic centers except Lugano and St. Gallen. Regulations, interest rates and declining property values as risks The general risk assessment in 2017 is the lowest it has been over the past five years. The threats posed by interest rate risks and declining property values, on the other hand, are considered more acute than in the previous year. As in the past, respondents identified stricter regulations as the biggest risk, while 53% of the respondents expect market risk to increase over the next 12 months. 42% of the investors surveyed are inclined to take on greater risks in their real estate investments, at least to a degree, over the coming 12 months (previous year: 36%). 91% of those who responded to the survey expect declining demand for retail space. 70% anticipate ongoing decreases in demand for retail space as a result of technological transformation, whereas 21% of the respondents even expect this decline to be sharp.

10 10 / Swiss Real Estate Sentiment Index 2017 Swiss Real Estate Sentiment Index Growth in prices expected to slow Aggregated Sentiment Index 1 by participant group Index Points Appraisers Developers Real estate investment funds Real estate companies Aggregated Sentiment Index 2012 Aggregated Sentiment Index 2015 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 points lower than last year. All participant groups view expected changes in prices to be lower than last year. With an index value of points, property developers are now in moderately negative territory in terms of price expectations.

11 Swiss Real Estate Sentiment Index 2017 / 11 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Professional investors / private investors Insurers Pension funds All participants Very positive expectations Moderately positive expectations Moderately negative expectations Very negative expectations Despite increasing concerns with regard to current price levels, the majority of players in the market continue to view real estate as an attractive investment. The relative attractiveness of real estate investments is underpinned by persistently low interest rates, weak or in some cases negative bond yields and volatility in the performance of shares. 1 In the aggregated index, assessments of economic conditions are weighted at 20%, and assessments of the development of property prices at 80%.

12 12 / Swiss Real Estate Sentiment Index 2017 Sub-index: Economic Conditions Optimistic economic outlook Assessment of economic conditions by participant group 100% 48% 39% 45% 47% 51% 48% 54% 200 % of responses 80% 60% 40% 20% 0% 20% 40% 60% 80% Index points 100% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds -200 Sub-index Index 2017 Index 2016 Economic conditions 34.6 pt pt. The question: How do you see economic conditions in Switzerland developing over the coming 12 months? At 34.6 points, the prospects for economic conditions are assessed substantially more optimistic than last year (-20.9 points). After two negative years, they are now back in positive territory.

13 Swiss Real Estate Sentiment Index 2017 / 13 Swiss Real Estate Sentiment Index Behaviour Structural Changes 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% 48% 45% 56% 56% 36% 45% 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 2017 Assessment of Economic Conditions Index 2016 Assessment of Economic Conditions Index 2014 Assessment of Economic Conditions Index % of the participants believe that economic conditions are stable (8.9% expect a slight deterioration, 40.9% expect a slight improvement and 1.7% expect a substantial improvement). The only group of participants where more than half expect a slight improvement is those investing a volume between CHF 5.0 billion and CHF 10.0 billion, at 57%. All groups of participants are considerably more optimistic than last year.

14 14 / Swiss Real Estate Sentiment Index 2017 Sub-index: Real Estate Price Trends Price rally expected to end Expectations for investment real estate prices by participant group 100% 68% 54% 51% 41% 36% 33% 43% 200 % of responses 80% 60% 40% 20% 0% 20% 40% 60% 80% Index points 100% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds -200 Sub-index Index 2017 Index 2016 Price expectations 10.3 pt pt. The question: How will prices develop in the Swiss real estate investment market over the coming 12 months? The Price Expectations Index fell slightly to 10.3 points compared to last year (39.1 points). 32% of all participants expect prices to rise, and 46% expect prices to remain stable. Only 22% of respondents reported that they expected prices to fall slightly. In particular, insurers (38.1 points / points) and pension funds (10.6 points / points) have considerably worse expectations than in previous years. These two groups have been amongst the most active purchasers on the real estate investment market in recent years.

15 Swiss Real Estate Sentiment Index 2017 / 15 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Price expectations by investment volume % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 40% 46% 52% 45% 30% 54% 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 % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012 In contrast to the other participant groups, groups with an investment volume of less than CHF 100 million had a greater share of respondents who gave a negative answer on the issue of price trends (moderately falling prices 48%, moderately rising prices 8%).

