by Eric Howard
Although the major business cities in Switzerland have not experienced quite the same staggering growth over the last year as have other European cities such as London, Paris, Brussels and Frankfurt, rental and capital values in all sectors have continued to increase at an impressive rate.
The two principal business cities in Switzerland, Zurich and Geneva have shown rental growth exceeding 25% over the past two years, while at the same time yields remain firm. Bearing in mind existing inflation levels (among the lowest in Europe), low financing costs (currently at 5% on first mortgages), a strong currency, a continued and steady capital growth over the past 40 years, a minimal risk of a down turn (as has happened in other European countries in the past), Swiss property represents an impressive form of investment which compares favourably with the other European property markets mentioned above. All this despite stringent property laws inhibiting foreign investors’ access to the Swiss property market.
In general, both Zurich and Geneva have remained on a parity in terms of capital and rental values with rental values reaching the FrS 1,000 per m2 per annum in Zurich, while Geneva lags slightly behind at FrS 950 per m2. Other cities that have shown particular growth over the past year are Fribourg and Lausanne.
The central business district of Zurich centres on the Barnhoff Strasse and the triangle down to Lake Zurich and across to Enge to the south-east. Owing to the lack of supply in this area and the continuing demand, noticeably by the financial sector, rental values continue to rise (current rental values lie between FrS 800 and FrS 1,000 per m2). The other office location close to the centre is the locality of Seefeld where office accommodation lets at around FrS 500 per m2. However, as with the CBD, there is very little available accommodation.
As a result, new office developments have been forced to locate on the outskirts of the city in three principal areas: Oerlikon-Opfikon-Kloten, Wallisen and Duberdorf. The former, which lies on the airport axis, is presently experiencing an important increase in activity with the recent construction of the Textile Centre and the building of the new General Motors European headquarters. We have been instructed as project managers on behalf of Swiss investors on two major office projects near the airport at Kloten having a combined area of 165,000 m2 which will be taken up by two Swiss banks. A major inducement for companies to locate in these areas are rental values between FrS 275 and FrS 400 per m2, appreciably lower than in the CBD.
Land prices vary enormously, but may be estimated to have the following pattern: land values in the city centre start from FrS 20,000 per m2, with reports of values over FrS 40,000 in exceptional circumstances; outside the CBD, but within the city limits values start from FrS 10,000 per m2; and in the outskirts values vary from FrS 1,700 to FrS 2,000.
Geneva attracts a different type of office user, being more reliant than Zurich on the international organisations and banking industry. However, given the wealth of the city, values remain high as institutions and wealthy individuals wrestle to acquire the little available investment property on the market. As with Zurich, major international companies have sought to locate their European headquarters in Switzerland and recent companies to have located in Geneva include the Chemical Bank and Dupont. Geneva’s prime office location lies on the waterfront looking over Lake Geneva. The supply of accommodation along the waterfront is almost non-existent, with rental values for new lettings at around FrS 1,000 and net yields below 2.5%.
The CBD of Geneva lies between the lake and the main retail area (from Place Bel-Air along the Rue du Marche to Cours de Rive), where rental values have exceeded FrS 900 per m2 in prime locations. There are a number of other office locations within the Geneva area such as Place des Cornavin (railway station area), Les Tranchees, Les Eaux-Vives and Les Paquis where rental values vary between FrS 400 and FrS 700 per m2.
Finally, the airport area has experienced a rapid growth both in the number of developments and rental values over the past few years. Construction of phase two of the International Centre Cointrin is due to be completed by 1989, with presently only some 4,000 m2 of accommodation remaining out of the 71,000 m2.
Rental values within this area vary between FrS 500 and FrS 580 per m2, marking a substantial rise from FrS 425 per m2 in 1987 to an average of FrS 550 today, a rise in rental values of some 30% over a period of 18 months. Equally the Dupont European headquarters close to the conference centre is nearing completion, with Dupont having started to occupy parts of the building. Other developments of note include the Centre Swiss Air alongside the main terminal. This is presently under construction and will have some 7,000 m2 available after both the airport authorities and Swiss Air have taken up their requirements. Given the growing importance of this area both Holiday Inn and Movenpick are constructing new hotels.
Land values, as with Zurich vary enormously. However, it may be said that land values are slightly higher in Geneva.
The Swiss property market has performed very favourably in all sectors, with investment returns well in excess of other forms of investment. Unfortunately the only foreign concerns able to acquire property are companies seeking to locate in Switzerland. For such companies Swiss property remains an excellent opportunity to realise a sound return not only because of the performance of the property as an investment but in terms of currency security.
