Real estate investors confronted with prospect of long recession
Back to overviewWhat 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Have any investors withdrawn their assets from real estate investment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.