16 16 / Swiss Real Estate Sentiment Index 2017 Sub-index: Price Trends by Location Focus on centrality Expectations for investment property prices by location % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 31% 49% 14% 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 survey 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. After seeing a narrowing of the price differential in central and peripheral locations last year, in 2017 the gap between the different location qualities has opened up

17 Swiss Real Estate Sentiment Index 2017 / 17 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-indices Index 2017 Index 2016 Central locations 65.5 pts 84.0 pts Secondary centres -5.7 pts 13.7 pts Peripheral locations pts pts 2 Peripheral areas are defined as all locations outside of the principal and secondary centres. Greatly improved Moderately improved Moderately deteriorating Greatly deteriorating Stable trend in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012 once more. Whilst the price index for central locations (65.5 points) has fallen by 18.5 points and for secondary centres (-5.7 points) by 19.4 points, peripheral locations are showing the strongest fall in the index compared to last year, at 26.5 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.

18 18 / Swiss Real Estate Sentiment Index 2017 Sub-index: Price Trends by Location Analysis by participant group Expectations for investment property prices by location Principal centres (+65.5 points) % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 23% 54% 31% 32% 34% 38% 17% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds Index points Secondary centres (-5.7 points) % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 59% 54% 48% 53% 40% 53% 46% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds Index points Greatly improved Moderately improved Moderately deteriorated Greatly deteriorated Stable development in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012

19 Swiss Real Estate Sentiment Index 2017 / 19 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Peripheral areas (-97.8 points) % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 9% 8% 29% 11% 6% 10% 15% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds Index points The question: How do you see trends in prices in the following locations over the coming 12 months? Expectations are relatively uniform for principal centres, with 63% of all respondents expecting moderate or sharp price rises. At around 76 points, property funds, insurers and pension funds are recording only slightly higher price expectations than the index for all participants, which stands at 65.5 points. With an index score of 42.3 points, developers are the less optimistic group. The index levels for all respondents are below those of last year. Price expectations for secondary centres are heterogeneous. With an index score of 23.8 points, both property funds and insurers once again expect prices to rise. The other participant groups anticipate a negative movement in prices. The most notable fall in prices is expected by property developers (-42.3 points). Once again, price expectations for peripheral areas are clearly much more negative, at points. Only 2.6% of respondents expect prices to rise.

20 20 / Swiss Real Estate Sentiment Index 2017 Sub-index: Price Trends by Use Segment Price expectations for retail property continue to fall Expectations for investment property by use % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 39% 31% 13% 48% 55% Index points 100% Residential Office Retail Commercial/ industrial Special-purpose property -200 The question: In your opinion, how will prices develop in the following use segments over the coming 12 months? The Price Expectations Index for residential property has fallen by almost half, by points to 36.0 points, and after reaching a record high last year (70.8 points) it is now at its lowest level since the survey began in % of all respondents assume that prices will increase slightly or strongly.

21 Swiss Real Estate Sentiment Index 2017 / 21 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-indices Index 2017 Index 2016 Residential 36.0 pt pt. Office pt pt. Retail pt pt. Commercial pt pt. Specialized property 6.3 pt pt. Greatly improved Moderately improved Moderately deteriorated Greatly deteriorated Stable development in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012 The trend in the Price Expectations Index for retail property has been negative since the survey began and shows a downward trend. In the current survey, it has reached points (down 11.1 points), its lowest ever level. Poor bricks-and-mortar retail sales are impacting on respondents assessments. Similar price trends to last year are expected in the other use segments.

22 22 / Swiss Real Estate Sentiment Index 2017 Sub-index: Price Trends in the Economic Centres Strongest price rises expected in Zurich and Basel Expectations for investment property prices in the economic centres 100% 48% 59% 34% 42% 47% 48% 51% 40% 200 % of responses 80% 60% 40% 20% 0% 20% 40% 60% 80% Index points 100% Basel Bern Geneva Lausanne Lugano Lucerne/ Zug St. Gallen Zurich -200 The question: In your opinion, how will prices develop in the following economic centres in the coming 12 months? The popularity of central locations for investments is unwavering. Prices are expected to increase in six of the eight economic centres. The negative price expectations for Lugano are less pronounced than last year and now stand at points.(+8.8 points). In contrast, in St. Gallen the index has fallen further, by 15.0 points to points. This means that participants in the survey expect prices to fall furthest in St. Gallen.

