Our pan-European diversified investment strategy is based on the specific countries’ market fundamentals and the dynamics of local markets.
Switzerland – Economic Outlook
Switzerland’s developed services sector, well-educated workforce, and high-tech manufacturing industry have helped it build the second highest GDP per capita in the world. The stable political and economic situation, and top-notch infrastructure make Switzerland an enviable place to do business, with an economy led by financial services and pharmaceuticals. Although not a member of the European Union, it has access to the bloc’s single market through a series of treaties.
The Swiss economy has held up well in the face of the Covid-19 crisis and could even boom in 2021, according to top government economist Eric Scheidegger, director of the State Secretariat for Economic Affairs. The crisis caused the Swiss economy to shrink by only 3% last year, compared with 6% for neighbouring Germany and Austria and 9% for France and Italy.
This can be explained by the fact that Switzerland’s spring lockdown was less strict than in France, for example. In addition, shops were reopened more quickly. In general, domestically oriented companies recovered very quickly in the summer. Domestic tourism also helped. Switzerland’s industry structure, with its large share of chemicals and pharmaceuticals, also proved a stabilising factor.
The State Secretariat for Economic Affairs (SECO) says it expects the Swiss economy to grow by 3% in 2021, slower than the 3.8% rate previously forecast. It is expected that economic output will return to pre-crisis levels by the end of the 2021, with investments by companies supporting the recovery. The economy typically grows at a rate of around 1.7% per year.
In the longer term, even hard-hit industries like tourism are expected to participate in a widespread upswing, with SECO forecasting GDP growth at 3.1% in 2022.
Unemployment is expected to rise slightly in the short term from an expected rate of 3.2% in 2020 to 3.3% in 2021, before falling to 3% in 2022.
Our approach to the Swiss property sector in 2021
Logistics and light industrial development projects
We invested equity into a sizable and iconic cold storage/logistic/light industrial development project in the hearth of the Geneva industrial zone, only a few kilometres away from Geneva’s city centre.
The sheer volume of money targeting the logistics sector compressed prime yields across Europe in 2020 and we believe that competition for the best logistics assets will continue in the next years. Big box facilities, urban logistics and dark stores landlords are fighting to increase their exposure to the sector. The fundamentals of the sector support this trend.
The accelerated consumer shift towards online shopping during the pandemic has created a swift rise in warehousing requirements from retailers, pure players, and parcel companies. Alibaba’s planned expansion into the European market is likely to act as a further boost to demand over the next two-to-three years too, while rising numbers of returns from online retail are spurring demand.
Due to Covid-19, pharmaceutical companies have drastically increased their long-term cold-storage requirements.
Warehouse availability in most core markets is limited and supply is controlled by a few large players. These conditions can lead to positive rental growth, depending on the type of retailer and location.
In Switzerland particularly, the scarcity of available logistics space is constantly pushing rents upward. Average vacancy rates remain extremely low for quality assets, due to a dearth of speculative development starts since the virus outbreak. It is likely that the current level of new active requirements will roll into 2021, restricting occupier options.
The level of second-hand space returning to the market from business failures next year is likely to be snapped up quickly by expanding e-commerce operators. Last-mile logistics are likely to experience stronger rental growth than large scale facilities as consumers opt for a flight to convenience.
Therefore, we expect further yield compression, especially in Geneva where there is no new logistics development in the pipeline. The lack of product will force investors to commit to forward-funding of new developments, and to core-plus and value-add opportunities.
Despite the pandemic impact, the Swiss luxury watch manufacturing industry is performing well, and some of the major players are currently looking at expanding or improving their production facilities by moving into brand new buildings like the one we have invested in.
The expected long lasting Swiss negative interest rate environment puts even more pressure on real-estate yield, forcing large Swiss institutional investors to compete and pay higher prices to invest in real estate projects so as to generate positive returns.