Swiss Issues Immobilien 2012 en Web Version

Economic Research
Swiss Issues Real Estate Real Estate Market 2012 Structures and Prospects
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Imprint
Published by Martin Neff, Head Credit Suisse Economic Research Uetlibergstrasse 231, CH-8070 Zurich Contact immobilien.economicresearch@credit-suisse.com Phone +41 (0)44 334 74 19 Authors Denise Fries Fredy Hasenmaile Philippe Kaufmann Dr. Christian Kraft Martin Neff Thomas Rieder Stefan Roggo Thomas Rhl Jonas Stoll Contribution Viktor Holdener Printing Stmpfli Publikationen AG, Wlflistrasse 1, CH-3001 Berne Cover picture Swissporarena and Hochzwei, Lucerne (Architects: Marques AG & Iwan Bhler GmbH, community of architects, Lucerne) Photographer: Philippe Kaufmann, Zurich Copy deadline 6 February 2012 Orders Directly from your relationship manager or from any branch of Credit Suisse Individual copies can be ordered via EBIC, fax +41 (0)44 333 37 44 or by sending an e-mail to daniel.challandes@credit-suisse.com Internal orders via MyShop quoting Mat. no. 1511454 Subscriptions quoting Publicode ISE (HOST: WR10) Visit our website at www.credit-suisse.com/immobilienstudie
Disclaimer
This document was issued by the Economic Research department of Credit Suisse and is not the result of our/a financial analysis. The document is not subject to the "Directives on the Independence of Financial Research" issued by the Swiss Bankers Association. This publication is for information purposes only. The opinions expressed in this document are those of Credit Suisses Economic Research at the time of going to press (subject to change). The publication may be quoted providing the source is indicated. Copyright 2012 Credit Suisse Group AG and/or its affiliates. All rights reserved.
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Table of Contents
Management Summary Residential Property Demand Supply Market Outcome Outlook 2012 Serviced Living Real Estate in the Age of Internet und Social Media Office Property Demand Supply Market Outcome The Five Largest Office Property Markets in Detail Zurich Geneva Berne Basel Lausanne Outlook 2012 Retail Property Demand Supply Market Outcome Outlook 2012 Specialty Stores Real Estate as an Investment Indirect Real Estate Investments Direct Real Estate Investments Outlook 2012 Healthcare Real Estate Cantonal Real Estate Markets in Summary
4 7 7 10 13 18 19 21
24 24 26 29 29 30 32 34 36 38 40 41 41 44 47 49 50 53 53 58 61 63 67
Swiss Issues Real Estate Real Estate Market 2012
Economic Research
Management Summary
The Swiss real estate market has been left practically untouched by the crises and economic setbacks of recent years. Despite marked capital market and cyclical turbulence, its has slowly but surely seen steady improvements in performance. At first glance, this smooth performance appears likely to continue as fundamental data for the real estate market have changed little over the course of the year. Yet this stable performance has increasingly shifted the Swiss real estate market into the focus of private and institutional investors so that overheating and an investment crisis are now the dominant issues. Abnormally low interest rates, which have already begun to distort the market, signal disruption over the medium-term. For years, there have been warnings of a bubble and many fear that history might repeat itself. Yet the reality is not quite so simple, and fate generally writes a new script. Risks are already apparent today, yet they are different than those experienced by Switzerland in the nineties or by the US more recently. Close monitoring of individual markets is therefore all the more important, and care must be taken not to base judgment on single factors. We hope to make our contribution to this more rounded approach with this study.
Residential Property Page 7
Persistent Demand Pressure The effect of interest rates on the housing market is causing price distortions which are increasingly growing at two distinct rates. Whilst one area experiences a run on condominiums like it has never seen before, restricting the supply and so causing a worrying increase in property prices, other areas face problems in placing rental properties, in particular new-build and upscale properties, and only find relief in the persistently high rate of immigration. The trend is exacerbated by the fact that the expansion of supply, driven by the increasing focus of institutional investors on property, is increasingly focused on rented housing. As things currently stand, this trend is likely to continue throughout the year as fundamental data remain unchanged. The result will be increasing vacancy rates in the rental sector and continued price rises in residential property offered for sale. Thanks to the low share of speculative real estate sales though, property prices are not increasing as a result of a speculative price bubble, but rather as a result of a overheating of demand. Falling demand and sharp rises in interest rates are much-feared triggers that could bring about a possible price correction, though not in 2012. Innovative, but Economically Ambitious Cross selling, i.e. selling additional products to clients, is the key to greater client profitability regardless of the sector. Serviced living is an adaptation of this principle for residential lettings whilst at the same time being a rare innovation in this area of business. The increasing demands of the world of work as well as the shift in family structures have created the potential for additional services of all sorts. On the demand side, the relevant target group here is primarily comprised of high-income generating individuals, as only where the opportunity costs to the user exceed the cost of the service does the decision to buy in these services make economic sense. Cost is therefore a key factor, especially as the services on offer are so work intensive. In a high-salary country like Switzerland, services such as a concierge can only be provided in exceptional cases. This does not mean that other services cannot expect to have a rosy future, but they do need to be standardized and automated so that the work factor is minimized. Real Estate in the Age of Web-based Technologies Real estate and real estate markets have existed for thousands of years without the Internet and social media. Actors on the real estate market could therefore be tempted to underestimate the impact of these Web-based new technologies. Yet the virtual revolution as the current age will be remembered in history also has an impact on the world of real estate. Social media are playing an increasingly important role in marketing, but do harbor reputational risks. However, given the extraordinary variation in real estate types, which up to now have prevented the creation of large Web communities, these risks remain within limits. For this reason, the focus has moved to the newly developed solutions in the field of augmented and virtual reality. Both forms of people-technology interaction can be exploited by real estate markets, for one because they make all sorts of information ubiquitously available, and for another because they can provide an impression of spaces which have yet to be built.
Discussion topic: Serviced living Page 19
Discussion topic: Internet and social media Page 21
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Office property Page 24
The Calm before the Storm? The Swiss market for office property remains stable in 2012, with a slight tendency towards oversupply. Demand in 2011 grew moderately, but at a constant rate. Driven by architecturaland engineering practices as well as IT companies, and corporate service providers, it is likely that the growth in demand will continue just as unspectacularly in 2012 despite the looming economic slowdown, particularly in light of the fact that no employment surplus has built up in the recent past which is now ready to be reduced. Yet the volume of new projects approved for construction increased dramatically in 2011 and is triggering alarm bells. A closer look reveals there are indeed several large projects ready to be launched in the major German-speaking urban centers and their agglomerations. These will test the local markets, in particular because these projects are designed as new locations for larger companies, which will free up a corresponding amount of office space in core inner-city areas. Still, the risk of vacancies should not be overstated. In particular, many small companies in growth sectors are likely to welcome the attractive, vacant office space in 2012 in the urban centers. Nevertheless, the structural transformation is likely to be accompanied by a certain amount of pricing pressure at the corresponding city center locations. Different Situation in the Markets of Western Switzerland The five largest office property markets cover over 40% of all office space in Switzerland. Therefore, not only are the overall trends in these markets interesting; just as important are also the shifts within the individual office property markets and their various business districts. These changes provide an insight into overall Swiss trends and developments. In particular office property markets in German-speaking Switzerland are being shaped by the decisions of large companies to leave urban centers and move to well-connected yet cheaper to extended or outer business districts. Nevertheless, the prevalent topics in both Western Swiss office property markets are now low vacancy rates and limited floor space growth, which have resulted in the highest prices in Switzerland. Caution the Watchword for the Market Retail sees itself confronted with difficult conditions: consumer sentiment has deteriorated and a persistently strong Swiss franc has pushed nominal sales through the floor. Yet the position of consumers appears better than their mood, so that the actual cause of the retail sector's woes is primarily shopping tourism, and this most strongly in the border regions. Although retailers continue to look to the future with optimism, with most planning to expand their floor space, the data speak a different language. Excessive floor area expansion can be viewed as complete. This is also confirmed by the low number of major project approvals. This consolidation has contributed to stability in the market for retail property which up to now has been expressed in constant vacancy rates and falling supply ratios. Only the falling trend in rental prices does not seem to quite fit the picture here, yet on closer inspection, we see that this largely applies to smaller retail outlets which appear to be the losers in the wake of general structural change. Uninterrupted Growth of Specialty Stores In contrast to shopping centers, which will see no new openings this year, specialist markets are experiencing uninterrupted growth. Specialist market centers are springing up across the country. Their common feature is primarily their gradual concentration in areas with particularly good transport links. Anchor tenants generally recruited from the same few trading sectors such as furniture & furnishings or DIY & hobby. These forerunners are then often spontaneously joined by a similar mix of other specialist retailers. In total, there are currently 38 specialist market centers in Switzerland. There is hardly any medium-sized or large urban center that does not have a market like this close by. The coverage of specialist market centers in Switzerland is already well advanced. In most locations, their proximity to classic shopping centers is also striking. Cluster benefits and not only the advantages of sharing a well-connected location are obvious reasons for this trend. Increasingly, we are also seeing a convergence between specialist market centers and shopping centers. A Time of Investment Pressure Swiss real estate investments have been virtually a bonanza for investors over recent years, akin to striking gold in a gold rush. Real estate markets have been buoyed by record-low interest rates, handsome economic growth by European standards, and extraordinarily high immigration rates. House prices, as well as prices for direct and indirect real estate investments, have risen
The five largest office property markets in detail Page 29
Retail property Page 41
Discussion topic: Specialty stores Page 50
Real estate as an investment Page 53
Economic Research
sharply, albeit not always smoothly. Are these heights now alarming for real estate investors? In principle no, as low interest rates are the fundamental cause of such a trend. Also, Swiss real estate investments have paid stable and high dividends, which have partially offset the potential risk of loss to capital employed. Nevertheless, risks have still risen slightly over the space of a year, and the drop height rises, in particular for direct investments.
Discussion topic: Healthcare real estate Page 63
The Latent Potential of Healthcare Real Estate Given the lack of alternatives, private and institutional investors have piled into classic investment properties, mostly residential and office properties. Investors have the advantage of experience with such mainstream real estate, supply and demand can be easily monitored, and the investment risks are manageable. By contrast, special purpose real estate is often left languishing in its niche, despite pressure to invest, having failed to attract investors, whether due to poor market prospects in the case of the hospitality industry, or the complicated regulatory and legal framework in the case of the education and healthcare sectors. Though if the basic conditions change, as is currently the case with the introduction of new hospital financing rules, the affected special real estate segment should be reassessed. New hospital financing rules offer a number of opportunities to tap into an opening area of real estate with quantifiable risks. Cantonal Real Estate Markets in Summary Real estate is a special asset. Its defining feature is that it cannot be moved from place to place. Location, to which it is intrinsically bound, thus has a significant influence on its use and value. National trends such as immigration and their general effects on the Swiss real estate market can have a very different impact in the regional sub-markets. The regional section of this study therefore looks at how specific regional factors influence the structure and development of local real estate markets. Like a real estate manual, the regional section allows private and professional investors to compare regional markets and to discover how Switzerland's cantons differ in their core features in an informative double-page outline.
Regional focus Page 67
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Residential Property
The effects of interest rates on the housing market are causing price distortions which are increasingly growing at two distinct rates. Whilst one area experiences a run on condominiums like it has never seen before, restricting the supply and so causing a worrying increase in property prices, other areas face problems in placing rental properties, in particular new-build and upscale properties, and only find relief in the persistently high rate of immigration. Given the increased interest from institutional investors in investment properties, these problems are only compounded by the fact that supply is currently focused on residential lettings. The current trend is likely to continue through this year as fundamental data will not change. This will be expressed in increasing vacancy rates in the rental sector and continued price rises in residential property offered for sale. Thanks to the low share of speculative real estate sales, property prices are not increasing as a result of a speculative price bubble, but rather as a result of a overheating of demand. Falling demand and strong interest rate rises are the triggers of a possible price correction, though not in 2012.
Demand
Residential property increasing
The demand for housing has for some years been shaped by a more pronounced interest in home ownership. Outside the centers, where residential lettings business still holds sway, demand is dominated by a desire to buy (figure 1). According to our estimates, around 40% of today's households own their homes. Compared to the year 2000, when the last official figures were taken, this corresponds to an increase of more than 280'000 owner-occupied homes (Ratio 2000: 34.6%). The preference for condominiums has risen steadily. Since 2006, the condominium was preferred over a single family home in six out of ten cases. In central residential areas in particular, or in areas which enjoy good public transport links, the cost of single family homes has become unaffordable so that demand has been necessarily refocused on condominiums. Figure 1 Preference for Home Ownership
Estimated share of home ownership in growth of housing stock 2000-2011 as well as the split SFD/Condo
Share of owner-occupied property in housing stock growth 90% - 100% 80% - 90% 70% - 80% 60% - 70% 50% - 60% 40% - 50% 30% - 40% 20% - 30%
Growth shares in owner-occupied segment Condominiums Single-family dwellings
Source: Credit Suisse Economic Research, Baublatt, Geostat
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Condominiums dominate in central regions
Figure 1 shows how the demand for single family dwellings is displaced by that for condominiums with increasing proximity to the center. Whilst in the Glattal and Zimmerberg regions, 85% and 83% of new homeowners have bought a condominium over the last eleven years, in the Weinland region this figure stands at 47%. In even more rural regions, the single-family dwellings continues to dominate thanks to more affordable building land. In the Canton of Jura only 19% of buyers chose a condominium, whilst in the Jura bernois regions this was as low at 14%. That home ownership dominates demand for housing in most regions is seen from the map. Only in the large conurbation areas do residential lettings gain the upper hand and continue to play a significant role in their immediate environs. Also obvious is the displacement of many rental tenants from Lake Geneva towards Greyerzerland. One of the main reasons driving the buoyant demand for residential property is its cost appeal in comparison to renting. Thanks to historically low mortgage interest rates, home ownership has become affordable for an increasing number of households and is today cheaper than a tenancy. This is illustrated by the Housing Affordability Index (HAI) Composite, which we calculate both for condominiums as well as for single family dwellings (figure 2). This looks at ongoing items of expenditure for home ownership, that is, mortgage payments and maintenance, against household income. If this is below 33%, home ownership is affordable under the so-called golden rule of finance. Today, this is true both for condominiums (17%) as well as for single family dwellings (21%). At 22%, the budget impact of an average rental apartment with 4.5 rooms is close to the long-term average and currently above that for the two forms of home ownership. Figure 2 Affordability of Home Ownership
Current mortgage costs on conclusion of a 5-year fix mortgage plus maintenance in % of average household income
Homeowners have lower housing costs than tenants
80% 70% 60% 50% 40% 30% 20% 10% 0%
SFD: HAI (Composite) Switzerland Condo: HAI (Composite) Switzerland Golden rule of financing Rent: HAI (Composite) Switzerland
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Credit Suisse Economic Research
Demand for residential property will remain high in 2012
Last year, almost all lights showed green in terms of demand. Thanks to low inflation and the positive employment trend, support from real income trends was slightly stronger than in 2010. Demand for housing benefited from this and was also supported by persistently low interest rates and rising levels of immigration. In our study from last year, we forecast net migration to stand at 70'000 for 2011. In the end, this figure was surpassed due to the slight acceleration in the rate of immigration that we forecast (figure 3). The trend is unlikely to change much in 2012. Given the persistence of the crisis and current exchange rates, mortgage rates will remain persistently low. Low inflation resulting from the continued strength of the Swiss franc will also mean a further when only moderate increase in real incomes for private households despite only low nominal increases in wages.
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Robust immigration also in 2012
In 2012 demand momentum is likely to be rather low due to depressed consumer sentiment and stagnating employment levels. On the other hand, the strongest support will again come from immigration with 65'000 persons (net) expected to move to Switzerland in 2012. The number of those coming to Switzerland for work purposes will fall on account of the deterioration of the economy, though the contraction will be limited. After all, there is still a lack of skills in Switzerland. In the last employment survey, companies indicated that when searching for staff with higher professional qualifications, they found it difficult or impossible to find a suitable employee in 21% of cases. The picture is similar in the search for university graduates (18%) as well as for those having graduated through a vocational apprenticeship (14%). Figure 3 Recruitment of Staff and Net Migration
Staff difficult or impossible to find: in percent (left scale); net migration incl. change of status (right scale)
28% 24% 20% 16% 12% 8% 4% 0%
Net immigration/emigration (r.h. scale) University degree Higher professional qualification Apprenticeship Obligatory schooling
100'000 90'000 80'000 70'000 60'000 50'000 40'000 30'000
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Swiss Federal Statistical Office, Credit Suisse Economic Research
Population growth 2012 again above the 1% threshold
A quick look back shows that even in the depths of the 2009 recession, highly qualified staff continued to be sought. In the absence of sufficient domestic resource potential, highly qualified staff from outside Switzerland are likely to remain in demand also in 2012. Also, the deterioration of employment prospects evident from the dwindling number of unfilled positions is likely to impact on the level of immigration only with some delay. The key point is that the high number of people coming to Switzerland over recent years are unlikely to see any reason to return to their countries of origin where the macroeconomic prospects are generally worse. All in all, we expect positive net immigration to contract slightly, though with 65'000 people still expected to arrive in Switzerland (including status change), immigration will remain an important factor in the real estate market. Population growth for 2012 is therefore likely to again come in above the 1% threshold. Despite low interest rates and the corresponding market shift from tenancy to home ownership, demand on the rental market remains intact. Although these shifts determine the current picture, Switzerland still remains a land of tenants, if only because the initial outlay required for home ownership is so high. Yet the main reason for the solid demand for rental properties comes from immigration. In choosing a home, someone moving to Switzerland for the first time will generally look for a property within good reach of work and in an area with a social network. The residential lettings market is therefore particularly buoyant in urban centers and in neighboring agglomeration zones. In these areas, the number of people opting to remain in rented accommodation is also high given the shortage of adequate and affordable alternatives.
Immigration continues to shape the residential lettings market
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Supply
Construction industry at full capacity
The construction industry is one of the few industries which have remained untouched by the crises and prevailing uncertainty on the markets. Accordingly, it continues to operate at full capacity. The backlog of residential construction projects in progress but still incomplete has meanwhile crossed the 70'000 dwellings mark, twice the level experienced at the end of the nineties (figure 4). The gap between the number of homes under construction and the number of new homes coming on to the market has opened further. This shows that the construction sector, which is also busy with renovation projects, simply cannot produce any more homes than it is doing. The sector is currently operating at maximum capacity, a fact which can also be seen from the high capacity utilization in structural engineering. Since 2006, this has remained consistently between 77.7% and 80%, which represents peak values within the construction sector. Since most companies work through construction projects in parallel and not in series, completion periods have risen over recent years. Since commercial property construction has weakened since the onset of the financial crisis and has had to jettison more weight last year, the construction industry has been able to gradually increase its house building activity by shifting capacities. According to our models, the net new additions stood at 46'000 residential units last year. 2012 will also see a very high number of new homes come on to the market. We expect a net increase of around 47'000 homes. This corresponds to the biggest expansion of the housing stock since 1994/95, when net new homes rose to 50'000 per year on the back of government subsidies. Figure 4 Indicators for the Expected Expansion of the Housing Stock
Net additions, homes under construction, building permits: number of homes; capacity utilization in structural engineering: %
Nevertheless, the housing stock will expand in 2012
80'000 70'000 60'000 50'000 40'000 30'000 20'000
Building utilization (annual average, right scale) Dwellings under construction (annual average) Building permits Net additions
85% 80% 75% 70% 65% 60% 55%
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: Swiss Federal Statistical Office, Baublatt, Credit Suisse Economic Research, KOF
Building permits at historical high
That the pipeline remains full to bursting can be seen from the number of building permits. In 2011, permits for a total of 51'000 homes were issued (figure 4). This corresponds to a similar number of homes at the purported peak of the current cycle at 2006. Alongside high immigration rates and the corresponding impact on demand from this, institutional investors also play a key role in shaping the landscape here as these are increasingly turning to the real estate market as returns from financial markets deteriorate. Rising property prices and falling initial returns, especially in respect of residential property which is viewed as a stable investment, are increasingly driving institutional investors in the direction of project development. The increasing activity of institutional investors is evident from the growing number of rental housing projects. Since institutional investors primarily seek to secure steady cash flows, their property focus is on rented housing. This explains the shift in the construction sector towards the residential lettings market. Since measurements began in 2002, the number of rented 10
Supply shifts towards rented housing
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housing approvals has more than tripled from 6'000 homes per year to over 20'000 at present (figure 5). Increased planning and approval for rented housing has recently brought the dominance of condominiums for the construction sector to an end. In 2012, there are likely to be as many rental properties built as condominiums. Yet home ownership will still hold sway for the time being. Including single family dwellings, 60% of all homes approved in 2011 will be owneroccupied. Figure 5 Breakdown of Building Permits by Type of Use
Number of homes, 12-month moving total
22'000 20'000 18'000 16'000 14'000 12'000 10'000 8'000 6'000 4'000 2002 2003 2004 2005 Rented homes Single-family dwellings Condominiums 2006 2007 2008 2009 2010 2011
Source: Baublatt, Credit Suisse Economic Research
Focus of construction activity is outside urban centers in well connected regions
As in previous year, the focus of construction activity through 2012 will remain in the metropolitan areas of Geneva/Lausanne and Zurich (figure 6). In the centers themselves, relatively few new homes will be built. Rather, the focus of construction activity is in the outer belt and in suburbs which enjoy good transport links and where, relative to the region as a whole, building land is cheap and in adequate supply. In the Zurich area then, development is most pronounced in the Aargau, Brugg/Zurzach, Freiamt and Mutschellen regions. In addition, there is the low tax March/Hfe region at the upper Lake Zurich. In Western Switzerland, the focus of construction activity in 2012 will be in the Nyon region as well as in the La Broye region north of Lausanne. By contrast, construction activity in the Lower Valais region will be less pronounced than in previous years. Notably the number of major construction projects has increased steadily over recent years. On the one hand, this stands in connection with the increasing number of rented housing projects, though can also be seen as a sign that the construction sector has entered a very mature or even late phase of the cycle. Since the beginning of 2010, 14% of all homes in multi-family dwellings have been built within complexes of more than 100 units. A further 18% of approved homes are within complexes with between 50 and 100 units. Accordingly, projects comprising more than 50 homes account for almost a third of all homes planned or under construction. At the beginning of the current construction cycle in 2003, this ratio stood at only 26%. As to be expected, large complexes account for a significant proportion of all construction activity within urban centers. For instance, 23% of all homes approved in the region of Lausanne since the beginning of 2010 will be built as part of a complex with more than 100 residential units and a further 25% as part of a complex with between 50 and 100 homes (figure 6). A similar picture is observed in parts even more pronounced in other large urban centers as well as in more medium-sized cities such as Winterthur, Zug and Lucerne. Major projects also shape regions close to cities which have in part already assumed certain city functions, for instance Glattal or Limmattal.
The number of large projects are both an indicator of the construction sector's strength...
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as well as a warning in certain regions
The sizable proportion of major projects in some regions located further away from the centers is also notable. In Fricktal, for instance, 43% of all new homes built over the last two years were planned within complexes containing more than 100 residential units. A similar if not quite so extreme picture can also be seen in the Freiamt, Brugg/Zurzach, Werdenberg, Sarganserland and Nidwalden/Engelberg regions. The persistent demand overhang in the centers has made marketing large projects located outside these centers much easier. Though things will not stay this way forever. If the market situation suddenly reverses and excess demand switches to excess supply, it is likely to become very difficult to market projects located at greater distances to urban centers and it will be hard to hold vacancy rates low.
Figure 6 Anticipated Expansion of Housing Stock 2012 and Major Projects as Share of Total Approved Homes by Region
Anticipated expansion in percent of housing stock; Major projects as share of total of all approved homes in multi-family dwellings
Expected expansion 3.0% - 4.0% 2.5% - 3.0% 2.0% - 2.5% 1.5% - 2.0% 1.0% - 1.5% 0.5% - 1.0% 0.0% - 0.5%
Projects with more than 100 units Projects with 50 - 100 units Projects with fewer than 50 units
Source: Baublatt, Credit Suisse Economic Research, Geostat
Response times are long and are becoming longer
The high number of homes under construction, the record number of building permits issued and the absence of any sign that the number of planning applications will fall all harbor a risk of overproduction. With pressure increasing in the project pipeline in this way, the response time for any reduction in home construction to take effect is set to become longer and longer. Yet aside from a few local and regional anomalies, it is still too early to say whether there is a general oversupply in Switzerland. However, as investors look ever more desperately for returns, the question as to whether the brakes could be hit on time in the case of any change in the demand situation has to be asked. Only this way could the massive home construction machine reduce the number of new homes within a reasonable period of time. In terms of risk then, the consolidation in the number of planning applications anticipated this year is desirable.
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Register-based Home Survey Discovers Some Homes Missed by Statistics Through the course of the change in the way home data are collected, from an exhaustive survey to a register-supported count, it has been discovered that a number of homes had been missed. The magnitude of the error has caused some concern. The housing stock, which as per year-end 2010 stood at 4'079'000 units has been revised upwards by 115'000 units over the last two years as new counts have been undertaken. In other words, previous surveys had miscounted the number of existing homes leaving 104'000 homes unreported in the statistics. This would be equivalent of missing out a city the size of Geneva. It was not until the buildings and homes register was introduced at a federal level, that the individual municipalities were required to provide detailed information on the homes in their areas. It turned out that previous census figures from numerous municipalities did not tally with the new data on the register. In many cases, the units which were not counted were second and holiday homes, primarily in the Alps and in the urban centers.
Market Outcome
Divergence of rental and sales markets
Thanks to persistently high demand, the supply of new homes could largely be absorbed by the market in 2011. The rise in the number of vacant properties 1'704 more than in the previous year is due to regional and local oversupply and not the result of national overproduction. This rise took the total vacancy rate from 0.91% to 0.94%. It is also worth noting that this increase in vacancy rate was wholly attributable to a rise in the number of vacant rental properties. Accordingly, it is clear that the residential lettings market is moving in the opposite direction to the market for condominiums which is suffering under increasing supply bottlenecks. The vacancy rate for condominiums, for instance, has recently fallen again to a new historic low (figure 7). Figure 8 Change in Homes Advertised
By market segment; year-on-year change
25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Rented homes Condominiums Single-family dwellings Total
Figure 7 Vacancy Rates by Market Segment

Vacant properties expressed as percentage of total stock in relevant segment
2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Single-family dwellings (for sale) Condominiums Rented homes
2007
2008
2009
2010
2011
Source: Credit Suisse Economic Research, Swiss Federal Statistical Office
Source: Credit Suisse Economic Research, Meta-Sys AG
Even more vacant rental properties in 2012
Little will change here in 2012. The high levels of construction activity in the rented housing segment will raise the liquidity of this market, after only a slight increase in supply from last year (figure 8). Accordingly, we expect the markets for owner-occupied condominiums and rented housing to continue to diverge. There will be an increasing number of vacant rental properties coupled with a greater shortage of condominiums. Because, in contrast to residential lettings, properties for sale are advertised from the moment a building permit is granted, the production increase seen in figure 5 was already advertised in 2010/11 and the majority of these properties are likely to have already been sold. It follows then, that in 2012 as well, the expected rise in vacancy rates towards the long-term average of around 1% is likely to be attributable to the residential lettings sector.
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Large regional differences in vacancy rates
Across the different regions, there are large differences in the ability of the individual housing markets to absorb changes in supply. In the region around Lake Geneva, vacancy rates are very low in most areas and even in popular residential areas, the tense market situation has changed little (figure 9). By contrast, in regions where vacancy rates were already above average, the number of vacant properties tended to rise further. In the Jura regions as well as along the axis between Biel and Lenzburg, vacancy rates are above the Swiss average, in places vacancy rates are even twice as high as this at over 2%. The picture is similar in parts of the cantons of Thurgau and St. Gallen, though less pronounced. Figure 9 Vacancy Rates and Trends
Vacancy rate as per June 1, 2011; change versus 2010
Vacancy rate 2011 > 2.50% 2.00% - 2.50% 1.50% - 2.00% 1.25% - 1.50% 1.00% - 1.25% 0.75% - 1.00% 0.50% - 0.75% 0.25% - 0.50% < 0.25%
Change 2010/11 Strong increase Slight increase Sideways trend Slight decrease Strong contraction
Source: Swiss Federal Statistical Office, Credit Suisse Economic Research, Geostat
No rent increases in 2012 for upscale and new rental properties
The high vacancy rates in the rental sector are still not reflected in rent price performance (figure 10). Following on from a temporary wobble in 2010, quoted rents have managed to gain traction since the end of 2010, largely due to increased pressure from immigration. Within the space of a year, quoted rents increased by 2.8%. Growth in rents comes largely from cheap and older dwellings. Upscale rental properties face competition from the market for attractive owner-occupied properties and have experienced rent falls of around 1%. For 2012, we expect rents to lose some traction and see less flexibility for rent increases in respect of new-build and upscale properties. In terms of existing properties, price performance primarily depends on inflation and mortgage interest rates. In the current year, inflation will be barely above zero, and mortgage interest rates will remain at a low level. According to our models, the mortgage reference rate will fall in the first half of 2012 to 2.25%, making further rent reductions necessary. In line with our models, and given the inertia of the reference interest rate, which reflects all outstanding mortgages in Switzerland, mortgage reference rate hikes are not expected before the end of 2013. All in all, the rent price index compiled by the Swiss Federal Statistical Office is expected to gain around 1% in 2012, as tenancy changes in some existing properties will still be used to impose rent adjustments. The picture is very different for owner-occupied properties. Prices growth here has accelerated yet again and on a year-on-year basis is now significantly above the average rate of growth since 2000 both for condominiums (+8.6%) as well as for single-family dwellings (+6.4%) (average yoy growth since 2000: 4.7% for condominiums and 3.1% for SFDs). Such a fundamental change greater supply bottlenecks on the market for condominiums than for rental properSwiss Issues Real Estate Real Estate Market 2012
Falling rents for existing homes
Worrying price trends for condominiums
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ties can also be seen in price performance. No change is to be expected for this increasingly worrying price trend in 2012. The slight dip in the index seen towards the end of 2011 is likely only to correct the overshoot from the prior quarter and not to signal any change in the underlying price trend. We expect further significant rises in prices both for condominiums as well as for single-family dwellings. These are unlikely to be as pronounced in 2012 as they were in 2011, though should not fall below the average annual growth rate since 2000 (4.7% and 3.1%). On first glance, the increasing divergence between single-family dwellings and condominiums is surprising. Yet most of this is attributable to the fact that regions where house price rises are greatest are also those where the majority of construction focuses on condominiums and that single-family dwellings tend to be built in cheaper regions. This observation is also supported by the fact that in various rural regions price trends for both forms of home ownership run in parallel. Figure 10 Price Performance of Owner-occupied and Rented Properties
Index: 1. quarter 2000 = 100; nominal
170 160 150 140 130 120 110 100 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Figure 11 Density of Buildings and Location as Crucial Factors

Increase in land value necessary to offset building depreciation
Necessary upgrading p.a.
Rent Quoted rent Rent Existing and new rents (BFS rent price index) Transaction prices condominiums Transaction prices single-family dwellings
14% 12% 10% 8% 6% 4% 2% 0%
Region Glarner Mittel- and Unterland Region Aarau Region Zurich
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 Floor area ratio
1.1 1.2 1.3
Source: West & Partner, Swiss Federal Statistical Office
Return of the Real Value Myth? Published price trends for residential property generally apply to new-build properties. It is incorrectly often believed that existing properties experience a similar appreciation in value. Every property depreciates as time goes on. Its value can be reinstated by renovation works, though only at the cost of additional investment. What actually appreciates in value is the building plot on which the property stands. The shorter the supply or, alternatively, the greater the demand for building land is, the greater the appreciation in its value. Whether the value of the property increases or not depends on whether the increase in the price of the building plot is able to offset the cost of any age-related depreciation.
The floor area ratio as key metric
In essence, three value-determining factors can be distinguished. Firstly, the increase in land value. Alongside this, the price of construction land is key. The more expensive the land, the less impact the value of the building will have and so also the impact of its depreciation. Thirdly, the relationship between the size of the plot and the permissible floor area, expressed in the floor area ratio, plays a crucial role. In case of a low floor area ratio, as in the case of singlefamily dwellings, the price of the land has greater weight and the impact of any depreciation to the value of the building is less. This opposite is true in the case of condominiums. High floor area ratios mean that the impact of land prices is lower. Depreciation of the building itself therefore has a more pronounced effect on value.
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Large differences depending on location
We have modeled the effects of these three factors for the individual regions.1 The result shows just how much land values must appreciate each year in order to offset depreciation (figure 11). We distinguish between various floor area ratios thereby illustrating the differences between single-family dwellings and condominiums. For the purpose of illustration, we have restricted ourselves to three regions which clearly show the differences within Switzerland. In the Aarau region with a floor area ratio of 0.3, it is sufficient for land to appreciate in value by 2.3% per year in order to offset the cost of building renovations. Once the floor area ratio increases to 0.8, land values must rise by 6.2% to do the same. In regions which are located further away from urban centers such as the Glarner Mittel- and Unterland, where building land is significantly cheaper, land values must increase much more in order to be capable of offsetting depreciation in the value of real estate. In the above example, this would be 3.2% and 8.4% respectively. The opposite is true in popular locations such as the City of Zurich. Here, land values must annually increase by only 0.4% and 1.0% respectively in order to offset depreciation. The increases in land values required in certain rural locations are in many cases unrealistic, whilst those required in cities will generally be achieved without a problem. From a purely financial perspective, our estimates show that residential real estate is not profitable in all areas. Such investments are more promising in more densely populated areas where building land is in greater demand and is more expensive. The greater the density of buildings, that is, the higher the floor area ratio, the less probable it is that owning your own home will also pay off as a pure investment property. The low impact of any change in land values on the value of a condominium should not be overlooked if any illusions as to real value are to be avoided. However, floor area ratios are not set in stone, but may be increased in certain areas assuming sufficient political acceptance. Some examples of recently sold condominiums appear to have factored these options into the purchase price only this way can such high prices be justified as sustainable.
Real value myth in condominium segment?
Overheating: Yes or No?

Real estate prices decoupled from incomes
In previous years, we have used income trends to show that price trends in relation to condominiums are not sustainable in certain areas. With the renewed acceleration in the rate of growth in house prices, one can no longer speak of a healthy trend, even in terms of the Swiss average. All in all, we believe trends in 38 of 106 regions are unsustainable. This includes the region around Lake Geneva and Lower Valais. Gradually, the canton of Fribourg is also being infected by excessive price rises. Large sections of the Canton of Zurich as well as individual tourist regions are also experiencing such trends. Yet in large parts of the Mittelland, in the Jura Arc as well as the foothills of the Alps, the cost of home ownership still remains sustainable. Weighted in accordance with their relevant shares of homes owned, over the last 15 years, the price of real estate has grown 1.2 times as fast as income in 40% of all regions, that is, house prices have outstripped income growth by at least 20% in these regions. In our view, this represents a overvaluation (figure 12). In a further 45% of regions, house prices have risen faster than incomes over this period (price/income ratio > 1). Accordingly, we see that one more factor for overheating the decoupling of real estate prices from income trends has been fulfilled (figure 14). In contrast to the situation in the late eighties, today's share of speculative real estate transactions is low in Switzerland. Accordingly, the current trend lacks the key element in any real estate crash. It is appropriate therefore, to talk rather of an increasing overvaluation than of a speculative price bubble. The reason behind this overvaluation is the extraordinarily high demand for residential real estate which has persisted for a number of years. The price trend is nothing more than the logical response to a shortage in supply. As a result, prices cannot be expected to change until demand significantly declines. Yet for the moment, there are no signs of this. From today's perspective, the most likely scenario appears to be that demand for residential real estate will not contract notably until mortgage rates rise sharply.
Demand-related overvaluation not speculative bubble
Our model assumes construction costs of CHF 4'000 per square meter and depreciation of 1% per year for existing properties.
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Figure 12 Regional Overview of Price of Condominiums

Share of regions weighted by their share of residential property
6% 8% 5% 15% Price trend in relation to income trends <1 1 - 1.1 10% 17% 1.1 - 1.2 1.2 - 1.3 1.3 - 1.4 1.4 - 1.5 1.5 - 1.6 11% 28% > 1.6
Figure 13 Extent and Form of Mortgage Debt

In percent
Up to 66% - fixed interest 66% - 80% - fixed interest More than 80% - fixed interest Up to 66% - variable interest 66% - 80 % - variable interest More than 80 % - variable interest
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
1996
1998
2000
2002
2004
2006
2008
2010
Source: Swiss National Bank
Such a rise in interest rates is likely to have less serious consequences than in the nineties, as today's share of variable rate mortgages is less than 20% compared to 57% in 1996 (figure 13). The majority of households are now also aware and appreciate the insurance component included in Fix mortgages, which were not launched until the eighties. Accordingly, hefty interest rate hikes in Switzerland will have a direct impact on far fewer people through increases to their mortgage rates today than was the case in the past. Today's mortgage structures should therefore also not compound any fall in house prices, as was the case in the nineties. Also, the volume of mortgages issued by banks with very high loan-to-value ratios has also significantly declined. Today, only 6% of mortgage volumes have a loan-to-value ratio of between 66 to 80%, and less than 2% have a loan-to-value ratio of more than 80%. In 1996, these figures stood at 9.5% and 7.5% respectively. The reason for this development is found primarily in improved risk management within the banks in the wake of the last real estate crisis. Figure 14 Factors in a Real Estate Price Bubble
Agree
~ Insufficiently pronounced
X Disagree
Impossible to say
Excess liquidity X Excessive risk appetite Lengthy period of rising real estate prices Real estate prices decoupled from incomes X High proportion of speculative real estate transactions High / excessive growth in mortgage volumes given margin pressure on mortgage lenders Inadequate credit checks for mortgage approvals (due to false incentives) Construction activity overshooting and supply overhang
~
X
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Outlook for Residential Property in 2012: Persistent Demand Pressure

Demand for residential property will remain extraordinarily high in 2012 thanks to robust immigration and the persistence of low mortgage interest rates. This will remain the case despite further deterioration in the economy. Demand will continue to focus on condominiums close to urban centers as people continue to move away from rented housing. Yet residential lettings will continue to be buoyed by immigration, which will remain at a similar level to that of last year, again supporting above-average population growth of around 1%. On the supply side, investors are increasingly attracted by the persistently high demand for housing, an interest which is expressed in record numbers of planning approvals. We expect a net increase of around 47'000 homes in 2012. Such numbers were last seen in the middle of the 1990s thanks to government subsidies. If the construction industry wasn't already working at full tilt, even more new additions would be seen. Given such a backlog of projects, a high number of new homes is also to be expected for 2013. The focus of construction activity will remain on owner-occupied properties, though there is an increasing shift towards rental properties. Whilst the additional supply of owner-occupied properties will be absorbed by the market without much of a problem, the high number of apartments coming on to the residential lettings market is likely to raise vacancy rates slightly, as in the previous year. A loss in price momentum in the residential lettings sector is therefore to be expected. By contrast, house prices will continue to rise sharply in 2012. We now see price levels in 38 of 106 regions as no longer sustainable. However, the trend is not one of a (speculative) price bubble, but rather one driven by an overheating of demand. There are no signs of this changing in 2012. The trend is not expected to change until demand is eroded or interest rates are raised sharply.
Demand, Supply and Market Outcome