23 Swiss Real Estate Sentiment Index 2017 / 23 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-indices Index 2017 Index 2016 Basel 44.3 pt pt. Bern 14.4 pt pt. Geneva 5.2 pt pt. Lausanne 28.8 pt pt. Lugano pt pt. Lucerne/Zug 32.4 pt pt. St. Gallen pt pt. Zurich 49.6 pt pt. Greatly improved Moderately improved Moderately deteriorated Greatly deteriorated Stable development in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012 As in the past two years, Zurich and Basel (49.6 points / 44.3 points) are amongst the centres where prices are expected to rise the most. The index for Lucerne/Zug has slipped a little to 32.4 points and is no longer amongst the leaders. With the exception of Lugano, the index in all of the economic centres under review is below last year s level.

24 24 / Swiss Real Estate Sentiment Index 2017 Sub-index: Price Trends in the Principal Regions Prices falling in all regions Expectations for investment property prices in the regions % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 44% 42% 51% 52% 46% 40% 43% 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? Compared to last year, prices are expected to fall in all regions, even if only slightly in some areas. The greatest change can be seen in the Espace Mittelland region (-17.8 points).

25 Swiss Real Estate Sentiment Index 2017 / 25 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-indices Index 2017 Index 2016 Eastern Switzerland pt pt. Zurich 50.0 pt pt. Central Switzerland 14.7 pt pt. Northwestern Switzerland 12.1 pt pt. Espace Mittelland Region pt pt. Lake Geneva Region 7.7 pt pt. Ticino pt pt. Greatly improved Moderately improved Moderately deteriorated Greatly deteriorated Stable development in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012 Whilst the Zurich region stands out with a Price Expectations index of points, forecasts for Ticino (-41.8 points), the Espace Mittelland region (-42.6 points) and Eastern Switzerland (-32.5 points) are negative.

26 26 / Swiss Real Estate Sentiment Index 2017 Sub-index: Availability of Suitable Opportunities Suitable investment opportunities still in short supply Availability of investment real estate Supply Index % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 14% 39% 46% 45% 41% Residential Office Retail Commercial/ industrial Special-purpose 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 pronounced shortage of residential real estate investment opportunities is easing somewhat ( points / points). After three positive years, the Supply Index for office property (-7.8 points / points) and retail property (-0.5 points / points) is once more showing a moderate shortage. All sub-indices are negative.

27 Swiss Real Estate Sentiment Index 2017 / 27 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-indices Index 2017 Index 2016 Residential pt pt. Office -7.8 pt pt. Retail -0.5 pt pt. Commercial -5.4 pt pt. Specialized property pt pt. Very good supply Good supply Moderate shortage Severe shortage Stable development in % Supply index 2017 Supply index 2016 Supply index 2014 Supply index 2012 For all reporting years, the supply of residential and specialized property has been too low. 84% of respondents forecast a shortage in the residential segment, with 52% 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 for price trends.

28 28 / Swiss Real Estate Sentiment Index 2017 Real Estate Sentiment Index Availability of investment opportunities and price expectations Anticipated real estate supply and price expectation indices by use Index points Residential Office Retail Commercial/ industrial Specialpurpose property Supply Index 2017 Supply Index 2016 Supply Index 2014 Supply Index 2012 Price Expectation Index 2017 Price Expectation Index 2016 Price Expectation Index 2014 Price Expectation Index 2012 A 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 residential property prices.

29 Swiss Real Estate Sentiment Index 2017 / 29 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

30 30 / Swiss Real Estate Sentiment Index 2017 Volumes, Preferences and Behaviour

31 Swiss Real Estate Sentiment Index 2017 / 31 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

32 32 / Swiss Real Estate Sentiment Index 2017 Planned Acquisitions of Real Estate Appetite for investment remains strong Planned volume of acquisitions in CHF 5% 9% 11% 7% 12% 13% 17% 13% 13% 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? 91% of survey respondents indicated that they are planning acquisitions in the next 12 months. This is practically unchanged from last year. 9% (last year: 8%) are not planning any acquisitions in the coming year. 59% of participants are planning to purchase properties with a total volume of less than CHF 100 million (last year: 61%).

