Offices or retail space: quality comes first

While retail has become difficult for some locations in Europe due to COVID-19, it has proven resilient in Switzerland, where it offers good investment opportunities.

The resilience of the retail sector is partly explained by Switzerland’s high purchasing power, which has been maintained during the crisis. While prime rents for high street properties lost up to 20% in 2020 in some locations in the European retail markets and the level of these prime rents fell by an average of 11%, Swiss retail goods were more robust and lost less than 7%. In addition, the Swiss retail space market already showed signs of recovery last year and retail turnover increased again in 2021: according to the Federal Statistical Office, turnover in this market increased by 4.2% compared to the previous year.

Innovative formulas in demand in retail

Although catch-up consumption and reduced shopping tourism have played a role in the sales increase, it seems possible to attract customers with new ideas. The Glatt shopping center is an interesting example of this: the Retail Concept Lab (RCL) offers a format for brands that want to present their products on site in a shopping center at short notice. For a month, the stores were able to offer their products at the RCL and the customers could thus benefit from a great diversity. At the same time, brands were able to test their products without investing heavily in their own store. The Retail Concept Lab was a great success in 2021 and was fully let during the period in question. When it comes to managing vacant spaces, the “plug-in” format is also interesting for retail space owners.

A decisive location

The number of visitors on Bahnhofstrasse, measured in the city of Zurich between June 21 and August 10, 2021, underlines the importance of the location for the retail sector. In seven weeks, about 1.4 million people (and therefore potential customers) passed through the Bahnhofstrasse (in the middle of the street). A large proportion of purchases are made spontaneously and, according to a study by Simon and Kucher, spontaneous purchases have actually increased since the pandemic. Homes located in heavily frequented areas therefore remain very popular.

The office as service space

The COVID pandemic has also disrupted many people’s work habits, replacing telecommuting with on-site work. These two ways of working will continue to coexist in the post-COVID era. However, water still has to flow under the bridges before this effect is visible, because of the long-term leases for industrial surfaces. The fact remains that the supply of office space is currently the subject of a certain caution at the Swiss level: in the third quarter of 2021 it stood at 6.9%, slightly above the average of the last two years. Top rents for office space in Zurich and Geneva also fell slightly and were well below 900 francs/m2 in the second quarter of 2021.

Active asset management is therefore essential. Renters are looking for flexible and customized solutions in space and equipment, and increasingly see the office as a service area, or “office as service” to use the phrase used by IT service providers and IT professionals. operators, group of tenants on their way to establish themselves as the main one. In addition to location, the quality of workplaces is also gaining in importance: in the future, people who come to the office will have higher demands and the quality of workplaces will play a greater role. According to a Link Institute tenant survey, “location” (90%) and “long-term rent ratio” (71% of responses) determine a lease renewal. About a quarter and a fifth of commercial space tenants cite concierge services and the price/performance ratio respectively as reasons for renewal, but these are mentioned much less than the criterion of location.

Swiss commercial investment group

Several real estate investment vehicles are taking advantage of these phenomena. This is particularly the case with the investment group “Commercial Properties Switzerland” of the Swiss Life Investment Foundation, which was founded in 2011 and is developing favorably in terms of return and value. The selective development with a clear focus on quality has proven itself: the investment group invests in a high-quality real estate portfolio, with an optimal mix of office buildings and retail space, and focuses on economically dynamic regions of Switzerland. It therefore offers a high security of rental income. The investment group currently comprises 110 assets with a market value of approximately CHF 2,200 million (as at January 31, 2022). The investment group “Commercial Properties Switzerland” participates in the annual benchmark GRESB (Global Real Estate Sustainability Benchmark). Since 2019, it has benefited from the “Green Star” rating, which attests to the good integration of ESG factors in real estate investments.

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