Demand
Population trends: Population growth has accelerated somewhat over the course of the past year. Although this is expected to slow slightly in 2012, population growth is still likely to pass the 1% mark. Immigration will remain the main determinant of increasing demand. Income trends: No major triggers are expected in 2012 as was the case in the previous year. Given the deterioration of the economy, increasing unemployment and falling employment rates, real incomes are expected to increase only marginally. Real income increases will still remain positive though, thanks to low inflation. Interest rate trends: Given the persistence of the euro crisis, the Swiss National Bank will continue to focus on exchange rate trends over the months to come and will maintain its low interest rate policy. Accordingly, interest rates will remain at extraordinarily low levels through 2012.
Background
Outlook
Supply
Development of housing stock 2012: We expect a net addition of 47'000 residential units, slightly more than in the previous year. Although owner-occupied properties will account for the lion's share of construction, residential lettings will account for an ever growing share. Expansion planned in the medium-term: The number of submitted planning applications reached a new record high at the end of 2011. Against the backdrop of a large number of incomplete residential units, construction activity will remain high in 2013 and will ensure a considerable expansion of the housing stock.
Market Outcome
Vacancy rates: Vacancy rates will continue to increase towards the 1% threshold in 2012. The increase in vacancy rates is likely only to affect residential lettings. The in- (owner-occupied) (owner-occupied) creasing number of vacant apartments cannot be interpreted as a general alleviation of tension, but rather reflects a growing oversupply in certain regions and a continued un(rented) (rented) dersupply in other regions. Prices: No change is to be expected for this increasingly worrying price trend in housing in 2012. The number of regions in which we see price levels as no longer sustainable has (owner-occupied) (owner-occupied) increased to over a third. By contrast, we expect to see easing price momentum in the residential lettings market. (rented) (rented) Performance: Given the persistent pressure to invest, we expect investment property prices to continue to rise. Cash flow returns, however, are likely to stay flat or even fall slightly on account of the limited potential for rent increases and growing vacancy rates so that total returns are likely to remain largely unchanged.
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Serviced Living: Innovative, but Economically Ambitious
Cross selling, i.e. selling additional products to clients, is the key to greater client profitability regardless of the sector. Serviced living is an adaptation of this principle for residential lettings and is a rare innovation in an area of business which in the past has been shaped more by regulation than by trailblazing new ideas. Yet the principle can only work if it also satisfies a real demand from clients. Various signals are pointing to the fact that such demand is increasingly apparent and that the time is right for such products. Only conclusive evidence of the exact form of such services and identifying which ones would find the greatest acceptance on the market is still to come.
Drivers of demand: Increasing work commitments and social change
One of the drivers of the demand for serviced apartments comes from the steadily increasing professional commitments now faced by employees. These professional responsibilities can only be fulfilled if employees are allowed to concentrate all their energy on core competencies so giving rise to a demand for support in other areas of their lives. Up to now, the services provided to serviced living have not been limited to additional services such as classic domestic work, but have been spread across a broad range of services relieving some of the burden of everyday chores on the tenant or even taking these away entirely. Another important driver is social change. In modern times, the small suburban family ideal seems to be moving increasingly further from the reality. The change in family structures is expressed in a shrinking of the size of the household and an increase in female employment rates. Figure 15 shows that the average size of a household fell steadily from 1980 to 2009. Figure 16 Employees by Hourly Pay
Based on full-time employees, 2010
100% 700'000 560'000
Figure 15 Size of Household

In percent
1980 80% 1990 60% 2000 40% Full-time employees (right-hand scale) Cumulative frequency
420'000 280'000
2009
20% Net hourly pay in CHF 0% 1 person 20% 2 people 40% 3 people 60% 4 people 80% 100% 0% 3 14 25 36 47 58 69 81 92 103 >111
140'000 0
>= 5 people
Target groups
The target group for serviced living includes those tenants whose opportunity costs exceed the costs of external service provision. The higher the tenant's income is, the more rational it is to buy in such services and invest the time saved in additional work. The number of potential consumers therefore corresponds to the number of employees whose net hourly pay exceeds the cost of the service range. Figure 16 shows the distribution of full-time employees by net hourly pay. A cumulative frequency of 40% and net hourly pay of CHF 25 means that 40% of full-time employees earn less than CHF 25 per hour and that 60% earn more than this. As a benchmark for the cost of externally provided services, we use an average of CHF 42. Depending on the service, the actual price may be above or below this value. In 2010, approximately 23% of fulltime employees earned at least CHF 42. Accordingly, the target group for serviced apartments is primarily comprised of HIGIs (high income generating individuals). As a result of increasing academization, their share of the population is rising. Older generations tend to be more reticent in taking advantage of such additional services. This can be explained, on the one hand, with reference to their dislike of outsourcing traditional domestic and family work, and on the other
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hand in relation to opportunity costs, which on retirement are of course lower. Only when frailty prevents this age group carrying out their own domestic chores do does this target group become willing to take an apartment with services.
Cost as key factor
Buying in additional services must be comfortable for the user and demands a high degree of flexibility and precision from the service provider. Only this way does the user achieve the reduction in burden that they desire. The service is generally provided by specialist suppliers that are coordinated, timed and monitored by the service provider. Both this responsibility as facilitator as well as the services themselves are work intensive. As a result, the cost of the overall service in a high-salary country like Switzerland can quickly exceed the readiness of the user to pay. Not every additional service, however successful abroad, can be transferred to Switzerland and be just as successful under local conditions. This is illustrated by the concierge service. A concierge is a person who is employed in service of the tenants of a property. He ensures the security of the building, provides usual caretaker services and arranges other services for tenants when he is on duty in the building. These other services may include chauffeuring, shopping, running errands, restaurant reservations, looking after pets, rubbish disposal etc. Figure 17 presents the direct monthly costs per tenant, using three options with different duty hours for the concierge and for different property sizes. Option A with a round-the-clock concierge presence (24 hours, 7 days/week) is too expensive, even in larger properties, with a concierge cost of only CHF 281 per month per apartment for a property with 100 apartments. Even option C with a concierge presence of only six hours per day costs CHF 66 per month per apartment for a property with 100 apartments. Properties with more than 100 apartments are very much the exception in Switzerland. One example is the planned Hardturm Hochhaus in Zurich with 121 apartments or the Zoelly Hochhaus with 130 apartments. The example shows that a concierge service is only viable for luxury apartments and then only with very limited duty hours, which is hardly sufficient to provide the concierge's intended purpose. This does not mean that other services cannot expect to have a rosy future, though these must be so standardized and automatic than the work involved is very much kept to a minimum. New means of communication provide a good basis for this. Figure 17 Cost-covering Flat-fee for Concierge Services
Assumptions: Gross salary/month: CHF 4'600, working week: 42h, all social contributions included
Concierge: An example calculation
Option A
Duty hours Monday-Friday Duty hours Saturday-Sunday Duty hours/year (h) Working hours per worker and year (net) Necessary percent by position Wage costs/month (CHF) Operating and material costs/month (CHF) Total costs/month (CHF) Flat-fee in CHF/month for: 50 Units 100 Units 150 Units 562 281 187 24h 24h 8'760 1'792 489% 26'105 2'000 28'105
Option B
7 a.m.-7 p.m. 7 a.m. - 9 p.m. 4'380 1'792 244% 13'053 2'000 15'053
Option C
6 a.m. - 9 a.m. 5 p.m. - 8 p.m. Closed 1'560 1'792 87% 4'649 2'000 6'649
301 151 100
133 66 44
Source: Swiss Federal Statistical Office, Federal Social Insurance Office, Credit Suisse Economic Research
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Real Estate in the Age of Internet and Social Media
Real estate and real estate markets have existed for thousands of years without the Internet and social media. Actors on the real estate market may therefore be tempted to underestimate the impact of new technologies. Yet the virtual revolution as the present era will go down in history has simplified modern living considerably, with e-mail and e-banking already a significant convenience in everyday business. Through the course of this general convenience trend, new technologies are being particularly well received and are spreading rapidly. Anyone not on board whether provider or consumer is soon left behind.
Online services have fundamentally changed the real estate marketplace
The revolutionary effect of the Internet has not stopped at the real estate market. Originally it was thought that the internet would simply render the agent redundant, as the virtual village allows everyone to enter into contact with everyone else. Yet it soon became clear that one set of players were simply replaced by another. Google, Ebay and Amazon are the names of today's middle men and Homegate, Immoscout and Immoclick are their counterparts on the Swiss real estate market. In order to appreciate the effect of these new technologies on the real estate market, it need only be remembered how online search portals have fundamentally changed how buyers and sellers come together on the real estate market. The benefits of the Internet are obvious for search-and-find transactions. Increased price transparency and the improved ability to filter desired properties from what is effectively the entire supply are only two of the Internet's well-known beneficial achievements. The result is a marked increase in the speed of trade. Having found a suitable property, the prospective buyer must be quick off the mark as he is but one of thousands all armed with the same information. What awaits the real estate market in the future? Today there is already a gamut of information available on potential properties. Information on locational quality is already accessible through online maps and blanket land registry data should also soon be made available. The first real estate actors have also now discovered the advantages of social media platforms such as Facebook, Twitter, YouTube as well as general blogs and forums. After all, they need to be present where their clients are. What makes social media what it is, is the mutual exchange of information and recommendations. It is not the news content of this information which is important, but rather its origin. We trust the opinions of others in a shared network and in particular the opinions of friends much more than we do an impression conveyed by an advertisement. Companies and clients communicate here at eye level. The result is the democratization of the Internet as not only manufacturers but also users generate content. The reward for companies is largely virtual, for instance in the form of sales-promoting recommendations, though these can quickly translate to profits. For instance, if the manufacturer gains important information through these channels on client wishes, or if a company outsources elements of its customer service to internet forums which allow customers to help customers. Companies therefore aim to sell themselves as best as possible on social media platforms so as to ensure clients return. In exchange, they offer exclusive offers, discounts, competitions, histories and information as well as customer service. With the use of these media, however, companies lose some of their control over communication. In particular, in the case of defect, the full force of these media can quickly turn on manufacturers. Siemens recently experienced such a case in China where what initially began as an apparently harmless case of insufficient customer service turned from a momentary flash-in-thepan to a full blown wildfire ending in the public burning of Siemens refrigerators. Images spread through social media in the wake of the scandal resulted in enormous damage to the company's reputation. A presence on the Internet and in social media is therefore not to be take lightly and particular reputational risks need to be considered. Defects are immediately discovered, negative comments follow swiftly, and the thin-skinned decision to delete such comments on the company blog without first responding to them often sets a negative train in motion. Channels must also be continually supplied with contents, monitored and managed, thereby also generating costs. A professional impression is compulsory, as wobbly video films and ill-functioning platforms and other unfortunate additions can have the opposite effect and scare users away.
What next?
Importance of social media grows
Risks not reduced through the Internet and social media
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Social media threat small in the real estate sector
Yet real estate actors need not be too concerned about the new-found power of the consumer thanks to social media. After all, real estate spans an incredibly broad area. Each property is unique in a certain way. This fundamental feature of real estate prevents the creation of a large Web community exchanging information on this product. As a result, the opportunities are lower, but so also is the potential for damage. In addition, the heterogeneous nature of real estate and its high capital intensity also prevent the evolution of planners, investors and principals with a dominating market share dedicated to a set objective. The market penetration of Internet-based services and the use of social media is much more advanced in the US than it is here in Switzerland. According to the National Association of Realtors, 33% of all realtors in the US used social media in 2009. One year later, this is already 84%. In particular in relation to the sale of new-build properties, use of the Internet is becoming increasingly professional in Switzerland. Yet only when the sale of apartments becomes more difficult is the next stage in the use of digital technologies likely to be set in train. Even if their use is uncertain, today would therefore be ideal to start looking at these technical innovations. After all, companies need to be prepared today for the competitive challenges of tomorrow. Just 15 years ago many companies believed that all they needed was an internet page with their telephone number. The consequences were catastrophic. Social media is only one of many trends which will change the face of real estate over the years to come. Clever applications will increasingly be used across the entire life-cycle of everything to do with real estate, and not only in relation to contact with the end consumer, but also between companies (figure 18). Thanks to the Internet, the degree of technologization will steadily increase, also in respect of very familiar applications. For instance, the reservation and management of holiday homes and other temporary forms of accommodation will in future more often than not be completed online. The entire spectrum of support services in relation to real estate (in particular administration and facility management) will increasingly be provided via the Internet and in structured forums, replacing the telephone or hand-written documents such as the handover inventory. Large platforms established by telecommunications providers already set out the path of the future here. Figure 18 Real Estate Value Chain
Link for Web-based, technical innovations
US once again sets the rhythm
Ideas are boundless
Search
Construction (Planning and Implementation)

Interaction of planners, principal and construction companies in the Cloud Augmented reality
Marketing
Buy / Sell / Rental
Administration and Facility Management

Electronic contracts Complaint management Complete electronic monitoring of real estate
Automatically compiled location analyses Comprehensive provision of location information Display minimum selling price
Inclusion of social media Virtual Reality for new buildings
At the touch of a button, as in share dealing Further improvement of real estate valuation on screen
Augmented reality
Somewhat more impressive are future innovations in the field of augmented reality. This new form of person-technology interaction augments reality by supplementing it with additional information. This can be by way of a special pair of glasses or via a mobile device such as a Smartphone or iPad. This would allow all properties advertised for rent or sale in a particular area to be seen, or show future or long-since demolished properties. This would be supplemented by various statistics and information on noise pollution, construction zones, plot sizes and nearby points of interest. A streamlined version of this technology is already available as an
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application for Smartphones which shows a map of currently advertised properties in a certain area in conjunction with other information drawn from Wikipedia. The US is one step further. There, various cities show homes with asking prices. These are mostly "make-me-move" prices at which a property owner that is not currently planning a move would be prepared to hand over his home to a buyer. Augmented reality can also be used in the construction process. For instance, non-visible elements included on construction plans or notes and instructions can be placed virtually.
Virtual reality and working in the Cloud
In contrast to augmented reality, virtual reality submerges the user completely in the virtual world. Interested users can visit a real estate project in the virtual world and can even choose furnishings and paint walls. This technology is particularly useful for new and renovation projects, as it can make rooms and spaces accessible which have still to be constructed. Further technological developments are conceivable in construction planning. Why should not construction principals communicate with architects in the Cloud that is, through data available on the Internet? Visualization would then also be made much simpler than with plans alone and could be by way of 3D television. A 3D model of your own home could also be successfully marketed on social media platforms. And since we are on the subject of 3D, here is another idea for the property owner: Why not use the roof of a property as an advertising space? In the Google Earth era, this free advertising is not only visible to balloon passengers.
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Office Property
The Swiss market for office property remains stable in 2012, with a slight tendency towards oversupply. Demand in 2011 grew moderately, but consistently. Driven by architectural- and engineering practices, IT companies, and corporate services providers, it is likely that the growth in demand will continue just as unspectacularly in 2012 despite the looming economic slowdown, particularly in light of the fact that no employment surplus was built up in the recent past that now needs to be reduced. The volume of new projects approved for construction increased dramatically in 2011 and is triggering alarm bells. A closer look reveals there are indeed several large projects ready to be launched in the major German-speaking urban centers and their agglomerations. These will test the local markets; because these projects are designed as new locations for larger companies, which will free up a corresponding amount of office space in the core zones of the cities. Still, the risk of vacancies should not be overstated because many small companies in growth sectors are likely to welcome the attractive, vacant office space in 2012 in the urban centers. The structural transformation is likely to be accompanied by a certain amount of pricing pressure at the corresponding city center locations.
Demand
Growth in demand in 2011: moderate but solid
2011 was a solid, but not outstanding year for demand in office property. In the third quarter of 2011, those service sectors whose staff are traditionally and primarily office employees registered an increase of 10'540 full-time equivalent positions over the same period last year. Assuming a generous net floor area of 18 m2 per workplace, this represents an incremental need for office space of almost 190'000 m2. It is likely that employment in the office sectors increased by 1.6% over the course of 2011; almost 60% of this growth can be attributed to IT companies, architectural-, and engineering practices. That means that although the sluggish growth in 2010 (0.6% versus 2009) was exceeded, the growth in employment and the associated demand for office space have not really ignited as yet, despite the fundamental recovery in economic performance (figure 19). If you take into account the delayed reaction in the past of demand for office space to economic growth, you would expect there to be a significant increase in employment based on the positive economic performance of the last two years. Unfortunately, this has been thwarted by the effects of the economic slowdown, the ongoing uncertainties due to the bad news both in and from the eurozone, and the higher costs for international companies resulting from the strength of the franc. We therefore expect a mixed year in 2012 in which office-based employment growth is likely to diminish to just over 1%. Despite the economic slowdown, that would still be an increase in employment at the end of the year of just under 8'000 full-time-equivalent posts. In relation to the muted economic forecasts, this is a positive outlook, which is composed of expected growth in construction-related employment of architects and engineers, anticyclical legal- and management consultancies, and emerging IT companies. Architects benefit from high volumes in building construction, for which we see no meaningful slowdown until the end of 2012 due to the high levels of immigration and low interest rates. Engineers are increasingly difficult to find and are becoming the epitome of the skilled worker shortage. The civil engineering department of the city of Zurich even announced at the end of 2011 that several public projects may be delayed because of this. From a supply perspective, the growth potential of architects and engineers may indeed be limited in 2012, but it is still positive. The combined sector for corporate services has proven to be a reliable source of demand for office property in both good- and bad times. In the last ten years, it is almost possible to count on one hand the number of quarters in which a headcount reduction occurred. If the economy is booming, the sector benefits from outsourcing that is only rarely ever reversed during a slowdown. In addition, the increasing regulation in the financial sector is leading to a growing need for certified public accountants and legal advisors. And because the build-up in employment in the corporate services sector in 2010/11 was limited, a catch-up effect is to be expected this 24
2012: economic uncertainties cost growth
Architects and engineers support demand
Corporate services providers: high demand in both good- and bad times
Economic Research
year, which is ultimately likely to trigger moderate demand for office property. The trend towards a service economy should also not be ignored; this trend is providing a growing number of office-related activities in many business sectors, including ones outside the classic office-based sectors. That ensures that a base level of demand for office property exists that tends to be larger than when you consider just employment trends in classic office-based sectors. Figure 19 Employment in Classic Office-Based Sectors and GDP Growth
Growth rates with contributions to growth and forecast, year-on-year
10% 8% 6% 4% 2% 0% -2% -4%
Research and development Finance and insurance Information technology
Corporate services Employment agencies Employment (annual growth)
Architects and engineers Real estate activities GDP (annual growth)
Forecasts
1999
2001
2003
2005
2007
2009
2011
Source: Credit Suisse Economic Research, Swiss Federal Statistical Office, State Secretariat for Economic Affairs
Automation and process optimization enable the IT sector to grow
Ultimately, we are relying on the IT sector this year. As part of the tertiarization process, it benefits more than most other sectors from the growing flow of information and the automation efforts by service companies and government agencies. Process optimization and hence rationalization in the classical sense requires ever more complex, yet efficient IT solutions. In this respect, higher investments in IT automation should be expected this year, particularly in the financial services sector, which is likely to have an overall negative employment balance in 2012 because of the financial market instability. But other sectors are also increasingly dependent on customized- and complex IT solutions. These systems include general invoicing- and logistics systems in retail and industry, as well as developments such as E-health and telemedicine in health care. This sector is increasingly being streamlined, thus providing orders for the IT sector. The structure of demand, which last year was strongly characterized by location consolidations by large companies in the outer commercial regions of large urban centers, is likely to be similar this year. Examples of this include the major banks in Zurich and Geneva, the pharmaceutical companies in Basel, and government agencies in Berne. Meanwhile, future projects are set to be driven by insurance- and IT companies, Swiss Post, and the SBB. In 2011, everyone was talking about the risk of vacant office space at the abandoned locations in the urban centers. There are two reasons why we see this risk of vacancies as only temporary and consider it to be limited in the medium term. First, the structure of the office spaces becoming vacant matches the needs of many generally small but growing companies. The office spaces in the urban centers are mostly small. In the central business districts (CBD) of Zurich, Berne, and Geneva, 50% of the office spaces advertised for rent in 2011 were smaller than 107 m2 (Berne), 155 m2 (Zurich) and 167 m2 (Geneva). In contrast, the median of the office spaces in the outer business districts was higher in each case. For example, in Geneva's CBD only 30% of the offices advertised for rent were larger than 244 m2, whereas this value in the outer business district was 517 m2 (figure 20).
Demand structure 2012: office space consolidation by large companies is continuing
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Figure 20 Distribution of Advertised Office Space Sizes

By business district (central (CBD), extended, and outer) of the five major urban centers in m2, 2011
500
Median Between 30% and 70% of values Median for Switzerland
400 300
200 100
0 CBD Ext. Zurich Outer CBD Ext. Outer CBD Geneva Ext. Outer CBD Berne Ext. Outer CBD Basel Ext. Outer Lausanne
Source: Meta-Sys AG, Credit Suisse Economic Research
Office space becoming vacant offers an opportunity for SMEs in urban centers
Growth in 2012 is likely to be more strongly focused on small companies because they originate disproportionately from sectors which we expect will have growth opportunities this year. In 2008, 90% of IT companies, 91% of all architect-, and engineering practices, 94% of legal advisors and 95% of management consulting agencies were micro companies with less than nine full-time-equivalent employees. Business consultants and IT professionals often work directly at client sites, meaning that their need for office space is even more limited thanks to desksharing. In contrast, only 55% of banks and insurance companies were micro companies. In these branches, about 80% of the employees in 2008 worked in large companies with more than 250 employees. Relocation by large employers away from city center locations therefore offers growth sectors and SMEs an opportunity to obtain office property in attractive locations. However, since their ability to pay is less than the ability of the companies who are relocating the relocating companies are generally financially stronger , pricing pressure must be expected in central business districts. The rent of larger office spaces could be particularly difficult because there are only about one thousand medium-sized companies with 50-250 employees in the classic office-based sectors throughout Switzerland. The universe of suitable companies as tenants for larger office spaces in central locations is thus much smaller than that for micro- and small companies or for that of large companies with their numerous employees. In the medium term, the risk of vacancies will be reduced by the shortage of building land, which is highly desired in the urban centers because of the trend towards reurbanization, ongoing immigration, and the run on condominiums. If an older office building cannot be marketed, besides the options to modernize or rebuild, there is ultimately also the alternative of conversion. Numerous examples throughout Switzerland demonstrate that attractive housing can be created out of commercial buildings, which then revitalizes the associated districts. Accordingly, the high demand for housing and the trend towards reurbanization offer plausible worst-case options.
Last resort: conversion
Supply
High office space expansion can also be expected outside the large markets
Last year, building permits for office property throughout Switzerland totaled about CHF 3.4 bn. This represents a huge increase of 53% over 2010. Even without the approval of the Roche Tower in Basel, which costs CHF 550 mn, the planned volume of construction is still 36% above prior year levels and even above the peak reached in 2001. At the same time, the planned construction projects for 2011, which were mentioned as part of the survey about construction investments already being made, suggested a significant increase can be expected in the investments in office- and administrative buildings (figure 21). In other words: A significant amount of office property was already under construction last year, and more is being planned 26
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that will be realized in the coming years. The list of completed, under-construction, or planned projects is long, and the expansion of office space is clearly likely to remain high in the coming two to four years.
can also be expected outside the large markets
The focus on large projects in major urban centers distorts the view of the geographic distribution of planning- and construction activity. Undoubtedly, far more office property is being planned in Switzerland's five largest office property markets specifically outside the CBD , but the continuous increase in planned construction volume outside the major urban centers and their agglomerations since 2006 is the primary factor driving the strong expansion. This increase was interrupted only temporarily when a whole series of projects were initially shelved following the Lehman bankruptcy, only to be pulled out again just as quickly in the wake of the economic recovery. Figure 21 Building Permits, Construction Investment, and Office Property Construction Projects
In CHF mn, annual basis, 2011 = survey of construction projects
2'000
1'600
Construction investment: Five largest office markets Construction investment: Other regions Building permits: Five largest office markets Building permits: Other regions
1'200
800
400
0 1995 1995
1997 1997
1999 1999
2001 2001
2003 2003
2005 2005
2007 2007
2009 2009
2011 2011
Source: Baublatt, Swiss Federal Statistical Office, Credit Suisse Economic Research
Figure 22 shows in which regions office property planning rose sharply last year compared to the long-term average. The focus of planning extends along two axes: on the one hand, through the Mittelland to Lake Geneva and, on the other hand, from Aargau towards the South through parts of central Switzerland to Upper Valais. Disproportionately large- or an above-average number of office properties are also being planned in some regions of eastern Switzerland. In contrast to the expansion phase in 2001-2003, these planned office spaces are not as concentrated in the Zurich metropolitan area.
Private use dominates the office market outside the urban centers
Despite the dynamic level of planning in the periphery, the risk of oversupply there is limited. The office property market in peripheral locations and/or in industrial regions functions differently to major urban centers, where office space is often built as investment property for rental purposes. Outside the larger office property markets, projects are more strongly dominated by commercial own-use needs. Either a company builds by itself, or it contracts directly with a general contractor/turnkey contractor who builds the property based on the individual needs of the contracting company. For example, the screw manufacturer Wrth is having an administrativeand training center built at a cost of CHF 96 mn in the economic region St. Gallen/Rorschach. The building permit was obtained in December 2010. In the economic region Sursee/Seetal in the northern part of Lucerne, a building with 16'000 m2 of office space is being constructed as the headquarters for an information technology firm; it will be completed by the end of 2012 at a cost of CHF 54 mn. In the municipality La Tour-de-Peilz in the economic region Vevey/Lavaux on the east shore of Lake Geneva, a new office complex from Nestl for CHF 71 mn was approved for construction in June 2011. Office buildings are being constructed at other locations with direct links to production sites. That means the new construction of office buildings in many regions follows the course of business of the industry located there and should ultimately be understood as the result of the aforementioned trend towards a service
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economy, which also requires office property in the periphery. Of course, the risk of vacancies cannot be completely ruled out because new construction can mean that space at other locations is vacated; however, this is likely to play a lesser role. Figure 22 Building Permits for Office Property
Variance: approved construction volume 2011 vs. 10-year avg. in %; regions with construction volumes > CHF 5 mn
> 61% 31% - 60% 11% - 30% -9% - 10% -29% - -10% -59% - -30% < -60%
Neuc hte l
Schaffhausen Basel Liest al Delmont Solot hurn Luzern Be rn Stan s Sarnen Aa rau Zr ich Fr auen feld St.Gall en Her isau Ap pe nze ll
Zug Schwy z Alt dorf Gla rus
Chu r
Fr ibourg
Lau sa nn e
Gen ve
Sion
Bellinzon a
20
40 km
Source: Baublatt, Credit Suisse Economic Research, Geostat
Decreasing supply of office space just before the turnaround
The substantial share of office space for own-use purposes also explains why the amount of advertised office space has not risen more strongly given the dynamic planning outside of the major urban centers, totaling approximately 100'000 m2 since 2006 (figure 23). Overall, the supply of new office property declined further over the course of last year, but the abrupt rebound at the end of the year is likely to be a harbinger of the next expansion wave. The decline in advertised space has therefore come to a halt in the major urban centers and is experiencing a turnaround in the regional urban centers and in the other regions. As soon as tenants have been found for the new office space, it is likely that the falling stock will immediately begin to grow again (figure 24). To date, its decline last year has reflected the previous positive demand trend. Figure 24 Advertised Office Space Stock
Advertised office space stock in 1'000 m2
1'400 Key, see diagram on the left 1'200 1'000
Figure 23 Advertised New-Building Space

Advertised office space from new projects in 1'000 m2
500 Other regions Office markets of large mid-sized centers Office markets in large centers Total surface on offer
400
300
800 600 400
200
100
200
2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2005
2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2005
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Market Outcome Figure 25 summarizes the trends of the 20 largest Swiss office property markets. In Switzerland overall, office space was advertised in 2011 for an average rent of CHF 266 per m2 p.a.2 That represents growth of 2.6% compared to 2010 and a breakout from the longstanding price range of CHF 231 to CHF 254. This price growth has been a long time coming, and the level now reached is likely to be maintained in 2012. The challenges for the Swiss office property market beyond 2012 are growing due to the only moderate, albeit positive, expected increase in employment this year, in combination with the strong office space planning that has already been described. The fact that much of the office space in the periphery is being built for ownuse purposes does limit the risk of vacancies. Still, how well this office space can be absorbed in the coming years will likely be put to the test in the north of Zurich, in Berne, and in Basel, due to larger projects and the ongoing relocation strategies of larger companies. One positive effect is that there will be more room in the urban centers for small-business based growth sectors, but it is probable that these structural changes will involve price concessions. Figure 25 Overview of the 20 Largest Office Property Markets
Office space in m2 as of Q4 2011; average rent (gross) 2011 area-weighted in CHF per m2 p.a.; trends for 2012
Economic regions Zurich City Geneva Berne Basel City Lausanne Glattal Lucerne St. Gallen/Rorschach Aarau Lorzenebene/Ennetsee Lugano Lower Baselbiet Winterthur City Baden Neuchtel La Sarine Olten/Gsgen/Gau Oberland-West Limmattal Upper Baselbiet Switzerland
Existing office space 6'177'000 3'902'000 3'185'000 2'140'000 2'091'000 1'638'000 1'385'000 1'344'000 1'277'000 1'172'000 1'133'000 902'000 699'000 666'000 615'000 599'000 556'000 555'000 553'000 541'000 49'076'000
Advertised office space 165'000 179'000 64'000 46'000 75'000 98'000 32'000 36'000 17'000 63'000 33'000 35'000 12'000 17'000 10'000 13'000 14'000 8'000 21'000 17'000 1'333'000
Supply rate 2.7% 4.6% 2.0% 2.2% 3.6% 6.0% 2.3% 2.6% 1.3% 5.4% 2.9% 3.9% 1.7% 2.6% 1.6% 2.2% 2.5% 1.4% 3.8% 3.1% 2.7%
Supply trend
Average rent 304 393 233 285 331 262 217 217 203 214 338 192 211 199 186 243 247 194 198 259 262
Price trend
Source: Credit Suisse Economic Research, Meta-Sys AG
The Five Largest Office Property Markets in Detail The five largest office property markets cover over 40% of the entire office property in Switzerland. Therefore, not only are the trends in these markets interesting; just as important are also the shifts within the individual office property markets and their various business districts. Such changes provide an insight into overall Swiss trends and developments.
In contrast to the average calculation of recent years, the calculation of advertised rents is now performed as an area-weighted average value. The price of large office spaces is therefore important, and the view of prices is representative of the entire supply.
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Zurich
Figure 26 Advertised Rents (Gross) of the Zurich Office Property Market

In CHF per m2 p.a. per 25 hectares for 2010/11; area-weighted average market rent = CHF 292
Ba d en Wet ting en
Outer business district

Klote n 7 Opf ik on Diet lik on 6 Obereng s tring en 5 Wa llis ellen 8 9 Schlieren Urd orf 4 D bend orf Volket s wil 1 3 Ba s se rsd orf Illna u- Ef fret iko n
Reg ensd orf Sp reitenb a ch Diet iko n
Zr i ch
2 Us t er
Extended business district

Wohlen
Central business district (CBD)

Kilc hberg
Zollik on
Ks na cht
> 500 401 - 500 351 - 400 293 - 350 251 - 292 201 - 250 101 - 200 < 100
Projects
1 1 2 3 4 5 6 7 8 9
Adlis wil
Rs chli kon
Lwenbru-Areal Hardt urm-Areal Geschftshaus Rosau Europaallee Westlink Muri Leutschenbachquartier Glattpark The Circle Richti-Areal Zw icky-Areal
Tha lwil Aff olter n Meile n Horg en M nnedo rf St fa 0 2.5 5 km W d ens wil
Source: Meta-Sys AG, Credit Suisse Economic Research, Swiss National Survey Office, Geostat
Polycentric development with high importance of the micro-location
The office property market in Zurich is developing in an increasingly polycentric manner. Priorities regarding locations are shifting from geographic centrality to accessibility. As a result, a site in the CBD is no longer an absolute priority for many companies. To be sure, the highest rents in Zurich are still achieved in locations where the parameters centrality, accessibility, and/or proximity to the lake can be maximized in a combined manner. The average rent for office property south of the main train station is CHF 525 per m2 p.a. just like in parts of the neighborhood Enge, which is located further southwest and has very good transport links. In Zurich's Seefeld, office property was and is offered on average for about CHF 450, with rents tending towards CHF 400 as the distance increases from the city center and from the Stadelhofen train station. Along the main development axes towards the north, high-quality and easily accessible office space is increasingly being offered. As regards amenities and the micro-location here, there is little to choose between the two extremes available. Besides the location, companies that choose office space outside the city center have high demands in terms of the size and functionality of the property. For instance, the offers for new projects in the Leutschenbach district vary between CHF 300 per m2 and CHF 400 per m2. Only several hundred meters farther west, prices fall along the Thurgauerstrasse to between CHF 200 and CHF 250. Last year, public attention was often directed towards the growing satellite markets in the north and west of the city in connection with the outsourcing of back office functions and the consolidation of facilities by large corporations.3 But in the not too distant future, the new service districts will be able to offer more than just providing large amounts of office space at cheap prices. Zurich-West plays an important role in this regard. The locations of this up-and-coming district with good transport links are becoming more prestigious. At the same time, Zurich-West offers large, interconnected, modern, and representative office space, thereby combining the advantages of both peripheral- and central locations at comparatively moderate prices. The recent large expansion in office space in Zurich-West has subsided. The landlords were able to market the new office space at the Maag- and Coop sites in 2010/11 at an economically advanta-
The important role of Zurich-West: good locations and growing prestige at moderate prices
Refer also to Swiss Issues Real Estate Real Estate Market 2011, Facts and Trends, page 34 f.
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geous point in time. Based on the upgrading of the former industrial district, there are unlikely to be any difficulties in marketing the approximately 20'000 m2 of office space in the Lwenbru site and in the Hard Turm Park, which will be ready to occupy starting in 2013.
Modest office space expansion in the city
Based on our current knowledge about planned projects, we estimate that office property space will expand by just over 200'000 m2 by 2017 in the city of Zurich, from the business premises Rosau (10'000 m2 starting 2014) in the city district Enge via Europa-Allee at the main train station to the Westlink project in Altstetten. That represents a 3.2% increase in the stock of office space, a growth rate that is below the estimated growth in office space of just over 4% between 2008 and 2011. That means oversupply within the city limits is not foreseeable in the medium term. In contrast, there is stronger planning in the area from the Leutschenbach district (approx. 67'000 m2 by 2014) via Glattpark (approx. 54'000 m2 by 2013) through to the airport region (85'000 m2 starting 2017). Office space farther east in Wallisellen (Richti site/Zwicky site) can be included as well. These development areas mark the cornerstones of a dynamic service region that are increasingly merging into one. This trend is most clearly visible between the district Leutschenbach and Glattpark, where the gap between the city of Zurich and the municipality Opfikon will be largely eliminated by 2013 with the buildings Aquatikon (16'000 m2) and Wright Place (12'000 m2). In the east in Wallisellen, on the edge of the Zwicky site, where primarily housing complexes are planned, 4'500 m2 of new office space will become available this year in the business premises Seidenstrasse. Moreover, starting this summer this property will house the Swiss International School, which is consolidating several of its locations in Zurich, thereby further increasing the appeal of the airport region Glattal for international companies. International company relocations will be a cornerstone of the future market equilibrium in Glattal because overall a high level of expansion is expected. According to our estimates, the supply of office property in the Glattal region, including the project "The Circle am Flughafen", will grow just as much as the city of Zurich, adding just over 200'000 m2 in the next five years. That, however, represents growth in Glattal of just over 12% of the office space stock. The competition between new construction projects will therefore be high, and the risk of vacancies for older properties will grow. Overall, it is likely that new office property totaling about 430'000 m2 will be created in the Zurich market by 2017, provided that all projects currently in the planning stage are, in fact, realized. This new office space will join a high existing supply of office space (figure 27). Based on the generous assumption that the average office space per employee is 18 m2, this new office space would offer room for 23'900 office jobs. This is by far more than the growth in officebased employment of the years 2001 to 2008 in the city of Zurich and the Glattal region. Due to the progressive tertiarization and high attractiveness of the region, it will not be impossible, per se, to fill this office space. However, it would require strong economic growth in the coming years, which can not be expected to this degree. Figure 28 Trend in Advertised Rents
Area-weighted average rents in CHF per m2 p.a.
500 450 400 350 300 250 200 150 Zurich CBD Zurich outer business district Zurich extended business district Switzerland
Rental market in the north: strong expansion puts old properties under pressure
Oversupply is in sight
Figure 27 Trend in Advertised Office Space

Advertised office space stock: quarterly totals in m2
450'000 400'000 350'000 300'000 250'000 200'000 150'000 100'000 50'000 0 2006 2006 2007 2007 2008 2009 2009 2008 2010 2011 2011 2010 Zurich CBD Zurich: Extended business district Zurich: Outer business district Supply Total
2005 2005 20062006 20072007 20082008 20092009 2010 2010 2011 2011
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Geneva
Figure 29 Advertised Rents (Gross) of the Geneva Office Property Market

> 550 501 - 550 451 - 500 386 - 450 301 - 385 201 - 300 151 - 200 < 150
Vernier Meyrin
Outer business district Extended business district

Le Grand-Saco nnex
4 2 1 3
Gen ve
Projects
1 Maison de la pai x 2 OMPI/WIPO 3 OMC/WTO 4 Le Fonds Mondial 5 PAV 6 Communaux d'Ambilly
7 Les Cherpines Onex Lancy Carouge
10
6
Chne-Boug eries
Thnex
8
Bernex
7
Veyrier
8 Bernex 9 Chne-Bourg 10 Eaux -Vives

0 1.5 3 km
Tight supply and generally high prices with distortions from slow-moving properties
The level of rents for office properties in the overall Geneva market is generally high. The differences are sometimes quite dramatic in such a small area. On the one hand, office space around the dock area has been advertised at gross annual rents of between CHF 600 per m2 and CHF 700 per m2 two-and-a-half times more than the area-weighted average price in Switzerland. On the other hand, there have been and continue to be many small- and qualitatively inferior office spaces in between, where the prices drop, dragging down the level of rents locally. The tight market makes it difficult to determine price levels because sought-after office space is often not advertised due to the high demand or landlords do not provide price information in order to negotiate conditions on an individual basis. As a result, the picture presented above is not representative of the rents actually being paid, particularly in the city center. Moreover, larger offerings of office space with information about prices in the extended business district were also rare during 2010/11. Over the past two years, larger office spaces have only been available in the international district, with rents of CHF 400 per m2 to CHF 800 per m2. In the outer business district, larger offerings of office space with a similar high price range were limited mostly to Vernier and the region around the airport. Overall, the influence of both the micro- and the macro-location on the rent is nowhere as low as in Geneva. Instead, the more decisive factors are the structure and age of the office spaces, as well as their accessibility. Building your own property because of a lack of vacant rented area is hardly an alternative in Geneva for someone in a hurry because in no other market does the process of submitting a planning application until receiving actual approval take as long as it does in Geneva. An exception is the planned House of Peace in direct proximity to the train station Geneva-Scheron. After submitting the planning application in March 2011, the approval followed just one month later. In the future, the 22'000 m2 of office space in that building will house Geneva's three federal centers: the Geneva Center for Security Policy (GCSP), the Geneva Center for Humanitarian Demining (GICHD), and the Geneva Center for Democratic Control of Armed Forces (DCAF), together with the Graduate Institute of International and Development Studies (IHEID). This project with a total volume of CHF 137 mn will receive subsidies of CHF 34.5 mn from the Swiss federal government and CHF 43 mn from the canton of Geneva. The international district is also growing further in other locations. The new building for the World Intellectual Property Organization (WIPO) was completed in the autumn of 2011. The last phase of the WTO buildSwiss Issues Real Estate Real Estate Market 2012
Growth is focused on the district with international organizations
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ing is currently underway with the help of an interest-free loan from the Swiss federal government of over CHF 40 mn. The international organizations will be strengthened with the new Global Fund to Fight AIDS, Tuberculosis and Malaria building that is located not far from the airport on the edge of the international district. This project with 25'000 m2 of planned office space is scheduled to be completed in 2015. These projects strengthen Geneva as a location for international organizations, which are an important economic factor and which enhance the city's international reputation. However, if Geneva is also expected to grow as a location for banks, corporate headquarters, and services at the same pace in the future as it has in the past, there will be an unavoidable conflict of goals resulting from the further expansion of the international district. Available building land for private investors is becoming increasingly scarce, prices are rising, building regulations are high, and the planning process, from the submission of the application to the groundbreaking ceremony, is complex. In addition, it is becoming increasingly difficult for companies to find affordable housing for their employees because of the overheated housing market. There is a danger that companies seeking a location will be deterred by these factors and will move to the neighboring regions on Lake Geneva.
Renovation instead of new construction: necessity is the mother of invention
According to planning applications and building approvals, there are almost no large projects by private investors with only a few exceptions. Including the approved House of Peace, the planned volume of construction of office property in the canton of Geneva accounts for just 15% of the overall volume of the five largest office property markets. Given the limited level of new construction activity, some companies are proceeding instead to modernize their properties. On average during the last 10 years, 43% of the planned office investments in the canton of Geneva were renovation-related projects in comparison to just 22% in Switzerland overall. The largest renovation projects involve properties of the banks HSBC, UBS and Credit Suisse. The tight market is reflected in the correspondingly low level of vacancies. In Geneva and Carouge, vacancies fell from a total of 39'121 m2 in 2009 to 8'581 m2 in 2011. This probably corresponds to around 0.3% of the office property stock in Geneva and Carouge, representing a record-low value not only for Switzerland but also internationally. Relief will only come in the long term with the completion of larger development projects such as Praille-Acacias-Vernets (PAV) in Carouge, Communaux d'Ambilly in Thnex, Les Cherpines in Plan-les-Ouates, and the major project in Bernex. The train station projects Chne-Bourg and Eaux-Vives, which are scheduled for completion by 2017 in parallel with the new rail line CornavinEaux-VivesAnnemasse (CEVA), will also offer office property. In the fourth quarter of 2011, the total of all advertised office space in Geneva was 160'000 m2 (figure 30). The fact that advertised office space is rapidly rented can be seen in the high volatility over the course of time. The generally rising level is attributable to the fact that office space is increasingly advertised far in advance of its actual completion for early marketing purposes. Prices of advertised office space are stabilizing in the expanded business district at about CHF 450 per m2 p.a. Recently, prices have fallen In the CBD and in the outer business district (figure 31). However, this trend is probably partially attributable to the fact that slow moving properties in an illiquid market like Geneva distort the price structure downward. Figure 31 Trend in Advertised Rents
600 550 500 450 400 350 300 Geneva CBD Geneva outer business district Geneva extended business district Switzerland
Price distortions due to very tight markets

