Assessment of the Real Estate Market

Executive Summary

Marktumfeld: The construction sector is receiving positive momentum from the SNB’s key interest rate cut, even though the economic outlook has continued to worsen. The number of building applications and permits has increased over the past few quarters, indicating higher construction activity compared to last year. However, the effective net new supply is likely to be lower than the figures suggest, as a significant portion is attributable to replacement buildings.

Investment property market: With the introduction of a key interest rate of 0.00%, the well-known TINA issue (“There Is No Alternative”) is once again in focus. Accordingly, capital market activity remains dynamic, with real estate investment vehicles continuing to absorb hundreds of millions in new equity. Early signs of yield compression are already evident, as purchasing yields are beginning to decline.

Owner-occupied housing market: A nationwide increase in property transfers, coupled with sustained or even accelerating positive price dynamics, speaks to robust market activity. The small discrepancy between rising listing price indices and transaction price indices suggests that the selling side is controlling price formation and that demand is fundamentally keeping pace.

Rental market: Offered rents are expected to increase by 3% to 4% year-over-year in 2025, depending on the region – somewhat more moderately than in the extraordinary previous year, but still well above pre-pandemic levels. Given the structural excess demand, a noticeable short-term relaxation of the market situation is unlikely.

Economic conditions

The SNB has lowered its key interest rate to 0.00% for the first time, putting it just one step away from negative rates. Several individual market rates have already been in negative territory for some time. The favorable financing conditions are providing particular support to the construction sector, as reflected by the increasing number of building applications and permits. In contrast, conditions in the industrial sector remain tense: with the exception of the chemical and pharmaceutical industries, it continues to suffer from weak foreign demand. The strong GDP growth in the first quarter was mainly due to unusually high imports in the pharmaceutical sector – presumably a reaction to the threat of tariffs by the Trump administration. For the coming quarters, however, the outlook is more subdued: international trade policy is becoming increasingly burdensome, and the new economic forecasts reflect a more cautious assessment, with prevailing downside risks.

Supply and demand

According to data from the State Secretariat for Migration, population growth this year is slightly below last year’s figure and the record level of 2023, but remains clearly above pre-pandemic levels. As a result, demand for housing remains high, particularly in urban rental markets. At the same time, purchasing a home is currently significantly more affordable than renting in many areas, with noticeable effects: the number of transactions involving owner-occupied homes is increasing, as are transaction prices.

On the supply side, a slightly higher number of newly constructed apartments is expected compared to last year. The overall conditions for the construction industry remain favorable, even though construction prices have recently risen somewhat again. However, since many of these are replacement buildings, existing housing stock is often merely being substituted rather than expanded. As a result, construction activity appears more extensive than it truly is. The gap between supply and demand is therefore likely larger than conventional indicators suggest – a trend that will presumably also be reflected in the vacancy figures to be published in September.

Price outlook: Residential property

The increase in transactions involving apartments and single-family homes continues, reflecting higher liquidity and sustained active demand. Accordingly, prices are also rising. The discrepancy between listing price indices and transaction price indices is minimal, with only a slight variation for apartments. This points to a seller’s market, where owners set the prices and buyers are willing to meet them.

Demand is further supported by slightly improved financing conditions. Banks' appetite for lending has also increased – at least in the segment of owner-occupied residential property. Against this backdrop, a further price increase of 3% to 4% for apartments and single-family homes can be expected this year. However, the reduction of the key policy rate to 0% is, for now, the last that SARON mortgages will benefit from. And despite the low interest rates, high loan-to-value ratios are not a given, as there are significant differences between banks due to internal policies, risk appetite, and market positioning.

Price development single-family homes (as of June 2025)

Price development owner-occupied apartments (as of June 2025)

Investment properties

With the key interest rate lowered to 0.00%, the well-known TINA issue (“There is no alternative”) is once again coming into focus, particularly for institutional investors. Both money market rates and bond yields are now at or near zero. In an environment without risk-free returns – at least in Swiss francs – the search for attractive yields remains a central challenge. Income-producing properties are among the main beneficiaries of this situation.

As a result, sentiment in the capital markets toward real estate investments remains positive. Numerous capital increases, which continue to be largely oversubscribed, demonstrate sustained investor interest. Real estate is attractive not only because of its stable cash flows and low correlation with geopolitical shocks, but also due to the prospect of capital gains in the event of further yield compression in a low interest rate environment.

The has raised capital needs to be invested, shifting the transaction market significantly in favor of sellers. High demand is meeting a limited supply of high-quality properties in prime locations. The result: Acquisition yields are likely to decline further. Combined with falling vacancy rates and rising rents, this is increasing the expected book gains on investment value.

Private investors are increasingly being left behind. They often lack the equity resources of institutional vehicles, which can raise fresh capital on the markets. Although the lower interest rate environment provides some relief and the mortgage market is beginning to normalize, banks remain cautious with financing, especially for construction projects. Only with a more stable yield curve, the fading impact of the CS-UBS combination, and full implementation of Basel III, is a relaxation of financing conditions to be expected. Until then, alternative forms of financing will remain essential—not only for optimizing return on equity, but often as a prerequisite for bringing projects to fruition.

Rental apartment market

The rental apartment market presents a mixed picture: On the one hand, the number of listings is increasing; on the other hand, listing durations are noticeably shorter. This points to a dynamic, yet still tight, renter’s market. Asking rents, which rose significantly in 2024, are now increasing at a somewhat more moderate rate of 3% to 4% depending on the region – less than last year, but still well above pre-pandemic levels. Given the ongoing shortage of supply, mainly due to sluggish construction activity, rents are expected to rise by another 1% to 3% regionally by the end of the year.

It is difficult to predict whether the recent key interest rate cut will soon lead to a reduction in the mortgage reference rate. Most recently, the rate remained unchanged in June, while the underlying average interest rate fell from 1.53% to 1.44%. As a large share of existing mortgages currently carry rates at or just above this level, a reduction to 1.25% in the fourth quarter is highly likely if low mortgage rates persist. While this would provide relief for existing tenants, it would also further widen the gap between asking rents and rents on existing leases.