Surplus supply or surplus demand?

Anyone who wants to invest their money profitably is currently keen on real estate. This is also the case for various institutional investors such as pension funds. For example, the Raiffeisenbank pension fund is building a development with 60 rental apartments in the west of the city of St. Gallen. Just a few hundred metres away, another large development is being built with over 150 2- to 5.5-room apartments. The client is the Pension Fund of the Canton of Zurich (BVK). The intention is obvious: the rental income is intended to generate returns that have long since become unattainable with other investment products.

Apartments against the trend?
The neighbourhoods in the west of the city of Gallus will therefore see a massive increase in the number of inhabitants - if all the apartments can really be let on time. Because in this respect, things are not looking too good throughout Switzerland. In other cities and rural communities, too, many new buildings are unoccupied. According to a recent market report by Credit Suisse, around 72,000 apartments are currently vacant, particularly in locations away from major centers. It seems that in many places construction is missing out on demand, as Birgitt Wüst, editor-in-chief of the renowned magazine "Immobilien Business", recently noted in her editorial for the 264th Immobilienbrief. "For some years now, investors have been building mainly three-room apartments - probably in the opinion that this is in line with the general trend towards smaller households," she analyzes. Investors are thus following the assumption that this size of apartment is a suitable solution for both multi-person and small households. Families, however, need more living space than just three rooms, and for single people the rent for such an apartment is probably simply too expensive. However, recent figures from the real estate service provider Homegate show that an increasing number of buyers are interested in small apartments. So the investors are not entirely wrong.

Far from a housing shortage
The private, independent consulting and research company Fahrländer Partner Raumentwicklung (FPRE) is also of the opinion that construction is increasingly taking place on a stockpile basis - and bypassing the market. Every year, this company compiles key figures on the development of the Swiss real estate market in the Real Estate Almanac Switzerland, also broken down by region. In the 2018 edition, the authors note that not only are vacancies rising as a result of the unchecked building for stock, but market rents are also falling in the demand markets. On the one hand, old buildings are affected, but also "incorrectly designed new buildings", according to the report. According to FPRE, this situation is unlikely to return to normal for the foreseeable future.

The equation "good economy = high immigration = growing demand for housing" is no longer true. Economic growth is increasingly being achieved by increasing productivity - and this does not necessarily require more workers. This is why immigration and thus the demand for housing is also declining. "The authors of the 2018 Real Estate Almanac write: "This is likely to mean that the housing shortage in the major central locations will not ease, but neither is it expected to worsen, and that the vacancies in the less central locations, which have risen sharply in recent years, may not be reduced as quickly as hoped.

Home ownership: a question of financial sustainability
And what about home ownership? The market is quite stable there. Although the Swiss National Bank regularly warns of a "real estate bubble", prices for single-family homes, for example, have remained at the same level for some time or are even falling slightly - the Swiss Real Estate Offer Index even showed a decline in offer prices for single-family homes of more than 3 percent in summer 2018. Currently, a single-family home costs 6259 francs per square metre (as of 7.9.2018), which is, however, a good 60 francs more than in the previous year. This is in line with FPRE's observation that prices have been rising again since 2017. Overall, supply and demand for single-family homes are balanced. In the case of owner-occupied apartments (condominiums), on the other hand, there is a local oversupply. The problem, according to FPRE, also lies in the fact that "a significant part of the demand continues to be excluded from the market, because the households either do not meet the guidelines of affordability or can bring in too little equity.

Many office spaces suboptimal for SMEs
What applies to residential real estate also applies in a similar way to office space. Here, too, there is a high availability of vacant space, both in newly constructed and existing buildings. There are two main reasons for this: On the one hand, a lot of new space has been created in recent years; on the other hand, there are a number of actual "office wastelands" because these offices no longer meet today's requirements. Alternative use concepts are required there - or complete demolition or new construction. According to Fahrländer Partner Raumentwicklung, however, the "more office employment = higher demand for office space" trend is likely to continue. The uninterrupted growth of the tertiary sector in the wake of the digital transformation is not least responsible for this. But it is precisely here that a gap appears to be opening up: The available supply of office space does not match the needs of those who demand it, especially SMEs. According to a study by the Institute for Financial Services Zug IFZ at the Lucerne University of Applied Sciences and Arts, providers know too little about this customer group. As a result, vacancies of large and small spaces are increasing, while SMEs are forced to rent suboptimal offices or to organize themselves into clusters. A market analysis by researchers at the IFZ shows that small companies in particular - and at over 90 per cent they make up the largest proportion of the 580,000 or so companies in Switzerland - are falling between a rock and a hard place with rental requests of between 150 and 750 square metres. They are too large to benefit from operator models such as coworking and too small to act as sole tenants. In a sample portfolio, SMEs with premises averaging 280 square metres account for more than a third of the contracts. The range of SME business areas is very broad. In the sample portfolio, the leases for SME office space are spread across 48 sectors, more than half of which are not considered traditional office sectors. This means that these SMEs are looking for small-scale and flexibly usable space for offices and for logistics, small-scale production or sales.

Reaching out more to SMEs as tenants
Newly established and fast-growing SMEs in particular are looking for offices. In qualitative interviews, the researchers from the Lucerne University of Applied Sciences and Arts were able to show that the SMEs complained about the quality of the information provided by the landlords, but the interviewees nevertheless did not turn to an estate agent or other experts for help, even though they did not have any real estate knowledge themselves. However, the decision-making process and the definition of the wishes for new premises take place in the companies far before the search, the "customer journey" starts much earlier. It would therefore be advisable for suppliers to build up long-term customer relationships with SMEs. The study authors also recommend that office space lessors provide more background information on leases, explain the advantages of new office layouts for SMEs, and offer guides, search checklists and video courses.