180'000 150'000 120'000 90'000 60'000 30'000 0 2006 2006 2007 2007 2008 2009 2009 2008 2010 2011 2011 2010 Geneva CBD Geneva: Extended business district Geneva: Outer business district Supply Total
250 200 2005 2005 20062006 20072007 20082008 20092009 2010 2010 2011 2011
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Berne
Figure 32 Advertised Rents (Gross) of the Office Property Market in Berne

Projects
1 Itti gen 2 Zol likofen 3 Wankdorf-Cit y 4 Bahnhof Gml igen 5 Guisanplatz 6 Schanzenpost 7 Europaplatz 8 Kniz Liebefeld 1
Itt igen Mnchenb uchs ee
Zollik of en
3 5
Ost erm und ig en
Ber n
6 7
> 320 281 - 320 261 - 280 244 - 260 221 - 243 161 - 220 101 - 160 < 100
0 1.5 3 km
Muri
8
Kniz
Wor b
Mns in gen
Despite a homogeneous price structure and moderate rental price levels ...
Berne is the most affordable of the five largest Swiss office property markets in terms of the advertised office space during the years 2010/11. The average rent for advertised office property in both years was CHF 243 per m2 p.a. However, there are, in fact, differences locally, mainly due to the micro-location. For example, in the central business district (CBD) directly east of the train station, office space was offered at a two year average price of just under CHF 350 per m2. This value falls to CHF 300 to CHF 320 as you move towards the eastern and southwestern CBD. Office spaces were even significantly more affordable in the extended business district. Depending on the size of the office space, the location and the amenities, most of the advertised offers for office space in the extended business district, with few exceptions, fluctuated between CHF 180 per m2 and CHF 250 per m2. Farther east and northeast towards Ostermundigen and Ittigen, the advertised rents fell to below CHF 200 in an area-weighted average. As a result, rents are extremely attractive, particularly in the outer business district, not only in a local comparison but also when compared to all of Switzerland. It is not surprising, then, that the consolidation of government- and corporate locations continues to progress in the outer business district in Berne. The potential savings are immense. The Federal Administration remains particularly active in this field.4 The process of consolidating locations in Ittigen (UVEK) is at an advanced stage; the groundbreaking ceremony was held in November 2011 for the new government centers in Zollikofen (Federal Office of Information Technology and Systems) and Kniz (Swiss Federal Office of Public Health). The facility management department of the Federal Office for Buildings and Logistics is still working on its real estate strategy for civil federal government buildings. As can be seen in the strategy paper "Accommodation Concept 2024," this initiative is serious and geared towards the long term; its primary goal is improved cost effectiveness, i.e., savings in rental costs, especially because it anticipates a growing demand for office space. The Federal Office for Buildings and Logistics set a good example in 2010 and relocated to Bmpliz. The capacities that became vacant in Berne's Monbijou district will be gradually occupied by the State Secretariat for Economic Affairs (Seco) as part of the effort to consolidate its locations. Overall, there are plans to distribute 14'000 jobs in the Federal Ad-
potential savings lie dormant in the outer business district
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ministration to eight locations by 2024; six of these locations are outside the CBD. Nevertheless, because the new locations are designed not just for consolidation of existing facilities but also to absorb the anticipated growth in employment in the Federal Administration, it is likely that the influence of these efforts on the office property market will be held in check. According to the Accommodation Concept, the share of federal employees in the CBD is expected to remain constant at 10% until 2024. In contrast, the Federal Administration would like to reduce the share of employment in the outer districts of the city from 49% to 44% and increase the share in the agglomeration of Berne accordingly to 23%. That means the extended business district in particular will suffer from relocations. For office property in the extended business district, the sandwich location between an attractive city center and the easily accessible periphery will thus become a problem because it forces tenants to make compromises in both respects.
Wankdorf City is progressing and Swisscom will become a neighbor of the Federal Administration in Ittigen
Semi-public- and private companies are also attracted to the edge of the extended business district and even beyond. The planning for Wankdorf City is progressing. In February 2011, the SBB submitted the planning application for its new property in the north of Berne. That is where the corporation's central functions and the divisions Infrastructure and Real Estate are to be consolidated starting 2014 on 35'000 m2 of office space. At the same time and at the same location, 34'000 m2 will be built for Swiss Post. Not far north of the newly created district Wankdorf City, in Ittigen, Swisscom has announced the start of construction for a new business park in March 2012. As with the Swiss Post and the SBB, the moving-in date is scheduled for 2014. From that point on, 1'700 workspaces will be available in 22'000 m2 of office space, which will be used by 2'000 Swisscom employees based on flexible use of office space (desksharing). Although the public sector dominates Berne's CBD and this area is set to remain stable in the coming years, the challenges in the surrounding areas are set to grow or, to put it positively: Berne's office property market is awakening from its long slumber. In addition to the projects already mentioned, further office space in Wankdorf City is likely to be available for occupancy as early as 2013. Credit Suisse has now moved to its new property in Gmligen and PostFinance will relocate to near Guisanplatz. These expansions in office space are likely to breathe life into the office property market in Berne in the next few years. Last year's increase in vacancies following a three-year decline, as well as the sharp jump in supply, shows that the upheavals are already occurring (figure 33). The recent expansion in supply in the third quarter of 2011, as well as the volatile trend for advertised rents compared to the stable situation in the CBD and in the outer business district (figure 34), has created disruption, particularly in the extended business district. It is likely that primarily older and suboptimally developed stock properties from the extended- and outer business regions will be impacted by such upheaval. Nevertheless, it is unlikely that severe negative consequences in the form of overcapacity will result from the current expansion. First, companies strengthen Berne as a business location with the new properties. Second, the fluctuations create opportunities for smaller companies to obtain office property in attractive locations at moderate prices. After all, not every company is willing to pay the associated price premium for new, modern office space with excellent transport links. Figure 34 Trend in Advertised Rents
350 Berne CBD Berne extended business district Berne outer business district Switzerland
The office property market in Berne is showing signs of life

90'000 Berne CBD Berne: Extended business district Berne: Outer business district Supply Total
300
60'000 250 30'000 200
0 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011
150 2005 2005 20062006 20072007 20082008 20092009 2010 2010 2011 2011
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Basel
Figure 35 Advertised Rents (Gross) of the Office Property Market in Basel

> 400 351 - 400 301 - 350

Riehe n
Projects
1 Sd-Park 2 Martkhalle 3 Areal St. Johann: Novartis 4 Wettst einquartier: Roche 5 Transit lager 6 Cit yGate 7 Grosspeter Tower 8 Areal E rlenmatt 9 Helveti a/Ceres Tower
Rhein felden
Basel
3 8
261 - 300 201 - 260 151 - 200 101 - 150
4
Allsc hwil Birsfelde n
< 100
2 1
Binn ingen
7 6 5
Mu tte nz

Obe rwil M nc he nstein
9
Pr atte ln
Th er wil Reina ch Ar lesh eim

Lie stal
Do rna ch Ae sch
0 1.5 3 km
East-West price differential in Basel's CBD
The area-weighted average rent in 2010/11 for office property in the Basel market was CHF 260 per m2 p.a. A red band of disproportionately expensive rental properties extends from Wettsteinplatz northeast of the CBD through the city center to the SBB train station and further along the tram line to Binningen, the municipality located southwest of the extended business district. Office property in the eastern part of the CBD on the axis Wettsteinbrcke, Aeschenplatz and the SBB train station was advertised at CHF 310 to CHF 340, more expensive than in the western part of the Old Town, where the advertised rents for office property were in line with the area-weighted average of CHF 280 per m2 p.a. Although Basel's Old Town offers central locations in an attractive urban environment, they suffer somewhat from comparatively poor accessibility due to the increased distance to the SBB train station and the access to the freeway. In addition, the eastern portion of the CBD in the Aeschenvorstadt area offers larger and more modern office spaces, which, because of the area-based weighting approach, have a stronger influence on the analysis than the generally smaller offices in the Old Town. Office space for just-completed projects outside the CBD is currently being marketed.5 The Stcki Business Park, for example, which offers up to 30'000 m2 of office space in total, was completed just prior to the end of 2011. The first portion of the Basler Sdpark (Baufeld D) is also ready to be occupied. The new office property of this project will be home to the Basler Kantonalbank with 5'500 m2 of office space. The canton's government will use BKB's relocation from Spiegelgasse to continue the process of concentrating its locations. The canton purchased the property back in 2008 together with the former property of Sympany Insurance, which has resided in the Jacob Burckhardt House since 2009. In the future, employees of the canton's Finance Department will occupy BKB's offices. Other buildings on the Spiegelgasse should make way for replacement new buildings for additional workspaces from other government agencies. In this way the canton's government is strengthening the Spiegelgasse location. In the spring, the renovated Markthalle will offer a further 4'000 m2 of office space for private tenants. However, the current expansion in office space is not a threat because there are no more major projects in the next one to two years.
Relocation of the Basler Kantonalbank (BKB) to the Sdpark enables its administration to consolidate locations
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Big plans in the mediumand long term following the limited short-term expansion
Basel has big plans in the medium- and long term. First, the pharmaceutical sector's building plans hang over the office property market like the sword of Damocles. The Novartis campus is growing continuously, with a planning horizon until 2030, and the Roche Tower is set to house 2'000 of the corporation's employees starting at the end of 2015. Second, well-known development projects are announcing expansion plans. For example, new office property is also set to be built by 2015 together with the renovation of the transit site in the newly planned district of the Dreispitz Industrial area; this office space will be in addition to housing, which is the primary usage for the site. The additional building code framework conditions are in place for the further development of the City Gate project now that the building-zone plan has been changed. In two further buildings about 18'000 m2 of incremental office space is planned in the medium term. The new home of BKB the Basler Sdpark will be supplemented by 2017 with an 81 meter tall high-rise. According to the SBB, about one third of the planned 28'500 m2 of useful floor area will be office space. A further 11'000 m2 are likely to be created in a high-rise at the Grosspeter site, and by 2020 the zoning plan Erlenmatt will provide 64'000 m2 of office space for offices and businesses. Basel has recently demonstrated its strong will to change and grow with its published visionary master plan "3Land". The cities Basel, Weil am Rhein, and Huningue have initiated a partnership for the long-term development of Basel's port site and are outlining the development of new residential and working districts on 175 hectares on both sides of the Rhine over the coming decades. Basel is likely to master both the current- and the medium-term expansion of office space that is reflected in the planned projects. The specifically designated total office space at the moment amounts to 50'000 to 60'000 m2 without the Roche Tower over the next five years. If you assume, in addition, that 30'000 m2 of office space will become vacant during this time period through the concentration of locations by the pharmaceutical companies, about 90'000 m2 of office space is likely to enter the market by 2017. That represents 4.2% of the estimated office space stock of the economic region Basel City and exactly the annual growth rate of the annual stock expansion during the last three years. Accordingly, slightly less concern is necessary from a supply perspective, provided that the planning for further projects is held in check and the pharmaceutical companies retain their commitment to Basel as a business location. The problem of Basel is therefore less the expansion of supply than the weak demand. The increased supply of office space since the second quarter of 2011 is mostly the result of the still vacant and advertised office spaces at the Stcki Business Park. In contrast, the supply in the CBD is declining (figure 36). The relative increase in attractiveness of the larger and newer office spaces in the extended- and outer business districts keeps the price disparity low between the three regions (figure 37). However, the trend for advertised rents in the centraland extended business districts has been in decline since the middle of 2010. It is likely this is only a slight correction of advertised rents that had previously risen considerably. In 2012, rents in the CBD and in the extended business district will probably fluctuate just below CHF 300 and in the outer district between CHF 200 per m2 and CHF 250 per m2 p.a. Figure 37 Trend in Advertised Rents
350 Basel CBD Basel outer business district Basel extended business district Switzerland
Average office space expansion of the last three years is likely to continue at a similar pace
Slight correction of rent prices is likely to stabilize in 2012

100'000 Basel CBD Basel: Extended business district Basel: Outer business district Supply Total
80'000
300
60'000
250
40'000
20'000
200
0 2006 2006 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007
150 2005 20062006 20072007 20082008 20092009 2010 2010 2011 2011 2005
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Lausanne
Figure 38 Advertised Rents (Gross) of the Office Property Market in Lausanne

> 570 471 - 570 401 - 470 331 - 400 261 - 330 201 - 260 101 - 200 < 100
Projects
1 Business Village 2 Champagny Business Center 3 Malley Centre 4 Delta 6 Lake Geneva Park
1 4

Renens Ecublens Prilly
3
Morges
2 6
Pully
Lausann e
0 1.5 3 km
Comparatively low rents attract jobs from the CBD to the west
Lausanne's office property market is now the second most expensive market after Geneva. According to advertised rents, the average office space rent in 2010/11 across all business districts was CHF 330 per m2 p.a. However, rents in the CBD, where offices were advertised for just below CHF 400 up to CHF 460, are considerably higher than this average value. Just like in Geneva, proximity to the train station has no identifiable effect on rents, and their spread is also high. Sometimes the advertised rents even varied over the two-year time period within an individual building between CHF 350 and CHF 700. In the emerging Flon district that borders in the west, as in the north, rents were lower, at an average CHF 320 per m2, and they were lower further towards the west in the district Sbeillon/Malley at between CHF 200 to CHF 250. Given these significant price differences in a small area, it is not surprising that the employment dynamics of the western extended business district outshine those of the CBD.6 The isolated cases of higher price levels, for example in Crissier, Bussigny-prs-Lausanne or far in the north in Villars-Ste-Croix, are attributable to expensive individual office spaces that do not adequately reflect the local price structure. The suburban municipalities in the outer business district are also the exception in the otherwise generally tight office property market; this scarcity in the market is reflected by the vacancies that have practically fallen by half. After the vacancies in the district Ouest lausannois rose from 12'000 m2 to just under 50'000 m2 in 2010, the decline in 2011 to 21'000 m2 shows that this was a temporary problem, to which investors reacted with cautious planning. Of the planned office space totaling just over 30'000 m2 in the Business Village in Bussigny-prs-Lausanne, 9'600 m2 has been realized until now. Two further stages are awaiting the start of construction until a higher pre-lease rate has been achieved. Given the only vague planning for new projects in these municipalities, it is likely that further expansions in office space will be limited in the near future. There are only a few specific new projects, including the Champagny Business Center in the lakeside municipality St-Sulpice between Lausanne and Morges. The groundbreaking ceremony took place in December 2011. The approximately 5'000 m2 of office space is expected to be completed in 2013.
Higher vacancies reveal temporary and isolated selling problems only in the district Ouest lausannois
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Long-term district development can ease pressure on the CBD
In contrast, planning in the development district Malley Centre the tri-municipality area of Lausanne, Renens, and Prilly is being carried out on a large scale and for the long term. In order that growth towards the west does not end up as ill-thought-out overdevelopment of the extended agglomeration, an international competition for urban development was announced as part of the development plan for Lausanne-West. Malley Centre is intended to become the core of a new future part of the city, where 10'000 jobs are expected to be created in 83 hectares across five districts by 2030. Assuming an average office workspace size of 18 m2, this represents new office property totaling 180'000 m2 in a sought-after location. With this increase in office space, Lausanne and the neighboring municipalities could pit themselves against the competition along the lakeside towards Geneva. Such municipalities themselves have been active, with further service areas springing up between the office property markets of Lausanne and Geneva along Lake Geneva. These are interesting in many respects, particularly for large companies. They offer significant space and good transport links, in some cases at locations near the lake. The location between Geneva and Lausanne enables employees from both major urban areas to commute against the rush-hour traffic. Furthermore, the locations are easier to reach than the central areas in Geneva and Lausanne for many of the municipalities located away from the lake; these municipalities are also more affordable from a housing perspective. For example, the Businesspark Terre-Bonne in the municipality Eysins near Nyon is expanding to 43'000 m2 by 2013. The marketing of this office space is explicitly aimed at multinational companies seeking a location on Lake Geneva. The price trend in Lausanne is continuing its upward movement. Area-weighted rents have risen sharply since 2008, particularly in the CBD (figure 40). That shows that large office spaces in the CBD are in demand and that they have their price. Generally it is the prices of larger office spaces that continue to accelerate throughout the entire office property market in Lausanne because the price trend flattens out somewhat without the effects of area-weighting. This trend means that advertised rents along Lake Geneva continue to move more into line with one another. The opposite price trend has been seen in Geneva's CBD since 2009. Given the economic slowdown in 2012, the possibility that advertised rents in Lausanne's CBD will rise rapidly and permanently above the square meter price of over CHF 450 per year appears just as unlikely as a permanent price level in Geneva below CHF 450. Accordingly, it is probable that prices in both CBDs will fluctuate around the CHF 450 level on an area-weighted basis. Since 2006, advertised office space has varied between 60'000 m2 and 90'000 m2 with an overall sideways trend (figure 39). The shifts in supply between the business districts is an accurate reflection of the market situation in Lausanne: As with the vacancy trend in the district Ouest lausannois, the supply of office space in the outer business district almost doubled from 2009 to 2010. In contrast, office space in the extended business district is in demand. Since the second half of 2010, there is less being advertised than in the CBD, where the likewise limited and stable supply of office space, together with the rising prices, reflects the intact demand amid limited construction activity. Figure 40 Trend in Advertised Rents
450 400 350 300 250 200 150 Lausanne CBD Lausanne extended business district Lausanne outer business district Switzerland
CBD-rent: buoyancy in Lausanne is leading to price convergence on the lake

120'000 100'000 80'000 60'000 40'000 20'000 0 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Lausanne CBD Lausanne: Extended business district Lausanne: Outer business district Supply Total
2005 2005 20062006 20072007 20082008 20092009 2010 2010 2011 2011
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Outlook for Office Property 2012: The Calm Before the Storm? The Swiss office property market has coped well with the economic turbulence of the past three years. Given the modest employment trends in the classic office sectors, that fact that no meaningful oversupply developed during 2010/11 can be seen as evidence of sound planning, but can also be attributed to the fact that tertiarization within industry is progressing and that demand from industrial companies is growing. There are unlikely to be any seismic shifts on the office property market in 2012. Growth in employment in the classic office sectors will be moderate once again. Support for growth will come from construction-related service providers, IT companies, and business service providers that are on catch up. The relocation of workspaces by large companies will increasingly lead to upheavals in the city centers. Yet these relocation strategies are likely to have less of a negative impact than feared. The locations and sizes of office space being vacated are aligned in many places with the small-business-based structure and requirements of growth sectors. Vacancies in innercity locations are meanwhile unlikely to be avoided without price concessions. Moreover, the pipeline, which is well-stocked with large projects, is targeted across most of 2012, meaning it is likely to empty all the more fiercely in 2013 and lead to major challenges, particularly in the larger urban centers in the German-speaking part of Switzerland. Projects such as Wankdorf City (Bern), Roche Tower (Basel), and Glattpark (Zurich) are proceeding and will lead to noticeable growth in the stock of office space starting in 2013. Rents, which broke out of a narrow range and rose in 2011 for the first time in seven years, are likely to be dampened again by the expansion of supply.

Demand
Development of office-based employment: The overall delayed reaction of office employment in the economic cycle and the structural growth of office based jobs in industry sectors provide for modest growth in employment of 8'000 positions in this year's subdued economic environment. Situation in individual sectors: The strong construction market continues to provide orders to architect- and engineering practices. IT companies benefit across the board from process optimization and automation efforts. In corporate services, there is a backlog of work to be accomplished because of caution in the past. Crisis specialists in the sub-sectors legal- and management consultancies are also stabilizing the employment trend in an anti-cyclical fashion. By contrast, employment figures in the financial services sector are likely to fall, even if not quite as sharply as it has been rumored.
Background
Outlook
Supply
Planning activity: The high expected growth in stock is sustaining the tendency towards oversupply, particularly in the German-speaking part of Switzerland. In 2013 in particular, when lots of space will come on to the market, the overhang risk is expected to increase. Supply structure: Challenges are growing in the medium term in the north of Zurich and in the markets of Berne and Basel due to planned projects, or ones that are already in progress, as well as the relocation strategies of large companies. In contrast, the supply on the arc around Lake Geneva continues to be tighter.
Market Outcome
Vacancy rates: Because of relocation strategies, vacancies will occur in 2012 in the major urban centers of German-speaking Switzerland. It is unlikely that these vacancies will be rapidly filled again by smaller companies from growth sectors without price concessions. Overall, the risk of vacancies in German-speaking Switzerland is growing in the medium term due to large projects. Rents: The area-weighted average quoted rent for office property in Switzerland has been around CHF 250 per m2 p.a. (gross) for the past seven years. In the 4th quarter of 2011, average rent at CHF 269 distanced itself from this mark for the first time and is likely to remain stable at this level in 2012. Performance: The flat-lining of rents and the increasing risk of vacancies, in particular in older spaces, are likely to exert moderate pressure on net cash flow returns. By contrast, if only for the lack of alternatives, office properties remain in the focus of foreign investors as well as domestic institutional investors, who are prepared to pay high prices. Accordingly, thanks to higher value returns, total returns will remain flat.
(Germanspeaking-CH) (West-CH)
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Retail Property
The retail landscape is facing difficult conditions gloomy consumer sentiment and the ongoing strength of the franc that have pushed nominal sales through the floor. Yet the situation for consumers appears to be better than their mood suggests, with consumer tourism the main factor affecting retail, particularly in the regions near the borders. Although retailers are looking to the future with their usual optimism and most intend to expand their floor space, the actual data tells a different story. The expansion of floor space can be considered over. This is also reflected in the small number of approved large projects. Such consolidation has contributed to a stabilization in the retail property market that is reflected in constant vacancies and declining supply. Only the falling trend for rents does not really fit into this picture, until we find that the falling trend generally impacts smaller properties as the losers of structural change.
Demand
Uncertainty dampens consumer confidence
At the start of 2011, the Swiss economy was still in excellent shape. Despite the strength of the franc, the economy was growing and the crisis appeared to have been overcome. The only blot on the landscape was weak retail sales. It was unclear for some time whether consumer tourism was already starting to leave its mark or whether the different timing of public holidays was responsible. During the course of the year, negative news started to build up and the exchange rate environment worsened. At the same time, consumer sentiment began to deteriorate. Numerous crisis reports and negative economic expectations unsettled Swiss consumers, even though the employment market remained robust almost until the end of 2011 thanks to a solid domestic economy (figure 41). Figure 41 Retail Sales and Consumer Sentiment
Consumer sentiment: index; retail sales: year-on-year change in %
3 2 1 0 -1 -2 -3 1995
+/- 1 standard deviation (consumer sentiment, left scale) Consumer sentiment: old index (standardized, left scale) Consumer sentiment: new index (standardized, left scale) Retail sales real (three-quarter average)
6% 4.5% 3% 1.5% 0% -1.5% -3%
1997
1999
2001
2003
2005
2007
2009
2011
Source: State Secretariat for Economic Affairs, Swiss Federal Statistical Office, Credit Suisse Economic Research
Are consumers too pessimistic?
But is the situation really that bad or are consumers, demoralized from the steady stream of bad news from abroad, being overly pessimistic. Although consumer sentiment is in negative territory, when asked, consumers believe that now, more than any other time over the past 20 years, is the best time to make major purchases. Another sign that the situation is not that bad are the figures for new auto registrations. Between August and December 2011, on average 12.2% more new cars were registered than in the same period last year. On average for the
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year (January to December 2011), there were 10.6% more than last year. However, the increased number of new auto registrations, as well as transport vehicles, should not be overestimated because price reductions due to the strength of the franc could have meant that certain purchases have been brought forward. Yet, it is equally possible to conclude that the economic situation of the population is not nearly as bad as consumer sentiment would suggest.
Retail sales suffer from the strength of the franc
The moving average of retail sales in real terms was 0.4% in the third quarter. Despite a mixed Christmas business sales in real terms ended 2011 in positive territory, with annual growth of 0.9%. But sales figures in nominal terms were in negative territory (-1.7%). The strong franc hit retail sales on two fronts. Firstly, retailers were forced to reduce their prices so much that negative inflation of 2.6% resulted a figure that is unprecedented in the history of Swiss retailing. As a result, nominal sales and operating profits came under pressure. Secondly, the strong franc boosted consumer tourism, meaning that a portion of sales went abroad. Last year, the exchange rate situation reached near-dramatic proportions. The uncertainty in the markets was so high that investors rushed headlong to the safety of the franc. Thanks to the intervention by the SNB in September, the franc stabilized against the euro. Still, the franc remains overvalued on a long-term basis, making shopping in Switzerland, which was already a high-price location, even more expensive compared with abroad. As a result, consumer tourism increased sharply last year, having already grown in 2010. It is difficult to quantify the impact of this phenomenon, but the anecdotal evidence is striking. For example, the reported share of Swiss clients in Constance has risen by one third, from 25% to about 33%; stores in Switzerland located near the border complained of a collapse in the number of clients, and Migros reacted to the downturn in sales by cutting 45 jobs in Ticino and 125 in the Geneva region. According to various calculations, it is likely that consumer tourism increased by an estimated 20% to 30% compared to 2010. There can be no doubting this trend if we look at the number of approved value-added tax forms in cross-border trade with Germany, which grew by 36% in the first three quarters of 2011. Since 2006, the number of approved export certificates has risen by 77%. To be sure, the SNB's initiatives probably slowed the growth in consumer tourism somewhat, but have been unable to fully contain it. Based on older studies and the findings mentioned above, we estimate that the flow of purchasing power abroad as a result of consumer tourism is at least CHF 4 to 5 bn. Price reductions by retailers have been insufficient to counter the shopping trips abroad. Domestic retail stores located in the regions close to the borders are being particularly hard hit by consumer tourism. Indeed, depending upon the product and the sector, its influence is likely to cause sales to collapse well into the Mittelland. According to the 2005 traffic microcensus survey from the Swiss Federal Statistical Office7, the median travel time spent by the Swiss in private motorized transport for the purchase of food is 10 minutes. This rises to 15 minutes (median travel time) for the purchase of non-food items. If the shopping destination is abroad, the amount of tolerated travel time doubles. The median travel time abroad is 20 minutes for food purchases, and 30 minutes for other purchases. This indicates that consumers accept a considerably longer travel time or have a higher travel tolerance for shopping trips abroad. This is likely to suggest that the volume of purchases during shopping trips abroad is significantly higher than for trips within Switzerland. It is important to note that the survey data was collected in 2005, i.e., in a year when the EUR/CHF exchange rate was 1.55 on average, or about 20% higher than in 2011. It can therefore be assumed, given today's exchange rates, that consumers tolerate even longer travel times for shopping trips abroad; after all, the potential for savings has risen considerably. In order to illustrate the threat of consumer tourism for retail properties at regional level, the border region was divided based on how quickly the available border crossings can be reached with private motorized transport (without traffic jams or waiting time). The analysis was limited to the accessibility of these crossings due to a lack of data about retail stores in regions abroad that are located near the border. In addition, only the main border crossings8 were considered. On these roads it is likely that you can reach shops on the other side of the border within a short period of time. The results of this accessibility analysis are shown in figure 42.
Consumer tourism hits domestic retail sales
Travel time tolerance at least twice as high for shopping trips abroad
Accessibility of border crossings with private motorized transport
The 2005 traffic microcensus is a survey of the Swiss Federal Statistical Office and contains information on the purchasing behavior of the Swiss population. In calculating the median travel time for a shopping trip, only travel time (excluding waiting time) with private motorized transport (automobile, motorcycle, motorbike, and mopeds) was considered. According to the NAVTEQ street classification: border crossings on streets with the function class 1 and 2 (highest and second highest level).
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Primarily the populous northern Mittelland, as well as Geneva and Sottoceneri, are threatened by consumer tourism
The dark blue border designates all the regions that are located less than ten minutes from the next border crossing. Assuming that a retail store can be found within ten minutes of crossing the border, a trip abroad is gladly undertaken in these regions near the border for daily errands such as grocery shopping. Around 15% of all Swiss food retailers are located in this area, which is severely threatened by consumer tourism. The phenomenon is not equally prevalent in all parts of the country for topographical reasons. Only a few municipalities are affected in the cantons Graubnden and Valais. In contrast, other regions are being heavily squeezed by the border, including Sottoceneri, the entire canton of Geneva, and especially the northern border from Ajoie via Basel City to Schaffhausen, which is entirely located in this area. Farther east, the Kreuzlingen area and the entire Rheintal are included as well. The range between ten and twenty minutes extends far into numerous other cantons such as Jura, Basel Land, and Thurgau. From these locations it is hardly likely that daily shopping trips are taken abroad; occasionally a weekly trip to a hypermarket might be made. The need for non-food items is probably covered abroad given that the willingness to tolerate travel time for shopping trips abroad for non-food items is 30 minutes on average. The share of large retailers and non-food specialty stores that is affected in this range is about 11%. Taken together, you can say that 17%, or about one-sixth of all Swiss retailing, are the main casualties of the increased outflows of purchasing power. Figure 42 Regions Threatened by Shopping Tourism
Accessibility of important border crossings with private motorized transport by travel time
< 10 minutes 10 - 20 minutes 20 - 30 minutes 30 - 45 minutes 45 - 60 minutes
Source: Credit Suisse Economic Research, Swiss Federal Statistical Office, NAVTEQ, Geostat
Put back consumption also threatens retailers further away from borders
Regions located more than 20 minutes from the next major border crossing have adequate distance protection with regard to the purchase of daily essentials. The hefty price differential is enticing for consumers from this zone more for occasional large shopping trips on Saturdays or for day shopping trips in nearby foreign countries. To be sure, these shopping trips occur less frequently, but they still can be painful for retailing because many errands are put back until when the larger shopping trip/shopping purchases take place. The results for the cantons of Valais and Graubnden need to be treated with caution. Due to their topography, it can be assumed that the travel time beyond the border to the next retail store is considerably longer than in the rest of Switzerland, meaning that the effects tend to be overestimated.
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E-commerce is an additional threat to retail property
Besides a physical trip abroad, shopping online, whether domestically or abroad, is another channel that is affecting retail property, regardless of the distance to the border. Whereas the threat from consumer tourism is not likely to increase further due to the SNB's intervention, online shopping is competition that is becoming increasingly prevalent and which has received an additional tailwind from the attractive exchange rate. Shopping online is not yet that common in Switzerland. But the trends abroad show us where we are heading. This development is likely to leave its mark on the retail property market gradually over the next few years. Despite the stabilization of the exchange rate situation, a continued fall in retail prices should be expected in the current year, albeit to a lesser extent than in 2011. The sharp increase in consumer tourism will also continue to weigh on Swiss retailers in 2012, but following the massive increases seen in 2010 and 2011 is unlikely to become even more acute. Immigration, which remains high and has a strong effect on consumption, promises to provide some relief. Without the immigration of about net 75'000 people last year, growth would have been an estimated 0.3 percentage points lower just in food retailing alone. Immigration proved to be a welcome support for retailing. However, its impact was not enough to counter the effects of the strong franc. We now forecast only moderate growth in retail sales in real terms for 2012 because as long as uncertainty about the outcome of the euro crisis persists and unemployment climbs, retail sales performance will be held back by poor consumer sentiment. As in 2011, the forecasted nominal decline in sales will primarily be due to falling prices. Given these assumptions, a decline in demand for retail property must be expected. But this decline is likely to affect primarily the regions near the border that are suffering from the effects of consumer tourism. Other areas are still impacted primarily by the effects of structural change and the shift in demand for floor space towards larger units and locations with economies of scope and/or higher-quality visitor traffic.
Immigration is providing some relief
Supply We have seen the situation with regard to the expected expansion of retail property return to normal in the past two years. After planning applications and construction approvals moved in opposite directions in 2009 due to the financial crisis because of changes to projects, several more applications were submitted than were actually approved they are now moving in a more-or-less synchronous manner at levels that are below the long-term average (figure 43). For the time being, the phase of floor space expansion can be regarded as over. It is likely that falling floor space sales, such as those reported by the large retailers Coop and Migros reported last year, contributed to this trend. Figure 43 Building Permits/Applications for Retail Properties
In CHF mn, moving twelve-month total
1'600 1'400 1'200 1'000 800 600 400 200 1995 1997 1999 2001 2003 2005 2007 2009 2011 Permits Applications Average value of permits Average value of applications
Figure 44 Building Permits by Project Size

New buildings by project size, in CHF mn, moving 12-month total
1'400 1'200 1'000 800 600 400 200 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 < 1 mn 5 - 10 mn 20 - 50 mn 1 - 5 mn 10 - 20 mn > 50 mn
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The period of major projects appears to be over
The dwindling number of approvals for large projects with a construction volume of more than CHF 50 mn is a further indicator (figure 44). The trend since 1995 shows that approval activity moves in cycles. In times of economic uncertainty (like, for example, during the recent crisis in 2009 or following the bursting of the dotcom bubble in 2000), there were phases when not a single large project was approved. This can be attributed to withdrawals, planning changes, or other delays by investors or builder-owners. Currently, we are seeing a more cautious attitude toward project planning. Whereas there has been a generally stable trend recently regarding building permits for small- to medium-sized retail properties of under CHF 20 mn, permits for large projects have practically come to a standstill. Not a single major project has been approved since the end of 2009. In the range of CHF 20-50 mn, the number of approved projects can be counted on one hand, and all involve investments at the lower end of the range. The uncertain economic environment, as well as a degree of saturation in the Swiss shopping center landscape, is likely to be responsible for this lack of major projects. However, we should not write off the chances of new floor space just yet because there is still a gradual shift towards larger units. For example, in 2009/10 the major shopping centers with floor space above 10'000 m2 registered a sales performance of between 4% and 5%, far more than smaller shopping centers with 1.2% and overall retail with approximately 1%. Moreover, the list of planned shopping centers is long, even though the chances of these plans being realized are not equally likely in all locations. The leading retail representatives showed their usual optimism in a survey conducted in the fall of 2011. More than half intend to expand their retail property within the next year through expansion, renovation, or new construction, on average by 5.4%. That means a further expansion should be expected that will be driven less by shopping centers, and more by the new discounters and the specialty markets springing up. After the financial crisis led to a sharp increase in advertised retail property, a recovery started in the middle of 2010 based on a level of just under 280'000 m2 of advertised existing and new construction property; this level has continued until today. The pause in the permits for new construction and the rapid overcoming of the crisis has seen the supply of retail property recede once again. Currently, the supply of retail property, at about 127'000 m2, has fallen below precrisis levels. Accordingly, the demand for retail property appears to have remained intact up the end of 2011.
Nevertheless: size pays off
Declining supply of retail property
Agglomeration Benefits in Retailing

What types of stores in retail and commerce attract each other?
In difficult times, the management of existing retail properties and the search for new locations is and remains a decisive factor for success. Retailing is constantly in transition. Unprofitable locations are abandoned quickly. Only larger formats such as shopping centers and specialty markets earn a longer honeymoon because these formats are able to divert streams of visitors over the course of time. Such centers arise because economies of scope and density benefit all participants. Outside of such centers, it is not just the micro-location that is decisive for the quality of the location; the presence of other stores that attract the crowds also creates agglomeration benefits. To shed some light on this area, we analyzed the situation of 32'000 retail businesses9 regarding their direct neighbors within a linear radius of 150 meters. What is interesting here is primarily which retail sectors, or branches of trade10 also with leased facilities in retail property, sought proximity to each other. Businesses that seek proximity to competitors can be found primarily in clothing, accessories, shoes, eyewear, entertainment devices, as well as perfumeries and jewelry. These are all nonfood specialty businesses in which the focus lies not only on functionality, but also the design and/or the price of the goods. Price comparison is likely to play a central role, particularly for businesses with entertainment devices or with perfumes; design is more important for eyewear, clothing, and shoe stores. Areas of business that avoid the competition typically include retail stores that have a very specialized selection, such as fruits/vegetables, seafood, ice cream, bicycles, musical instruments, and shoe makers. In these areas of business, a visit to a store is
Proximity to competitors can increase sales
9 Only businesses in Swiss agglomerations and only stores with a minimum of 1.6 full-time equivalent positions were considered. 10 These are travel agencies, repair shops for shoes or leather, laundries, dry cleaning shops, hairdressers, and beauty salons.
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for very a specific purpose; a comparison of design or price is therefore a secondary matter. For example, if your bicycle needs to be repaired, you go to the next bike shop and do not first go to several dealers to compare prices. Such stores have gradually disappeared in the wake of structural change because their products and services have increasingly been offered by larger rivals and at even more affordable prices. The geographic concentration in retailing tends to increase just for this reason alone (figure 45). Figure 45 Importance of Agglomeration Benefits by Retail Sector
Geographic proximity of retailers to competitors from own sector and non-sector retailers (y axis)
Forerunners/followers
Tobacco Shoemaker Leather and travel goods Furs Babies' and children's clothing Games and toys
Men's clothing
Perfume stores
Women's clothing
Hypermarkets
Avoiding competitors
Drugstores
Footwear Books Gifts and souvenirs Glasses Textiles Audio and video eq. Clothing accessories Department stores Travel agencies Writing materials Beauty salons Dispensing chemist Sporting goods Bakeries Furniture Hairdresser
Watches/jewellery
Large supermarkets Newspapers/magaz ines Dry-cleaning Electrical household appl. Medical goods Flowers/plants Small supermarkets Large stores Small stores Computers, etc.
Fish/crustaceans/molluscs Musical instruments Pets Curtains/carpets Fruit/vegetables Bicycles Hardware goods
Proximity to competitors
Automotive fuel in spec. Beverages stores Grain/fodder/agricultural Washing of textiles products
Loners
Shopping centers follow the pattern of the market structure
Hypermarkets avoid the competition just as much because the broad selection in a hypermarket means it makes less sense to be located near another hypermarket. In this case, the loss of sales outweighs the benefits of higher footfall. It is different for non-food specialty stores. Specialty stores that compete with a portion of the selection at a hypermarket (e.g., entertainment devices, shoes, or clothing) or complement the selection (e.g., travel agency, hairdressing salon, or pharmacy) are often found close to the latter. Our analysis shows that the tenant mix that has developed in a spontaneous and evolutionary manner on the retail property market in many locations around the "hypermarket" anchor tenant largely corresponds to the pattern that is consciously created in most shopping centers. If shopping center managers are occasionally accused of having a stereotypical tenant mix, this is because they are geared towards the market. We were also able to use the analysis to determine the stores with a range of other retailers or service providers located in the vicinity. It is not clear from the outset which of these businesses plays the role of anchor and which are the followers. The stores that attract the crowds include hypermarkets, department stores, book stores, shoe and clothing stores, and electronics markets. The followers tend to include newspaper shops/kiosks, tobacco shops, jewelry stores, perfumeries, gift shops, and travel agencies. While many shops seek the proximity to competitors or complementary businesses, there are also retail stores which are rarely found near another store. One such example is gas station shops. Because of their primary purpose, these gas station shops are located on easily accessible and conveniently located roads and are thus usually found away from the locations of other stores. Other such "loners" include beverage dealers, bicycle shops, iron dealers, and computer shops.
Loners versus followers
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Market Outcome
Stable trend in vacancies
While vacant residential units are registered throughout Switzerland, vacant retail properties are known for only a few cities and cantons (figure 46). In the five cantons and three cities where vacancies were tracked, about 71'000 m2 of retail floor space was vacant as of June 1, 2011; this equals a slight increase year-on-year of 2'500 m2 or 3.7%. The volume of vacant retail property has changed in the last three years only minimally and has stabilized at a historically low level (average value 2001-2011= 77'000 m2). Figure 46 Vacant Retail Properties by Region
Regional vacancies in 1'000 m2
120 100 80 60 40 20 0 2001
Canton of Geneva Lausanne City Zurich City Canton of Basel Land Switzerland average 2001-2011
Canton of Vaud (w/o Lausanne) Canton of Neuchtel Canton of Basel City Berne City
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Credit Suisse Economic Research, various cantonal agencies
Basel City has higher vacancies
While vacancies in most cities have declined for example in Geneva, Lausanne, and Zurich Basel City is the exception. Vacancies in the city have risen by about 20%. The proximity to affordable neighboring countries, as well as the retail spaces that were built in and around Basel in the near past, are probably the reason for the higher vacancies. The 7'600 m2 of floor space or about 40% higher vacancies in the canton of Vaud are predominantly attributable to the municipalities Villeneuve (+10'000 m2 compared to last year) and Bussigny-prs-Lausanne (+4'800 m2 compared to last year). Accordingly, there is no reason to describe the situation in the canton of Vaud as an across-the-board increase in vacancies. The financial crisis has left its mark on advertised retail property in the form of falling rents. In step with the rapid recovery of the Swiss economy, rents recovered again (figure 47). However, as we can see from the most recent price trend, the recovery in 2010 was only temporary in nature. Last year, asking prices weakened again and broke through the limit of 240 CHF/m2 in the middle of the year, which represented the lower limit for the whole of 2009. In the fourth quarter of 2011, the median rent for retail property ended up at exactly 240 CHF/m2, equivalent to a 5% decline over twelve months. The negative price growth in the previous quarters is hardly attributable to top locations in the city center. Such retail properties are rarely advertised publicly and are therefore not considered in the statistics on asking prices. Properties that were nevertheless advertised experienced in terms of prices a steep climb until the financial crisis and have fluctuated sideways thereafter amid high volatility. The demand for such top locations, which shows no signs of letting up despite a subdued consumer climate and meager retail sales, points to an ongoing robust rent trend in the top locations.
Falling rents for over a year
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Declining rents particularly for smaller properties
When dividing the advertised rents into two floor size categories, a clear distinction can be made between two price paths. (figure 48). The median floor size of advertised retail property since 2004, which is 90 m2, was used as the threshold for the allocation. This rather low average floor size reflects the fact that primarily small properties are advertised. In principle, asking prices for smaller retail properties fluctuate above the asking prices of other floor spaces (larger than 90 m2). However, this price differential has diminished in recent years because the asking prices for larger properties have developed in a very stable manner. The difference has now almost disappeared. The trend towards falling asking prices is therefore attributable to the smaller retail properties. On the basis of this negative trend of rent prices, we can see that a crowding-out process has been underway on the retail property market for many years driven by the expansion in floor space since the turn of the century, which then moved up another level in 2005. The smaller properties stood and continue to stand clearly on the loser's side; they continually lost ground and were only usually able to survive by positioning themselves as convenience offerings with longer opening hours or in cooperation with other stores at good shopping locations. The subtle disappearance of these smaller properties in the wake of a shift in demand towards larger stores puts the expansion of floor space in a somewhat different light, i.e., it has indeed occurred in the wake of a dramatic structural adjustment at the expense of small properties. Figure 48 Rent Trend by Floor Space Size
Average asking price in CHF/m2 (median) for small- and other properties
50th percentile Four-quarter moving average
340 320 300
2 Small spaces (<= 90 90 Flchen kleiner gleichm ) m2 Four-quarter moving average (<= 90 m2 Gleitendes Mittel ber 4 Quartale (<= 90 )m2) Other spaces (> 90 m2 Flchen grsser 90 m2) Gleitendes Mittel ber 4 Quartale 90 90 )m2) Four-quarter moving average (> (> m2
Small properties are the losers of structural change
Figure 47 Rent Trend in the Medium Price Category

Average asking price in CHF/m2 (median)
300 280 260 240
280 260 240
220 200 2005 2006 2007 2008 2009 2010 2011
220 200 2005 2006 2007 2008 2009 2010 2011
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Outlook for Retail Property 2012: Caution the Watchword for the Market Despite the worsening consumer climate and the strong Swiss franc, demand for retail space has proved solid over the past year. The actual situation of consumers appears to be better than their mood, something which hasn't escaped the retailers' attention. Nevertheless, uncertainty about the economy is high. Insofar, real growth in retail revenues is expected to be only slightly positive this year. In nominal terms, further price reductions and the impact of consumer tourism will cause revenues to fall. For as long as the structural background remains so poor, demand for retail space is expected to deteriorate. This is particularly the case for the border regions where the effects of consumer tourism are especially acute. On the supply side, project planning has normalized at a below-average level. Above all, the low number of major project approvals is an indication of a degree of caution among investors. The phase of excessive floor space expansion can therefore now be seen as over. Although numerous shopping centers are still being planned, most are putting back their openings into the future. Given the anticipated modest demand, there is unlikely to be any further shortage of
advertised retail floor space. There is still a certain amount of pressure on rent prices. In particular, we do not expect any change in the negative price trend for smaller retail spaces. After all, the main casualties of structural change have been the small retail spaces.