33 Swiss Real Estate Sentiment Index 2017 / 33 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Volume of acquisitions in CHF by participant group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Developers Real estate investment funds Real estate companies Professional investors / private investors Insurer Pension funds Broken down between the different participant groups, most investment activity is expected to come from real estate funds, insurers and pension funds. For many investors needing to invest similarly large volumes, investment in real estate has become an alternative to low-yielding fixed interest investments.

34 34 / Swiss Real Estate Sentiment Index 2017 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 2017 preferences 2016 preferences 2015 preferences 2014 preferences 2013 Residential Office Retail Commercial/industrial Special-purpose property 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 by far the most popular investment segment. Survey participants would allocate 60.1% (last year: 62.2%) of their acquisition volume to this segment. Plans to invest in office (14.8%, last year: 13.0%) and special-purpose property (9.2%, last year: 8.3%) have increased slightly compared to last year. Interest in retail space has fallen further, to 10.1%, a new low. Whilst last year all investor groups would invest more than 50% of their capital in residential property, for property funds and property companies the proportion

35 Swiss Real Estate Sentiment Index 2017 / 35 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary preferences by investor group 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds Residential Office Retail Commercial/industrial Special-purpose property accounted for by residential property is now below 50% for the first time. The strongest preference to invest in residential property is now expressed by pension funds (81.9%). Insurers strong preference last year for residential investments has reduced significantly, by 20.1 percentage points to 61.7%. In the survey, property funds (49.5%) and property companies (46.7%) recorded the lowest proportion of residential property in their investment plans. The low proportion of residential property in the responses of the property funds and companies could be accounted for both by their specific yield requirements and also by the regulatory framework.

36 36 / Swiss Real Estate Sentiment Index 2017 Planned Acquisitions of Real Estate Zurich remains the preferred investment destination Preferred investment locations by investor group % Number of responses % 15% 10% 5% % of responses 0 0% Zurich Lucerne/ Zug Basel Lausanne Geneva Bern St. Gallen Lugano Developers Real estate funds Real estate companies Professional investors Insurers Pension funds % of responses The question: Which investment locations will you focus on increasingly in the future? Multiple responses possible Despite a slight fall (-3.0 percentage points), with almost 22% of responses, Zurich remains the preferred investment location. Lucerne/Zug follows in second place (16.4%), fractionally ahead of Basel (16.1%). In the French-speaking areas of Switzerland, Lausanne is keeping its nose ahead of the regional competition with 15.2% of responses (Geneva: 11.6%).

37 Swiss Real Estate Sentiment Index 2017 / 37 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Preferred investment locations by investor group in % 100% 90% 80% % of responses 70% 60% 50% 40% 30% 20% 10% 0% Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds Zurich Lucerne/Zug Basel Lausanne Geneva Bern St. Gallen Lugano St. Gallen and Lugano continue to be favoured by only a few investors. This assessment is associated with relatively negative price expectations. The usual significant differences emerge in the breakdown between the various participant groups.

38 38 / Swiss Real Estate Sentiment Index 2017 Risk Management

39 Swiss Real Estate Sentiment Index 2017 / 39 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

40 40 / Swiss Real Estate Sentiment Index 2017 Perceived risk decreasing but rising expectations of market risk Assessment of market risk 7% 40% 53% Increasing risk No change in risk Decreasing risk The question: Do you expect market risk to change over the coming 12 months? 53% of participants expect market risk to increase over the coming 12 months. Participants assessment of market risk has increased by 7 percentage points compared to last year. 40% of participants expect market risk to remain stable. 7% of participants expect risk to reduce.

41 Swiss Real Estate Sentiment Index 2017 / 41 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Possible risk 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 environment Stricter regulations Risk perception 2013 Risk perception 2014 Risk perception 2015 Risk perception 2016 Risk perception 2017 Average risk perception 2013 Average risk perception 2014 Average risk perception 2015 Average risk perception 2016 Average risk perception 2017 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? Measured over the last five years, in 2017 the general perception of risk has reached an all-time low. The perception of risk has reduced compared to last year in respect to four of the six risk factors. In contrast, the risk of the impact of interest rates and falling property values is adjudged to be more acute than last year. Stricter regulation is still seen as the greatest risk; however, according to the survey participants, the risk of stricter regulation has reduced since 2014.

