Swiss real estate market produces positive capital growth for 2008
Switzerland has become the Europe's first real estate market to produce positive capital growth for 2008, at 1.2%, according to the IPD Switzerland Annual Property Index. According to the Index, Switzerland has also produced the Continent's highest nominal total returns for 2008, at 6.1%, a full percentage point down on 2007 but surpassing the 5.9% return recorded in 2006 – the last of the full calendar 'boom' years for the majority of global property markets.
While other European countries have recorded resilient total returns, including Germany's 3.5% and the Netherland's 3.3%, the reasons for Switzerland's property markets insulation from the credit crunch are different.
The Index – which measures approximately CHF59.6bn, or 44%, of the circa CHF135bn Swiss real estate market – reveals the Retail sector for the third consecutive year produced the top sector returns, with 6.5%. However, despite this growth the return signifies a notable drop from 2007's 10.0%, which could be the first sign of a slowdown in the sector. Residential total returns followed, with 6.1%, while Offices returned 5.8% and Industrial sector 6.0%.
Capital growth was recorded among all but one of the four main sectors, the Industrial sector, which recorded -0.8% for 2008. This was, however, counterbalanced by the market's strongest income return, at 6.8%. Capital growth for Retail, Residential and Offices were 1.5%, 1.2% and 0.9%, respectively. All property income was 4.9%, for which apart from the Industrial sector's return, Retail was level with, while Offices and Residential produced a 10 basis points deviation, both returning 4.8%.
In the Residential sector – the bedrock of the Index accounting for 48% of all properties – capital growth fell by only 13 basis points, compared to 2007, returning 1.2% in 2008. Within the Offices sub-sectors, there are signs of a slowdown within the smaller cities, such as Bern and Basel, which collectively produced a capital depreciation of 40 basis points in 2008. The bigger cities, such as Zurich and Geneva, have also returned lower annual capital growth than 2007, ending last year at 1.6% and 1.1%, respectively.
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