Institutional investing

Real estate investors confronted with prospect of long recession

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What influence does the Corona crisis have on the real estate markets? Read the assessment of our experts.

Scores of companies whose business models are hit by the Corona crisis are seeing their income decline in the long term and are finding it difficult to pay their rents. As major investors on the Swiss real estate market, employee benefits institutions are also affected. However, with the impact varying widely from sector to sector, it is worth taking a look at the different trends on the real estate markets.

What is currently the biggest worry for employee benefits institutions when it comes to Swiss real estate investments?
Christian Zoss: The majority of the real estate investment vehicles employed by Avadis Investment Foundation are invested in residential and office properties. As yet, the residential sector has not been affected by the crisis, and the office sector has felt no more than an indirect effect. We have therefore not observed any major uncertainty among our investors when it comes to their real estate investments with Avadis. What they are more uncertain about is the future economic development and the associated impact on equities and fixed-interest securities. 

Have any investors withdrawn their assets from real estate investment vehicles?
Christian Zoss: Employee benefits institutions focus on long-term investments and adhere to their strategy in times of crisis. On the contrary, we are continuing to see a lot of demand for real estate investments.

Nevertheless, your commercial property investment group is probably feeling the effects of the crisis?
Hendrik David: It is mainly retail and commercial space used by companies in the retail, non-food and beauty sectors that are affected. Around 22% of the rental income of our commercial property investment group is generated by companies which were directly affected by the lockdown.

To us, the credit risk is more relevant than temporary rent reductions.

The government will require landlords to introduce rent reductions. How much income will you lose as a consequence?
Hendrik David: It is not yet clear what the law will actually look like. Our worst-case scenario is based on a 3–4% reduction of the annual rental income. However, to us, the credit risk is more relevant than temporary rent reductions. If Switzerland slides into a lengthy recession and the number of bankruptcies goes up significantly, rent losses due to business failure could reduce our income from commercial properties by up to 10%.

Are you helping commercial tenants that were severely affected by the lockdown?
Hendrik David: Tenants who are severely affected by the crisis need a swift solution and cannot wait until the political regulation enters into force in a few months. We are in close contact with our tenants, assess each documented case in detail and conclude individual agreements where appropriate.

What is the general impact of the Corona crisis on the Swiss real estate market?
Hendrik David: People’s lives have changed due to restricted mobility. They spend more time at home and often work from home. This has accelerated trends in the commercial property field that were already emerging before the crisis. One example would be the significant growth in online trade, often at the expense of stationary retail sales. Most likely, the residential segment would only be affected if a prolonged recession were to lead to sustained negative migration.

For residential properties, the quality of living will play a greater role. At the same time, accessibility is becoming less important.

What would it mean for property owners if more people continued to work from home in the future?
Hendrik David: Long-term developments are difficult to predict. What is clear, though, is that companies have the technology to allow more employees to work from home after the crisis. Companies will therefore consider carefully which work processes actually still require office workspace.

What should employee benefits institutions watch out for when investing in Swiss real estate?
Christian Zoss: In terms of commercial properties, the key criteria are tenants’ credit ratings and the tenant mix. For residential properties, the quality of living will play a greater role as people are likely to spend more time at home. At the same time, accessibility is becoming less important due to digital change and efficient transport connections. This means that attractive investment opportunities will also arise outside the metropolitan areas.


Hendrik David, Head of Real Estate Switzerland
Hendrik David has over 11 years of experience on the Swiss real estate market, both in the role of investor and consultant. He holds a Master in Accounting & Finance from the University of St. Gallen as well as an architecture degree from ETH Zurich. Hendrik David is a CFA Charterholder. 

Christian Zoss, Head of Sales, German-Speaking Switzerland
Christian Zoss has over 20 years of experience in the banking sector working for a number of Swiss and foreign banks as well as asset managers. His specialist field is pension fund support. Christian Zoss holds a degree in business economics from the Zurich University of Applied Sciences (HWZ) and is a CAIA Charterholder.