42 42 / Swiss Real Estate Sentiment Index 2017 Consensus in risk perceptions Assessment of 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? Once again, there is a broad consensus in the risk perceptions of the participant groups this year. The current risk situation is perceived as greatest by insurers, appraisers and property companies. These participants assess the risk of stricter regulation, interest rate risk and the risk of falling property prices as moderately high.

43 Swiss Real Estate Sentiment Index 2017 / 43 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Inflation, deflation or stagflation Interest rate risks Falling property prices Payment defaults European environment Stricter regulations Average risk perception by investor group Professional investors / private investors Insurers Pension funds General risk is perceived as lowest by real estate funds. Increasing interest rates are being identified as a risk factor, particularly by professional and private investors, insurers and pension funds.

44 44 / Swiss Real Estate Sentiment Index 2017 Risk-averse investors Greater appetite for risk in investments (investors) 6% 58% 36% Yes To some extent No The question: Compared to last year, are you more inclined to take on higher risk investments? 42% of investors are inclined to take on greater risks, at least to some extent, in their real estate investments over the coming 12 months (last year: 36%). In contrast, in 52% of responses, appraisers report a slight reluctance on the part of their clients to take on greater risks (last year: 70%).

45 Swiss Real Estate Sentiment Index 2017 / 45 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Greater appetite for risk in investments (appraisers) 9% 46% 43% Yes To some extent No The question: Compared to last year, are you more inclined to take on higher risk investments? Thus, appraisers are reporting a greater sensitivity to risk on the part of investors than last year.

46 46 / Swiss Real Estate Sentiment Index 2017 Slight changes in options Plans to change investment behaviour / real estate allocation 5% 32% 19% Less exposure on the real estate market 1% 6% 15% 10% 7% 5% 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 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? 32% of respondents do not intend to change their investment behaviour over the coming 12 months (last year: 29%). The second most popular strategy mentioned was the sale of specific properties (19%) unchanged from last year. Diversification abroad (15%) is continuing to gain ground (2016:11%, 2015:10%, 2014: 8% and 2013: 6%). Supply is low in the local direct investment market and therefore investors are focusing increasingly on foreign properties.

47 Swiss Real Estate Sentiment Index 2017 / 47 Swiss Real Estate Sentiment Index Behaviour Structural Changes 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 No change anticipated Appraisers Developers Real estate funds Real estate companies Professional investors / private investors Insurers Pension funds It seems that financing terms have largely been optimised, as shown by a reduction in the responses for Loan terms and Deleveraging compared to the same period last year. Increasing by 2% to 5% of responses, reducing exposure to the real estate market is an option which is being increasingly adopted.

48 48 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market

49 Swiss Real Estate Sentiment Index 2017 / 49 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

50 50 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Structural change across the board Impact of technological developments on the labour market 100% 80% 60% 40% % of responses 20% 0% 20% 40% 60% 80% 100% Data & Analytics Robotics / Automation Artificial intelligence Virtual / Augmented Reality The question: Will the following technological developments make lasting changes to the Swiss labour market? With more than 90% in agreement, the majority of respondents to the survey are in no doubt as to the significance of data & analytics and robotics / automation for the Swiss labour market. At 89% and 86% respectively, high importance is also attached to the development of artificial intelligence and physical-digital integration.

51 Swiss Real Estate Sentiment Index 2017 / 51 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary yes rather yes rather no no 3D-Print Blockchain Physical-Digital Integration The outcome is less obvious when it comes to virtual / augmented reality, 3D printing and blockchain, at around 70% in each case. Whilst a fairly similar proportion answered agree somewhat across all these areas, there is less clear-cut support for these categories. At the other extreme, fewer than 5% answered disagree and around 30% answered disagree somewhat. In conclusion: it is thought that all these influences will have a significant impact on developments in the Swiss labour market.