Demand
Negative news flows and exchange rates have resulted in a collapse in consumer confidence and retail revenues through the course of 2011. The strong Swiss franc has weighed on revenues to such an extent that even the extraordinarily high immigration rates were unable to hold off a fall in nominal revenues. Nevertheless, demand for retail floor space has proved solid over 2011. Over the course of the current year, we expect a rising degree of caution. Persistent uncertainty with regard to the economy and the negative impact of consumer tourism are likely to dampen expansion plans, particularly in border regions. The strong franc and high purchasing power in Switzerland is only likely to provide sufficient incentive to expand for foreign chains. Demand will also shift more towards large formats as well as locations with economies of scope and/or with high numbers of visitors. The growing number of specialty store centers provides sufficient evidence of this.
Background
Outlook
Supply
The phase of excessive floor space expansion can be viewed as complete for the time being. Planning applications and approvals have returned to normal and both have now come to rest below their long-term average level. The sharp rise in advertised retail floor space over the course of the financial crisis has quickly fallen back after the reduction in new construction approvals as well as the rapid recovery from the crisis. The current level is now below the pre-crisis level. As long as the uncertainty with regard to the economy persists, a return to high levels of project planning are not to be expected. Although numerous shopping centers are still being planned, most are postponing their openings. The low number of large project approvals is also an indication of a degree of caution from investors. Overall, we expect the floor space supply to remain flat.
Market Outcome (Prices)

After a brief recovery in 2010, quoted rents weakened again over the past year and by the middle of the year fell below 240 CHF/m2, which was the lower limit in 2009. The falling quoted rent trend is largely attributable to smaller spaces (smaller than 90 m2), whereas other spaces have experienced stable prices. This shows that smaller spaces have been the losers in the structural shift which has gripped the retail floor space market for years.
(prime locations)
(prime locations)
(other)
(other)
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Uninterrupted Growth of Specialty Stores
Following a ten-year period that saw a succession of new shopping centers celebrate their grand openings, the current year will be a time of relative calm. Not a single temple of consumption will open its doors in 2012. There are signs there will be an expansion in 2013 of around 3%, below the average of the last decade. Only in years to come will we know whether 2012 was simply a year to pause for breath or if, in fact, it heralded a genuine trend reversal. In contrast, specialty stores are experiencing uninterrupted growth; there is less coverage of them than the shopping centers.
Definition of specialty stores and their catchment area
A widely accepted definition of a specialty store is a large-area retail store from the non-food segment that specializes in goods from a specific sector. Specialty stores are characterized by a broad selection of goods. Advice is generally limited or practically non-existent, meaning that consumers are largely on their own. Specialty stores are typically built outside of city centers in commercial- or industrial areas, where building land and square meter prices are relatively affordable. The locations are very accessible, especially with private motorized transport, and are therefore preferably located near highway junctions with large parking areas. Specialty stores have a comparatively wide catchment area. Whereas Swiss consumers generally have a median journey time of ten minutes one-way by car to make normal food purchases, they travel for an extra five minutes for typical shopping trips to specialty stores. 50% of consumers therefore travel more than 15 minutes to the next specialty store. 18% even travel longer than 30 minutes. Specialty stores are rarely alone at preferable locations. Generally a collection of several medium- to large-area specialty stores or specialty-store type businesses from different retail sectors can be found; this then attracts further retailers. The concentration of specialty stores creates a common marketplace, which then gains transparency and appeal for consumers. The individual stores, in turn, benefit from higher visitor numbers. In contrast to traditional shopping centers, such specialty store centers usually extend over several buildings, generally with one retailer located in each of the one or two-floor properties. That means there is no mall, the traditional symbol and connecting element of shopping centers. And the organization, administration, and operations functions are not performed centrally, but instead are handled by each retailer individually because most specialty store centers developed in a spontaneous or evolutionary manner, in contrast to the deliberately planned arrangement of stores in shopping centers. In order to identify the specialty store centers, we have identified their typical anchor tenants. These are the stores for which the consumer makes a conscious decision to go to the specialty store center. These primarily refer to those stores whose goods can be transported by car. They may, however, also include stores from other sectors, which are also located in the city center, for which the trip by the consumer is still worthwhile because of the broad selection of goods to choose from. These are predominately stores from the following sectors: furniture, furnishings, building- and do-it-yourself products, consumer electronics, home appliances, computers, office supplies, sporting goods, baby products, and pet supplies. Although food retailers also seek locations near specialty store centers, food offerings are more focused on shopping centers and do not play an anchor tenant role at specialty store centers. As with shopping centers, the tenant mix at specialty store centers is dominated for the most part by identical retailers or retail chains. By far the most common types of stores in a specialty store center are furniture stores (Ikea, Mbel Pfister, Conforama, Interio, Micasa) or retailers for building and do-it-yourself products (Coop bau+hobby, Jumbo, Migros Do it + Garden, Obi). In 93% of all cases, specialty store centers developed around such furniture suppliers or in 87% of the cases around building and hobby/do-it-yourself suppliers (figure 49). Because furniture is a shopping good, i.e., a good that the consumer would typically like to choose from a large selection, in contrast to a convenience good, there are on average more than two furniture stores in a specialty store center. Other stores that can have anchor tenant status include pet supplies retailers (Qualipet, Fressnapf), sporting goods (Ochsner Sport, SportXX, Athleticum), and consumer electronics retailers (Media Markt, Interdiscount, melectronics); there is at least one supplier from this retail segment in almost two-thirds of all specialty store centers in Switzerland.
Agglomeration effects lead to the development of specialty store centers
Anchor tenant of specialty store centers
Tenant mix
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Office supplies- (Office World, McPaper Land), household appliances-, (Dipl. Ing. Fust), and computer specialty stores (Steg) are other stores that attract the crowds. Stores from other sectors like to base themselves around these retail magnets. Examples of these include, in particular, suppliers of baby products and home furnishings. Frequently, they will also be joined by one of the two new food discounters, Aldi or Lidl, although it is difficult to determine precisely whether they are seeking the proximity to the specialty stores or if they are just selecting the same, convenient locations. Because shopping makes you hungry and the trip is made almost exclusively via car, fast-food restaurants and gas stations are also frequently found at specialty store centers. Figure 49 Anchor Tenants of Specialty Store Centers
Probability of the presence of the corresponding retailer and the number of stores per specialty store center
0% Furniture Construction and fitter requirements Pet and pet accessories Sports equipment Entertainment electronics Office and stationary Electric household appliances Computer Baby and toddler clothing Furnishings and contents 0
20%
40%
60%
80%
100%
Average number of stores (lower scale) Probability (upper scale) 0.5 1.0 1.5 2.0 2.5
Specialty store landscape in Switzerland
On the basis of this anchor-tenant selection, 38 specialty store centers can be identified in Switzerland. The highest concentration by far can be found in the Zurich metropolitan area, then in the extended radius of the A1/A2 highway intersection in Oftringen, as well as between Geneva and Lausanne (figure 50). However, the other large Swiss urban centers, Berne and Basel, as well as most major regional centers, such as Winterthur, St. Gallen, Lucerne, or Sion for example, have a specialty store center in their direct catchment area. These are usually not located within the city limits but rather in commercial- and industrial zones of neighboring municipalities. The next highway junction is less than 600 meters away for half of all specialty store centers, highlighting the importance of excellent links to the national highway network. There is only one specialty store center that is located more than 4 km from a highway junction. That means the search for new locations is thus reduced to a narrow strip along the national highway network. As figure 50 illustrates, Switzerland is already well supplied with specialty store centers. There is hardly any highway junction that does not already have a specialty store center in the vicinity. In most cases, the convenient location must be shared with traditional shopping centers, which are frequently located in the immediate vicinity. However, we excluded the retailers from specialty store sectors that are located in the shopping centers when we determined the definition of a specialty store center. The beginnings of specialty store centers can be seen at other locations as well. Building specialty stores are ready to open in Affoltern am Albis, and the existing specialty stores in Freienbach and Amriswil could be extended one day into specialty store centers.
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Figure 50 Specialty Store Centers in Switzerland

Specialty store agglomerations with at least three specialty stores from the typical specialty store sectors
Specialty store centers Shopping centers Main traffic arteries
Source: Credit Suisse Economic Research, West & Partner, GfK, Geostat
Increasing convergence between specialty store centers and shopping centers
The differences between specialty store centers and shopping centers have declined in recent years. On the one hand, the first attempts are being made by specialty store centers to come together under one roof and to appear in public under a single center name. Appearing under one name, which makes it easier to survive in the increasingly difficult, cut-throat competition between specialty store centers, is likely to become more important in the future. The symbiosis of shopping centers and specialty stores or specialty store centers, which is occurring at many locations, is also interesting. There are clear agglomeration benefits from this approach, not only from the sharing of a convenient location. Here, we are increasingly seeing a convergence of specialty store centers and shopping centers. Traditional specialty stores can be found more and more in shopping centers. Large consumer electronics specialty stores, for example, are now taking the opportunity to occupy large floor spaces in newly opened shopping centers. Meanwhile, the new discounters Aldi and Lidl are moving in close to specialty store centers, thereby shifting the tenant mix towards a shopping center, not to mention the conscious buildup of specialty store centers by Coop and Migros with their own brands. This convergence that we are seeing will continue over the next few years, with these two forms of retail property concentration set to grow more alike.
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Real Estate as an Investment
Over recent years, Swiss real estate investments almost turned out to be a veritable bonanza for investors akin to striking gold in a gold rush. Real estate markets were buoyed by record-low interest rates, a solid rate of economic growth compared to that of other European nations, and extraordinarily high levels of immigration. House prices, as well as direct and indirect real estate investments, have therefore risen sharply, albeit not always smoothly. Yet can the heights achieved by real estate investments properly be described as head spinning? In principle, no, as this is fundamentally due to low interest rates. Also Swiss real estate investments often pay steady and high dividends which go some way to offsetting the risk of losing capital employed. Nevertheless, the risks have grown slightly again over the course of the year, and investments have much further to fall, particularly direct ones.
Indirect Real Estate Investments

Indirect real estate investments leave Swiss equities trailing
Indirect Swiss real estate investments have had a good track record in terms of their total returns (figure 51). For years, funds and companies have impressed investors with stable dividends, relatively low share price fluctuations and intact fundamental data. The real estate companies now have three years of positive total returns behind them, and real estate funds have four. An investor placing capital in real estate funds at the beginning of 2008 would have been rewarded with an average annual return of 7.9% up to the end of 2011. This is 5.9 percentage points higher than for a risk-free investment, which we consider to be the same as for 10-year Swiss government note. Over the same period, the Swiss equity market was outperformed by 11.2 percentage points. Given the low volatility of real estate funds, such a wide difference in returns has been seen only very rarely since 1960 (figure 52). In particular, in times in which the Swiss domestic market performed better than the global economy, real estate funds have been able to beat equity investments whose performance is linked strongly to international trends. And in all except very few cases, real estate funds have always been able to beat risk-free investments. Over a four-year comparison, real estate companies have also clearly outperformed the share index. In recent years, the total return on real estate funds has been 6.8% and 6.1% for real estate companies. Even the Swiss Bond Index trumped this with 8.9% thanks to the strong appeal of Swiss government bonds. Figure 52 Excess Return of Real Estate Investments
Rolling annualized four-year excess return
Swiss Performance Index SXI Real Estate Shares Swiss Bond Index KGAST Immo-Index SXI Real Estate Funds
20% 15% 10% 5% 0% -5% -10% Excess return on real estate funds versus risk-free investment Excess return on real estate funds versus equities Excess return on real estate joint stock companies versus equities
Figure 51 Performance Index

Total returns; index: 1.1.2005 =100
200 180 160 140 120 100 80 2005 2006 2007 2008 2009 2010 2011 2012
-15% -20% 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: SIX Swiss Exchange, West & Partner
Source: SIX Swiss Exchange, SNB, Credit Suisse Economic Research
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Real Estate Funds

Premiums are likely to have reached ceiling
There was another slight year-on-year increase in the premium for real estate funds listed on the SIX Swiss Exchange as of year-end 2011 (24.3% versus 22.3%). The premium is equal to the amount by which the market price exceeds net asset value (NAV) per unit. The average premium remains high in the long-term comparison, though is currently justified by fundamental data thanks to very low interest rates. Because there is little room for interest rates to fall further, the premium is likely to have reached a ceiling. As soon as interest rates begin to increase and the relative appeal of bonds increases, or once investors regain some of their appetite for risk, premiums are likely to come under pressure. No significant cash outflows are expected though. Rather, new inflows are likely to fall. Our basic economic scenario assumes that total returns from real estate funds will average 4.5-5% over the next five years somewhat lower than the extraordinary return of 7.9% over the past four years. Numerous capital increases and IPOs have shaped the performance of Swiss real estate funds this year. These corporate fund raising activities have tied up a lot of capital and real estate fund performance has been limited as a result, which in light of the high premium, was not unwelcome. Over the last year, the SIX Swiss Exchange has seen three newly listed real estate funds (CS REF Global, Rothschild SICAV and Residentia) and several capital increases (Immo Helvetic, Swissinvest, Procimmo, Realstone, UBS Swissreal and UBS Anfos). There has also been substantial movement beyond the dealing floor of the SIX Swiss Exchange and not only in respect of the real estate funds. Renowned issuers and smaller companies have exploited the favor of investors and increased their capital, for instance CS REF Green Property, CS REF International, Swisscanto Swiss Commercial, Good Buildings, Espace Real Estate, Fundamenta Real Estate and the Sustainable Property Fund. From an investor perspective, the only downside is that the investment vehicles must now buy property at high prices, which reduces average net returns, slightly diluting the return on equity employed. Money is cheap, but just like private and institutional investors, fund management is faced with an exhausted investment property market. Prices in the core segment have risen so sharply in Switzerland that, after adjustment for risk, it is near on impossible to generate the returns to which investors are accustomed. Focus is therefore increasingly moving to real estate which does not form part of this core. Investments in non-residential property or outside the major centers/not in the best micro-locations, are attracting more and more attention. Even older properties or vacant properties may come into question. Here in particular, where the competition is not quite so intense, the necessary know-how and risks involved in the investment decision are all the greater. Professional management of the real estate funds is therefore particularly important here and is prized by private investors. In recent years, fund companies have successfully launched various theme funds, predominantly in the fields of sustainability, serviced living, hotels as well as funds which focus on foreign real estate. Comparing real estate funds is a complex business for the investor. Just as in the selection of a particular share, there is no one single ratio for real estate funds which investors can use as the sole guide. Figure 53 therefore shows a selection of key ratios for real estate funds listed on the SIX Swiss Exchange. This list does not replace a comprehensive analysis of a fund before the decision to buy, though does provide an overview of the characteristics of the following publicly listed funds for which at least one annual report has been produced. For the purposes of comparison, the deviation from the average for a particular fund (dark gray area) is represented by standard deviations. Values above the average for all funds are not to be judged either positive or negative. In order to appreciate the absolute value of a ratio, figure 54 gives some statistics for the fund landscape.
Capital increases and IPOs soak up new money
Creativity as response to investment pressure
Real estate funds compared
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Figure 53 Comparison of Indicators of Publicly Listed Swiss Real Estate Funds

Difference to weighted average for real estate funds expressed in standard deviations; sequence in accordance with market capitalization
UBS Sima
2 RP 1 0 -1 TR -2 DY TR P/D CY
CS REF LivingPlus
2 RP 1 0 -1 -2 DY TR P/D CY RP
CS REF Siat
2 1 0 -1 -2 DY TR P/D CY RP
UBS Anfos
2 1 0 -1 -2 DY P/D CY
MV TER
RLR
MV TER
RLR
MV TER
RLR
MV TER
RLR
CS REF Interswiss
CS REF PropertyPlus
Immofonds
2 1 0 -1 -2 DY TR P/D CY RP
Swisscanto IFCA
2 1 0 -1 -2 DY P/D CY
MV TER
RLR
MV TER
RLR
MV TER
RLR
MV TER
RLR
UBS Swissreal
Schroder ImmoPLUS1)
Solvalor 612)
2 1 0 -1 -2 DY TR P/D CY RP
La Foncire
2 1 0 -1 -2 DY P/D CY
MV TER
RLR
MV TER
RLR
MV TER
RLR
MV TER
RLR
FIR
2 RP 1 0 -1 TR -2 DY TR P/D CY RP
UBS Foncipars
2 1 0 -1 -2 DY TR P/D CY
Bonhte-Immobilier3)
Swissinvest Real
2 1 0 -1 -2 DY P/D CY
MV TER
RLR
MV TER
RLR
MV TER
RLR
MV TER
RLR
Immo Helvetic
2 RP 1 0 -1 TR -2 DY TR P/D CY RP
Procimmo
2 1 0 -1 -2 DY TR P/D CY
UBS Direct Residential

Patrimonium
2 1 0 -1 -2 DY P/D CY
MV TER
RLR
MV TER
RLR
MV TER
RLR
MV TER
RLR
Realstone
2 RP 1 0 -1 TR -2 DY P/D CY
MV TER
RLR
Key: Figures from the most recent annual report P/D: Premium/Discount: Difference between market price and net asset value (NAV) per unit as per December 31, 2011, inverted scale (below average values further away) CY: Compound yield over last three years: Change to NAV assuming that gross earnings are reinvested DY: Direct yield: Gross payout in percent of market price as per December 31, 2011 RLR: Rental loss rate: Share of rent lost due to vacancy and collection losses on net budgeted rental income (inverted scale) TER: Total expense ratio: Operating expenses (payment to fund management, expenses for administration and appraisal etc.) as share of fund assets (inverted scale) MV: Market value of properties TR: Total return 2009-2011: Change in market price assuming gross earnings are reinvested; no information for UBS Direct Residential, Patrimonium and Realstone, as these funds were not listed in 2009 RP: Residential property as share of total market value of properties 1) DY Schroder ImmoPLUS: -2.6 standard deviations; 2) P/D Solvalor 61: -2.9; 3) TR Bonhte-Immobilier: -2.1
Source: Annual reports for real estate funds, Datastream, Credit Suisse
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Not all real estate funds are the same
As the statistics in figure 54 show, there is some considerable diversity between the individual funds. In terms of the market value of properties owned, the largest fund (UBS Sima) is almost 23 times bigger than the smallest (Realstone). Even the premium, which is high on average across all the funds, varies strongly with a standard deviation of 8.8%. Also impressive is that average compound yield stands at 5.2%, which is a striking representation of how profitable and well positioned real estate funds are at present. Figure 54 Statistics on All Publicly Listed Swiss Real Estate Funds
Average: weighted by market capitalization
Average
Standard deviation
Maximum
Minimum
Premium/Discount Compound yield (last three fiscal years) Direct yield Rental loss rate Total expense ratio (TER) Market value of properties (in CHF mn) Total return 2009-2011 Share of residential property
24.3% 5.2% 3.0% 3.4% 0.8% 1'231 10.5% 52.0%
8.8% 1.3% 0.6% 1.5% 0.1% 1'135 2.4% 30.3%
49.7% 7.8% 3.8% 6.4% 1.1% 5'743 14.6% 87.9%
6.6% 2.7% 1.4% 0.7% 0.6% 252 5.6% 0.9%
Source: Annual reports for real estate funds, Datastream, Credit Suisse Economic Research
Leverage not at the fore
The debt ratios for real estate funds, which have traditionally been low, are not shown in figure 54. Despite extremely cheap money, the debt ratios recorded by the real estate funds, otherwise referred to as their leverage, have not increased over the past year. Comparing ratios from previous years, they have even fallen slightly from 19.6% to 18.3%. The reason for this is not fewer debt financed properties, but rather a result of property price appreciation, which automatically reduces debt ratios. Given the low interest rates, there must be other factors deterring the funds from increasing their debt ratios. On the one hand, a highly leveraged fund does not sit well as part of the real estate fund's image as a secure investment. Accordingly, funds are keen to ensure their debt ratios remain moderate. On the other hand, funds tend to act counter-cyclically, using debt through periods of low new money inflows to continue buying property and is one reason for the stable returns of fund companies. The distribution yield is a real estate fund's biggest trump card. Last year, it averaged 3.0% across all funds. Taking tax into account, this trump card may well decide the match. For the investor, there are material taxation consequences depending on whether the real estate fund holds property directly or indirectly through subsidiaries. Legislation governing collective investment schemes allows the fund to hold properties directly, which makes the fund liable for tax. Income generated from property and paid to the investor as dividends are then tax-exempt for the investor. At present, nine real estate funds listed in Switzerland hold their properties directly. For the purpose of illustration, let us take a married couple with two children living in Frauenfeld. With a joint gross household income of CHF 200'000, their marginal tax rate stands at 28.5%. In this case, the direct yield from a real estate fund which holds property directly is 3% after tax. This would be equivalent to a pre-tax yield of 4.2% for an alternative investment for which tax is still to be applied (figure 55). With this in mind, investing in a fund which holds property directly makes even more sense in communes which impose a high tax burden and for persons on high income. Figure 56 shows the equivalent pre-tax yields for alternative investments for the Frauenfeld example and real estate funds which hold property directly. Also, it should not be forgotten that real estate funds which hold property directly are exempt from wealth tax, at least in respect the share of their capital tied up in property.
Trump card: Tax-exempt dividends
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Figure 55 Required Pre-tax Yield for an Alternative Investment*

By gross earnings in CHF in cantonal capital
5.5% Neuchtel 5.0% Basel 4.5%
Figure 56 Required Pre-tax Yield for an Alternative Investment*

By gross earnings in CHF in Frauenfeld
5.0% 4.5% 4.0% 3.5% 3.0%
Delmont
Lausanne
4.0% Schwyz Zug Zurich Sarnen Frauenfeld
2.5% 2.0% 1.5% 1.0% 0 100'000 200'000 300'000 400'000 500'000 0 100'000 CS REF LivingPlus Solvalor 61 Procimmo Patrimonium 200'000 300'000 CS REF PropertyPlus Bonhte-Immobilier UBS Direct Residential Realstone 400'000 500'000
3.5%
3.0%
* in respect of 3% yield from real estate fund holding property directly (yield before and after tax identical) Source: Federal Finance Administration, Credit Suisse Economic Research
* in respect of 3% yield from real estate fund holding property directly (yield before and after tax identical) Source: Federal Finance Administration, Credit Suisse Economic Research
Real Estate Companies

Real estate companies as hybrids between cash equity and real estate
The share price of real estate companies which primarily invest in office and commercial real estate is influenced on the one hand by the company's fundamental data and property market trends and on the other by movements on equity markets. Over the past year, investors have again been given an impressive illustration of this effect. The slip at the beginning of August 2011 as well as the weak phase of the Swiss share index in November of last year were replicated by the corresponding index for real estate companies, the SXI Real Estate Shares index (figure 51). This synchronicity has meanwhile resulted in increased nervousness among investors, yet thanks to completely different fundamental data, the index has quite rightly been able to recover losses quickly. The turbulent past year could also be seen from annualized volatilities of weekly total returns. With a standard deviation of 14%, the range of fluctuation in 2011 was above the average since 2003 (12%). Measured against other asset classes, real estate stocks took their correct position last year. The annualized standard deviation of weekly returns included in the bond index (4%) and the real estate fund index (6%) were lower as usual, though those of the SPI share index were again higher (23%). The volatility of real estate stocks is high compared to the steady returns and the slow moving real estate markets. This is meanwhile no bad thing. As a result, attractive investment opportunities repeatedly present themselves for the taking. Fundamental data for real estate companies, which are by and large invested in the commercial sector, have changed little over the course of the year. On the office real estate market, vacancy rates have fallen only slightly in Switzerland and in the retail sector they have even increased a little. The outlook for the current year is a little gloomier though. The economic downturn will not leave the markets for office and retail space unscathed, and vacancy rates are likely to increase over the medium term. Since publicly listed companies have their main focus in popular centers, the effects of this should remain within limits. Insofar, a slight reduction in the capital-weighted average premium to 12.0% as per year-end 2011 fits well in the picture (yearend 2010: 14.3%). On an individual company level, with the exception of Mobimo and Intershop, premiums have fallen/discounts have increased over the course of the year (figure 57). For large companies, although slightly lower than in the previous year, dividends remain attractive and a reason to buy. Only Zblin did not to pay a dividend last year.
Lower premiums reflect slightly darker horizon
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Figure 57 Premium/Discount and Direct Yield for Real Estate Companies

Size of bubble: Market value of properties; Direct yield: Dividend measured in terms of share price at the end of the year
40%
2011 2010
Warteck
Allreal
Intershop
Premium/Discount as per year-end
20%
PSP 0% -1% -20% 0% 1% PAX-Anlage 2% 3% 4% Mobimo BFW Liegenschaften 5% 6% Swiss Prime Site 7%
-40% Zblin Dividend yield
-60%
Source: Annual reports from companies, Datastream, Credit Suisse
Direct Real Estate Investments

Further jump in prices for investment properties
Against a backdrop of volatile financial markets, private and institutional investors have piled into property over recent years as this asset class has been able to provide the stable dividends and the security they seek. According to IAZI, prices of investment properties have seen an annual increase of 3.8% across Switzerland since 2004 (figure 58). Investment properties around Lake Geneva and surrounding areas have seen even stronger price increases than this. We estimate that residential properties have appreciated in value at a rate of between 7 and 8% per annum over the last seven years in the Canton of Geneva, outperformed only slightly by single-family dwellings (+8.6% p.a.). Pressure to invest and the reduced expectations of return have resulted in a decoupling of investment property prices from new rents, which in Lake Geneva and surrounding regions have risen by a good 3% since 2004. These price rises have placed initial returns under pressure. According to Acanthe, a real estate consultancy in Geneva, the gross initial yield (indicated as a ratio of gross rental income and transaction price) for residential and mixed-use properties in the Canton of Geneva has slipped from 6.3% to 5.9% between 2009 and 2011. Accordingly, net initial yields (indicated as a ratio of net rental income and transaction price) are likely to have slipped by 0.4% in the space of only two years. Who or what is ultimately driving the price of direct investments? The main suspects since the financial crisis when volumes have been smaller are increasingly private investors on the look out for stable returns and, upwards of CHF 10 mn, institutional investors, in particular, pension funds. The latter indeed face enormous pressure to invest. They currently take in much more money than they pay out in pension benefits. As indicated in published annual statements over the last five years, their account balances, that is, total income minus expenditure, averaged CHF +19.1 bn. This money must be gainfully invested at low risk, a particularly unenviable task at the moment, as the capital market as third contributor is presently on strike. Returns from equities markets are currently low, and returns on low risk bonds are also close to zero in real terms. The longer low interest rates stay, the longer low capital returns will eat into pension funds' portfolios. Over time, these institutes will find it increasingly hard to cover their liabilities. Faced with this prospect, pension funds must see real estate investments with their strong dividend yields, diversification benefits, long investment horizon and total returns of 4%-5% as a panacea. Many have also restructured their holdings and are increasingly invested, both directly and indirectly, in real estate and will continue to be so. In the 4th quarter of 2002, real estate investment accounted for 7.9% of total assets held by the pension funds included on the CS
Real estate as solution to the investment problem faced by pension funds?
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Pension Fund Index. By the 4th quarter of 2011, this had increased to 21.1%. No wonder then that the market for direct investment is so exhausted. Fierce competition for every direct investment property has also meant that real estate investment is currently an expensive business.
Should pension funds expand further into project development?
It is to be expected that pension funds increasingly look to project development. Over recent years, this has been a very lucrative business, also as a result of the steady price rises experienced by condominiums and investment properties. Project development does harbor a certain level of risk, but these can easily be borne by sufficiently large pension funds. From a legal perspective, pension funds are free to take this path, provided that the risk taken is not excessive and not too much capital is tied in. Yet the statistics show a different picture (figure 59). Since 1994, pension funds have invested an average of CHF 313 mn per year in new construction for residential and mixed-use real estate. In the last year for which records exist (2010), this was only CHF 268 mn or 1.9% of total new-build investment in housing. This is relatively little when you consider that the pension funds' total real estate holdings increased by almost CHF 5 bn in Switzerland in 2010 (including appreciation of existing properties). As nominal investment in residential property increased from 2003, the pension funds did not follow the trend so that today their share is far below the long-term average of 3.4%. Ultimately though, many residential properties do end up in the portfolios of institutional investors, though not until after construction has completed. The question as to whether pension funds do not seek to play a role earlier on in the value chain remains unanswered. Figure 59 Investment in New Construction
In CHF bn, residential and mixed-use properties
15 12 New-build investment, Total New-build investment, Pension funds Share, Pension funds (right scale) Share, Institutional investors (right scale) 10% 8% 6% 4% 2% 0% 1994 1996 1998 2000 2002 2004 2006 2008 2010
Figure 58 Investment Properties

Initial return = gross rental income/price, residential and mixed-use properties
170 160 150 140 130 120 110 100 2004 2005 2006 2007 2008 2009 2010 2011 Initial return, Canton of Geneva (right scale) Price trends, Canton of Geneva Price trends, Switzerland Trend new rents, Lake Geneva 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% 10.5%
9 6 3 0
Source: Acanthe, Naef & Cie., West & Partner, IAZI, Credit Suisse Economic Research
Appraisers find themselves in a dilemma due to inflated market prices
The prices for real estate investments have not only increased in the wake of increased pressure to invest, but also as a result of inflationary pressures on property values stemming from low interest rates. According to guidelines set down by the Swiss Funds Association (SFA), appraisers are bound to value the investment "at a price that would probably be obtained in a diligent sale at the time of valuation". Increasingly, the appraisal is made using the DCF model. The high market prices present appraisers with a dilemma which begins with the choice of the correct discount rate. Following the text book, the discount rate is constructed from the bottom up and is equal to the risk-free rate, that is the yield from a risk-free alternative investment, plus a certain risk premium set specifically in relation to the property in question. In Switzerland, the basic interest rate for a risk-free investment is generally taken to be the fixed rate for a 10-year federal note. Yet using the current interest rate would also be too short-sighted as the estimated free cash flows in the DCF method are based on a forecast for the future. For consistency, in determining the right discount rate, it is also necessary to estimate future capital market conditions. This means, the basic interest rate of a risk-free investment may not simply be taken from a specific date, but should rather correspond to the average rate paid by the Swiss government bond to more adequately reflect the future.
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Are future interest rate movements properly factored in?
Just how high this smoothed discount rate should be is a topic of hot debate. After all, the discount rate has a strong influence on estimated value, as we showed in last year's real estate study. There have been suggestions that the price rises experienced by investment properties are not justified on a fundamental level and that the assessors have used discount rates which were too low in order to model these market prices which, in the long run, are not sustainable. In order to illustrate this point, we return to our hypothetical multi-family dwelling from last year. In 2007, its value was estimated at CHF 5.3 mn.11 At the time, appraisers based the risk-free rate on the average yield from Swiss government bonds with a maturity of around 15 years since 2000. Adding a property-specific risk premium of 2% gave a discount rate of 5.2%. We continue to assume that this estimate corresponds with the market value of the property in 2007. Since then, the market price of a typical multi-family dwelling has increased by 19% to CHF 6.3 mn12, whereas according to our estimates, free cash flows have grown by 1% per year. The price of the property today implies a discount rate of 4.6%. The key question now is whether a discount rate derived in this way is appropriate. In order to answer this question, we can work out the future interest rate scenario that corresponds exactly to this discount rate of 4.6% and thereby make an assessment of just how realistic such a scenario is. Here, we do nothing more than discount the future free cash flows from our model multi-family dwelling, not with the respective interest rates of the same term, but with the underlying oneyear forward rates so that ultimately we have the same estimated value for the property (figure 60). In other words, we determine the interest rates that the market implicitly assumes based on the current price of the property. We assume here, that interest rates will sooner or later return to the historic average. The question is only, when this will happen and how the adjustment process runs up to that point. Figure 60 Discount at the Spot Rate and Forward Rate
Year 1
Free cash flow
i0,1
Translation of current prices to implied interest rate expectations
Year 2
Free cash flow
i0,2
Year 3
Free cash flow
Year 4
Free cash flow
etc. ...
gives same estimated value of property
i0,3
i0,4
...
Discounting with interest rates for same term to expiry
i0,1 i0,1 i0,1 i0,1 i1,2 i1,2 i1,2 i2,3 i2,3 i3,4 Discounting with forward interest rates
...
Prices for investment properties appear slightly overvalued
The interest scenario that results in a discount rate of 4.6% implicitly assumes that the one-year forward rates remain persistently low over the next eight years before then moving towards the historical average for one-year forward rates over a further six year period. Accordingly, the long-term average rate will not be reached for another 15 years. This shows that current real estate prices imply a very low, even excessively low interest rate scenario. Taking a more realistic assumption, that is, that the one-year forward rate will remain low only over the next 24 months before then moving gradually towards the long-term average since 2000 over the next five years, we would have an average discount rate of 4.9%. Reducing the discount rate from 5.2% to 4.9%, which would give an estimated value of CHF 5.85 mn for our model multi-family
11 Cf. Swiss Issues Real Estate Real Estate Market 2011, Facts and Trends, page 61 ff. The first free cash flow from the end of 2007 is CHF 225'000 and grows every year by 1%. The time horizon is 100 years. 12 The 19% increase is in line with the price increase of investment properties as determined by IAZI between 3Q 2007 and 3Q 2011.
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dwelling, seems right, as the low interest rates expected over the near future have a substantial impact on the average discount rate. At the same time, this means that the price which implies an underlying discount rate of 4.6% would be around 5 to 10% too high in our example.
Price or value?
The debate as to the choice of the right discount rate can also be understood as an argument between the current market price of a property and its sustainable long-term value. In boom phases in particular, the gap between the two widens considerably. In order to bring more transparency into real estate appraisals, assessors would have to report two ratios: on the one hand the fair market value in the sense of SFA guidelines, and on the other hand the sustainable intrinsic value of the property. The only difference here would be in the discount rate. The text book method is to construct this value from the bottom from a smooth risk-free rate based on the risk-free yield from an appropriate alternative investment and adding to this a suitable property-specific risk premium. In determining fair market value, on the other hand, the calculation would have to be performed on a top-down basis in accordance with currently observed market transactions, or their implied discount rates in the "mark-to-market" sense. This would have the advantage that assessors would not constantly have to juggle between the prices currently being paid, i.e. the fair market price, and the sustainable value of a property. Our example can not be applied to all investment properties as a whole. The only conclusion that can be drawn is that investment properties currently tend to be slightly overvalued, or in other words, reflect an expectation of very low interest rates. The worry at the moment is for the direct investment market, but less for institutional investors than for private investors. Institutional investors are well aware that they are buying dearly, whereas this is not necessarily the case for private investors. Some private investors see a good opportunity to invest in property and are prepared to pay very high prices relative to rental income. Their knowledge of real estate lifecycles and property-related maintenance costs is unlikely to match that of experienced institutional investors, leading to the risk that they pay too high a price for their real estate purchase.
Risk group private investors
Outlook for Real Estate Investments in 2012

