In the financial landscape of 2023, Swiss real estate equities have emerged as prominent winners on the Swiss Exchange, exhibiting a robust performance throughout the year. Notably, these equities delivered an impressive total return of nearly 9% from the commencement of the year until the conclusion of November, outperforming the broader Swiss stock market, which recorded a gain of just under 4%. The differential success was particularly evident during the turbulent weeks of October, where investors sought refuge in Swiss real estate, renowned for its status as a safe haven.
Conversely, Swiss real estate funds faced challenges in 2023. Factors such as elevated interest rates, new listings, capital increases, and an overall excessive allocation to real estate by institutional investors contributed to dampening their price performance. Despite recent price gains, the total return for Swiss real estate funds over the same period remained stagnant at zero percent.
Looking ahead to 2024, a potential reshuffle in the market for Swiss investment properties is anticipated. This anticipated shift is expected to alleviate market pressures, providing support to the stock market performance of real estate securities. Forecasts indicate that the Swiss National Bank is likely to reduce its prime rate in the latter half of 2024, accompanied by a parallel decrease in long-term interest rates. The envisaged reduction in interest rates is poised to boost the valuations of investment properties, thereby limiting the extent of further price corrections. Additionally, lower interest rates are anticipated to create more favorable financing conditions, potentially enhancing the profitability of real estate companies over the medium term.
In the residential real estate sector, funds are expected to benefit from rising rental income due to excess demand and increasing asking rents. Despite potential risks associated with regulatory interventions in the housing market, these are not expected to significantly impact the stock market performance of real estate securities. Conversely, challenges persist in the office space market, where demand has been adversely affected by the prevalence of the home office trend. Given high supply ratios, rent increases outside of central locations are deemed challenging, potentially dampening the price performance of real estate funds and equities more exposed to the commercial real estate market.
For the year 2024, we anticipate Swiss real estate funds to deliver a positive total return, driven by their substantial allocation to residential properties. Although the upside potential for real estate equities may be relatively limited, compelling investment opportunities cannot be discounted as we progress through 2024.
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