52 52 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Effects on overall employment not clear Impact of technological developments on employment 100% 49% 22% 36% 26% 33% 14% 48% 80% 60% 40% % of responses 20% 0% 20% 40% 60% 80% 100% Swiss labour market Financial services Health and care Logistics Manufacturing industry Retail business Public administration The question: How will employment change in the following areas as a result of technological developments? There is a much clearer consensus about the impact on the Swiss labour market of these technological developments than there is about their significance. In the fields of financial services (73%), manufacturing industry (62%) and retailing (82%), the majority of respondents to the survey anticipate a fall in employment. 3 3 Portion of responses of decrase or sharply decrease

53 Swiss Real Estate Sentiment Index 2017 / 53 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary 69% 33% 68% 25% 9% sharply increase increase decrease sharply decrease Stable development in % Tourism Consulting and services Construction Research & education Computer Science and communication Prospects for employment are viewed as substantially more positive in the fields of health and care (59%), consulting and services (55%), education and research (72%) and information technology and communications (86%). 4 Viewed across all employment sectors, 23% of respondents to the survey expect employment to increase and 27% expect it to reduce (the remainder expect it to remain stable). By weighting the responses on the basis of employment statistics, it is possible to derive an indication of the overall trend which cannot be seen by simply looking at the answers of the participants in the survey. 4 Portion of responses of increase or sharply increase

54 54 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Change in store for the real estate sector Impact of technological developments on areas of work within the real estate industry Letting Real estate transactions / sales Appraisal Facility management Property Management Portfoliomanagement 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% very strong influence strong influence moderate influence no influence The question: Within the real estate industry, which areas of business and work will be affected by technological change, and to what extent? Technological developments are expected to have a significant effect on the work of the real estate industry. Over 60% of responses anticipate that the impact will be significant or very significant in each of the fields of lettings, facility management and property management.

55 Swiss Real Estate Sentiment Index 2017 / 55 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary In the fields of real estate transactions / disposals, valuation and portfolio management, whilst the responses of participants on the anticipated impact of technology are not as definitive (40% to 50% of responses expect the impact to be significant or very significant), these areas are also expected to undergo change. There is no area in which more than 2% of survey respondents expect that technological change will have no effect on the real estate industry.

56 56 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Falling demand for office, retail and commercial space Changes in demand for space requirements as a result of technological developments, by use category % of responses 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 57% 34% 8% 58% 25% Residential Office Retail Commercial/industrial Logistics sharply increase increase decrease sharply decrease Stable development in % The question: How will requirements / demand for the following types of space change as a result of technological developments? Analysed according to property type, an increase in requirements or demand is anticipated in the residential segment (39%) and the logistics segment (70%). In the other commercial segments, 58% of participants in the survey expect reduced demand for office space and 33% expect reduced demand for retail space.

57 Swiss Real Estate Sentiment Index 2017 / 57 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Respondents do not see a rosy future for retail space. 91% of participants forecast falling demand for retail space (70% predict a reduction, 21% a major reduction). 8% of participants anticipate that demand will remain stable and just two respondents (1%) took a slightly positive view of future requirements. Owners and investors will need to adapt their premises and their investment activity to these significant changes in predicted demand.

58 58 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Centrality and public transport are the most important location factors for office properties Assessment of the significance of selected property criteria for office properties Technological intensity Energy efficiency Potential for new usage Flexibility Area and management efficiency Representativity Technical building quality Accessibility with individual transportation and parking posssibility Accessibility with public transportation Centrality in the economic area 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% very important important moderately important not important The question: Imagine you were investing in an office property. Which of the following property criteria would be decisive for you? Access by public transport is viewed as the most significant quality criterion for an office property, classed as important or very important in 99.5% of responses. Access by private transport and parking are accorded slightly less importance, with 81.7% classing them as important or very important, but it remains a pivotal criterion. At 94.5%, centrality of location within an economic area is the second most significant location factor in the assessment of survey participants, after access by public transport.

59 Swiss Real Estate Sentiment Index 2017 / 59 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary 94.5% of participants rate a building s flexibility as important or very important. This makes flexibility the most important quality criterion for office buildings, followed by space and operating efficiency at 90.8% and the technical quality of the building at 84.9%.