Intact real estate markets provide good environment for real estate investment
The prospects for Swiss real estate investments have changed little within the space of a year. The investments should face no significant obstacles over the course of this year, in particular because Swiss real estate markets continue to have the benefit of stability, and that means, first and foremost, steady rental income. Nevertheless, the risks have grown year-on-year. Recordlow interest rates and an expectation of further appreciation in value have pushed the prices for direct and indirect real estate investors to considerable heights. For this reason, increased caution is to be advised, in particular in respect of new investment. Creative solutions such as theme funds, international real estate investments and generally investments from outside the core segment continue to offer attractive opportunities for investment and, from this perspective, will remain popular this year too. The values of Swiss real estate investments are generally high, though are not excessive. Investors should be aware of the downside potential, and should not be blinded by handsome dividend yields. Nevertheless, for the time being, we see no sign of a trigger for the beginning of a decline. Interest rates are likely to stay below-average for the foreseeable future. In particular, uncertainty in the euro zone will tend to strengthen the appeal of Swiss real estate investments especially as Switzerland continues to grow in its appeal for immigrants and because the franc is not likely to appreciate further. Since the market for core real estate is currently a seller's market, it would be advisable this year for investors to no longer to think in terms of differences in yield, but to also be mindful of the worst case scenarios. Is the location and the substance of the property good? Structural adjustments have only just begun in residential and commercial property, which is why now is the suitable time to prepare and adjust portfolios for potentially more difficult times.
Still no trigger on the horizon to mark the beginning of a decline
Ideal time for portfolio adjustments
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The Latent Potential of Healthcare Real Estate

Healthcare properties languish in their niche from investor perspective
There is an investment crisis in the Swiss real estate market. Given the lack of alternatives, private and institutional investors have piled into classic investment properties, mostly residential and office properties. Investors have the advantage of experience with such mainstream real estate; supply and demand can easily be monitored, and the investment risks are quantifiable. By contrast, special purpose real estate is often left languishing in its niche, whether due to poor market prospects in the case of the hospitality industry, or the complicated regulatory and legal framework in the case of the education and healthcare sectors. But if general conditions change, the opportunities offered by the affected real estate should be reassessed. In the healthcare sector, major changes are being implemented with respect to hospitals. They are realigning their strategies to take account of the new hospital financing rules which entered into force in January. Essentially, the new rules represent a transition from object-based to payments according to diagnosis related groups (DRG). The details are complicated and given the enormous social relevance of medical care, any changes are the subject of controversy. Irrespective of the systemic advantages or disadvantages and the policy objectives of the new financial framework, this will certainly place a greater emphasis on entrepreneurial thinking and action, particularly for public general hospitals, also in relation to their real estate management. In the case of cantonal hospitals, most real estate is owned by the cantons themselves. Investments in new buildings and maintenance were previously approved and financed by the canton as required. Yet new financing rules will mean that construction work must in future be paid for from the hospitals' own funds, financed through flat-rate investment allocations from within the DRG system. This means that in future, the canton will no longer pay for the maintenance, repair, extension or construction of buildings, but rather that the hospitals will receive investment grants from their case-based lump sum payments with which they must pay for such investments themselves. Since investment is concentrated at a single point in time, whereas the grants are received on an ongoing basis in line with patient flows, demands for finance arise. This provides an opportunity for the private investor to step in to satisfy this demand, irrespective of whether funds are applied to real estate or required for other investments, for instance, acquisition of medical equipment. In order that cantonal hospital companies are able to invest efficiently and unbureaucratically, most cantons are striving to secure greater entrepreneurial freedoms for their hospital operators and are increasingly though to varying degrees transferring them powers to dispose of their real estate. The challenges facing the hospitals in respect of real estate management have grown in two respects under the new financing system. Firstly, the demands placed on real estate will continue to grow. As competition for patients intensifies, the process of concentration and specialization will continue. Mergers, specializations and logistics optimization require renovation and extension works for optimum coordination of operational requirements and the services provided by the real estate. Secondly, there is uncertainty as to whether necessary measures can be financed. It's here that the snake bites its own tail: in order to cover costs, hospitals must in future maximize the number of patient discharges through a higher number of patients treated. As the number of patients discharged increases, so too does the share of money for real estate investment from the case-based lump sum payments received. Yet in order to secure this increase in patients discharged, investments must be made today. Hospital companies are increasingly looking to investors to provide the solution to this problem. Depending on just how serious the cantons really are about granting their hospitals entrepreneurial freedom, the move opens the door to a previously completely closed segment of the real estate market, even if only a by a crack for the time being. Although the cantons will generally remain sole proprietors of the hospital company, ownership of real estate will often change hands by way of lease. For instance, on January 1, 2011 in Lucerne, the majority of leasehold properties were transferred to the cantonal hospital. Most cantons therefore retain influence on hospital real estate management in two ways: both as sole proprietor of the hospital company as well as a landlord under a lease agreement. The Canton of Aargau has gone one step further in terms of the freedoms it has granted and transferred all real estate necessary for operations in-
New hospital financing: the market is opening up
Dual challenge for hospitals: growing competition and uncertain financing
Hybrid owner structures instead of privatization
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cluding land to the cantonal hospitals in the form of a contribution in kind, thereby enabling them to implement a capital increase. Nevertheless, Aargau still safeguards the financial future of its hospitals by reserving the right to provide financial support for construction investment over a 12-year period. Because the cantons have a public mandate to provide basic medical care, it is unlikely that they will hand over complete control in relation to hospital real estate required for operations. Instead, we can expect to see an increasing number of hybrid ownership structures in relation to public hospitals. Figure 61 illustrates how a healthcare center, whose core consists of a listed hospital providing acute and basic care, may be structured in the future. Figure 61 From Hospital to Healthcare Center
Hypothetical hospital with hybrid ownership structure and additional services
t en em ag an M
Real estate company: independent property management, including possibility of sale to third parties Support: IT, FM Prevention, e.g.: Seniors fitness, weight reduction, support quitting smoking Private provision Core services (canton): Acute and basic care; specialist care agreed depending on/with local hospitals Out-patient: Medical service center with resident medics
Rehabilitation
Medical services
Administration: Costs-/ efficiency control, DRG invoicing
Private provision
Private provision Patient and personnel requirements Private provision
Accommodation: Additional services for patients and families; personnel apartments Consumption: Wellness, gastronomic variety Services: Pharmacies, hairdressers, kiosk, medical products Business: Office space and infrastructure for conferences
Sale of non-essential property as an opportunity
Even if we must realistically assume that entrepreneurial flexibility will remain limited in the field of core services in light of the canton's mandate, the scope for additional services, which could be provided privately, is considerable. Depending on real estate structure, a distinction could be drawn between real estate essential for acute and basic care owned by the hospital company and non-essential real estate in which additional services could be offered. Selling these nonessential properties to investors, subject of course to the right terms, harbors potential for both parties. In the short-term, the sale of non-essential real estate will help the hospital to fund investments to raise its competitiveness; investments which could otherwise only be made later through the share of money for investment from the case-based lump sum payments received. One example of a service provided separately is patient hotels. These can accommodate patients who no longer require the intensive care of a hospital ward but still need a certain level of medical observation, as well as their relatives. The advantages of a private patient hotel to a hospital are three-fold, even where there is no existing property available for conversion and where a new building would be required. Firstly, care costs are reduced as the accommodation costs are lower due to reduced intensity of care and the streamlined medical infrastructure in the patient hotel. Secondly, certain patients will also wish to be transferred for comfort reasons to a patient hotel at their own cost, thereby reducing the average length of hospital stay and increasing the profitability without having to leave patients to care for themselves prematurely. Thirdly, the hospital's competitive appeal increases as it places patient requirements at the forefront of its service and by increasing case numbers by indirectly increasing bed capacity. Regulatory changes, uncertainty as to how far hospitals will be able to cover their costs through income from case-based lump sum payments in the future, and increasing competition, which will result in both winners and losers among public and private hospitals alike, all contribute toward private investors shying away from healthcare real estate. Yet moving early into this new 64
Example of privatization: patient hotel
Opportunities despite new ground thanks to demographic trends
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line of business promises competitive advantages and will inevitably also offer opportunities, provided the potential and the risks of the real estate are properly judged. Just as with standard real estate investments, it is important to make a thorough assessment of market conditions, the macro- and microsituation as well as the structural condition of the building. Political components, which are closely intertwined with the macrosituation and market conditions and are particularly relevant for general hospitals and basic healthcare, must also be considered. If these hospitals are easily accessible to a large catchment area due to their geographic location, without significant competition, are profitable and offer a broad spectrum of high quality basic medical services, then they are an integral part of meeting the canton's mandate to provide basic public healthcare services and their position on the cantonal hospital register is almost guaranteed. In addition, demographic ageing means there is almost no other market in which growth can be expected to be so steady and so certain as in the healthcare sector. In other words, a hospital, which can today already be identified as a winner under current structural changes will certainly not stand empty tomorrow. These growth prospects are, depending on the case, able to completely offset the low fungibility of healthcare real estate which rests in the specific structure of hospital properties. It is also clear that healthcare costs will increase as the population ages so that efficiency savings on all non-medical levels including the provision of real estate will have to be made so as to limit the extent of any restriction on medical services.
PPP: learning from mistakes
It's a rocky road to market access. Aside from identifying promising hospitals, a dialog must also be sought with the canton as owner and the hospital administration as operator. Because the issue is so politically sensitive, there are bound to be conflicts of interest, reservations and anxieties. Communication is key here. Numerous public private partnership projects (PPP) have failed due to the unclear division of responsibilities, conflicting objectives and the prohibitive cost of coordination. What is required of investors in this new market is creativity and a pioneering spirit. For their part, the cantons must clearly define the entrepreneurial freedoms of their hospital companies both in relation to real estate management as well as supplementary private services and must then take these seriously.
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Cantonal Real Estate Markets in Summary
Table of Contents
Location Factors and Real Estate Facts Aargau Appenzell Ausserrhoden Appenzell Innerrhoden Basel City Basel Land Berne Fribourg Geneva Glarus Graubnden Jura Lucerne Neuchtel Nidwalden Obwalden Schaffhausen Schwyz Solothurn St. Gallen Thurgau Ticino Uri Valais Vaud Zug Zurich Explanations
68 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100 102 104 106 108 110 112 114 116 118 121
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Canton of Aargau: Location Factors

Locational Quality to CH Average
+/++ Advantage, -/-- Disadvantage, = CH average
AG Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = ++ +
ZH ++ = + + ++ ++
LU + ++ = = = =
BL = + + + +
Third Most Attractive Canton The canton of Aargau ranks third in the ranking of cantons in terms of locational quality. The ace up its sleeve comes in the form of its accessibility to transportation and the favorable tax burden, in particular for legal persons, positioning Aargau considerably above average. Compared to the canton of Zurich, Aargau scores less well in terms of education and the tax burden on natural persons. Central Location Between Conurbations The canton of Aargau does not have any large center of its own, though is right in the middle of catchment area for Basel, Berne and Zurich. Basel and Zurich can be reached from most sections of Aargau within 40 minutes, and are thus within good commuting distance. Areas in the southwest and in the north are, however, around one hour from the next conurbation area and are thus less attractive to commuters. While Fricktal is primarily in Basel's catchment area, the regions of Brugg/Zurzach, Baden, Mutschellen, Freiamt and sections of the Aarau region primarily serve Zurich. The Zofingen region mainly serves Berne. As well as these three major centers, Lucerne and Zug are also a close drive away.
Catchment Areas of the Major Swiss Conurbations

Population of the catchment area, travel times: mot. individual transportation
40min 20 min 40 min 60 min 2.1 3.5 Zurich 0.8 1.2 2.8 Basel 0.5 1.1 1.7 Berne 0.4 0.7 1.5 Lausanne 0.3 0.5 1.5 Lugano 0.2 0.7 1.3 Geneva 0.5 Canton of Aargau
10 20 km
Bas el Liesta l
Aar au
Zri ch
Del mo nt So lo thurn Zug Luzer n Neuc htel Bern Sa rne n Schwyz Sta ns Altdo rf
Population Growth 2005-2010

Average annual population growth in percent
Canton AG 4.5% 10.6% Base l 3.0% 4.5% 2.0% 3.0% 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0% 0 5 10 km So lot hurn
Li esta l
Aar au
Source: Swiss Federal Statistical Office
Attractive Canton to Live in Population growth in the canton of Aargau was the fourth highest of all cantons in the five years between 2005 and 2010. The growth is attributable to its central location between Basel, Berne and Zurich as well as its high financial appeal as a place to live. Population has grown most strongly along the transportation axes, in particular in Fricktal and in the Mutschellen region. Freiamt in the south benefits not only from the newly opened A4 motorway running through Knonaueramt and from the Uetliberg tunnel, but also from the shortage of housing in the canton of Zug which has prompted many households to move to nearby Aargau communes. The Zurzach region as well as the Suhre and Wyna valleys reveal below-average population growth with individual communes even experiencing a contraction. Industry Canton Between 1995 and 2008, the canton of Aargau experienced a significant structural shift in its industry. High value-creating cutting-edge industry has grown to the detriment of traditional industry. The secondary sector is also a key element in Aargau's economy. Cutting-edge industry is particularly strongly represented in Fricktal (pharmaceuticals), in the Baden region (electronics and electrical engineering) and in Freiamt (plastics). By contrast, employment in the high value-creating service sector is below the Swiss average. In the Brugg/Zurzach region, the energy sector accounts for an above-average share of employment on account of the presence of nuclear power plants.
Sector Specialization of Economic Regions

Synthetic indicator 2008, Horizontal line = Swiss average
Canton of Aargau Traditional industry High-tech industry Construction Energy supply Trading and sales Transportation, postal services Information, communications, IT Financial services Corporate services Entertainment, hotels and catering Administrative and social services
10 km
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Economic Research
Canton of Aargau: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 582 1.2% 0.6% 1.4% 269 1.5% 1.48% 2.8% 4.4% 0.82 2008 592 1.7% 1.1% 1.9% 274 1.8% 1.47% 4.6% 2.4% 0.83 Canton of 2009 600 1.4% 0.8% 1.2% 278 1.4% 1.33% 0.3% -0.8% 0.85 Aargau 2010 608 1.4% 0.6% 1.4% 282 1.5% 1.51% 6.5% 2.8% 0.87 2011 616* 1.3%* 2012 623* 1.2%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
286* 1.6%* 1.54% 8.8% 6.0% 0.92
291* 1.6%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Source: Swiss Federal Statistical Office, West & Partner, Credit Suisse Economic Research
* Forecast/estimate Credit Suisse Economic Research
Localized Risk of Oversupply Demand for housing is high because the canton of Aargau is equally attractive for commuters and employees in the local high-tech industries. The regions located towards Zurich are impacted by the population pressure and the price-related migration away from the neighboring canton. In the Frick Valley, it is primarily the town of Rheinfelden and its immediate surrounds that appeal to commuters traveling to Basel because of the attractive location and relatively low taxes. Accordingly, there were more dwellings planned for the entire canton in 2011 than in any other year since 2006. In four of the six economic regions in the canton, residential units were approved for construction in 2011 representing more than 2% of the total regional housing stock. Oversupply cannot be ruled out. Risk of a Pronounced Pork Cycle This oversupply threatens primarily the rental segment, which is struggling with structurally higher levels of vacant properties in comparison to both the overall Swiss average as well as to the long-term average in Fricktal and the Aargau region. In the case of an accentuated economic slowdown, due to the size of its housing market, in absolute terms, the Aarau region is particularly at risk of real estate-related problems in the form of a pronounced pork cycle, i.e., that the supply will overshoot demand sooner or later because of long, production-related reaction times. It is also alarming that the number of vacant properties in the ownership segment is also comparatively high.
Building Permits by Regions and Segments

Dwellings; on annual basis; canton: multi-/single-family dwellings; regions: total
6'000 5'000 4'000 3'000 2'000 1'000 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Aarau Baden MFD Brugg/Zurzach SFD Fricktal Freiamt Mutschellen
Vacancies: Actual and Historic

By type of housing; size of circle = housing stock
4% Avg. 10-year vacancy rate 3% 2% 1% 0% -1% -1% 0% 1% 2% Rent Own
Baden Aarau Freiamt Mutschellen Brugg/Zurzach Brugg/Zurzach CH Fricktal Mutschellen Freiamt Aarau
Baden
CH
Fricktal
Vacancy rate 2011 3% 4%
Positive Effect: No Overheating The positive side of the coin is that there are no signs of overheating in real estate prices in the canton of Aargau. The high level of expansion is dampening price growth. Only single family dwellings in the three largest municipalities are more expensive than the overall Swiss average. In Wettingen, the proximity to Zurich is also noticeable in the slightly higher prices for condominiums. A similar effect can be seen in Rheinfelden from the migration out of Basel. Otherwise, prices remain subdued because of the high supply of new residential units.
Price Levels in the Largest Municipalities

Transaction prices in CHF/m2; net rent in CHF/m2 and year; Q3 2011
Most populous municipalities Wettingen Baden Aarau Wohlen Oftringen Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 10'258 13'884 8'847 11'974 8'669 11'729 7'556 10'226 6'806 9'213 7'788 10'536 7'173 10'444 6'055 5'745 5'764 4'700 8'815 8'363 8'393 6'837 219 229 208 200 185 227 210 236 202 201 187 249
7'072 10'294
Source: West & Partner
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Economic Research
Canton of Appenzell Ausserrhoden: Location Factors

AR Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = = +
AI ++ ++ -=
SG + ++ = = = =
TG + ++ = = + +
Lowest Corporate Taxes In terms of locational quality, the canton of Appenzell Ausserrhoden ranks 12th and is thus around average among the Swiss cantons. Tax rates are attractive, but scores for education and accessibility to transportation are average. In terms of company taxation, Appenzell Ausserrhoden has the lowest tax burden in Switzerland.

Canton AR 4.5% 10.6% 3.0% 4.5% 2.0% 3.0% 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0% 0 5 10 km
St.G allen Heris au
Appenzell
Youth Emigration Aside from the commune of Gais, the population across all Ausserrhoden communes has grown at a below-average rate over the period from 2005 to 2010 relative to the national average. Some communes have even seen the population contract, one example being Herisau, the seat of the cantonal government. This is attributable to the inter-cantonal migration out of Appenzell Ausserrhoden since 1994, a trend only briefly interrupted in the years 2007 and 2008 after free movement of persons was introduced. Emigration is almost exclusively concentrated on the 15-24 age group. International migration, on the other hand, made a positive contribution to growth between 2005 and 2010.
Company Start-up Rate Appenzell Ausserrhoden

Share of newly established companies relative to number of existing companies
40% 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Traditional industry High-tech industry Construction Trading and sales Transportation, postal services Information, communications, IT Financial services Corporate services Entertainment, hotels and catering Administrative and social services Total AR Total CH
Tax Reduction Revives Company Start-up Rate The canton of Appenzell Ausserrhoden's economy is dominated by the health and social sector. Yet agriculture also plays a greater role in comparison to the national average. Since 2008, companies in Appenzell Ausserrhoden have benefited from Switzerland's lowest tax burden. The rate of company start-ups increased rapidly in the year that followed, by far exceeding the Swiss average. The increase is concentrated mainly on financial services, corporate services as well as the information, communication and IT sectors. Companies in these service sectors are more mobile and are therefore best placed to optimize their tax liabilities by moving to Appenzell Ausserrhoden.
Tax Burden and Receipts from Companies

Tax burden 2009: CH = 100, Tax on net income and on capital
130 120 Tax burden on legal entities 110 100 90 80 70 60 50 0 AI AR 1'000 2'000 3'000 4'000 Income in CHF per employee from direct company taxation 5'000 UR VS LU JU CH-average NE VD TI All cantons GE BS
FR BE ZH SO GR BL
AG SZ TG GL SH SG NW OW
ZG
Healthy Finances Despite Low Corporate Taxes The low tax burden imposed on legal persons means lower receipts per employee. Compared with the cantons of Thurgau, Uri and Appenzell Innerrhoden, Ausserrhoden's tax take per employee is either equal or higher. This means that Ausserrhoden's companies are more capital and/or profit intensive than is the case for companies in the other three cantons. Despite comparably lower receipts from corporate tax and below-average receipts from natural persons, the canton's financial situation is sound. If short-term available financial assets are taken into account, Appenzell Ausserrhoden has net assets and is debt free from an economic standpoint.
Source: Braingroup, Swiss Federal Tax Administration, Credit Suisse Economic Research
70
Economic Research
Canton of Appenzell Ausserrhoden: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 52.7 0.3% 0.9% 1.1% 26.5 0.8% 1.82% 7.8% 6.3% 0.92 Canton of Appenzell Ausserrhoden 2008 2009 2010 2011 53.1 53.0 52.9 52.9* 0.8% 0.0% -0.2% 0.0%* 0.9% 0.6% 0.4% 0.8% 0.2% -0.4% 26.6 0.4% 1.56% 4.9% 2.1% 0.94 26.7 0.3% 1.11% -4.1% -1.1% 0.90 26.8 0.3% 1.22% 1.1% 1.0% 0.88 27.1* 1.3%* 1.99% 7.8% 7.6% 0.92 2012 52.9* 0.0%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
27.5* 1.4%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
A Fragile Equilibrium A fragile equilibrium dominates the canton's real estate market. In the past, both vacant properties and price trends have been sensitive to larger waves of expansion. Just such a wave is rolling in once again. The dynamic planning of rental properties and condominiums has led to a sharp increase in the expected expansion for the years 2012 and 2013. More than half of this increase is attributable to major projects in Herisau, where, for example, a former commercial site is being redeveloped. The expansion could dampen the recent price growth for condominiums once again. However, the risk of vacant properties remains limited, provided that the canton remains successful in attracting new companies and their employees with attractive conditions.

550 500 450 400 350 300 250 200 150 100 50 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Appenzell A.Rh. MFD SFD
Higher Base of Vacant Properties Despite the canton's economic aspirations, the starting point for strong housing planning is still not ideal. The number of vacant properties in the ownership segment is twice the Swiss average, both in terms of the long-term average as well as the average for 2011. The number of vacant rental properties in 2011 is above than the ten-year average and even higher than in the structurally plagued peripheral economic region of Toggenburg. The problem has to do with the housing stock because virtually none of the newly-constructed residential units was vacant in 2011. Older and outdated single family dwellings are also likely to have problems in this rural canton. As a result, structural change is likely to slowly change the real estate environment too. Single Family Dwellings Remain Popular Condominiums continue to play a minor role in the canton's housing planning. According to our estimates, their share in the housing stock in the last ten years has risen only marginally to around 7% today. The rather turbulent price trend since 2002 was followed by a considerable price correction in 2009. The single family dwelling remains the most popular form of housing in the ownership segment, and the price difference versus condominiums is accordingly greater than the Swiss average. Condominiums can therefore be purchased cheaply, despite price increases.

5% Avg. 10-year vacancy rate Rent 4% Own 3% 2% 1% 0% -1% -1% 0%
Toggenburg CH Appenzell I.Rh. Appenzell I.Rh. Appenzell A.Rh. CH Toggenburg St.Gallen/ Rorschach Appenzell A.Rh.
St.Gallen/ Rorschach
1%
2%

Most populous municipalities Herisau Teufen Heiden Speicher Gais Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 5'960 6'234 6'210 5'661 8'065 8'432 8'406 7'658 4'673 6'664 4'691 5'018 5'291 6'807 9'696 6'822 7'311 7'704 185 218 189 183 180 227 189 220 190 184 181 249 8'669 11'729
7'788 10'536
7'072 10'294
71
Economic Research
Canton of Appenzell Innerrhoden: Location Factors

AI Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ -=
AR + ++ = = = +
SG + ++ = = = =
TG + ++ = = + +
Ranks Behind Ausserrhoden The canton of Appenzell Innerrhoden ranks around average in terms of locational quality. The canton's tax burden is roughly equal to that in Ausserrhoden. In contrast to its neighbor though, education and accessibility are below the national average, which is why we score the canton somewhat lower than Ausserrhoden in terms of its overall locational appeal, though roughly in line with the canton of St. Gallen. Third Highest Rate of Employment Growth Employment growth in the canton of Appenzell Innerrhoden has exceeded national performance by a factor of two in the period between 1995 and 2008. The 21.5% rise recorded by the canton over the observed period was only surpassed by the cantons of Zug and Geneva. Low corporate tax rates have encouraged this development. None of the eleven sector groups in the demicanton experienced a decline in employment levels. Growth was strongest in the administrative and social services sectors as well as in corporate services, trading and sales and cutting-edge industry. In contrast to the trend across Switzerland as a whole, traditional industry also made a positive contribution to growth.
Contribution to Employment Growth 1995-2008

In percent by sector group
St.Gallen/Rorschach 35% 30% AI 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering Werdenberg
St. Galler Rheintal
AR
Toggenburg
CH
SG
Net Migration 1990-2010

Total number of people
200 150 100 50 0 -50 -100 -150 -200 Inter-cantonal International Total
Collapse in Immigration Annual population growth in the canton of Appenzell Innerrhoden ran at 0.6% per year, around 0.5 percentage points below the Swiss average. After several years of significant immigration, the migration balance collapsed in 2010. The cause is to be found in inter-cantonal migration. Although there was net immigration to Appenzell Innerrhoden from other cantons since 2003, the trend reversed in 2010. As in the emigration wave seen in the nineties, key here in the first few years after 2000 has been the 0-39 age group. By far the most significant age group in terms of international migration is 25-39 years old.
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Tax Burden
Synthetic indicators 2010, CH = 100
140 Asymmetric 130 Tax burden on legal entities 120 110 100 90 80 70 60 50 60 ZG SZ UR NW OW AI GR AG GL LU AR Asymmetric 80 90 100 110 120 Tax burden on private individuals 130 140 SH SG TG ZH TI BS Symmetric and high GE VD JU FR SO BE CH VS BL NE
50 Symmetric and low 70
Innerrhoden Tax Strategy Pays Off Taxation is both a locational factor as well as a source of income for the state. The tax strategy of the canton of Appenzell Innerrhoden provides for a below-average tax burden for both companies and natural persons. Accordingly, receipts from direct taxes per capita respectively per company employee are relatively low. However, this has not resulted in high levels of debt. If short-term available financial assets are taken into account, Innerrhoden, like eight other cantons, has a net surplus and is thus debt free. In comparison to Ausserrhoden, Innerrhoden imposes a lower tax burden on natural persons, though since 2008, the tax burden on companies has been higher.
Source: Braingroup, Credit Suisse Economic Research
72
Economic Research
Canton of Appenzell Innerrhoden: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 15.5 1.1% 0.5% 0.8% 6.7 1.2% 0.62% 9.0% 9.6% 1.03 Canton of Appenzell Innerrhoden 2008 2009 2010 2011 15.5 15.7 15.7 15.8* 0.5% 0.8% -0.2% 1.0%* 0.6% 0.2% 0.3% 0.6% 2.1% 1.0% 6.8 0.9% 0.98% 4.7% 6.0% 1.05 6.9 1.9% 1.27% -1.8% 3.0% 1.05 6.9 0.6% 1.06% 7.4% -0.7% 1.09 7.0* 0.9%* 0.72% 9.3% 7.4% 1.18 2012 16.0* 1.0%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
7.1* 0.7%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Greater Stability Than in Appenzell Ausserrhoden The Appenzell Innerrhoden real estate market is characterized by higher stability, especially compared to its neighboring canton. Based on the overall housing stock, its construction activity is much weaker and is heavily dominated by single family dwellings. Due to employment and population growth, which is likely to continue in 2012, new residential units could and can still be easily absorbed without causing higher numbers of vacant properties. As a consequence, prices for the few niums and the popular single family dwellings are likely to climb further because demand in Innerrhoden is strong and the supply of available condominiums and houses is scarce. The market for rental apartments plays a minor role because of its limited size.

120 100 80 60 40 20 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Appenzell I.Rh. MFD SFD
Small Market Makes Adequate Planning Easier As a result, the two Appenzell cantons demonstrate fundamentally different trends because, in contrast to Ausserrhoden, Innerrhoden is also not confronted with increased numbers of vacant rental properties; its vacancy rate was equivalent to the Swiss average in 2011, and far below the long-term average and those of the neighboring regions. The market of the smallest canton in population terms is transparent, with more than 7'000 residential units, making adequate housing planning easier. Moreover, it is also not difficult for people seeking housing to move to adjacent regions, even though that is not attractive from a tax perspective.

5% Avg. 10-year vacancy rate Rent 4% Own 3% 2% 1% 0% -1% -1% 0%
Toggenburg CH Appenzell I.Rh. Appenzell I.Rh. Appenzell A.Rh. CH Toggenburg St.Gallen/ Rorschach Appenzell A.Rh.
1%
2%
Low Price Levels Despite Dynamic Growth The downside of this success is that the above-average price trend in the ownership segment has decoupled from the income trend. Nevertheless, this is not as concerning as in other locations because the price trend started from a low base and today's prices are still modest and below-average despite the increases. That, in turn, increases the appeal of the canton, meaning that an end to the growth in prices is hardly likely this year.

Most populous municipalities Appenzell Rte Schwende Oberegg Gonten Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 8'089 10'948 6'355 6'306 4'895 5'718 8'594 8'535 6'619 7'729 6'400 5'691 5'455 4'291 5'464 9'319 8'289 7'941 6'244 7'956 217 209 206 173 183 227 219 211 207 174 184 249
7'788 10'536
7'072 10'294
73
Economic Research
Canton of Basel City: Location Factors

BS Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 -= + ++ +
BL = + + + +
AG + ++ = = ++ +
SO = = = + =
Centrality Means Good Accessibility The canton of Basel City places fifth in the national ranking of locational quality. Thanks to its centrality, the city canton benefits from its good accessibility and the availability of a highly qualified workforce. The tax burden is relatively high, especially for companies. Overall, the canton of Aargau is more attractive than Basel City on account of the lower tax burden.

35% 30% 25% 20% 15% 10% 5% 0% CH Oberes Baselbiet AG BL Unteres Baselbiet SO -5% -10% -15% -20% JU Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
Weak Employment Performance Over the period from 1995 to 2008, Basel City experienced a contraction in employment. Both administrative and social services sectors experienced positive growth, in line with the development across Switzerland as a whole, though other sectors saw employment decline. However, Basel City has suffered as a result of restructuring by UBS and Novartis which went to the detriment of the city canton. After strong contractions in 1995-1998, Basel City returned to growth in the period between 1998 and 2008, albeit at a lesser rate which was below the Swiss average. The other two northwestern cantons have experienced strong employment growth over the last 13 years.
Fricktal
BS
Laufental

4'000 Inter-cantonal 3'000 2'000 1'000 0 -1'000 -2'000 -3'000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 International Total
Inter-Cantonal Migration Basel City was the only canton to experience a population decline in the period between 1990 and 2010. Although net migration was positive in total over this period, inter-cantonal migration was consistently negative over the twenty years from 1990. This migration pattern remained unchanged. Although net inter-cantonal migration of young adults aged between 15-24 was positive, this ratio was negative for all other age groups. Immigration from abroad to Basel City was focused on individuals of working age, in particular those between 25 and 39 years old.
Financial Appeal of Living by Component

Heads of expenditure in the household budget
Fixed costs
High fixed costs lower tax advantages
GE
Dual disadvantages Ranking 2008 Ranking 2011
ZG ZH SZ NW GR OW UR AI GL LU SG TG AG SO AR SH VS JU BS
CH
TI
BL
VD
Mandatory charges
FR
BE
NE
Combined advantages
Asymmetric positioning
Second Highest Cost of Living With respect to the financial appeal of living in the canton, Basel City closes the ranking in second to last position, only ahead of Geneva. The combination of comparably high taxes and high fixed costs weighs heavily on freely disposable income. However, thanks to tax cuts, Basel City has been able to improve considerably on its score in comparison to the last ranking in 2008. While fixed costs are lower in Basel Land and Solothurn, the canton of Aargau imposes a much lower burden in terms of mandatory charges. Despite it taking the penultimate position in the ranking, the canton of Basel City is by far more attractive than Geneva on account of the considerably lower cost of living.
74
Economic Research
Canton of Basel City: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 185.2 0.2% 1.4% 0.2% 108.1 0.0% 1.36% 8.1% 8.1% 1.03 2008 186.7 0.8% 1.7% 0.4% 108.2 0.1% 1.20% 1.5% 4.1% 1.02 Canton of Basel City 2009 2010 2011 187.9 189.4 190.6* 0.7% 0.8% 0.6%* 1.6% 1.5% 0.4% 0.5% 108.5 0.3% 0.90% 1.7% -0.1% 1.03 108.8 0.3% 0.72% 5.8% 0.4% 1.06 109.0* 0.2%* 0.48% 9.2% 4.6% 1.14 2012 191.6* 0.5%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
109.2* 0.2%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Limited Momentum on Basel's Real Estate Market Although the population has been growing again for some time, apartments representing only 0.2% of the canton's total housing stock received building permits in 2011. This limited level of construction activity has contributed in recent years to a considerable reduction in vacancies. Still, it is unlikely that a housing shortage will result because, no later than when the issue of purchasing property arises, many of the canton's residents move to neighboring regions. Moreover, new housing is planned in the medium and long term. For example, 70 rental apartments will be built by 2014 in the former transit camp on the Dreispitz site. By 2017, the South Park in the vicinity of the SBB train station will be expanded with apartments, and by 2020 the zoning plan for the Erlenmatt site allows for some 100'000 m2 for apartments. High Liquidity Despite Low Vacancies The real estate market of the canton of Basel City is, as is typical for a city center, characterized by a high percentage of rental apartments. Vacancies are limited. Due to the limited level of construction activity, the vacancy rate in the rental segment in 2011 was 0.6%, significantly below its ten-year average. It appears that larger rental apartments are particularly in demand because three-quarters of the vacancies in 2011 were one- to three-room apartments. Nevertheless, the market is liquid. The percentage of apartments listed for rent has been fluctuating for the last six years at around the 3% level. This means the housing market is not as tight as it is, for example, in Zurich, Geneva or Lausanne. Rents Soon at Zurich Levels Nevertheless, rents in the city of Basel have reached a level that is, for example, not far from the level in the city of Zurich. The net monthly rent for a new, average four-room apartment with 110 m2 net living area is estimated to be CHF 2'347 in the city of Basel, just 5% below the rent for a similar apartment in Zurich. The high price for new single family dwellings, which contradict the need for urban densification, results from the lack of available building land for this type of housing.

700 600 500 400 300 200 100 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Basel-Stadt MFD SFD

2.0% 1.5% 1.0%
Oberes Baselbiet
Avg. 10-year vacancy rate Rent Own
Basel-Stadt
CH
Oberes Baselbiet Unteres Baselbiet CH Unteres Baselbiet
0.5% 0.0% -0.5% -0.5% 0.0%

Basel-Stadt
0.5%
Vacancy rate 2011 1.0% 1.5%

Most populous municipalities Basel Riehen Bettingen SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 11'323 15'316 11'331 15'329 8'694 11'768 7'764 11'304 7'582 11'037 6'318 9'193 256 230 221 270 232 222
Switzerland
7'788 10'536
7'072 10'294
227
249
75
Economic Research
Canton of Basel Land: Location Factors

BL Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 = + + + +
BS -= + ++ +
AG + ++ = = ++ +
SO = = = + =
Location Factor Basel Center The canton of Basel Land places 11th in the national ranking and thus takes a middle of the road position relative to other cantons. It benefits from high levels of education and good accessibility to transportation thanks to its proximity to Basel center. In terms of the tax burden, it does not score well. Compared to the other northwestern cantons of Switzerland, Basel Land reveals a low locational appeal. Older Population The population of Basel Land is much older than the Swiss average with the ratio of active to retired persons at 35%. On the one hand, a larger share of Basel Land's residents are of pensionable age than compared with the Swiss average. On the other hand, a lower share of the population is aged between 20 and 35. The canton therefore reveals a dearth of people of working age. In the Lower Baselbiet, the ratio of active to retired population stands as high as 39%. The Upper Baselbiet also has an above-average number of retired persons in relation to the active population. Only Laufental, the smallest Basel region, has a population which is younger than the Swiss average.
Relationship Between Active and Retired Persons

Population of pension age in 2010 measured as a percentage of the workforce, in %
Canton BL 22% 24% 24% 26% 26% 28% 28% 30% 30% 32% 32% 34% 34% 36% 36% 38% 38% 40% 40% 43% 0 5 10 km
Base l
Li esta l
Del mo nt
Household Income Forecast up to 2013

Average annual growth in percent, real values
2.0% 1.8% 1.6% 1.4% 1.2% 1.0% Olten/Gsgen/Gu Unteres Baselbiet 0.8% 0.6% 0.4% AG BS 0.2% 0.0% Fricktal Oberes Baselbiet
CH
High Income in Lower Baselbiet Average household income per capita in the canton of Basel Land was considerably higher than the Swiss average in 2008. The Lower Baselbiet region came in 12th of Switzerland's 110 economic regions, while the Upper Baselbiet and Laufental ranked around average. Growth of household income in the canton of Basel Land has been below the national average for several years, and we continue to expect below-average growth up to 2013. Given the weaker population trends, growth rates are higher than the Swiss average when considered on a per capita basis.
Laufental
SO
Thal
BL
JU
Freely Disposable Income in the Communes

Synthetic indicator incl. commuting costs 2011, CH = 0
Canton BL -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km Del mo nt
Base l Li esta l
Expensive Agglomeration Canton Given the relatively high tax burden, the canton of Basel Land has a below-average financial appeal. Fixed costs are also slightly above the national average. As the cost of housing appreciates, the communes close to Basel City reveal lower indicator values than the communes of the outer agglomeration belt. Values in the southeastern part of the Upper Baselbiet are slightly above average. The two neighboring cantons of Aargau and Solothurn are considerably more appealing from a financial perspective and are thus very attractive locations for those working in Basel City. This is particularly true of Fricktal, which enjoys good road and rail connections to Basel.
76
Economic Research
Canton of Basel Land: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 269 0.7% 0.5% 0.9% 128 0.7% 0.71% 8.2% 8.6% 0.99 2008 271 0.8% 0.7% 1.0% 129 1.1% 0.49% 2.7% 1.3% 1.01 Canton of Basel Land 2009 2010 2011 273 274 276* 0.6% 0.4% 0.7%* 0.6% 0.4% 0.8% 0.9% 130 0.7% 0.53% 2.5% -3.2% 1.03 131 0.9% 0.46% 5.0% 3.4% 1.05 132* 0.7%* 0.44% 5.4% 5.0% 1.10 2012 277* 0.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
133* 0.7%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Attractive Residential Regions with Limited Expansion As in the neighboring canton of Basel City, construction activity is limited and has been declining since 2004. This is remarkable because particularly the municipalities of Basel Land located near the city of Basel are considered to be an attractive residential region for people working in the city. Furthermore, because construction is also limited in the city of Basel, the population pressure from the city center is even higher and is only relieved by the fact that some commuters move to the neighboring Aargau region of Fricktal because of the lower tax burden. There is a lot of construction there and when measured against the housing stock twice as much new housing is planned as in Upper Baselbiet and four times as much as in Lower Baselbiet. This makes clear that the Aargau region is expecting further migration from the west. Planning Applications No Indication of an Increase The increasing shortage is expressed in the low amount of vacancies. The canton's vacancy rate similar to the trend in the canton Basel City has been falling since 2007 and fluctuated in 2011 around the low level of 0.4%. Planning applications for multi-family dwellings signal the stabilization of construction activity at a below-average level in a long-term comparison. With about 200 approved building applications for single-family dwellings each in both Upper and Lower Baselbiet, this traditionally popular form of housing in the canton of Basel Land is also weak. Despite the low amount of vacancies, the housing market is intact because approximately 3% of the overall housing stock is constantly listed for rent. Further Price Growth Foreseeable Differences in prices are strongly impacted by the proximity to the city of Basel. Allschwil, for instance, offers residential areas that are more attractive from a tax perspective and just a stone's throw from the city center. The price for an average condominium has risen 35% within five years and is now on a par with the city of Basel. Due to the moderate levels of construction activity, it is probable that property prices will climb even further, with low amounts of vacancies at the same time. As a result, the incentive is likely to grow further to acquire property outside the canton's borders at lower prices in an environment that is relatively more attractive from a tax perspective.

