Switzerland Vs Germany? What Commercial Property Market is More Stable?
December 5th, 2013 by Diane Moore
Despite the Eurozone’s economic crisis, there are two countries that remain attractive for the investors – Germany and Switzerland. But what commercial property is more stable and how to make the right step? That’s what we are going to reveal in this article.
The European Debt Crisis Means more Opportunities
It can be remembered that Europe’s debt crisis started in Greece. It began in late 2009, when Greece was hit with a large structural deficit. When the global economy took a downturn, Greece’s debt problems became much worse. The crisis spread through Ireland, Spain, and Portugal until the whole of Europe felt its impact. The continent went through a recession in the late 2011.
To avert a worldwide catastrophe, the European Union stepped up to the plate. Through the Troika — a tripartite committee consisting of the European Central Bank (ECB), European Commission (EC), and the International Monetary Fund (IMF) — Greece was given a bailout loan under a debt restructuring agreement. European banks were also given abundant liquidity.
Though Europe’s problem is far from over, this move from the world’s central banks gave markets all over the world a relief sigh.
What Are the Benefits of the European Distress?
The fact is that US has benefited from the growth in European exports from France, Germany, and Italy. Export volumes have almost reached pre-recession levels, and the retail sector is benefitting from this good news.
Aside from that, investors can take an advantage of Europe’s scarcity of mezzanine debts. Experts say that when it comes to enhanced returns, Europe can be a good place to look in.
Several cash-rich companies were able to use Europe’s quagmire to their own advantage. For instance, America’s largest mall operator in the United States, Simon Property Group (SPG), announced that it will spend $3.5 billion on malls in Europe. In March 2012, SPG was reported to have struck a deal with Klepierre to buy 28.7% of its shares.
Jones Lang LaSalle has also reported that Chinese and Korean investors are helping to boost the commercial real estate in Europe. Investments poured in at the continent totaled $8.5 billion. The UK, France, and Germany were identified as key markets for Asian investors.
Some of the most notable deals made this year was Samsung SRA Asset Management’s acquisition of London’s 30 Crown Place. The building was bought for $215 million.
Germany Market Outlook
Early this year, PwC launched its Emerging Trends Report on Europe. According to the report, 2013 marks the return of optimism in the continent’s real estate industry. The commercial sector is expected to increase, especially in markets not hit hard by the Eurozone debt crisis.
Last year, London had more deals than any other key markets in Europe. Transactions in the city totaled €8 billion. Paris came in a far second, with around €4 billion worth of transactions. Stockholm and Moscow came next, while five German cities (Berlin, Frankfurt, Munich, and Hamburg) rounded out the top 8.
This year, there is high optimism in German markets. In PwC’s City Investment Prospects list, Munich emerged on top and two German cities made it to the top 10.
Here are the complete rankings:
Munich topped the list because of its ability to withstand Europe’s debt crisis. But aside from that, the city has all the signs of the ideal market in Europe’s commercial real estate, and here is why…
- Its unemployment rate is the lowest in all of Germany.
- Industries such as biotechnology, genetic engineering, and environmental sciences are expanding.
- Population in Munich is increasing.
- Its economy is driven by a strong performance from the service sector.
- Compared with other cities, Munich’s vacancy rates are lower.
- Purchasing power is high.
- Munich attracts millions of tourists every year. These tourists are the key drivers to the city’s growing retail sector.
Berlin is attractive to young people because of two factors – its creative industries and its cheap rents. Significant increases in rentals are experienced in the city, and the rise of inner-city luxury apartments is a growing trend. The residential sector is also seen to have a positive growth, and so is retail.
Aside from the young generation, Berlin also attracts tourists from all over the world. According to surveys, there were eleven million tourists who visited Berlin in 2011. Of all these visitors, five million opted to stay in an apartment.
Hamburg’s apartment sector is booming, thanks to its rising population. Investors are confident in this market, saying that although it has a high price, it is a stable market nonetheless. Investors perceive Hamburg as a “safe haven,” and they are putting in their money in the office and apartment sectors.
Generally speaking, Germany is more attractive than it ever was since the 1990s. Forecasts are positive, and conservative investors are increasing or shifting their allocations to commercial real estate. Although the debt crisis is limiting the options, there is a continued flow of capital in the country as investors continue to search for options outside the prime property sector.
As far as market fundamentals are concerned, RREFF Real Estate reports that vacancy rates have declined in all markets. This decline has resulted in moderate rental growth, and it is mostly felt in Frankfurt.
The retail sector performed well last year, and this strong performance is to be expected in the coming years. Key drivers include a robust labor market,high influx of tourists, and steady consumption growth. Rents for the retail sector will continue its upward trend, and Berlin will enjoy an increase in prime property rentals.
As for the office sector, demand will weaken until the end of 2013, but it will pick up and rise in 2014. Munich and Berlin are the key markets to watch for. RREEFF Real Estate predicts that these cities will enjoy an average rent growth of more than 2% every year.
Shopping centers will also perform strongly. This sector will enjoy an annual rent increase of 2.5%, which is reported to be the strongest in Europe.
Switzerland Market Overview
While Swiss Global encourages investors to allocate funds in the residential sector, it warns everyone against commercial properties. It says that the supply exceeds current demand, so tough times are to be expected in the sector.
There are also inflationary fears, but this will push investors toward the residential sector. Switzerland’s good economic situation will also be enough to convince investors to rent properties in the medium term.
From the PwC list of emerging markets, Zurich snagged the seventh spot.
Here is why Switzerland remains the sweet piece of chocolate for the investors:
- Swiss franc is perceived as a safe currency.
- The European debt crisis has little debt on Switzerland.
- Foreign investors have high confidence in Zurich and Geneva.
- Vacancy rates are low because of the expanding number of international retailers.
- Chain stores are expanding.
Switzerland vs Germany: What Commercial Real Estate Property Market is More Stable?
When it comes to stability, certain factors come into play. In case of Europe, there are some certain risks that can shake up the stability of a market: a possible Eurozone break-up, a political impasse, and a monetary policy.
RREEF Real Estate says that a break-up would likely push the continent into a deep recession, which would definitely affect the real estate market. On the other hand, a political impasse can lead to restrictions in the ability to solve the Eurozone crisis and bring back investor confidence. An example is Germany’s elections, which experts said could shift the Eurozone’s economic tone. A tight monetary policy can also dampen Europe’s recovery.
However, considering other key investment drivers, Germany has a more stable commercial real estate market than Switzerland, and here is why…
Europe’s recovery from the debt crisis is expected to gain momentum from 2014 onwards. Analysts predict that except for Greece, countries in Europe will experience growth in their annual GDP. But because of the Eurozone crisis, this growth remains lower than what is expected in the Asia-Pacific region.
Europe’s economic growth is also expected to mirror its property market. For the commercial sector, a polarized performance is to be expected across the continent. The performance of London and Athens, for instance, will be on opposing sides. As London continues to gain capital growth, Athens will have difficulty raising finance. In London, foreign investors pump in money to acquire prime office properties.
In the next couple of years, Germany is predicted to emerge as the top market for real estate, beating Swiss, Turkish, and the UK markets. The forecast assumes a positive and continued flow of capital especially in Munich and Hamburg.
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