60 60 / Swiss Real Estate Sentiment Index 2017 Structural Changes in the Swiss Labour Market Location remains the decisive quality factor for retail Assessment of the significance of selected property criteria for retail buildings Technological intensity Energy efficiency Potential for new usage Flexibility Area and management efficiency Representativity Technical building quality Accessibility with individual transportation and parking posssibility Accessibility with public transportation Centrality in the economic area 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% very important important moderately important not important The question: Imagine you were investing in a retail property. Which of the following property criteria would be decisive for you? For retail space too, the location factors to which the greatest significance is attached are access and centrality. Whilst access by public transport is most important for office properties, for retail premises access by private transport and parking was classed as important or very important in 94.4% of responses. With 91.2% of responses, building flexibility is also the most important building criterion for retail premises.

61 Swiss Real Estate Sentiment Index 2017 / 61 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary At 38%, the prestige of a building is accorded greater importance for retail premises than for office buildings. The lowest significance is attributed to the level of technology (63.0%) and energy efficiency (61.6%).

62 62 / Swiss Real Estate Sentiment Index 2017 Methodology and Survey Participants

63 Swiss Real Estate Sentiment Index 2017 / 63 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary

64 64 / Swiss Real Estate Sentiment Index 2017 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. When explaining and forecasting economic relationships and processes, they are just as helpful as quantitative statistics which record objectively ascertainable values. They have a strong forecasting character, especially in real estate investment markets with a relatively small number of market players such as Switzerland. Representativeness 258 people participated by invitation in the survey. The size of the sample makes it possible to provide representative statements as to the current expectations of players in the Swiss investment market. 5 The 2017 survey took place between 23 rd June and 9 th August 2017.

65 Swiss Real Estate Sentiment Index 2017 / 65 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Indices The participants responded to seven questions posed; 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 real 80% estate investment market Aggregated Swiss Real Estate Sentiment Index (sresi ) 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 arranged by location, use, city and region. The last subindex illustrates the assessment of the available real estate supply for investors. Sub-indices 3. Price trends in the real estate market by location 4. Price trends in the real estate market by use 5. Price trends in the real estate market by major economic centre 6. Price trends in the real estate market by economic region 7. Availability of investment properties

66 66 / Swiss Real Estate Sentiment Index 2017

67 Swiss Real Estate Sentiment Index 2017 / 67 Swiss Real Estate Sentiment Index Behaviour Structural Changes 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 6 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 number of corresponding responses. The total 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 2017 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 Retail Commercial Specialpurpose Index points Price Expectations Index (right axis) (derived from the participants expectations) 3% of participants anticipate sharply falling prices (left axis) Important: Stable price expectations (nil weighting) are not illustrated to avoid confusing the reader.

69 Swiss Real Estate Sentiment Index 2017 / 69 Swiss Real Estate Sentiment Index Behaviour Structural Changes Methodology and Survey Participants Summary Sub-index 2017 index 2016 index Price expectation -X pt. -Y pt. 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 Strongly increasing prices Moderately increasing prices Moderately falling prices Sharply falling prices Stable development in % Price Expectations Index 2017 Price Expectations Index 2016 Price Expectations Index 2014 Price Expectations Index 2012

70 70 / Swiss Real Estate Sentiment Index 2017 Methodology Survey Participants Participants by type of activity 19% 10% 12% 9% 16% 16% 18% Appraisers Developers Real estate investment funds Real estate companies Professional investors / private investors Insurers Pension funds Participants by investment and valuation volume in CHF 20% 10% 23% 12% 24% 11% moins de CHF 100 mio CHF 100 mio CHF 500 mio CHF 500 mio CHF 1 mrd CHF 1 mrd CHF 5 mrd CHF 5 mrd CHF 10 mrd plus de CHF 10 mrd

71 Swiss Real Estate Sentiment Index 2017 / 71 Swiss Real Estate Sentiment Index Behaviour Structural Changes 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 / private investors Insurers Pension funds 258 representatives of the Swiss real estate investment market participated in this survey. Of these, 250 questionnaires were analysed. The following groups took part in the survey: appraisers (10%), developers (12%), real estate funds (18%), real estate companies (16%), professional investors (16%), insurers (9%) and pension funds (19%). Institutional investors represent over three fifth of the participants (62%). More than half of the participants (58%) handle investment and valuation volumes of more than CHF 1 billion. Institutional investors (insurers, real estate funds, pension funds and real estate companies) and appraisers are the groups with relatively high investment volumes. Developers and professional investors form the groups which handle lower investment volumes.

72 72 / Swiss Real Estate Sentiment Index 2017 Management Summary

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