2'000 MFD SFD Laufental Oberes Baselbiet Unteres Baselbiet
1'500
1'000
500
0 1995 1997 1995 1997 1999 2001 2003 2005 2007 2009 2011 1999 2001 2003 2005 2007 2009 2011

2.0% Avg. 10-year vacancy rate Rent Own 1.5%
Oberes Baselbiet CH Laufental
1.0% 0.5%
Laufental
CH
Unteres Baselbiet
0.0%
Oberes Baselbiet
Unteres Baselbiet
-0.5% -0.5% 0.0% 0.5% 1.0% 1.5%

Most populous municipalities Allschwil Reinach Muttenz Pratteln Binningen Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 10'637 14'387 10'984 14'858 10'435 14'123 8'839 11'955 12'839 17'374 7'788 10'536 7'700 11'215 7'300 10'622 7'718 11'230 6'018 8'756 8'491 12'363 7'072 10'294 250 247 235 224 267 227 259 253 244 227 287 249
77
Economic Research
Canton of Berne: Location Factors

BE Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 = = = =
LU + ++ = = = =
AG + ++ = = ++ +
JU ---
Canton Distinguished by Variety The canton of Berne ranks 18th in the cantonal ranking of locational appeal. Berne reveals a particular disadvantage in terms of tax burden when compared to the neighboring cantons of Lucerne and Aargau. When compared to Jura, Berne comes out on top in all five areas. In terms of eduction and accessibility, Berne is around average, though there is considerable variety in regional scores. Geographical Variety The figure on the left shows accessibility to transportation at the communal level. Data take account of both motorized individual transportation as well as public transportation options. Accessibility scores vary greatly across the canton of Berne. Whereas the Mittelland is well connected in terms of transportation, the Jura and alpine regions reveal belowaverage scores. Accessibility to the south of the canton into the communes of Spiez is better than the Swiss average, and the northeast benefits from its central position between Berne, Basel and Zurich. Accessibility is best in the city of Berne. The alpine valleys of the Oberland score worst in terms of accessibility.
Accessibility to Transportation
Index of motorized individual transportation and public transportation, CH = 0
Canton BE 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 0 10 20 km So lot hurn Zug Lu zer n Bern Sa rnen Fr ibo urg Sta ns

Canton of Berne Traditional industry High-tech industry Construction Financial services Trading and sales Transportation, postal services Information, communications, IT Corporate services Energy supply Administrative and social services Entertainment, hotels and catering
15
30 km
Economy Variety The canton of Berne also reveals regional differences in terms of its economic structure. The map on the left shows a sector's presence relative to the Swiss average measured in terms of the number of employees. To the north of the canton and for the Mittelland, the role of industry is of greatest significance. The concentration of cutting-edge industry in the Jura regions is attributable to the strong presence of the watch industry there. The Oberland stands out for its tourism focus. Construction is also well represented in the south of the canton. Only in the regions around the capital itself do employment levels reach and exceed the national average in the higher value-creating service sectors of the economy.
Supply vs. Demand Indicator for Tourism

X axis = supply indicator, Y axis = demand indicator, Size of circle = Average number of overnight stays 2003-2010
Aboveaverage success 3 2 Gstaad Pontresina Sils im Engadin Villars-Gryon Saas Fee Laax Flims 1 Verbier 3 St. Moritz Celerina/ Schlarigna Zermatt
Engelberg Grindelwald
Lauter./Wen./ 1 Klosters-Serneus Mr. Saas Scuol Leukerbad Lenk Almagell 0 -3 -2 Meiringen Hasliberg -1 Leysin -1
2 Lenzerheide Davos Silvaplana Crans-Montana Arosa Samnaun Val d'Anniviers -2 Savognin Adelboden -3
Belowaverage success
Limited supply
Broad supply
Successful Destinations Gstaad and Grindelwald The figure on the left shows the position of Swiss winter sport destinations in terms of supply, demand and size. Destinations within the canton of Berne vary greatly in terms of their size, the breadth of the supply and their success. In terms of the latter, Gstaad and Grindelwald posted an aboveaverage performance when compared to the other 29 regions. Grindelwald, which is the biggest destination in the Berne Oberland by overnight stays, is successful despite belowaverage supply, while Gstaad, which is very much focused on the upscale market, is among the top three destinations in the country. In Lauterbrunnen/Wengen/Mrren, the demand indicator comes in around average, while the remaining destinations received below-average scores in both components. Meiringen and Hasliberg received the worst scores.
78
Economic Research
Canton of Berne: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 963 0.4% 0.6% 0.8% 511 0.8% 1.12% 5.6% 6.2% 0.79 2008 969 0.7% 0.8% 0.9% 515 0.9% 1.10% 1.9% 1.9% 0.79 Canton of 2009 974 0.5% 0.6% 0.7% 519 0.8% 1.06% 2.4% -1.2% 0.82 Berne 2010 978 0.4% 0.5% 0.7% 523 0.8% 1.18% 4.6% 1.5% 0.83 2011 984* 0.6%* 2012 990* 0.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
527* 0.7%* 1.26% 7.8% 5.0% 0.87
530* 0.7%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Berne's Housing Market Is Calm The housing market in the canton of Berne is comparatively calm. Nearly 13% of Switzerland's housing stock is found in the canton, meaning it is ranked number two behind Zurich. However, when measured against this size of the market, the expansion in the housing stock has been modest in recent years. In addition to the larger urban regions such as Berne and Biel, larger projects are emerging in the two regions with a stronger orientation towards tourism: Thun and the Bernese Oberland East. Otherwise, the expansion in the canton has not followed the sharp increase in building permits for residential units that has occurred elsewhere throughout Switzerland since 2010. Impulses from a demand side are limited. Although prices have increased somewhat, they are still not decoupled from income levels. Structural Rental Vacancies in the Periphery The region of Berne is dominated by rental apartments. Otherwise there is a balance between renting and ownership. Several regions in the north of the canton are struggling with higher levels of vacancies. In some cases, the vacancy rate for 2011 rose beyond the long-term average, which shows that the low interest rate environment has exacerbated structural problems even further. It hardly makes sense at the moment to rent in peripheral locations due to the cheap price of building land. The rental apartment segment in Biel is also a problem, with increased, albeit stable, amounts of vacancies. Interestrelated market distortions combine there with a high percentage of older apartments. A Calming Influence between Overheated Cantons With regard to price levels, the canton of Berne is a welcome, calming influence compared to the overheating in other cantons. The price level for condominiums in the city of Berne is approximately equal to the Swiss average. Even though singlefamily dwellings are somewhat more expensive, their prices have also remained subdued for an urban environment. However, the prices in Berne's tourist destinations are in sharp contrast to this. For example, the price of an average condominium in the municipality of Saanen (Gstaad) is at least twice as expensive as a similar unit in the city of Berne.

Bern Oberaargau Erlach/Seeland Jura bernois Schwarzwasser MFD SFD Biel/Seeland Burgdorf Berner Oberland-Ost Oberes Emmental Kandertal Thun Aaretal Grenchen Saanen/Obersimmental
6'000 5'000 4'000 3'000 2'000 1'000 0
1995 1997 1995 1997 1999 2001 2003 2005 2007 2009 2011 1999 2001 2003 2005 2007 2009 2011

6% Avg. 10-year vacancy rate 5% 4% 3% 2% 1% 0% -1% -1% 0% Rent Own
Saanen/ Obersimmental Kandertal Thun CH Bern CH Grenchen Oberes Emmental Oberaargau Jura bernois
Biel/Seeland Schwarzwasser Burgdorf Aaretal
Erlach/Seeland Berner Oberland-Ost All regions Berne
1%
2%
3%
4%
5%
Vacancy rate 2011 6% 7% 8%

Most populous municipalities Bern Biel Thun Kniz Steffisburg Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 9'605 12'994 6'339 7'355 7'048 8'581 9'948 9'535 7'871 10'645 7'291 10'607 5'191 6'209 6'082 6'155 7'548 9'037 8'844 8'956 244 204 200 209 205 227 249 211 196 203 207 249
7'788 10'536
7'072 10'294
79
Economic Research
Canton of Fribourg: Location Factors

FR Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 = = -
BE = = = =
VD -= + = =
NE --= + -
High Tax Burden Reduces Appeal The canton of Fribourg ranks fifth from the bottom of the ranking. In particular, the comparably high tax burden reduces the appeal of the canton in terms of locational quality. Education and accessibility components of the assessment cannot sufficiently offset this disadvantage. The two neighboring cantons, Berne and Vaud, take middle position in the ranking, whereas Neuchtel comes in second to last. Highest Population Growth in Switzerland Population growth in the canton of Fribourg reached an average annualized rate of 1.9% in the period between 2005 and 2010, and thus comes in considerably higher than the Swiss average of 1.1%. No other canton has been able to beat this. Fribourg benefits from high population growth in the Bassin Lmanique region, and as a financially attractive place to live, draws people from the relatively densely populated areas on the banks of Lake Geneva. The increase in population is particularly pronounced along the transportation axes and close to the Vaud border. The rise is less notable along the eastern peripheral regions of the canton where certain communes have even seen the number of inhabitants contract. Large Financial Scope for Maneuver Gross debt is equal to all outstanding debt. Adjusting for readily available financial assets results in net debt. Thanks to the sale of excess gold reserves held by the Swiss National Bank and the favorable economy, nine cantons have been able to build up a net surplus and are thus, from an economic perspective, debt free. At 7.1%, the canton of Fribourg has the highest net surplus measured in terms of cantonal income of all cantons. These financial assets serve as a buffer in more difficult times or for extraordinary investments, though given that interest rates are currently so low, it has been used to pay off debt. The canton of Fribourg therefore has considerable scope for maneuver in its fiscal policies.

Canton FR 4.5% 10.6% 3.0% 4.5% 2.0% 3.0% 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0% 0 5 10 km La usa nne Neuch tel
Bern
Fr ibo urg
Cantonal Debt Ratios

As a percentage of cantonal income, 2010
40% Gross debt ratio 30% 20% 10% 0% -10% FR SG ZG GR SZ OW AR SH AI NW SO UR TG LU ZH VS VD GL ALL AG BS BL BE JU TI NE GE All cantons Net debt ratio
Source: Federal Finance Administration, Credit Suisse Economic Research

35% 30% 25% 20% 15% 10% 5% La Gruyre FR 0% -5% -10% -15% -20% La Broye Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
Glne/Veveyse
Growth Motor La Gruyre Employment growth in the canton of Fribourg was driven mainly by the administrative, social services and corporate services sectors, as was the case through Switzerland as a whole, in the period between 1995 and 2008. Cutting-edge industry as well as trading and sales also made significant contributions to this rise in employment. Overall, employment growth was above the Swiss average. At a regional level, La Gruyre revealed the strongest growth at 22.2%. While a general shift has been seen in Switzerland as a whole, from traditional industry to higher value-creating cutting-edge industry, in Fribourg has recorded little contraction in employee numbers.
Murten
Sense
CH
La Sarine
80
Economic Research
Canton of Fribourg: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 263 1.9% 1.1% 1.9% 122 1.9% 1.09% 5.3% 6.2% 0.98 2008 269 2.0% 1.0% 2.3% 125 2.1% 1.04% 1.1% 1.7% 0.98 Canton of 2009 273 1.7% 0.8% 1.7% 127 1.8% 0.83% 1.7% -0.5% 1.02 Fribourg 2010 278 1.7% 0.6% 2.0% 129 1.9% 0.90% 6.4% 3.4% 1.06 2011 283* 1.7%* 2012 287* 1.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
131* 1.5%* 0.77% 11.7% 8.0% 1.15
133* 1.5%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Slight Slowdown of the Dynamic Construction Activity Located between the dynamic region around Lake Geneva and the urban center of Berne, Fribourg's regions can position themselves as interesting residential regions where housing is both available and affordable. The good traffic situation, which was finalized with the completion of the A1 in 2001, ensures that not only the suburban agglomeration municipalities along the Saane Valley are able to achieve a high rate of growth, but also the outlying communities in the extended commuter belt of the medium-sized and small towns. The expected expansion of the housing stock is accordingly high in all regions. However, the slight decline in the number of apartments approved for construction is likely, like last year, to result in a somewhat lower level of construction activity.

3'000 2'500 2'000 1'500 1'000 500 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 La Sarine La Gruyre MFD La Broye Sense SFD Murten (Morat) Glne/Veveyse
High Population Growth Reduces Vacancies The shortage of housing has forced many people seeking housing in the Lake Geneva area to move to the neighboring regions and cantons. This migration from other cantons has given Fribourg the highest population growth of all Swiss cantons. The south, the forecourt of the Lake Geneva region, has been particularly impacted by this trend. Both of the regions Glne/Veveyse and La Gruyre have a level of population growth that is twice the Swiss average. The number of vacant rental apartments has declined primarily in these regions. As it is likely that population pressure will continue with weaker expansion at the same time, a reduction in vacancy rates in the canton can be anticipated for 2012. Large Land Reserves Dampen Price Growth Despite considerable demand, prices in the canton of Fribourg have developed moderately, far from price trends in the Lake Geneva region and also below the price trend for Switzerland overall. Besides the fact that the housing supply in the canton has until now reacted in a more rapid and comprehensive manner, land prices are primarily responsible for the relatively limited increases in prices and the overall moderate price levels. The sparsely populated canton has significant land reserves.

3.0% Avg. 10-year vacancy rate 2.5% 2.0% 1.5%
Glne/Veveyse La Gruyre La Gruyre CH Sense Glne/Veveyse La Broye Murten (Morat) La Broye CH Murten (Morat) La Sarine
Rent Own
Sense
1.0% La Sarine 0.5% 0.0% -0.5% -0.5%
0.0%
0.5%
1.0%
1.5%
2.0%

Most populous municipalities Fribourg Bulle Villars-sur-Glne Marly Ddingen Switzerland
SFD Condo Rent Moderat Upscale Moderat Upscale Moderat Upscale 6'718 5'952 6'040 6'871 6'161 9'084 8'052 8'168 9'297 8'335 5'418 5'164 5'955 4'745 5'309 7'881 7'519 8'667 6'904 7'726 196 195 214 195 206 227 196 198 215 196 208 249
7'788 10'536
7'072 10'294
81
Economic Research
Canton of Geneva: Location Factors

GE Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 -= ++ + +
VD -= + = =
ZG ++ ++ + ++ ++ ++
ZH ++ = + + ++ ++
Most Attractive Canton in Western Switzerland After tax cuts, the canton of Geneva has manged to climb five places higher in the ranking since last year and currently ranks fourth as the most attractive canton in Western Switzerland. The ace up its sleeve is the availability of highly skilled workers, though Geneva also scores above the Swiss average in terms of accessibility to transportation.
Share of Cross-border Commuters in Employment

In percent, 2008
Canton of Geneva Cross-border commuters by sector Traditional industry High-tech industry Entertainment, hotels and catering Energy supply Trading and sales Transportation, postal services Information, communications, IT Construction Financial services Corporate services Administrative and social services 0 10 20 km
Share of cross-border commuters in 2008 0% 1% 1% 10% 10% 20% 20% 30% 30% 54%
Attractive Labor Market for Cross-border Commuters The root of Geneva's attraction to cross-border commuters rests not only with its border location, but also its high valuecreating sector makeup. In 2008, the share of cross-border commuters accounted for around 25% of the total workforce. Geneva is also the most attractive canton for cross-border commuters in Switzerland. Around two thirds of Geneva's cross-border commuters work in the tertiary sector, with the smallest share of cross-border commuters working in financial services and administrative and social services sectors. The highest shares of cross-border commuters are employed in the secondary sector. Industry and construction rely heavily on cross-border commuters, a tendency which is very notable from the high shares of commuters employed in these sectors. High Demand for Living Space on Lake Geneva The demand for residential land depends on the population trend. By 2020, Switzerland's population is set to increase by around 730'000. This is equivalent to annual population growth of 0.9%. The increase will not be evenly distributed throughout Switzerland, though. The biggest growth will be around Lake Geneva and in parts of the cantons of Valais and Fribourg as well as in the major centers of Zurich and Zug. Assuming constant conditions (no further land inclusion, constant density of housing, constant population growth), available construction land in the canton of Geneva is likely to be exhausted in the next few years. Also construction reserves are becoming short in the nearby regions of Nyon and Morges/Rolle. Generally High Level of Taxation Both for companies as well as for natural persons, the canton of Geneva imposes one of the highest tax burdens in Switzerland. It is hardly surprising then that Geneva also imposes a relatively high wealth tax. Geneva also imposes some of the highest tax rates on smaller asset holdings. For assets of between CHF 2-5 million, the canton of Geneva imposes Switzerland's highest tax burden and demands up to seven times what Switzerland's most tax efficient canton, Nidwalden, charges. The other city canton, Basel City, has a similar tax structure to Geneva. Looking at tax receipts from natural persons overall, we see that, in contrast to other cantons with a relatively high tax burden, the canton of Geneva records an above-average tax take per capita.
Shortage of Construction Land

Exhaustion of construction land reserves and population forecast
Canton of Geneva Exhaustion of construction land reserves until 2012 2015 2016 2020 2021 2030 2031 2040 Annual growth rate of population forecast 2010-2020 -0.9% 0.0% 0.0% 0.5% 0.5% 0.9% 0.9% 1.5% 1.5% 2.0%
10
20 km
Source: Swiss Federal Office for Spatial Development, Credit Suisse Economic Research
Wealth Tax 2010

In of taxable assets; person liable for the tax: married person without children
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 0 200'000 400'000 700'000 1'500'000 5'000'000 GE BS ZH VD SZ NE OW NW ZG FR
82
Economic Research
Canton of Geneva: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 438 1.1% 0.9% 1.1% 215 1.1% 0.19% 22.6% 12.6% 1.36 2008 446 1.8% 1.6% 0.5% 216 0.5% 0.20% 9.8% 10.4% 1.50 Canton of 2009 453 1.6% 1.4% 0.6% 217 0.6% 0.22% 6.6% 3.6% 1.63 Geneva 2010 459 1.2% 1.2% 0.7% 219 0.8% 0.23% 12.4% 5.3% 1.77 2011 465* 1.4%* 2012 471* 1.3%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
220* 0.6%* 0.25% 13.0% 8.2% 1.95
221* 0.6%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Housing Is Scarce in the Canton of Geneva Geneva is a cosmopolitan city, a thriving business location, and a center of international politics. In addition, Geneva also wants to be a residential canton, with a supply of housing for both managers and less affluent citizens. However, these complex goals block planning and particularly the realization of new residential housing in the canton, which is scarcer in Geneva than anywhere else in Switzerland. Nevertheless, there is very little new construction. At the end of 2011, the share of dwellings with construction approval was a meager 0.7% of the overall housing stock. In fact, the demand is so high that the neighboring regions in the canton of Vaud serve as an outlet: In the economic region of Nyon, apartments and houses totaling 3.8% of the overall housing stock received building permits in 2011 in order to absorb the excess demand from Geneva. Slight Easing on the Housing Market The scarcity of housing is reflected in record-low vacancy rates, which are far below the Swiss average in terms of both rental- as well as owner-occupied apartments. In total, 556 apartments, or 0.25% of the overall housing stock, were vacant throughout the canton on June 1, 2011. All the same, the share of apartments listed for rent has risen steadily between 2009 and 2011, reaching 1.5%. That at least indicates that housing fluctuation has increased slightly, despite low vacancy rates, and that some movement has come to Geneva's housing market. In the neighboring regions of Nyon and Morges/Rolle, vacancy rates are slightly higher because of the more dynamic construction activity, but they are still well below average. Overheating is Increasing Price levels are very high. The market rent can no longer be paid by many households, and the purchase of property is prevented because of high capital requirements. Indeed, the ongoing costs of residential property are in contrast to the Swiss average no longer affordable for a broad section of the public. Nowhere has the gap between price and income trends opened so dramatically in recent years as in the canton of Geneva. This fact corroborates our finding that prices are clearly overvalued due to excess demand in the residential property segment.

2'500 MFD 2'000 Genve SFD
1'500
1'000
500
0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011

1.5% Avg. 10-year vacancy rate Rent Own
Morges/Rolle Nyon CH Nyon Morges/Rolle CH
1.0%
0.5%
Genve Genve
0.0%
-0.5% -0.5% 0.0% 0.5%

Most populous municipalities Genve Vernier Lancy Meyrin Carouge Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 20'468 27'690 15'984 21'626 17'032 23'045 16'435 22'232 18'065 24'439 7'788 10'536 14'000 20'378 8'427 12'267 10'745 15'644 8'982 13'074 12'636 18'385 7'072 10'294 325 268 285 272 316 227 325 270 287 273 319 249
83
Economic Research
Canton of Glarus: Location Factors

GL Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ -
SG + ++ = = = =
SZ ++ ++ = = +
GR + + = = --
Peripheral Location an Obstacle The canton of Glarus ranks 19th in terms of locational quality. The canton scores better than the national average in terms of tax burden, though below national average in terms of the education and accessibility components. Although Graubnden has a similar position, neighbors St. Gallen and Schwyz come in some way ahead of Glarus.

Canton GL 4.5% 10.6% 3.0% 4.5% 2.0% 3.0% 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0% 0 5 10 km Altdorf
Glarus
Brain Drain In order to gain a more detailed picture of population trends, the map on the left shows commune data from before the merger. Between 2005 and 2010, the canton of Glarus recorded below-average population growth of 0.2% per annum. In 2010, inter-cantonal migration returned to positive territory for the first time since 1990. Nevertheless, Glarus continues to struggle with the problem of youth emigration, with many 15-24 year-olds choosing to leave the canton. Whereas the communes in the north section of the canton mainly show positive growth rates, southern communes, with the exception of Rti, have all reported population declines. Only the communes of Mollis, Oberurnen and Schwndi are able to show growth above the Swiss average. Below-average Growth Potential The figure on the left gives an overview of the economy in Glarus. The diameter of the circle represents the sector's significance in terms of total employment within the canton. Deviation from the national average is shown on the horizontal axis, whereas the vertical axis represents medium-term opportunities and risks. Glarus' economic structure is largely determined by the secondary sector. Overall, we see the opportunities and threats facing the sectors as balanced. Agriculture, retail and teaching score poorly. All in all, the canton of Glarus received a below-average score, which points to limited growth potential in terms of value creation.
Opportunities/Risks Profile of Sector Structure

Twelve largest sectors, 2012
high
2.0 1.5 1.0 Health care Homes Electrotechnical equipment Finishing trade Education Retail trade Fabricated metal products Plastic Agriculture Agriculture and forestry Construction and industry Services Public sector Machinery Construction of buildings
Opportunity-risk profile
0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5
Mineral products 6.0% 8.0%
low
-4.0%
-2.0% 0.0% 2.0% 4.0% Employment: deviation from the Swiss average

Fixed costs
High fixed costs lower tax advantages
GE
Double disadvantages Ranking 2008 Ranking 2011
ZG ZH SZ NW GR OW UR AI GL LU SG TG AG AR SO SH CH TI FR VS BE BS BL VD
Mandatory charges
NE JU
Combined advantages
Second Most Appealing Place to Live The figure on the left shows the breakdown of the financial appeal for living in the canton with reference to fixed costs (housing costs, ancillary costs and charges) and mandatory charges (income and wealth taxes, social security contributions and obligatory health insurance). The combination of low fixed costs and low mandatory charges puts the canton of Glarus in second place in terms of its financial appeal as a place to live. Glarus affirmed its position as one of Switzerland's most attractive places to live from a financial perspective in the assessment from 2008. As a result of various tax cuts, Glarus has meanwhile managed to move up a rank since 2008.
84
Economic Research
Canton of Glarus: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 38.2 0.4% 0.5% 0.6% 20.7 0.6% 2.05% 4.7% 1.0% 0.87 2008 38.4 0.3% 0.8% 1.0% 20.8 0.7% 2.07% 3.4% 4.1% 0.85 Canton of 2009 38.5 0.3% 0.8% 1.0% 21.0 1.0% 1.81% -7.4% -1.2% 0.82 Glarus 2010 38.6 0.2% 0.7% 1.4% 21.2 0.9% 1.82% 7.2% 5.1% 0.82 2011 38.6* 0.2%* 2012 38.7* 0.2%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
21.3* 0.6%* 1.27% 5.0% 3.3% 0.85
21.5* 0.6%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Declining Residential Construction Stabilizes Market Due to positive, albeit much lower-than-average population growth, the wave of expansion in the canton of Glarus between 2006 and 2010 was well received. It is likely, however, that the population in the Glarner Hinterland will continue to decline and barely grow in the canton overall. The appeal of the canton remains limited from a real estate perspective. Although the tax burden is below the Swiss average, the difference to other regions, particularly compared to the cantons in central Switzerland, is high. Moreover, the accessibility of the canton is below average because of its geographical and topographical location. It is therefore likely that the slowdown in construction activity will have a positive impact on the stability of the real estate market and thus prevent the creation of another excess supply situation. The declining vacancy rate confirms this trend. Considerable North-South Differences The differences within the canton are significant. Because of better accessibility when compared within the canton, the structural problems in the Glarner Mittelland and Unterland are less than in the Hinterland. New construction there is dominated primarily by single family dwellings. Nevertheless, the amount of vacancies in rental apartments is structurally high. The fact that the vacancy rate has fallen and is considerably below the long-term average in 2011 can be attributed to the many people working on the pumped storage project "Linthal 2015" who reside in the Glarner Hinterland. From 2016 vacancies are likely to rise as a result. However, the extent of the problem is limited in absolute terms due to the small housing stock in the Hinterland. Positive Effect: Moderate Prices The structural problems and the relatively difficult accessibility of its urban centers also have a positive effect for the canton of Glarus: Prices for residential property have remained affordable. As accessibility becomes more difficult, prices fall from north to south. It is also likely that large differences will appear again within the three municipalities of Glarus prices are likely to fall the further the individual locations are from the Linth Plain. In the past, price trends were below average and very volatile; it is not likely that anything will change in that respect for the time being.

250 Glarner Hinterland Glarner Mittel- und Unterland MFD SFD
200
150
100
50
0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995

12% 10% 8% 6%Glarner Mittel4% 2% 0% -2% -1%
CH March/Hfe Glarner Mittelund Unterland Linthgebiet und Unterland

Glarner Hinterland
0%
Glarner CH Hinterland March/Hfe
1%
2%
3%
4%
5%

Most populous municipalities Glarus Nord Glarus Glarus Sd SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 5'944 5'274 4'645 8'045 7'135 6'277 4'600 4'400 4'009 6'696 6'407 5'844 178 178 165 180 180 167
Switzerland
7'788 10'536
7'072 10'294
227
249
85
Economic Research
Canton of Graubnden: Location Factors

GR Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + + = = --
TI + = = -
SG + ++ = = = =
GL + ++ -
Topography Impairs Locational Quality Graubnden ranks 20th in terms of locational quality. The canton's biggest disadvantage is its poor accessibility to transportation. In terms of the tax burden, the canton is relatively attractive, while education scores close to the Swiss average. On an overall view, Graubnden is slightly more attractive than Ticino.

Canton GR -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 10 20 km Zug Schwyz
Gla rus Chur
Altdo rf
Bellinzo na
High Cost of Housing in Tourism Destinations The figure on the left shows the financial appeal of the communes. In the canton of Graubnden, there are numerous financially attractive communes, but also comparably expensive tourist regions. Freely disposable income remains particularly tight in renowned destinations such as Oberengadin and Davos/Klosters. The high demand for second homes has driven up real estate prices in these areas and has a negative impact on the financial appeal of the area as a place to live. Living costs are lowest along the A13 motorway and in the few Surselva communes. All in all, Graubnden comes in some way behind front-runners Uri and Glarus, though scores better than Ticino.

2'500 2'000 1'500 1'000 500 0 -500 -1'000 -1'500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Inter-cantonal International Total
Inter-cantonal Emigration Across All Age Groups At 0.5%, annual population growth in the canton of Graubnden was around half as high as in Switzerland as a whole in the period between 2005 and 2010. Since the turn of the millennium, international immigration has made a considerable contribution to growth, though since then, inter-cantonal emigration has increased. Not only has the 15-39 age group been leaving, but other groups too. The age structure of international immigration has fluctuated over the years. Since 2005, the share of 40-64 year-olds has increased slightly. Population growth is primarily concentrated on the Graubnden Rhine valley regions and Engadin.

Synthetic indicator 2008, horizontal line = Swiss average
Canton of Graubnden Traditional industry High-tech industry Construction Corporate services Trading and sales
Transportation, postal services Information, communications, IT Financial services Energy supply Administrative and social services Entertainment, hotels and catering
10 20 km
Tourism Dominates Graubnden Economy The sector makeup is similar in all of Graubnden's regions. Only in the Rhine valley does the economic picture deviate from the canton average. The dominant sector of the economy in the tourism regions in particular is hospitality and catering. Otherwise, the service sector is very much underrepresented compared with the Swiss average. In the secondary sector, construction has a strong presence in all regions and energy in most of Graubnden's regions. By contrast, industry is underrepresented. Cutting-edge industry employs an above-average share of people in Prttigau, while in the Mesolcina regions, the share of employment in traditional industry is slightly above the Swiss average.
86
Economic Research
Canton of Graubnden: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 189 0.4% 0.8% 1.7% 151 1.6% 0.85% 7.0% 5.6% 1.08 2008 190 0.9% 1.2% 1.3% 153 1.4% 0.77% 4.8% 3.1% 1.10 Canton of Graubnden 2009 2010 2011 192 193 194* 0.7% 0.4% 0.7%* 1.0% 0.8% 1.0% 0.9% 155 1.0% 0.79% 3.1% -0.5% 1.14 156 1.0% 0.77% 8.7% 0.9% 1.19 158* 1.1%* 0.91% 7.0% 12.4% 1.25 2012 195* 0.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
160* 1.1%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Focus on Second Homes Graubnden, as the largest Swiss canton, is characterized by diverse real estate markets that are strongly dominated by regional influences. In addition to the Bndner Rhine Valley, the mountain regions dominated by tourism are the focus of an analysis of the real estate market. When measured against the overall housing stock, the number of apartments approved for construction is particularly high in the regions of Mittelbnden, Unterengadin, Schanfigg, Surselva and in the Bndner Rhine Valley. The Bndner Rhine Valley near Chur is the only region where rental apartments play a meaningful role. The focus in the other regions is on the construction of second homes, which, as can be seen in the building permits, continues to grow in many areas and has reached a share of over 50% in the majority of tourist municipalities in the region. Demand for Rental Apartments in Urban Areas The construction of second homes is primarily the focus in tourist regions. With the revised urban and regional planning and the associated quotas for second homes in many locations, it will be even more difficult to satisfy the high demand. In contrast, the market for rental apartments in individual regions is characterized by high vacancies due to the low demand for first homes. The lower rental vacancies in the Bndner Rhine Valley reveal that the more urban portion of the canton around the city of Chur is influenced by an increased demand for rental apartments. A larger, new construction project in Chur with about 80 rental apartments will probably provide some relief starting in 2013. Tourist Destinations with the Highest Prices The impact of tourism is most noticeable in real estate prices. Price trends are markedly influenced by the regional appeal for tourists and the associated demand for second homes. With estimated square meter prices above CHF 15'000 for average single-family dwellings and condominiums assuming there are even any available the tourist destination St. Moritz is the leader from a price perspective. In contrast, real estate prices are below the Swiss average in municipalities that are less strongly oriented towards tourism.

3'000 2'500 2'000 1'500 1'000 500 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011
Bndner Rheintal Surselva Domleschg/Hinterrhein Schanfigg MFD SFD Sarganserland Davos Mittelbnden Mesolcina Oberengadin Prttigau Engiadina bassa

Mittelbnden Prttigau Domleschg/ 3% Hinterrhein Sarganserland Rent: Prttigau Surselva (3.6%, 8.6%) Davos 2% Schanfigg CH Engiadina b. (4.3%, 6.1%) Mesolcina (10.1%, 12.4%) Bndner Rheintal Oberengadin 1% Bndner Rheintal Engiadina bassa Schanfigg Mesolcina 0% Sarganserland Surselva Mittelbnden CH Oberengadin Domleschg/ Hinterrhein -1%
4% Avg. 10-year vacancy rate Rent Own
-1%
0%
1%
2%

Most populous municipalities Chur Davos Igis Domat/Ems St. Moritz Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 10'137 13'716 13'113 17'735 6'903 7'161 9'335 9'690 6'900 10'037 9'818 14'296 5'927 5'891 8'637 8'578 203 248 199 190 322 227 193 250 201 192 324 249
15'298 20'703 7'788 10'536
15'818 23'022 7'072 10'294
87
Economic Research
Canton of Jura: Location Factors

JU Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ---
NE --= + -
BE = = = =
SO = = = + =
Bottom of the Ranking as a Result of Peripheral Location and Tax Burden Since the first reassessment of locational quality under the new criteria in 2004, the canton of Jura has finished at the bottom of the ranking. Compared to its neighbors, Berne, Solothurn and Basel Land, Jura scores particularly badly. The tax burden on natural persons is the second highest in Switzerland. Only Neuchtel is more unattractive in respect of this sub-indicator.. Jobs Thanks to Boom in the Watch Industry The 8.3% rise in employment between 1995 and 2008 experienced by the canton of Jura is slightly below the Swiss average of 10.3%. The boom in the watch industry has been a significant factor in this development over recent years. Over the period under review, employment in Jura's watch industry has grown by 32%. This sharp increase in one of Switzerland's cutting-edge industries contrast with the decline of traditional industry. Accordingly, Jura has experienced a structural shift away from threatened industries to higher value-creating and more internationally competitive sectors, as has happened in Switzerland as a whole. Also in line with the national trend, administrative and social services have seen considerable growth.

40% 35% 30% 25% 20% 15% 10% 5% 0% CH JU Grenchen BE -5% La Chauxde-Fonds -10% -15% -20% Jura bernois Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
NE
Neuchtel
Growth Potential for Value Creation

2.5 2.0 1.5 Val-deTravers III La Chauxde-Fonds CH-average BS I
NE Neuchtel
Sector evaluation
1.0 0.5 0 -0.5 -1.0 -1.5 -2.0
VD
BL
BE JU VS Jura bernois SO Laufental Thal IV -2 -1.5 -1 -0.5 0 Locational quality 0.5 1
II 1.5
CH-average
Grenchen Biel/Seeland
Promising Position Thanks to Watch Industry Despite the significant presence of a dynamic watch industry, we do not expect the canton of Jura to experience growth above the Swiss average over the medium term. The high concentration of the canton's industrial portfolio in just a few sectors harbors a considerable risk which the assessment must reflect. However, depending on the performance of the watch manufacturers and their suppliers in particular, the canton of Jura has a good chance of seeing growth around the Swiss average over the next few years. Given the comparably low locational quality, we expect value creation to rise at a below-average rate over the long term.

Canton JU -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km So lot hurn Base l Li esta l
Del mo nt
High Taxes Reduce Financial Appeal to Live in the Canton In the ranking of freely disposable income, Jura is placed 15th. In terms of the cost of housing, the peripheral canton of Jura is one of Switzerland's cheapest. The canton's overall financial appeal as a place to live is, however, strongly impaired by the high tax burden on natural persons. In the Delmont and Porrentruy regions, indicator ratios are even below the Swiss average. In the regional comparison, Jura has greater financial appeal as a place to live than the neighboring cantons of Basel Land, Berne and Neuchtel, though freely disposable income in the canton of Solothurn is generally slightly higher.
88
Economic Research
Canton of Jura: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 69.6 0.4% 0.4% 0.7% 34.9 0.7% 2.00% 7.8% 4.0% 0.87 2008 69.8 0.4% 0.6% 1.1% 35.2 0.9% 2.00% 3.5% 0.9% 0.87 Canton of Jura 2009 2010 70.1 70.2 0.4% 0.0% 0.3% 0.4% 0.3% 0.6% 35.4 0.5% 1.77% 0.0% 0.0% 0.90 35.6 0.5% 1.96% 4.0% -1.9% 0.91 2011 70.4* 0.3%* 2012 70.6* 0.3%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
36.0* 1.0%* 1.88% 8.7% 7.9% 0.98
36.3* 0.9%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
New Construction on Greenfield Sites The low prices for building land in the canton of Jura enable both local residents and people moving there to realize the dream of owning their own home in the form of a free-standing single family dwelling but mostly outside the village centers. The trend towards re-urbanization via a condominium in a central location, which is widely observed throughout Switzerland in the regional and major urban centers, is bypassing Jura; in fact, in many places just the opposite is occurring. The low prices for building land distort the incentive system in that the renovation of the older housing stock, which exists primarily in the center of towns, cannot compete against affordable new construction on greenfield sites. This keeps the amount of vacancies high for apartments in older buildings and creates an imbalance between the housing segments that can be difficult to level off. Increased Excess Base of Vacant Older Real Estate Many older rental apartments are vacant in the town centers of the Bernese Jura and the districts of Pruntrut and Delsberg. This trend is also reflected in the weak population dynamics of Jura's regional centers of Delsberg, Pruntrut, and Moutier. At 0.9%, the vacancy rate of owned property in the canton of Jura is almost twice the overall Swiss average and has also risen above the ten-year average. This is further evidence of an excess base of vacancies related to older and remote single-family dwellings and older apartments in town centers that no one is willing to renovate because of the affordable new construction possibilities.

350 Jura MFD 280 SFD
210
140
70
0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995

6% Avg. 10-year vacancy rate 5% 4% 3% 2% 1% 0%
Laufental CH CH Jura Laufental La Chaux-deFonds Jura Jura bernois
Rent Own
La Chaux-deJura bernois
-1% Fonds -1% 0%
1%
2%
3%
4%
5%
Affordable Single-family Dwellings for Commuters Not only are prices losing contact with the Swiss average, they are also lagging behind the more expensive neighboring regions. This price gap versus the adjacent regions of neighboring cantons is an opportunity for Jura's municipalities with good transportation connections to attract further households that are willing to pay for their dream of a single-family dwelling with a commute to Basel or the employment centers of the Mittelland. The completion of the Transjurane by 2017 will enable this opportunity to grow further.

Most populous municipalities Delmont Porrentruy Bassecourt Courroux Saignelgier Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 5'008 3'887 4'508 4'218 4'306 6'774 5'252 6'103 5'710 5'826 4'527 4'764 4'209 4'109 4'064 6'585 6'926 6'133 5'985 5'911 171 161 161 174 148 227 172 161 161 175 149 249
7'788 10'536
7'072 10'294
89
Economic Research
Canton of Lucerne: Location Factors

LU Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = = =
OW NW ++ ++ = + ++ ++ = = = +
AG + ++ = = ++ +
High-ranking Neighborhood The canton of Lucerne ranks around average in terms of locational quality, though is unable to outperform the neighboring cantons of Obwalden, Nidwalden, Schwyz, Zug and Aargau in terms of its appeal. In terms of taxation, the canton has an above-average appeal, while education and accessibility score around average.
Canton LU 2.50 4.25 1.50 2.50 lo thur n 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 Ber n -0.25 -0.50 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 0 5 10 km
Zug S
Luzer n
Stans Sarne n
North-south Divide for Accessibility Accessibility to transportation in the canton of Lucerne varies greatly from below average in some areas to far above average in others. Communes near to central Lucerne or Zug or along the main transportation routes towards Zurich and Olten/Basel/Berne, enjoy a very central position. As distance to these centers increases, accessibility falls sharply. Accordingly, Entlebuch and the southern communes of the Willisau region reveal below-average accessibility. Cost intensive investment in infrastructure could improve transportation connections. The region surrounding the cantonal capital have benefited strongly from the completion of the A4 motorway through Knonaueramt and from the Uetliberg tunnel.

5'000 4'000 3'000 2'000 1'000 0 -1'000 -2'000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Inter-cantonal International Total
Change in Trend in Inter-cantonal Migration After several years of negative migration, immigration to the canton of Lucerne began again to increase towards the end of the nineties. The dominant force here is international migration, which over a considerable period of time, with the notable exception of 1998, has always been positive. Immigrants are mainly employees in younger age groups. Since 2005, inter-cantonal migration has again moved into positive territory. The latter mainly consists of families and persons of working age. As a result, Lucerne has grown in appeal in comparison to other cantons.

Canton of Lucerne Traditional industry High-tech industry Construction Energy supply Trading and sales Transportation, postal services Information, communications, IT Financial services Corporate services Entertainment, hotels and catering Administrative and social services
5 10 km
Notable Differences Between City and Countryside The economic structure of the canton of Lucerne varies greatly between the urban and rural regions. Whereas the secondary sector is strong and the tertiary sector relatively weak in the Sursee/Seetal, Willisau and Entlebuch regions, the picture in the regions surrounding the city of Lucerne corresponds closely to the Swiss average with only slight deviation. Construction and industry are relatively weak in the Lucerne region, while employment in the services sector comes in above the Swiss average. In the Willisau region, we see a relatively strong transportation sector alongside an above-average presence of traditional industry (primarily food industry) and construction.
90
Economic Research
Canton of Lucerne: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 363 1.2% 0.8% 1.6% 169 1.4% 1.00% 1.0% 4.2% 0.82 2008 369 1.4% 1.0% 1.4% 171 1.2% 0.79% 3.1% 4.8% 0.83 Canton of 2009 373 1.1% 0.7% 1.2% 173 1.3% 0.62% -0.6% -2.0% 0.82 Lucerne 2010 376 0.9% 0.6% 1.3% 176 1.4% 0.69% 8.2% 4.3% 0.86 2011 381* 1.2%* 2012 385* 1.1%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
178* 1.2%* 0.80% 6.6% 5.3% 0.91
180* 1.2%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Housing Planning with Sound Judgment Similar to the construction activity throughout Switzerland, Lucerne's regions planned for many apartments in multi-family dwellings in a first wave from 2004 until 2007. But unlike Switzerland as a whole, Lucerne's builders exercised caution when the subprime crisis erupted in 2008. As a consequence, vacancies developed in Lucerne; in 2006, they exceeded the 1% mark for the first time since 2000, and then they fell back to the low level of 0.6% by 2009. Inspired by the low amount of vacancies, falling interest rates because of the recession, and surprisingly robust immigration, planning activity particularly in the area around the city of Lucerne picked up again in 2009, anti-cyclically to the overall Swiss trend. Lucerne's builders demonstrated sound judgment with this moderate and economically adjusted planning. Supply and Demand in Balance The moderate level of planning is also likely to prevent an increase in vacancies this year. Vacancies in the agglomeration municipalities of Lucerne, such as Horw, Kriens, or Adligenswil, fluctuate at very low levels; in some cases they are falling even further. People interested in condominiums there feel the shortage via considerable price increases. Nevertheless, the amount of planning for new housing is limited. We expect, for example, that the housing stock in these municipalities will expand by less than 1% in 2012. With the exception of isolated points of shortage, it appears that supply and demand are in balance in the canton like nowhere else in Switzerland.

