Real estate: look beyond the borders of Switzerland

European real estate investments offer attractive returns in the current context. Their low correlation with other asset classes makes them attractive to Swiss investors.

The absolute size of the market, the relative proximity to Switzerland and the many opportunities for diversification are all arguments in favor of European goods. The short distances make it possible to gather information efficiently, in particular to examine the goods accurately on site. Moreover, with a transaction volume of almost EUR 300 billion per year, according to a survey by RCA Capital Trends and real estate markets that differ from country to country, Europe offers a wide range of diversification. All the more reason to look beyond our borders. Investors are encouraged not to focus solely on major economic centers and their exceptional locations. Indeed, investors close to local markets can find excellent return properties with an attractive risk-return profile in these macro locations.

TRANSACTIONS UP UP TO 20% in Q2 2021

The attractiveness and interest in European real estate investments is also reflected in the transaction volume: according to a study by RCA Capital Trends, it increased by 20% in the second quarter of 2021 compared to the same period of the previous fiscal year. While this increase is also due to the turbulence associated with the Covid-19 pandemic, the return to growth shows that demand for European real estate has not slowed down. With the Swiss Life REF (CH) European Properties fund, Swiss Life Asset Managers invests in line with the general trend of urbanization. In addition, Swiss Life Asset Managers invests where population growth can be expected in the medium term, namely in well-connected and economically prosperous cities and their surroundings. In metropolitan areas, Swiss Life Asset Managers is investing more in secondary locations with very good accessibility to take advantage of the development of less popular neighbourhoods.

The evolution of the market for office buildings arouses great interest. In the medium term, more employees will have to work more flexibly. However, not all jobs are suitable for telecommuting. And in absolute terms, office investments maintain their position as the best asset class and remain popular, especially when their location is exceptional. According to analyst firm RCA, investments in offices in Europe reached a market share of 24.6% in the first half of 2021 and weighed 37.5 billion euros, ahead of housing (18.9%) and logistics goods (17.3%). According to the analysis firm PMA, the prime return for investment in offices in 2020 remained constant at an average of 3.4% in Europe.

European real estate, a source of diversification

A good spread of investment properties in terms of geographical location (Switzerland and abroad), use and location can be very beneficial. Due to its size and breadth, the European market offers versatile diversification. Compared to Switzerland, it is characterized by marked opportunities for geographical diversification. However, Europe also has much less noticeable but equally decisive differences, such as the diversity of investment strategies and forms of investment.

The portfolio of Swiss Life REF (CH) European Properties therefore invests in attractive office buildings, retail space and residential assets, as well as mixed-use in European metropolitan areas. As of June 30, 2021, it included 15 properties across nine countries. In line with the strategy, the fund mainly invests in European office properties, which represent approximately 73% of the annual theoretical rental income. Rental income from the retail and hospitality sectors, the sectors hardest hit by the pandemic, only accounts for about 11%, of which about 59% comes from the OBI construction store in Stuttgart. Despite a temporary closure decided by the State, this store has proven its role as a real “stabilizer” in this segment. The residential area, least affected by the pandemic, currently stands at 9% and will increase further in the current financial year after completion of the construction of a building in Oldenburg. The main tenants (share of the ten largest tenants in terms of rental income: 42.9%) are mainly large companies with a high credit rating. And the portfolio of Swiss Life REF (CH) European Properties will continue to grow. A capital increase and the acquisition of additional real estate are planned.

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