3'000 2'500 2'000 1'500 1'000 500 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Entlebuch Willisau Sursee/Seetal Luzern
MFD
SFD

4.0% Avg. 10-year vacancy rate 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -0.5%
Sursee/Seetal Entlebuch Willisau Luzern Luzern Entlebuch
Own Rent
Sursee/Seetal
Willisau
CH
CH
0.0%
0.5%
1.0%
1.5%
Prices Depend on the Proximity to the City and the Lake Prices in the city of Lucerne have risen to above-average, but not exaggerated levels. In other municipalities, prices decline as the distance to the city increases and as the percentage on the lake decreases. Horw provides an example of both: many residential areas located near the lake and immediate proximity to the city center. The most expensive municipality in the canton is Meggen, also directly adjacent to the city of Lucerne and with a long lake front on the north shore of Lake Lucerne. The price of an average condominium here is estimated to be over CHF 10'500/m2.

Most populous municipalities Luzern Emmen Kriens Horw Ebikon Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 9'468 12'806 7'242 9'794 7'968 10'774 9'105 12'316 7'250 9'813 7'788 10'536 7'945 11'563 6'145 8'941 7'209 10'504 7'927 11'533 6'736 9'800 7'072 10'294 235 198 210 215 208 227 242 196 213 212 210 249
91
Economic Research
Canton of Neuchtel: Location Factors

NE Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 --= + -
VD -= + = =
BE = = = =
FR = = -
Second Lowest Locational Appeal Neuchtel ranks second to last in the national ranking of locational quality, ahead of Jura. Its greatest detraction is the relatively high tax burden. But also accessibility comes in below average. Neighboring cantons perform slightly better in both components. Neuchtel only scores above the Swiss average in terms of the availability of highly skilled workers.
Opportunities/Risks Profile of Sector Structure

Twelve largest sectors, 2012
high
2.0 1.5 Health care Homes
Watches
1.0 Wholesale trade
0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5
Finishing trade Retail trade Machinery Restaurant industry Agriculture
Education Public administration Agriculture and forestry Services Public sector Construction and industry 20.0%
Cluster opportunities and Risks in the Watch Industry The canton of Neuchtel has a promising economic profile. This measurement is subject to a considerable risk, as the high value-creating watch industry, which accounts for close to 19% of employment in the canton, is largely responsible for its good score. Looking at Neuchtel's sector makeup without the watch industry, its score falls below average. The metal products, hospitality and agricultural industries also face a risky future. Health care, homes and watchmaking are accorded the most promising outlook in the canton of Neuchtel. Wholesale scores relatively highly.
Opportunity-risk profile
Fabricated metal products
low
-10.0%
-5.0% 0.0% 5.0% 10.0% 15.0% Employment: deviation from the Swiss average
Canton NE 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 5 10 km
Neuchtel
Fribourg
Large Intra-cantonal Accessibility Divide In terms of accessibility to transportation, Neuchtel falls into two distinct halves. While the Neuchtel region reveals an above-average to slightly below-average score, transportation connections in Val de Travers and in the La Chaux-de-Fonds region are significantly below the Swiss average. The area along Lake Neuchtel benefits from links to the A5 motorway as well as from its location within the catchment area of Berne. However, some regions in the Jura valleys are relatively difficult to reach. Accordingly, population growth is concentrated in the communes along the banks of the river and in the Val-de-Ruz district. In the La Chaux-de-Fonds region, population has stagnated over the period between 2005 to 2010 and in Val-de-Travers it even contracted. Tax Burden Reduces Financial Appeal In terms of its financial appeal as a place to live in, the canton of Neuchtel ranks 21st, the lower end of average. The comparably low fixed costs (housing costs, ancillary costs and charges) can only partially offset the high burden on the household budget from mandatory charges (income and wealth taxes, social security contributions and obligatory health insurance). The reason for this is that the canton imposes Switzerland's highest tax burden on natural persons. However, the decision taken by the Neuchtel government in June 2011 to reduce the tax burden on companies also includes tax relief for natural persons. Accordingly, the canton's financial appeal as a place to live is set to rise.

Fixed costs High fixed costs lower tax advantages
GE
Dual disadvantages Ranking 2008 Ranking 2011
ZG ZH SZ NW GR OW UR AI GL LU SG TG AG AR SO SH CH TI FR VS BE BS BL VD
Mandatory charges
NE JU
Combined advantages
92
Economic Research
Canton of Neuchtel: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 169.8 0.5% 1.0% 0.8% 87.8 0.7% 1.24% 8.4% 8.0% 0.95 2008 170.9 0.7% 0.9% 0.8% 88.4 0.7% 1.19% 7.1% 3.9% 0.98 Canton of Neuchtel 2009 2010 2011 171.6 171.9 172.8* 0.4% 0.1% 0.5%* 0.7% 0.7% 0.2% 0.5% 88.7 0.4% 1.05% 3.2% 0.5% 1.05 89.1 0.4% 1.26% 2.2% -2.1% 1.05 89.5* 0.4%* 1.19% 6.9% 8.9% 1.10 2012 173.5* 0.4%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
90.0* 0.6%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Fundamentally Different Real Estate Structure The Jura mountain chain divides the canton of Neuchtel into two halves; the real estate markets of these halves differ in both their structure and their development. The real estate markets of the regions La Chaux-de-Fonds and Val-deTravers developed in parallel with the watch industry. The housing stock grew through several boom phases until the crisis in the 1970s and 1980s, resulting in a high underlying amount of vacancies that is the cause for the ongoing cautious level of construction activity. Due to the beauty of the residential areas and the less cyclical sectors, the demand for housing in the region of Neuchtel is more stable. Despite the high popularity of single-family dwellings, the level of new construction activity there in an urban context is strongly dominated by major individual projects, making the level of activity correspondingly volatile. Alleviation of Vacancies Through Modernization The increased level of underlying vacancies exists primarily in the rental segment in the regions La Chaux-de-Fonds and Valde-Travers. In order to increase the appeal of the old housing stock of the region La Chaux-de-Fonds, where 40% of the apartments were built prior to 1919, most housing investments in the last 15 years have been in renovation and reconstruction activities. To what extent the vacancies can be reduced will in future also depend on the performance of the watch industry. It is particularly relevant for the real estate market whether there is success in getting the high number of cross-border commuters to settle in the region. In contrast, the stable demand in the region of Neuchtel is seen in the below-average low amount of rental vacancies. Single Family Dwellings on Beautiful Hillsides The top locations on hillsides, the continued availability of building land, and the lower real estate prices when compared with the arc around Lake Geneva, mean that single-family dwellings are very popular in the Neuchtel region. However, there is also demand for condominiums. The price of an average apartment has risen 76% in a five-year comparison. Starting from the city of Neuchtel, prices fall rapidly the greater the distance is from the city. The price per square meter of an average condominium falls by almost CHF 2'800 over the course of the 20 minute trip by automobile from the center of Neuchtel to La Chaux-de-Fonds.

900 750 600 450 300 150 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Val-de-Travers La Chaux-de-Fonds Neuchtel MFD SFD

5% Avg. 10-year vacancy rate 4% 3% 2% 1% Neuchtel 0% -1% Val-de-Travers -1% 0%
CH La Chaux-deFonds Neuchtel CH La Chaux-deFonds
Rent Own
Val-de-Travers
1%
2%
3%

Most populous municipalities La Chaux-de-Fond Neuchtel Val-de-Travers Le Locle Peseux Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 5'573 6'782 4'016 4'492 6'871 7'542 9'181 5'432 6'077 9'290 4'427 6'382 4'173 3'418 6'082 6'452 9'296 6'081 4'970 8'852 162 216 155 144 203 227 163 224 156 144 204 249
7'788 10'536
7'072 10'294
93
Economic Research
Canton of Nidwalden: Location Factors

NW OW Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ = = = + ++ ++ = +
UR ++ ++ --
SZ ++ ++ = = +
Second Most Appealing Canton in Central Switzerland Nidwalden ranks sixth in the locational quality ranking for Swiss cantons. The advantage of a below-average tax burden stands against average scores in education and accessibility to transportation. In the regional comparison, Nidwalden comes in behind Zug as the second most attractive canton in Central Switzerland, closely followed by Schwyz.
Wealth Tax 2010

In of taxable assets, person liable for the tax: married person without children
0.6 0.5 0.4 0.3 0.2 0.1 0.0 0 200'000 400'000 700'000 1'500'000 5'000'000 ZH OW ZG UR NW LU SZ Switzerland
Lowest Tax Burden for Wealthier Individuals Like other cantons in Central Switzerland, the canton of Nidwalden has sought to improve its appeal with the help of tax cuts. Both in terms of income tax as well as wealth tax, it is among the most attractive cantons in Switzerland. For married couples without children, Nidwalden is outdone by the canton of Zurich for total assets up to CHF 600'000, though above this point, it imposes the lowest burden in Switzerland. Wealth tax is imposed, as in eight other cantons, in the form of a "flat-rate tax". Looking at the tax burden on natural persons in Nidwalden in detail, it appears the communes of Hergiswil and Stansstad are considerably more attractive in terms of tax than the other communes in Nidwalden.

Canton NW -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km Lu zer n Schwyz
Sta ns
Sa rnen
Altdo rf
Low Taxes and Proximity to Center Have their Price With respect to the financial appeal of living in Nidwalden, there are considerable differences between the communes of Hergiswil and Stansstad close to Lucerne and the other communes of the canton. On the one hand, there is population pressure emanating from the center of Lucerne and weighing on the two agglomeration communes. On the other, the appeal of a low tax burden results in additional demand for housing. Relative to other cantons, both effects result in above-average real estate prices, which from the perspective of the middle classes, cannot be insufficiently offset by the low tax burden. In the other Nidwalden communes, freely disposable income comes in above the national average.
Household Income Forecast up to 2013

Average annual growth in percent, real values
3.0% 2.5% 2.0% 1.5% 1.0% 0.5% NW OW ZG LU 0.0% UR SZ
CH
Strong Growth in Income Like the cantons of Zug and Schwyz, Nidwalden is one of Switzerland's eight cantons with an above-average tax base. The low taxation strategy attracts high-income and wealthy households to the canton. According to our measurements, in the period between 2008 and 2013, Nidwalden shows the fourth highest growth in household income after Zug, Zurich and Schwyz. Even in terns of household income per capita, Nidwalden ranks fourth in the cantonal ranking over this period. A key factor determining the high income is the canton's above-average share of persons between 40 and 65 years of age. These are individuals at an advanced stage in their careers who generally command a higher income than their younger counterparts.
94
Economic Research
Canton of Nidwalden: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 40.3 0.7% 0.7% 1.8% 19.4 1.9% 1.02% 6.1% 4.2% 0.93 2008 40.7 1.1% 0.7% 1.1% 19.6 0.9% 1.06% 0.5% 10.5% 0.91 Canton of Nidwalden 2009 2010 2011 40.8 40.9 41.3* 0.1% 0.3% 0.8%* 0.4% 0.7% 0.9% 0.9% 19.8 1.0% 0.85% -4.1% -1.9% 0.88 20.0 1.0% 0.90% 8.5% -0.5% 0.89 20.3* 1.5%* 1.00% 12.4% 6.9% 0.96 2012 41.6* 0.8%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
20.5* 1.3%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
A Second Wave of Expansion is Underway Housing production in Nidwalden is heavily influenced by the dynamics in Central Switzerland overall, developing at a lower level and, with the exception of last year, very much like that in the canton of Lucerne. Following the years 2004 through 2006, a second wave of expansion is currently underway. The housing stock is growing in attractive locations, i.e., wherever other people take their vacations. Accordingly, some of the housing approved for construction is tourism-related. For example, housing for staff with 130 apartments is being built on Mount Brgenstock in connection with the construction of the new hotel. Otherwise, the majority of larger projects are in Stans. Overall, the attractive housing situation south of Lake Lucerne has to be paid for with longer travel times to the Swiss employment centers. More Vacant Properties in the Ownership Segment Demand for housing in Nidwalden is generally sound. The influx of high-income households, with the goal of optimizing their taxes, increases demand for real estate in the high-end segment. Most of this demand is concentrated in the municipality of Hergiswil, which, besides low taxes and a view of the lake, offers the shortest distance to Lucerne, with 10 to 15 minutes of travel time given no traffic jams. As is the case in other municipalities with a high share of very good locations, such as, for example, Pfannenstiel on Lake Zurich, vacant properties in the ownership segment are above average. This is likely due to the longer marketing times necessary for exclusive real estate. Peripheral Location Dampens Price Growth Although the CHF 1.7 million price tag for a standard single family dwelling in the most exclusive municipality of Nidwalden, Hergiswil, might appear high, prices have risen by 2.8% p.a. for single family dwellings and 3.7% p.a. for condominiums in Nidwalden overall since 2000, i.e., at rates which are below average for Switzerland as a whole. The peripheral location of the canton south of Lake Lucerne slows down price growth and protects Nidwalden against a situation like that in the canton of Zug, where the sustainability of growth is increasingly in doubt.

800 700 600 500 400 300 200 100 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Sarneraatal Nidwalden/Engelberg MFD SFD

2.5% Avg. 10-year vacancy rate 2.0% 1.5% 1.0% 0.5% 0.0%
Innerschwyz Sarneraatal CH Uri Sarneraatal Uri Nidwalden/ Engelberg
Rent Own
Innerschwyz
CH Nidwalden/ Engelberg
-0.5% -0.5% 0.0% 0.5% 1.0%

Most populous municipalities Stans Hergiswil Buochs Stansstad Ennetbrgen Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 7'685 10'400 14'097 19'071 7'218 9'768 12'040 16'290 8'919 12'071 7'788 10'536 5'955 6'645 8'667 9'674 223 238 220 257 235 227 224 240 221 256 236 249 8'845 12'874 7'936 11'556 8'064 11'741 7'072 10'294
95
Economic Research
Canton of Obwalden: Location Factors

OW NW Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ = + ++ ++ = = = +
LU + ++ = = = =
UR ++ ++ --
Lower Taxes Improve Appeal In comparison to other cantons, Obwalden reveals slightly above-average locational quality. Among the neighboring cantons, Nidwalden is placed in the front mid-field area, Lucerne is only slightly above average and Uri clearly below average. The fiscal competition over recent years has formed Central Switzerland into a comparably homogeneous taxation zone, at least at the cantonal level. Topography Reduces Accessibility The map on the left illustrates accessibility at a communal level. In calculating the values, account was taken not only of the quality of the connection, but also of the potential that can be reached as a result. Insofar, the commune of Alpnach benefits from its proximity to Lucerne and is the only commune in Obwalden to boast ratios above the Swiss average. The further south the communes are located, the less accessible they are. Least central is Engelberg. The canton of Obwalden is disadvantaged by its topography. The mountainous landscape and the Vierwaldstdtersee limit options available to civil engineers for road building.
Canton OW 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 5 10 km
Stans Sarne n
Company Start-up Rate Obwalden

Share of newly established companies relative to number of existing companies
42% 35% 28% 21% 14% 7% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Traditional industry High-tech industry Construction Trading and sales Transportation, postal services Information, communications, IT Financial services Corporate services Entertainment, hotels and catering Administrative and social services Total OW Total CH
Start-up Boom in the Canton of Obwalden The structure of industry in Obwalden is very different to the national average. The four largest sectors include construction finishing, agriculture, hospitality and electronics. Since 2006, the canton has experienced an above-average number of company start-ups as a result of its attractive corporate tax policies. Mobile companies based in the services sector are best placed to take advantage of these taxation benefits. These are mainly companies from the financial services, information, communication, IT and corporate services sectors which benefit from Europe's lowest taxation rates on profits.
Tax Burden
Synthetic indicator 2010, CH = 100
140 Asymmetric 130 Tax burden on legal entities 120 110 100 90 80 70 60 50 60 ZG SZ UR NW OW AI GR AG GL LU AR Asymmetric 80 90 100 110 120 Tax burden on private individuals 130 140 SH SG TG ZH TI BS Symmetric and high GE VD JU FR SO BE CH VS BL NE
50 Symmetric and low 70
Active Participation in Tax Competition The canton of Obwalden imposes one of the lowest tax burdens in Switzerland, both for natural persons as well as for companies. In terms of the taxation of natural persons, it ranks third nationwide, closely followed by Nidwalden. With respect to corporate taxes, it is outdone only by the canton of Appenzell Ausserrhoden. After incisive tax reductions in 2006 for natural persons in 2006 and 2007 Obwalden became one of the most tax competitive cantons in Switzerland. Obwalden imposes the lowest tax burden in Central Switzerland, though is outdone by the cantons of Zug and Schwyz in the taxation of natural persons.
96
Economic Research
Canton of Obwalden: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 34.0 0.7% 0.8% 0.8% 18.5 0.8% 0.86% 5.6% 0.5% 0.90 2008 34.4 1.3% 0.8% 2.1% 18.9 2.0% 0.87% 1.2% 7.5% 0.88 Canton of Obwalden 2009 2010 2011 35.0 35.5 35.9* 1.8% 1.3% 1.3%* 1.0% 0.8% 1.6% 1.2% 19.2 1.7% 0.70% -5.5% -1.2% 0.85 19.4 1.3% 0.76% 6.4% 2.0% 0.86 19.8* 1.9%* 0.85% 13.6% 8.4% 0.94 2012 36.4* 1.2%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
20.1* 1.5%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Growth in Housing Stock Because of Larger Projects Housing production in Obwalden is heavily influenced by the dynamics in Central Switzerland overall, developing in a manner quite similar to that in the canton of Nidwalden and, with the exception of last year, at a lower level than in the canton of Lucerne. Several projects along the A8 in the Sarner Aa Valley will lead to considerable growth in the housing stock in 2012. Because of the increasing appeal of Obwalden as a residential canton due to tax reasons, it is unlikely that the number of vacant properties will rise in 2012. With the tourist destination of Engelberg, which is considered part of the economic region of Nidwalden/Engelberg, Obwalden's real estate market is also characterized by vacation home construction. The groundbreaking ceremony for a resort in Engelberg with a mix of over 130 rental apartments and condominiums was held in September 2011. Rental Apartments Are Losing Ground The number of vacant properties in both the ownership and rental segments is below the overall Swiss average; however, this figure has risen in a long-term comparison because of dynamic levels of construction activity in the rental segment. This trend confirms once again that rental apartments do not have an easy time everywhere because of the interest situation. This applies, in particular, to peripheral regions, to which refugees from the city traditionally and frequently flee to realize the dream of owning their own home. Furthermore, the low-tax strategy of the canton changes the motives of the immigrants. With the growing appeal of home ownership for people in higher income categories, the rental segment is losing ground. Low Prices Despite Low Taxes The comparatively recent low-tax strategy of the canton of Obwalden has not yet led prices to increase to exaggerated levels. The price differences between the municipalities can mainly be explained by whether the location has good transportation connections and if it has attractive residential areas. Alpnach, for instance, is closest to Lucerne in terms of transportation. Prices fall accordingly as you proceed south. Engelberg is an exception, with the market mechanisms of a vacation destination applying here due to the number of second homes.

900 800 700 600 500 400 300 200 100 0 1995 1997 1995 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 Nidwalden/Engelberg MFD SFD Sarneraatal

5% Avg. 10-year vacancy rate 4% 3% 2% 1% 0% -1% -0.5%
Berner Oberland-Ost CH Sarneraatal Entlebuch Sarneraatal
Rent Own
Nidwalden/ Engelberg Berner Oberland-Ost Nidwalden/ Engelberg CH
Entlebuch
0.0%
0.5%
1.0%
1.5%

Most populous municipalities Sarnen Kerns Alpnach Sachseln Engelberg Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 8'984 12'155 7'573 10'245 7'694 10'413 8'226 11'129 7'895 10'684 7'788 10'536 5'927 5'464 6'391 5'991 8'622 7'956 9'304 8'726 221 209 208 205 231 227 222 210 210 207 233 249
7'445 10'837 7'072 10'294
97
Economic Research
Canton of Schaffhausen: Location Factors

SH Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = = +
ZH ++ = + + ++ ++
TG + ++ = = + +
AG + ++ = = ++ +
On the Outskirts of Zurich Schaffhausen ranks eighth in terms of locational quality, just ahead of the canton of Thurgau. A favorable tax burden stands in contrast to average scores in terms of education and accessibility to transportation. The cantons of Aargau and Zurich come in some way ahead thanks to their high accessibility scores.

35% 30% 25% 20% 15% 10% 5% 0% Thurtal TG AG Weinland Brugg/Zurzach -5% -10% -15% -20% ZH CH SH Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
Unterland
Untersee/ Rhein
Successful Structural Changes in Industry Between 1995 and 2008, the canton of Schaffhausen experienced a significant structural shift in its industry. Like Switzerland as a whole yet more exaggerated employment in traditional sectors of industry declined, while high valuecreating cutting-edge industry grew strongly. Also similar to the rest of Switzerland, employment in the administrative, social services and corporate services sectors has increased since 1995. Overall, employment has increased at a lesser rate than the national average. Compared to other regions, Thurtal and Zurich Unterland have recorded higher growth rates, though other neighboring regions have seen weaker growth.
Canton SH 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 0 5 10 km
Scha ffhaus en
Fr au enfeld
High Regional Divide with Respect to Accessibility Overall, accessibility in the canton of Schaffhausen ranks close to the national average. Yet because the neighboring regions are closer to Zurich center or are better connected, these score better in this area. This has an adverse effect on the canton as a residential and commercial area. Within the canton, there is a considerable west-east divide in terms of accessibility. The city of Schaffhausen and the communes of Neuhausen on the Rhine Falls are the best connected areas of the canton. Other communes in the eastern section of the canton also enjoy good transportation links. They benefit from their proximity to the German city of Singen and from the nearby E 54 European motorway. An exception is formed by the district of Stein, which scores poorly in terms of accessibility. Financially Attractive Place to Live Even if the canton of Schaffhausen can't match neighboring regions in terms of accessibility, it scores much better than nearby regions in Zurich and Aargau in terms of its financial appeal. The Thurgau Rhine region is similarly attractive in this respect. Comparably low fixed costs and a below-average tax burden raise the canton to seventh position in terms of freely disposable income. By contrast, the housing stock is older than the national average, weighing down the canton's residential appeal.

Canton SH -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km
Scha ffhaus en
Fr au enfeld
98
Economic Research
Canton of Schaffhausen: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 74.5 0.9% 1.3% 1.0% 37.3 0.9% 1.56% 2.2% 3.3% 0.75 2008 75.3 1.0% 1.3% 1.5% 37.7 1.0% 1.47% 4.3% 2.0% 0.78 Canton of Schaffhausen 2009 2010 2011 75.7 76.3 76.9* 0.5% 0.9% 0.7%* 0.9% 1.0% 0.5% 1.0% 37.9 0.6% 1.03% 5.3% -3.5% 0.82 38.3 0.9% 1.08% 7.0% -3.9% 0.84 38.8* 1.5%* 1.04% 3.8% 10.8% 0.87 2012 77.3* 0.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
39.3* 1.1%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Rejuvenation of Housing Stock Construction activity awoke from its slumber in 2010. In reaction to the sudden increase in population growth in 2007 and 2008, housing planning was stepped up. That includes single and multi-family dwellings from large housing developments in Schaffhausen. These activities likely resulted in an aboveaverage increase in the housing stock in 2011. More planning applications suggest that further increases in expansion can be expected for 2012. As in the neighboring canton of Thurgau, the single family dwelling is very popular. Otherwise there is a need for renovation in Schaffhausen's housing stock. About half of the canton's housing stock was built prior to 1960.

700 Schaffhausen 600 500 400 300 200 100 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 MFD SFD
Brisk Demand Squeezes Vacant Properties Housing planning appears appropriate to the level of demand in Schaffhausen and the structure of its housing stock. Although the housing supply is expected to increase somewhat, there is still no risk that rising numbers of vacant properties will result. Although the number of vacant properties was above the overall Swiss average in 2011, it has fallen compared to the long-term average, particularly in the rental segment. This trend places the economic region of Schaffhausen in good company with the adjacent regions of the neighboring cantons. Still, greater excess capacity is not to be expected. In fact, the new housing could increase the competitive pressures for the older housing stock and thereby provide impulses for renovation. Price Difference Versus the Canton of Zurich is an Opportunity The prices for condominiums have also risen in the canton of Schaffhausen. This trend, however, has been more moderate than the overall Swiss average, particularly recently. Schaffhausen is therefore one of the regions that has been spared the effects of overheating. Given the dramatic price increases in the neighboring canton to the south, Schaffhausen's current moderate prices could prove to be an opportunity to attract owners who commute to Winterthur or to the economic region of Zurich.

3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -0.5% 0.0% 0.5% 1.0%
Weinland CH Untersee/Rhein Schaffhausen CH Weinland
Untersee/Rhein
Schaffhausen

Most populous municipalities Schaffhausen Neuhausen a. Rhf. Thayngen Beringen Stein am Rhein Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 6'806 5'718 5'613 5'726 6'129 9'213 7'735 7'594 7'748 8'290 5'636 4'991 4'836 5'127 5'655 8'207 7'267 7'037 7'467 8'237 172 176 179 182 180 227 169 177 181 183 181 249
7'788 10'536
7'072 10'294
99
Economic Research
Canton of Schwyz: Location Factors

SZ Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ = = +
ZG ++ ++ + ++ ++ ++
ZH ++ = + + ++ ++
LU + ++ = = = =
Strong Competition in the Neighborhood The canton of Schwyz places in the upper half of the ranking in seventh position in terms of locational quality. Its key advantage is the comparatively low tax burden. On the other hand, Schwyz puts in a poor showing in terms of the level of education of its population. From a regional perspective, Schwyz is beaten hands down, both in terms of education and accessibility to transportation by its neighbors Zug and Zurich. Low-tax Strategy in Taxation of Income The canton of Schwyz is at the vanguard in terms of tax competition. After Zug, it has the lowest tax burden for natural persons. Wollerau, Freienbach and Feusisberg have the lowest tax rates in the whole of Switzerland. As the figure on the left shows, the canton of Schwyz places the lowest tax burden on a family with two children with an annual income of CHF 325'000, closely followed by Zug. For individuals earning less than CHF 90'000, Schwyz loses its edge in terms of tax burden and is outdone by cantons which otherwise tax higher earners at a higher rate. These cantons include Geneva and the two Basel cantons. The canton of Schwyz attracts high-earning and wealthy households with its low tax strategy and as such has the fourth highest resources of any Swiss canton. Low Tax Burden Results in High Real Estate Prices The burden on the household budget doesn't come solely from tax though. The cost of housing, health insurance premiums, charges and commuting costs all have their role to play. The map on the left shows freely disposable income for the broad Swiss middle class in the communes. Differences occur between the central communes in the north of the canton with their good transportation links and the much less accessible and mountainous south. The high demand for tax efficient and centrally located housing means elevated real estate prices in the three communes with the lowest tax burden on the banks of Lake Zurich, as well as in Kssnacht (SZ). This results in below-average freely disposable income. In the other Schwyz communes, indicator ratios are above the Swiss average. High Value-creating Companies in March/Hfe The industrial landscape of the Einsiedeln and Innerschwyz regions reveals a similar structure. The March/Hfe region, on the other hand, is distinct from the other two as a result of the above-average share of its population employed in the high value-creating service sector, though economic activity is primarily concentrated in the Hfe area. In Einsiedeln and Innerschwyz, the share of the population employed in the service sector is below average, as is the case for the tourism sector. Here, the share of the population employed in more traditional industries is considerably higher than the national average. Notable is the comparably low significance of the public sector.
Income Tax 2010

In % of gross income; person liable for the tax: married person with two children
30% 25% 20% 15% 10% 5% 0% 50'000 125'000 200'000
GL ZG UR SG 275'000 350'000
SZ ZH LU Switzerland 425'000 500'000

Canton SZ -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km Sta ns Sa rnen Altdo rf Zug
Lu zer n Schwyz

Synthetic indicator 2008, horizontal line = Swiss average
Canton of Schwyz Traditional industry High-tech industry Construction Corporate services Trading and sales
Transportation, postal services Information, communications, IT Financial services Energy supply Entertainment, hotels and catering Administrative and social services
10 km
100
Economic Research
Canton of Schwyz: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 141.0 1.6% 0.9% 2.0% 66.1 2.1% 0.62% 6.2% 9.7% 0.77 2008 143.7 1.9% 1.0% 2.0% 67.5 2.1% 0.68% 6.8% -0.1% 0.78 Canton of 2009 144.7 0.7% 0.6% 1.3% 68.6 1.5% 0.76% 3.9% 2.4% 0.82 Schwyz 2010 146.3 1.1% 0.6% 1.6% 69.5 1.3% 0.92% 8.6% 7.3% 0.85 2011 148.0* 1.2%* 2012 149.5* 1.0%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
70.9* 2.0%* 0.70% 7.9% 7.9% 0.90
72.1* 1.7%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Dynamic Growth The high level of diversity in the canton provides the local real estate markets with quite different dynamics in the smallest of areas. Because building land in the municipalities of the district of Hfe, which provide a favorable tax environment and are relatively easy to reach from Zurich, is becoming increasingly scarce and therefore more expensive, most of the construction activity in the canton is concentrated in the district of March. In 2011, almost a third of all building permits for residential units in the region March/Hfe were attributable to the municipality Lachen. The unique feature about the canton of Schwyz is that its housing stock continues to grow robustly, even in less accessible locations such as Einsiedeln both for condominiums as well as for rental apartments. Local expansion waves lead to correspondingly volatile reactions in vacancy trends. Interest-Related Market Distortions in Good Locations Schwyz is a residential canton. There is a balance between renting and ownership. In general, there is no structural imbalance between these two types of housing. With one exception, vacancy rates in the two segments were below average during 2011 in the region of Innerschwyz also in a long-term comparison. The one exception is the region of March/Hfe: In both districts of the region, the number of vacant rental apartments has increased over the last three to four years. That means this region, with its high share of good residential locations and thus many rental apartments in the upscale segment has been particularly impacted by the interestrelated distortion between renting and ownership. The High Range of Prices is Evidence of Diversity Demand pressure and the recent, uniquely-affordable financing conditions have driven prices upward, particularly in the district of Hfe. A new condominium with average features in the municipalities of Feusisberg and Freienbach now costs more than CHF 9'000/m2; in Wollerau, the price even exceeds CHF 11'000/m2. In nine municipalities, which, except for Steinerberg, are located in the south of the canton, a similar condominium costs half as much as it costs in Wollerau.

1'800 1'500 1'200 900 600 300 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 MFD SFD Einsiedeln Innerschwyz March/Hfe

2.0% Avg. 10-year vacancy rate 1.5% 1.0% 0.5% 0.0%
March/Hfe Innerschwyz Einsiedeln CH March/Hfe Einsiedeln Innerschwyz CH
Rent Own 0.5% 1.0% 1.5% Vacancy rate 2011 2.0% 2.5%
-0.5% -0.5% 0.0%

Most populous municipalities Freienbach Schwyz Einsiedeln Kssnacht Arth Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 14'073 19'045 8'185 11'071 9'315 12'600 11'960 16'181 8'871 12'006 7'788 10'536 9'545 13'896 6'555 6'264 6'182 9'548 9'111 8'993 251 211 214 257 209 227 258 213 215 259 210 249
8'727 12'704 7'072 10'294
101
Economic Research
Canton of Solothurn: Location Factors

SO Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 = = = + =
BL = + + + +
BE = = = =
AG + ++ = = ++ +
Mittelland Canton at the Intersection of National Axes The canton of Solothurn ranks 13th in the locational quality ranking. The canton benefits from good accessibility, though the tax appeal for companies is below average. However, for natural persons, the tax burden is lower than in the nearby cantons of Basel Land and Berne, though still higher than in Aargau.

Population in catchment area in millions, travel times: mot. individual transportation
Zurich Basel Berne Lausanne Lugano Geneva
40min 20 min 40 min 2.1 0.8 1.2 0.5 1.1 0.4 0.7 0.3 0.5 0.2 0.7 0.5 Canton of Solothurn
60 min 3.5 2.8 1.7 1.5 1.5 1.3
Base l Li esta l Del mo nt Solot hurn Zug Lu zer n Schwyz Stans Sa rnen Altdo rf
Aar au
Zri ch
10 20 km
Neuch tel Bern Fr ibo urg
Between Conurbations Proximity to city centers is a valuable advantage. The figure on the left shows the populations of major Swiss conurbations for various travel distances. The northern regions of the canton of Solothurn are in the direct catchment area of the city of Basel. The southern regions around the cantonal capital border directly on the conurbation around Berne. The Gu and Thal areas involve a longer drive to a major Swiss center. With an average commute of around 60 minutes, these are less suitable residential areas for those working in these centers. The distinct focus of these parts of the canton and the resulting centrifugal forces are illustrated well by the figure.

Canton SO -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km Liestal
Aar au Del mo nt
So lo thurn
Financially Attractive and Central Living Space The financial appeal of the Swiss cantons and communes is comprehensively expressed in terms of a household's freely disposable income. From a cantonal perspective, Solothurn ranks 12th in the national ranking. On a communal level, though, there are broad differences within the canton. Communes in the direct catchment area of the city of Basel are less financially appealing than those in the south of the canton. Compared to the centers of Berne and Basel, the cost of living in the canton of Solothurn is considerably cheaper. In order to relieve pressure on the household budget, the canton of Solothurn reduced taxes for natural persons for 2012.

35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Oberes Baselbiet Unteres Baselbiet CH SO Olten/ Gsgen/Gu Grenchen Solothurn Laufental Thal Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
The Struggle with Structural Change Employment growth in the canton of Solothurn over the period between 1995 to 2008 was shaped by an increase in administrative and social services as well as from a decline in traditional industry. This structural shift is in line with the general trend across Switzerland. However, Solothurn has also experienced a considerable contraction in cutting-edge industry, while these sectors have grown strongly in Grenchen. The economic regions of Laufental and Thal saw a strong contraction in employment in traditional sectors of industry which could not be compensated by other sectors.
102
Economic Research
Canton of Solothurn: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 250 0.7% 0.8% 0.9% 121 0.7% 2.00% 0.2% 2.9% 0.77 2008 252 0.6% 0.8% 1.1% 122 1.0% 1.80% 5.0% 2.4% 0.77 Canton of Solothurn 2009 2010 2011 253 255 256* 0.4% 0.8% 0.6%* 0.7% 0.6% 0.4% 0.9% 123 0.7% 1.65% -0.5% -1.0% 0.79 124 1.0% 1.95% 6.8% 0.9% 0.80 126* 1.0%* 2.09% 3.4% 6.0% 0.81 2012 258* 0.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
127* 1.1%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Housing Production at Record Levels Planning for new housing in the canton of Solothurn is proceeding at full speed. In 2011, 965 apartments in multi-family dwellings were approved for construction. The last time that this figure was exceeded was in 1995. It is likely that the supply of new projects will continue because many building applications continue to be submitted. Together with the 418 single-family dwellings that were approved for construction in the last 12 months, it is likely that the housing stock will grow by about 1.1% during 2012, slightly faster than the average of recent years. Compared to the dynamic construction of condominiums and rental apartments, the single-family dwelling, which historically was the traditional form of housing in the ownership segment in the canton of Solothurn, is becoming less important. Sharply Rising Vacancies in the North of the Canton There is a considerable difference in vacancy rates between ownership and renting. In addition to natural discrepancies, the low interest rates distort the market to the extent that purchasing in many places has become cheaper than renting. That is also an explanation for the high vacancy rate of 2.1% in the rental segment in the canton of Solothurn. The remote region of Thal is particularly impacted by this phenomenon. In contrast, the high demand for property ownership means that vacancies in this segment fluctuate near the overall Swiss average. Recently, the number of vacant condominiums and single family dwellings has fallen especially dramatically in the region of Grenchen. Limited Price Differences in the Large Towns The price ranges in the five largest municipalities are considerably below the overall Swiss average. In Olten, a condominium with average features and 110 m2 of net living area costs, for example, only CHF 574'000. The average price in Switzerland for a similar condominium is estimated to be CHF 778'000. In the rental segment, the square meter prices for moderate and upscale properties do not vary significantly. However, the upscale properties are more expense in absolute terms because of their size.

1'600 Olten/Gsgen/Gu MFD 1'200 SFD Solothurn Grenchen Laufental Thal
800
400
0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011

5% 4% 3% 2% 1% 0%
Grenchen Solothurn CH

Olten/ Gsgen/Gu
Grenchen Olten/ Gsgen/Gu
Thal
Laufental Solothurn CH Thal
-1% -1% 0%
Laufental
1%
2%
3%
4%

Most populous municipalities Olten Solothurn Grenchen Zuchwil Biberist Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 6'032 6'258 5'387 5'952 5'823 8'161 8'465 7'284 8'052 7'877 5'218 5'436 5'018 4'818 4'609 7'593 7'911 7'311 7'015 6'711 186 200 170 202 182 227 180 193 171 200 183 249
7'788 10'536
7'072 10'294
103
Economic Research
Canton of St. Gallen: Location Factors

SG Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = = =
ZH ++ = + + ++ ++
GR + + = = --
TG + ++ = = + +
Typical Eastern Switzerland Profile The canton of St. Gallen ranks 15th in terms of locational quality. Like most cantons in Eastern Switzerland, the tax burden is relatively low, while education comes in around the Swiss average. St. Gallen also scores average in terms of accessibility to transportation. Overall, the canton ranks behind Zurich and Thurgau, though ahead of Graubnden.
Canton SG 2.50 4.25 1.50 2.50 Aa ra u 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 u zer -1.00 -0.75 n -1.25 -1.00 -1.5 -1.25 0 5 10 km Fr au enfeld St.G al len Zri ch Herisa u Appenzell
Zug
Schwyz
Glarus
Disadvantaged Mountain Regions The representation of accessibility on the left illustrates the regional variation within the canton of St. Gallen. While the communes in the Linth region benefit from their proximity to the center of Zurich, the regions of Wil, St. Gallen/Rorschach and the St. Gallen Rhine valley enjoy efficient and aboveaverage accessibility compared with the rest of Switzerland as a result of the A1 and A13 motorways. The geographical center and the south of the canton are less accessible as a result of their particular topography. Although the A3 and the southern section of the A13 lead through the mountainous south, the distance to centers in Switzerland's Mittelland are much greater than in northwestern St. Gallen regions.
Altdo rf
Trade Weighted Export Barometer

In standard deviations, exports: moving average over six months
2 1 0 -1 -2 -3 -4 -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
SG Exports
SG Barometer
CH Exports
Growth threshold
Source: OECD, Swiss Federal Customs Administration, Credit Suisse Economic Research
Rhine Valley Dependent on Exports St. Gallen accounted for 5.5% of Switzerland's total exports in 2010. Almost 40% of these come from the St. Gallen's Rhine valley. The region's most important trading partner is the EU which accounts for around 60% of exports. Consequently, the region has taken an above-average hit from the economic slowdown in the EU. The economy of the Rhine valley has also been particularly adversely affected by the appreciation of the Swiss franc. Alongside export performance, the figure on the left shows the cantonal export barometer. This uses leading indicators to provide a prospective assessment of export sales. The assessment takes account of economic developments and not forex trends. Accordingly, given the current strength of the Swiss franc, the barometer is likely to overstate export sales and further weakening is to be expected. High Financial Appeal of Canton As in the case of accessibility, the financial appeal of living in the canton varies greatly from region to region. Seven of St. Gallen's communes rank below the Swiss average. In the Rapperswil-Jona region, proximity both to Zurich and to the lake result in a comparably high cost of housing. Life in the southern Linth region, on Lake Walen and in the Werderberg region is also slightly more expensive than in the northern section of the canton on account of the beauty of the landscape and relatively good transportation links. All in all, St. Gallen benefits both from below-average fixed costs as well as from comparably low mandatory charges.

Canton SG -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km Lu zer n Sta ns Altdo rf Schwyz Gla rus Fr au enfeld St.G al len Zri ch Herisa u Appenzell
Zug
104
Economic Research
Canton of St. Gallen: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 466 0.9% 1.0% 1.0% 225 1.0% 1.54% 2.2% 3.0% 0.85 2008 471 1.1% 1.2% 1.3% 228 1.3% 1.45% 3.9% 4.5% 0.85 Canton of St. Gallen 2009 2010 2011 475 478 482* 0.7% 0.6% 0.9%* 0.7% 0.6% 0.9% 1.1% 230 1.0% 1.38% 1.1% -0.6% 0.87 232 1.1% 1.47% 6.3% 3.2% 0.89 235* 1.2%* 1.46% 6.4% 6.5% 0.93 2012 486* 0.8%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
238* 1.2%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Construction Activity Constantly High The construction boom in St. Gallen is continuing. In absolute terms, construction activity is the highest in the St. Gallen/Rorschach region and in Wil, the economic region facing Zurich. However, in terms of housing stock, most of the planning is in the Sarganserland and Werdenberg regions. Based on current planning, the housing stock in the Werdenberg region is likely to grow by 2.7% in 2012, with a focus on rental apartments. The increased demand in the region results from the years of excellent performance by local industry, which plays a major role in St. Gallen and the Bundner Rhine Valley and has created additional employment opportunities. Demand is strengthened further by employees in Liechtenstein who live in the Rhine Valley region.

4'000 St.Gallen/Rorschach Wil St. Galler Rheintal Werdenberg Toggenburg MFD SFD Linthgebiet Sarganserland
3'000
2'000
1'000
0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011
Industrial Activity Influences Demand The extent to which the market will be able to manage with this large increase in numbers of rental apartments in the industrialized regions in the east depends on the performance of the economy and the trends in employment. The number of vacant rental apartments was above average in 2011 in all regions except Sarganserland and the Linth region. Even though the situation has not intensified when compared to the long-term average, falling immigration in the wake of a slowdown in industrial performance and the resulting decline in the target group for new rental apartments threatens to lead to a rising number of vacant properties.

5% Avg. 10-year vacancy rate 4% 3% 2% 1% 0% -1% -1% 0%
Wil Sarganserland CH Werdenberg CH Toggenburg Linthgebiet St.Gallen/ Rorschach Toggenburg
Rent Own
Linthgebiet
Wil St. Galler Rheintal
Werdenberg Sarganserland St.Gallen/ Rorschach St. Galler Rheintal
1%
2%
Prices Are Recovering St. Gallen is a diverse canton from a price perspective. The highest prices are in the city of St. Gallen, the municipality of Wil with its good transport links to Zurich, on Lake Constance, and in Rapperswil-Jona. Some areas are seeing a race to catch up in terms of price growth. In Rapperswil-Jona, an average condominium today costs 53% more than it did five years ago. But prices are also increasing in other locations; for instance in Rorschach and the surrounding area, where structural change is noticeable, and the average condominium has increased 50% in price over five years.

Most populous municipalities St. Gallen Rapperswil-Jona Wil Gossau Uzwil Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 7'887 10'671 9'629 13'026 8'032 10'871 6'742 6'113 9'116 8'271 6'200 6'482 5'773 4'664 9'022 9'437 8'407 6'785 199 226 199 196 182 227 201 219 212 198 184 249 8'155 11'874
7'788 10'536
7'072 10'294
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Economic Research
Canton of Thurgau: Location Factors

TG Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + ++ = = + +
ZH ++ = + + ++ ++
SG + ++ = = = =
SH + ++ = = = +
Attractive Position Among Regions Thurgau comes in ninth in the cantonal ranking of locational quality. Thurgau therefore comes in very close to its neighbor, Schaffhausen. Zurich ranks second, while St. Gallen comes in some way behind the Lake Constance canton. As well as attractive tax conditions and above-average accessibility to transportation, Thurgau scores around the Swiss average in terms of education. Thur Valley: Motor of the Thurgau Economy Employment growth in the canton of Thurgau was considerably higher than the Swiss average in the period between 1995 and 2008. The driving force behind this growth was the Thur valley, while the other two regions underperformed the Swiss average. Alongside growth in corporate services and administrative and social services sectors which have performed well across Switzerland cutting-edge industry, trading and sales as well as the information, communication and IT sectors have also recorded growth. In line with the national trend, Thurgau has also experienced a structural shift in its industry towards higher value-creating cutting-edge industry.

35% 30% 25% 20% 15% 10% 5% Wil 0% Thurtal TG -5% -10% -15% -20% Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
CH
SG
Oberthurgau
WinterthurLand
Weinland
ZH
SH
Untersee/ Rhein
Canton TG 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25 0 5 10 km
Konstanz
Frauenfeld
St.Gallen
Zrich
Herisau
In Zurich's Catchment Area Proximity to Zurich is expressed in terms of the canton's accessibility. Communes along the A1 and A7 motorways in the west of the canton enjoy particularly good transportation links. Most other areas are also well connected and score above the Swiss average in terms of accessibility. Only a few communes, away from these transportation axes, score below the national average. Commuting costs for public transportation to Zurich varied in 2011 depending on commune and came in between CHF 2'100 and CHF 3'300. The canton of Thurgau is covered by the Ostwind tariff agreement. With the exception of the northwest, Thurgau's communes also benefit from the Z-Pass tariff agreement.
Appenzell

Canton TG -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 5 10 km
Konstanz
Frauenfeld
St.Gallen Zrich Herisau
Appenzell
Attractive Canton to Live in Thurgau ranks fifth in the national ranking of most financially appealing cantons to live in. A comparatively low tax burden and low cost of housing means households enjoy aboveaverage freely disposable income. Indicator ratios are above the cantonal average on the south side of the lake near Constance and Frauenfeld as well as in the Berg and Brglen communes. Otherwise, Thurgau's financial appeal as a place to live is very much homogeneous throughout the canton. The combination of the relatively low cost of living and its proximity to Zurich, which has a shortage of housing, make the canton an attractive alternative for those working in Zurich. Accordingly, inter-cantonal immigration has risen notably since 2001.
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Economic Research
Canton of Thurgau: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 238 1.1% 0.8% 1.3% 111 1.2% 1.77% 3.4% 1.5% 0.82 2008 242 1.5% 1.2% 1.6% 112 1.5% 1.62% 1.4% 1.3% 0.80 Canton of 2009 245 1.2% 0.8% 1.4% 114 1.3% 1.47% 2.1% 1.0% 0.82 Thurgau 2010 248 1.2% 0.8% 1.5% 116 1.7% 1.37% 5.7% 4.7% 0.83 2011 251* 1.1%* 2012 253* 1.1%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
118* 1.4%* 1.45% 5.0% 4.8% 0.86
119* 1.5%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Ongoing Construction Boom in Oberthurgau The canton's spirit of optimism is expressed, in part, in the dynamic level of construction activity that has wandered from region to region since 2007. The regional centers of Frauenfeld and Weinfelden launched the construction boom in the Thur Valley in 2006. Kreuzlingen and the region of Untersee/Rhein followed in 2008 with an increase in its already strong level of construction activity; the surge of activity now extends along the lake and beyond into Oberthurgau, where the housing stock is growing in the areas around the municipalities of Romanshorn and Arbon. Until now, the high amount of immigration has absorbed the new housing supply well. In addition, there is a need in many places to modernize the outdated housing stock. In Kreuzlingen, for example, more than half of all residential units were built between 1946 and 1980. Slight Increase in Vacancies Likely The dynamic level of construction activity needs to be closely monitored because vacancies in the rental segment are already at above-average levels in some places, although in 2011 they still did not increase beyond the long-term average. It is likely that the canton's moderate accessibility would have a negative effect, particularly in Oberthurgau, if a market downturn were to occur due to rising interest rates or a drop in immigration. The Thur Valley and especially Frauenfeld can position itself better in this respect. The shorter distance to Winterthur and Zurich, as well as its good transportation connections, will probably provide stability to the Thur Valley in an increasingly difficult market environment. Overall, vacancies are still likely to increase in 2012. Single-family Dwellings Are Still Affordable The relatively good transportation connections mean that prices are higher in the Thurgauer regional center of Frauenfeld when compared to the rest of the canton; they are only exceeded by smaller lakeside communities that have a high percentage of locations with lake views. In Kreuzlingen, price levels are impacted by the willingness of immigrants to pay; they appreciate in equal measure both the comparatively low taxes and the proximity to the northern neighbor. Land prices overall are still low in Thurgau; as a result, the single-family dwelling, in addition to the condominium, remains a popular form of housing.

1'800 1'500 1'200 900 600 300 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Untersee/Rhein Oberthurgau Thurtal
MFD
SFD

4.0% Avg. 10-year vacancy rate 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
Oberthurgau Thurtal CH Untersee/Rhein CH Thurtal Oberthurgau
Rent Own
Untersee/Rhein
Vacancy rate 2011 2.5% 3.0% 3.5%

Most populous municipalities Frauenfeld Kreuzlingen Arbon Amriswil Weinfelden Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 7'210 6'927 6'331 5'847 6'573 9'748 9'374 8'561 7'916 8'897 5'855 5'718 4'882 4'709 5'609 8'526 8'326 7'104 6'852 8'163 193 203 172 175 183 227 188 222 180 176 184 249
7'788 10'536
7'072 10'294
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Economic Research
Canton of Ticino: Location Factors

TI Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 + = = -
GR + + = = --
UR ++ ++ --
VS = = --
In Line with Neighboring Cantons Ticino places 21st in the national ranking in terms of locational quality. The differences between the individual regions are, however, quite pronounced. The most significant negative factor is its poor accessibility resulting from its topography. But Ticino also scores poorly in terms of education and is below the national average here. Neighboring cantons score similarly to Ticino. Older Population Under 30 year olds are considerably underrepresented in Ticino compared with Switzerland as a whole thanks to intercantonal emigration. While international immigration covers a broad range of age groups, immigration from other cantons is very much focused on those over 40 years of age. Since 2008, there has only been net emigration of under-40 year olds from Ticino to other cantons. The comparably old population can also be explained with respect to the low birth rate recorded between 2006 and 2010. Ticino's ratio between the active to retired population is lowest in the Bellinzona region at 33%, while at 42% the Locarno region has the second oldest population of all 110 of Switzerland's economic regions, after Pays d'Enhaut in Vaud.
Relationship Between Active and Retired Persons

Population of pension age in 2010 measured as a percentage of the workforce, in %
Canton TI 22% 24% 26% 28% 30% 32% 34% 36% 38% 40% 24% 26% 28% 30% 32% 34% 36% 38% 40% 43%
Bellinzo na
10
20 km
Share of Cross-border Commuters in Employment

In percent, 2008
Cross-border commuters by sector Traditional industry High-tech industry Construction Energy supply Trading and sales Transportation, postal services Information, communications, IT Financial services Corporate services Entertainment, hotels and catering Administrative and social services
10
20 km
Canton of Ticino Share of cross-border commuters in 2008 0% 1% 1% 10% 10% 20% 20% 30% 30% 54%
Cross-border Labor Market After Geneva, Ticino has the second highest share of crossborder commuters in Switzerland. Around 28% of employees in 2008 were cross-border commuters. These commuters are represented in roughly equal shares in the secondary and tertiary sectors of the economy. From a regional perspective, Mendrisio has the highest share of cross-border commuters in Ticino, but Lugano and Locarno also draw in numerous employees from Italy. The share of cross-border commuters is particularly high in cutting-edge industry, in the service sector and in trading and sales. Energy, financial services and the administrative and social services sectors make only limited use of the Italian workforce.
Canton TI 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25
Bellinzo na
10
20 km
Isolated by Mountains and National Borders Accessibility in Ticino is below the Swiss average. The reason for this is the absence of a large conurbation within the canton and the relatively large distance to the next major center beyond its borders. The Mendrisio and Lugano regions enjoy the best transportation links, with Mendrisio in particular benefiting from the conurbation surrounding Milan. The deeper the communes are into the Alpine valleys, the lower their accessibility scores. Once the New Transalpine Railway is fully operational, expected in 2019, travel times between Zurich and Lugano will be considerably shorter, though given the large distances to domestic centers, the number of commuters are unlikely to change much.
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Economic Research
Canton of Ticino: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 329 1.1% 1.0% 1.2% 211 1.0% 0.85% 11.2% 8.3% 1.27 2008 333 1.3% 1.2% 1.1% 214 1.1% 0.72% 6.0% 3.0% 1.33 Canton of 2009 336 0.9% 0.9% 1.2% 216 1.1% 0.74% 1.5% -2.2% 1.39 Ticino 2010 340 1.3% 1.3% 0.8% 218 0.9% 0.68% 6.1% 1.5% 1.42 2011 343* 1.0%* 2012 346* 0.9%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
220* 0.8%* 0.77% 8.7% 7.2% 1.53
222* 0.9%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Condominiums In Focus Two expansion waves characterize the Ticino real estate market. The boom in Ticino's construction activity that began in 2003 is mainly due to the planning of condominiums and single-family dwellings. Their number was driven so high that the increase in overall Swiss housing planning looked pale in comparison. In 2009, Ticino`s builders then slammed on the brakes, before implementing an increasing number of projects in 2010 because of decreasing uncertainty about the economy. The difference between these two phases lies in the relationship between the planned forms of housing. In contrast to the period between 2006 and 2008, when on average 20% of all planned apartments related to the rental segment, their share fell in 2011 to 7%.

3'000 2'500 2'000 1'500 1'000 500 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Lugano MFD Locarno SFD Mendrisio Bellinzona Tre Valli
Fewer Rental Projects Limit Rental Vacancies The fact that housing was not being produced to stock during the first housing boom in Ticino is, in part, the result of the elimination of quotas within the context of free movement for EU/EFTA citizens, which began June 1, 2007, and which led to a migration wave throughout Switzerland. In the canton of Ticino, this wave surged primarily from the south and extended into the two most economically dynamic regions in Ticino, Lugano and Mendrisio, thereby helping to absorb the high supply of housing in these regions, particularly in the rental segment. This can be seen, for example, in Mendrisio. Although the vacancy rate in the rental segment in 2011 was still 3%, it fell noticeably below its ten-year average. Significant Difference between Renting and Owning Wealthy buyers from both Switzerland and abroad compete in the canton of Ticino for the best locations, thereby driving up prices for residential property, particularly when compared to average household income. Although prices in many places are below the Swiss average, they remain unaffordable for many local employees in sectors with low value creation. In contrast, in the rental housing market, which is dominated by local residents, prices fluctuate at relatively moderate levels, even in Lugano and Locarno.

5% Avg. 10-year vacancy rate 4% 3% 2% 1% 0% -1% -1% 0% 1% 2%
Locarno Tre Valli CH CH Mendrisio Lugano
Rent Own
Mendrisio Tre Valli
Locarno Bellinzona
Lugano
Bellinzona

Most populous municipalities Lugano Bellinzona Locarno Mendrisio Giubiasco Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 10'468 14'161 7'839 10'606 9'823 13'290 7'282 7'032 9'852 9'516 8'036 11'696 6'364 6'218 5'973 9'267 9'044 8'696 7'655 11'141 218 195 201 193 179 227 230 196 198 193 180 249
7'788 10'536
7'072 10'294
109
Economic Research
Canton of Uri: Location Factors

UR Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ --
GL + ++ -
SZ ++ ++ = = +
NW ++ ++ = = = +
Low Locational Appeal Despite Low Taxes The canton of Uri ranks at the bottom of the ranking for locational quality. Only three cantons rank lower than this central canton of Switzerland. Its above-average appeal in terms of taxation cannot offset the competitive disadvantages which come from relatively low levels of education and poor accessibility. The peripheral canton of Glarus is characterized by a similar profile. Highest Company Dependency in Canton of Uri The figure on the left illustrates the dependence of the cantons on individual companies. Dependency is measured using the Herfindahl index. High values mean a high concentration of employees in few companies and vice versa. The canton of Uri reveals the highest values in the whole of Switzerland. The electronics and plastics manufacturer Dtwyler and RUAG industrial group employ a large share of the canton's workforce. Accordingly, Uri's economy is very much dependent on these two companies. In calculating values for the Herfindahl index, the number of companies is taken into account. Accordingly, smaller locations tend to get higher values in the index.
Distribution of Employees Across Companies

Herfindahl index 2008: higher value = higher concentrations
0.016 0.014
AR GE OW FR NW BS SG ZH SZ AG GR LU TG ZG BL VS TI SO BE NE VD SH GL AI JU UR
0.012 0.010 0.008 0.006 0.004 0.002 0.000

Canton UR 4.5% 10.6% 3.0% 4.5% 2.0% 3.0% Sarnen 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0% 0 5 10 km Sta ns Altdo rf Schwyz
Slight Growth Thanks to International Immigration Population growth in the canton of Uri shows a clear trend. Population growth was recorded in communes surrounding the Reuss delta and along the river as well as close to the tourist destination, Andermatt. On the other hand, side valleys and locations in the upper Reuss valley area struggled with negative net migration. Thanks to international migration, the canton of Uri managed to record population growth over the period under review, albeit at a relatively low level of 0.2% per year. However, net inter-cantonal migration was strongly negative. In particular, those in the 15-24 age group tended to leave Uri, though other age groups also experienced negative net migration trends.
Freely Disposable Income (RDI-indicator)

3 AI OW TG AR SH SG NW GR SZ SO LU AG JU VS FR 2 1 0 -1 -2 -3 -4 NE ZH BL UR GL
Cheapest Residential Canton in Switzerland The financial appeal of the Swiss cantons and communes is comprehensively expressed in terms of a household's freely disposable income. This takes account of all mandatory charges as well as fixed costs. Thanks to taxation amendments in 2009, Uri ranks first in the cantonal ranking and is therefore the most attractive canton in terms of finance for the broad Swiss middle class. Although the tax burden is lower in the neighboring cantons of Zug and Schwyz, the cost of housing is considerably lower in Uri. Within the canton, the tourist destinations of Andermatt and Altdorf, the capital, are the most expensive communes, while Silenen, Gurtnellen and Wassen are among the most attractive from a financial perspective.
TI ZG BE
VD BS
GE
110
Economic Research
Canton of Uri: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 35.0 0.1% 0.5% 0.7% 17.2 0.8% 0.86% 6.5% 2.2% 0.94 2008 35.2 0.5% 0.8% 1.4% 17.4 1.3% 0.87% 1.0% 7.3% 0.92 Canton of Uri 2009 2010 35.3 35.3 0.5% -0.1% 0.6% 0.3% 0.8% 0.7% 17.6 0.8% 0.74% -3.9% -3.7% 0.91 17.7 0.7% 0.75% 7.9% -0.5% 0.93 2011 35.4* 0.3%* 2012 35.5* 0.3%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
17.8* 0.8%* 0.79% 9.0% 2.4% 0.98
17.9* 0.7%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Uri Is Not Just Andermatt From a real estate perspective, much of what is happening in the canton of Uri is related to the tourism project in Andermatt. Besides the economic effects, the project has created a spirit of optimism in the canton that is likely to attract further construction projects. In fact, Andermatt is already not the only municipality in the canton with larger construction projects. In addition to completed condominiums in Altdorf, further housing is being built in the municipality of Burglen and at the foot of the Furka pass in the municipality of Realp. In addition to vacation properties, a proportion of the 40 residential units there are intended to be sold to permanent residents of the region. Construction activity over the course of time is quite volatile due to individual projects of this size; however, this volatility is not excessively high. High Share of Single Family Dwellings Because of the moderate level of construction activity, the number of vacant properties is now within narrow limits especially in the ownership segment. The low number of residential property vacancies is partly due to structural issues. According to our estimates, 39% of the housing stock in the canton of Uri is single family dwellings, and only 15% is condominiums, some of which, in turn, are likely to be second homes. Because construction of single family dwellings is generally commissioned by the occupants themselves, who then reside here for an extended period of time, the number of properties of this type lying vacant is naturally lower than in housing developments with condominiums, where often not all the condominiums are sold by the time the project is completed. Attractive Residential Canton with Long Travel Times In the larger valley municipalities of Uri, it is possible to acquire condominiums cheaply if they are available. Low prices, together with the reduced level of taxes, make Uri an attractive residential canton, with the highest disposable income in Switzerland; however, this must be paid for with long travel times to Swiss employment centers. Further south, the Andermatt effect in the Urseren Valley is leading to higher prices. In Andermatt itself, the price of an average condominium has risen 68% in the last five years.

240 200 160 120 80 40 0 1995 1997 1997 1999 1999 2001 2001 2003 2003 2005 2005 2007 2007 2009 2009 2011 2011 1995 Uri MFD SFD

2.5% Avg. 10-year vacancy rate 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -0.5% 0.0% 0.5% 1.0%
Uri CH Nidwalden/ Engelberg Uri
Rent Own
Rent: Glarner Hinterland (6.8%, 12.3%) Glarner Hinterland Innerschwyz CH
Innerschwyz
Nidwalden/ Engelberg

Most populous municipalities Altdorf Schattdorf Brglen Erstfeld Silenen Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 6'863 6'516 6'105 5'363 4'847 9'290 8'813 8'252 7'258 6'561 5'827 5'809 5'036 4'827 4'364 8'481 8'452 7'326 7'022 6'356 208 194 171 174 155 227 227 196 173 175 156 249
7'788 10'536
7'072 10'294
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Economic Research
Canton of Valais: Location Factors

VS Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 = = --
VD -= + = =
BE = = = =
UR ++ ++ --
Challenging Starting Point The canton of Valais takes third from the bottom in the national ranking of locational quality, behind all four of its neighboring cantons. Only the tax burden on companies and the availability of highly qualified workers comes in close to the Swiss average. In terms of other factors, Valais has below-average scores. Its greatest disadvantage is its poor accessibility, a drawback which is largely due to its topography. High Population Pressure in Lower Valais Between 2005 and 2010, Valais recorded the fifth highest population growth in Switzerland. International migration accounted for around three quarters of this increase. Here, the trend in Lower Valais was very different to that of Upper Valais. The western communes up to the Leuk region generally reveal above-average growth rates. These areas benefit from strong growth around Lake Geneva where a shortage of housing is pushing the population into the Rhone valley. In Upper Valais, growth rates are generally below the Swiss average, aside from in a few separate tourist destinations. Several communes even experienced population decline.

Canton VS 4.5% 10.6% 3.0% 4.5% 2.0% 3.0% 1.1% 2.0% 0.5% 1.1% 0.0% 0.5% -1.0% 0.0% -2.0% -1.0% -3.0% -2.0% -8.7% -3.0%
Sio n
10
20 km
Accessibility of Transportation
g Canton VS 2.50 4.25 1.50 2.50 1.00 1.50 0.75 1.00 0.50 0.75 0.25 0.50 0.00 0.25 -0.25 0.00 -0.50 -0.25 -0.75 -0.50 -1.00 -0.75 -1.25 -1.00 -1.5 -1.25
Sio n
10
20 km
Better Accessibility Along the Rhone Accessibility to transportation in the canton of Valais is below the Swiss average in every region. The low accessibility scores are attributable to the large distances to major centers in Western and German-speaking Switzerland. Also, the canton's difficult topography weighs on accessibility. As a result of their direct links to the A9 motorway and to the railway network, communes at the bottom of the Rhone valley score better than communes further away from the river. There is also a significant west-east divide. The shorter distance to Lausanne makes the Lower Valais much more accessible, even though with the opening of the Ltschberg basis tunnel, which shortens the Berne-Visp rail connection by an hour, mostly the situation in Upper Valais improved. Zermatt: Most Successful Destination in Switzerland The globally renowned destination of Zermatt is, both in terms of size, supply and success, the top destination in Switzerland, closely followed by St. Moritz in Graubnden. Success and supply is also above average compared with Switzerland's 31 other tourism regions in Saas Fee and Verbier. Compared to these areas, Leukerbad and Saas Almagell, have a small tourist offering and demand is below average. Crans-Montana and Val d'Anniviers have a relatively large tourist offering, though their success has been unspectacular. In both destinations, below-average overnight stay ratios, low daily expenditure as well as the high seasonal nature of the entire undertaking have meant lower demand indicators.
Supply vs. Demand Indicator Tourism

X-axis = supply indicator, Y-axis = demand indicator, Size of circle = Average number of overnight stays 2003-2010
Aboveaverage success 3 2 Gstaad Pontresina Sils im Engadin Villars-Gryon Saas Fee Laax Flims 1 Verbier 3 St. Moritz Celerina/ Schlarigna Zermatt
Engelberg Grindelwald
Lauter./Wen./ 1 Klosters-Serneus Mr. Saas Scuol Leukerbad Lenk Almagell 0 -3 -2 Meiringen Hasliberg Belowaverage success -1 Leysin -1
2 Lenzerheide Davos Silvaplana Crans-Montana Arosa Samnaun Val d'Anniviers -2 Savognin Adelboden -3
Limited supply
Broad supply
112
Economic Research
Canton of Valais: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 299 1.3% 1.1% 1.2% 213 1.3% 1.30% 9.7% 7.9% 1.06 2008 303 1.6% 1.3% 1.6% 216 1.3% 1.31% 5.4% 10.3% 1.09 Canton of 2009 307 1.4% 1.0% 1.1% 219 1.1% 1.03% 4.8% -1.9% 1.17 Valais 2010 312 1.5% 1.0% 1.5% 222 1.5% 1.01% 5.6% -2.2% 1.21 2011 316* 1.4%* 2012 320* 1.3%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
225* 1.4%* 1.02% 11.5% 12.0% 1.31
229* 1.6%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Diverse Demand in Lower Valais In Upper Valais, new housing is mostly geared towards vacationers because of the limited growth in the local population. Strong housing planning in Upper Valais should therefore not be overemphasized. Demand in Lower Valais is higher. Both employees of local industrial and service companies and commuters employed in the Lake Geneva area settle in the towns of the Rhone Valley to the west of Sierre; high population pressure from the Lake Geneva area is driving strong growth in the region's housing stock. Added to that is the construction of second homes, which is flourishing in several vacation destinations. The share of second homes in the overall housing stock varies considerably based on the legal framework. In Grimentz, for example, 81% of the housing stock is second homes, whereas in Zermatt they represent only 47%. Vacation Properties Cause Uncertainty The number of vacant properties in tourist cantons is difficult to interpret because of the high share of vacation and second homes. The high vacancy rate in the rental segment in the Leuk and Goms regions results from the small stock of rental apartments. Added to that comes methodological uncertainty due to vacation properties. It is certain that the number of vacant properties in 2011 was considerably lower than the longterm average. This trend shows that any potential oversupply in the rental segment will not intensify further. In the ownership segment, vacant properties in all regions fluctuate below the 1 percent mark. Whether first or second home: demand is generally high. Significant Price Differences Between the Valley and the Mountain Prices for condominiums are considerably below the overall Swiss average in the five largest municipalities that are not dominated by tourism. The high demand for condominiums compared to single family dwellings can be seen in the limited price difference between these two types of housing. Prices outside the regional centers rise sharply due to the high demand for second homes. The frontrunner here is the municipality of Bagnes (Verbier), with a square meter price of almost CHF 15'600 for an average condominium.

4'000 Sion Martigny Visp Leuk MFD SFD Monthey/St-Maurice Sierre Brig Goms
3'000
2'000
1'000
0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011

8% Avg. 10-year vacancy rate 7% 6% 5% 4% 3% 2% 1% 0% -1% -1%
Visp Sion Goms Sierre Brig CH Martigny Sion Brig CH Monthey/ St-Maurice Visp Monthey/ St-Maurice Sierre
Rent Own
Rent: Leuk (3.5%, 8.3%) Goms (5.3%, 8.8%)
Martigny
0%
Leuk
1%
2%
3%
4%

Most populous municipalities Sion Monthey Sierre Martigny Brig-Glis Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 6'694 6'065 6'306 5'371 5'024 9'058 8'206 8'535 7'271 6'800 6'091 5'573 5'218 5'745 5'327 8'874 8'111 7'600 8'370 7'756 181 191 187 204 193 227 185 193 189 207 194 249
7'788 10'536
7'072 10'294
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Economic Research
Canton of Vaud: Location Factors

VD Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 -= + = =
GE -= ++ + +
FR = = -
VS = = --
High Taxes Weigh on Locational Appeal The canton of Vaud takes 17th in the ranking of locational quality. Its appeal is impaired by its high tax burden. By contrast, Vaud scores above average in terms of the availability of highly skilled workers. Other components are more or less in line with the Swiss average. As a result, Vaud comes in ahead of the cantons of Fribourg and Valais, but behind Geneva. In the Catchment Area of Major Centers The canton of Vaud has its own major center with the city of Lausanne. The cities of Geneva and Berne are also easily accessible, although beyond the canton's borders. From most of Vaud's communes, a major center is easily within commuting distance. Only individual communes in Pays d'Enhaut and Aigle are further than an hour's drive from Lausanne, Geneva or Berne, and are thus less suitable for commuters. From some areas, even two major centers can be reached within 40 minutes. This is true of the Nyon and Morges/Rolle regions. Vevey and Montreux also make up two mediumsized centers in the canton of Vaud.

Population in millions, travel times: mot. individual transportation
0 10 20 km Neuch tel Bern Fr ibo urg Sa rnen
La usa nne Canton of Vaud 20 min 40 min 60 min 3.5 2.1 0.8 Zurich Sio n 2.8 1.2 0.5 Basel 1.7 1.1 0.4 Berne 1.5 0.7 Lausanne 0.3 1.5 0.5 0.2 Lugano 1.3 0.7 0.5 Geneva
Genf

16'000 14'000 12'000 10'000 8'000 6'000 4'000 2'000 0 -2'000 -4'000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Inter-cantonal International Total
Population Boom Thanks to International Immigration Measured in terms of population, the canton of Vaud has experienced the highest net migration of all Switzerland's cantons. Since 2000, this has been driven almost exclusively by international immigration which has risen sharply since the turn of the millennium. Drawn by the attractive labor market of Geneva/Lausanne, mainly younger persons of working age have moved to the region, while only few pensioners are returning to the canton. The high population growth over recent years has resulted in an increasing shortage of housing around Lake Geneva. As a result, population growth is spreading to less central communes in the north of the canton, into the canton of Fribourg and into the Rhone valley.

70% 60% 50% 40% 30% 20% 10% 0% Morges/Rolle La Broye Nyon VD Aigle CH La Valle Lausanne Yverdon -10% -20% -30% Gros-de-Vaud Vevey/Lavaux Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
Pays d'Enhaut
Employment Boom Even in terms of employment, the canton of Vaud is one of Switzerland's most dynamic cantons. Nyon, Morges/Rolle and Valle de Joux rank within the Top 5 of Switzerland's 110 economic regions. The major centers of Geneva and Lausanne drive these trends, which in Nyon and Morges/Rolle has led to strong growth in the high value-creating service sector. By contrast, La Valle benefits from high growth in the watch industry. Only the mountainous region of Pays d'Enhaut comes in considerably below the Swiss average. By far the greatest contribution to growth within the canton comes from the administrative and social services and corporate services sectors.
114
Economic Research
Canton of Vaud: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 672 1.5% 1.3% 1.2% 354 1.1% 0.60% 11.3% 10.8% 0.81 2008 688 2.4% 2.2% 1.0% 357 1.0% 0.46% 10.0% 8.0% 0.85 Canton of Vaud 2009 2010 702 712 1.9% 1.5% 1.6% 1.2% 0.9% 1.3% 360 0.9% 0.42% 3.5% 0.6% 0.90 365 1.3% 0.45% 7.3% 6.1% 0.94 2011 725* 1.8%* 2012 737* 1.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
370* 1.3%* 0.52% 13.6% 9.2% 1.04
374* 1.2%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
A Work and Residential Canton Needs Housing The canton of Vaud can look back on an extremely successful decade of economic development. The companies located in the canton utilize the large population of the Vaud region and the high number of highly qualified people; in addition, they attract migrants from other parts of Switzerland and abroad. Furthermore, the canton acts as a residential canton for commuters to Geneva who are unable to find adequate housing there. Its large reserves of building land, which are above average when compared to Switzerland overall, enable the canton to react to the population pressure with a high level of construction activity, which is likely to increase even further because of a record high number of building permits. The strongest expansion is expected in the region of Nyon, where apartments representing 3.8% of the overall housing stock received building permits in 2011. Uniquely Low Rental Vacancies in Lausanne Traditionally, the people of Vaud are renters. Rental apartments represent the lion's share of the overall housing stock in the entire canton. In the economic region of Lausanne rental apartments are in such demand that their vacancies fluctuate at the levels of condominiums and single-family dwellings, which is unique to this extent even among major Swiss urban centers. Higher numbers of vacancies can be seen in the region of Murten, which only partially belongs to the canton. In the region of Aigle, there has been a significant amount of construction on the one hand, while on the other hand the communities oriented towards tourism, with their second and vacation homes, distort the statistics on vacancies. Prices Rise Inevitably The combination of strong economic performance, high appeal for employees, and low vacancies due to a level of residential construction that only partially satisfies demand, leads inevitably to rising prices and, in some places, to unsustainable price levels, particularly in the Vaud communities on Lake Geneva. Prices are more affordable further north of the lake. However, the lack of regional centers there makes the development of transportation alternatives difficult, particularly for public transportation.

7'000 6'000 5'000 4'000 3'000 2'000 1'000 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Lausanne Yverdon Aigle MFD Vevey/Lavaux La Broye La Valle SFD Morges/Rolle Gros-de-Vaud Pays d'Enhaut Nyon Murten (Morat)

2.5% Avg. 10-year vacancy rate 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -0.5% 0.0%
La Broye Murten (Morat) Lausanne La Valle Pays d'Enhaut CH Vevey/Lavaux Yverdon La Valle Yverdon La Broye Vevey/Lavaux Gros-de-Vaud Morges/Rolle Nyon CH Morges/Rolle Gros-de-Vaud Aigle Murten (Morat)
Rent Own
Aigle Pays d'Enhaut
0.5%
1.0%
1.5%

Most populous municipalities Lausanne Yverdon-les-Bains Montreux Renens Nyon Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 12'169 16'458 7'315 9'897 11'976 16'200 9'750 13'194 13'016 17'606 7'788 10'536 10'118 14'726 6'827 9'933 9'591 13'956 8'236 11'993 11'109 16'163 7'072 10'294 263 210 224 221 265 227 248 210 227 227 277 249
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Economic Research
Canton of Zug: Location Factors

ZG Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ ++ + ++ ++ ++
SZ ++ ++ = = +
ZH ++ = + + ++ ++
AG + ++ = = ++ +
Leader in Locational Quality The canton of Zug heads up the ranking of locational quality with some distance between it and the cantons of Zurich and Aargau, which follow in second and third place. Since the indicator was first calculated in its current form in 2004, Zug has been able to maintain its position at the head of the ranking. All four neighboring cantons also have above-average locational quality ratios. High Growth Potential The figure on the left shows the medium and long-term growth potential for value creation using economic assessments and locational quality. With respect to the opportunities and threats facing its resident companies, Zug is considerably better positioned than the Swiss average. In terms of locational quality, it is surpassed by no other canton. As a result, growth potential is above average both in the medium as well as in the long term. Given its average economic assessment, potential in Zug's mountain communes comes in around the national average over the medium term, whereas the Lorzenebene/Ennetsee region is expected to turn in particularly strong and above average growth.
Growth Potential for Value Creation

2.5 2.0 1.5
Sector evaluation
III
CH-average
Lorzenebene/ Ennetsee ZG Zimmerberg ZH March/Hfe Zuger Berggemeinden Knonaueramt
Zrich-Stadt
1.0 0.5 0 -0.5 -1.0 -1 IV UR -0.5 0 LU OW AG
SZ
Einsiedeln Innerschwyz
II 2 2.5 3
0.5 1 1.5 Locational quality
CH-average
Luzern Freiamt NW

Canton ZG -5.2 -2.0 -2.0 -1.0 -1.0 -0.3 -0.3 0.0 0.0 0.3 0.3 0.6 0.6 1.0 1.0 1.5 1.5 2.0 2.0 3.0 0 2.5 5 km
Fre iam t
Zug
Luzer n
High Real Estate Prices Offset Tax Advantage Despite the low tax burden, the canton of Zug ranks only 19th in terms of financial appeal as a place to live. Comparably high real estate prices weigh heavily on freely disposable household income. While the tax burden is the primary factor for high-income households, the key factor for the middle classes and for households with below-average income is the cost of housing. The sharp rise in real estate prices over recent years has resulted in many households moving to communes which are less expensive in this respect, notably in the Freiamt and Lucerne regions. Indicator values in the communes of Zug, Walchwil, Obergeri, Untergeri and Hnenberg signal low financial appeal.
Resource Index
Synthetic index 2012, CH = 100
250 225 200 175 150 125 100 75 50
SZ BS GE ZG
Source: Federal Department of Finance
SH TI NE AG AI OW GR SO AR SG TG LU BE FR VS GL JU UR
High Tax Base per Capita The resource index is the basis for the redistribution of tax income among the cantons. It represents the height of the tax base of a canton per inhabitant compared to the Swiss average. With Zug heading the list, eight cantons have an above-average resource potential. These cantons are net contributors, while the others are net recipients of taxationbased subsidies. The resource potential of Zug is 2.5 times higher than the Swiss average as a result of the high number of high-income and wealthy inhabitants as well as its high value-creating companies. For 2012, Zug made a net contribution of CHF 2'392 per inhabitant in tax subsidies which accounted for 18% of total payments.
NW ZH VD BL
116
Economic Research
Canton of Zug: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 109.1 1.8% 1.6% 1.5% 50.3 1.5% 0.27% 4.3% 8.6% 0.82 2008 110.4 1.1% 1.7% 1.2% 50.9 1.2% 0.26% 6.9% 7.5% 0.84 Canton of Zug 2009 2010 110.9 112.2 0.5% 1.2% 1.0% 1.2% 1.3% 1.6% 51.6 1.3% 0.28% 4.2% -1.1% 0.87 52.4 1.6% 0.28% 8.3% 5.4% 0.90 2011 114.2* 1.7%* 2012 116.1* 1.6%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
53.3* 1.8%* 0.27% 9.2% 5.7% 0.96
54.0* 1.3%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
High Price Segment Dominates the Picture Activity has started to pick up in the housing market in the canton of Zug. Investors recognized the increased demand for rental apartments and set in motion an expansion of the supply in this segment. There has been a noticeable shift in new construction activity throughout the canton from condominiums to rental apartments. From a regional perspective, construction volume is primarily limited to the canton's core region of Lorzenebene/Ennetsee. Construction activity in the regions adjacent to neighboring cantons is also high; sometimes residents of Zug who cannot afford the dream of owning their own home in their own canton move to these areas. The discussion about the real estate market in Zug is by and large primarily influenced by the high demand in the high price and luxury segment. However, the overall market is, in fact, much more diverse. Virtually No Vacant Rental Apartments It is not really surprising that vacancies are low. There are few regions in Switzerland where the level of vacancies for rental apartments and condominiums lies so closely to each other at a low level as in the region of Lorzenebene/Ennetsee. Rental apartments in the upscale price segment of this region are also in demand from highly qualified immigrants; their firms located in Zug often pay the cost of housing and are frequently not as price sensitive as private individuals seeking housing. In contrast, the level of vacancies in Zug's mountain municipalities is higher, although still considerably below the overall Swiss average, as this region, with its rural character, is more likely to be of interest for people seeking to own a home. Price Exaggerations Do Not Exist Across the Board The limited availability of residential units in desirable locations with a view of the lake leads to square meter prices of CHF 15'000 and more for condominiums, particularly in the city of Zug, the municipality of Walchwil, and increasingly the municipality of Obergeri. On the opposite side of Lake Zug, the prices for condominiums are much lower. The price of a condominium with average features in the municipality of Risch is estimated to be nearly CHF 8'200/m2.

1'400 1'200 1'000 800 600 400 200 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011 Zuger Berggemeinden Lorzenebene/Ennetsee MFD SFD

2.0% Avg. 10-year vacancy rate 1.5% 1.0% 0.5% 0.0% Lorzenebene/
Ennetsee Innerschwyz CH Knonaueramt
Rent Own
Zimmerberg Lorzenebene/ Einsiedeln Ennetsee
Einsiedeln
Innerschwyz CH Zuger Berggemeinden Knonaueramt
Zuger Berggemeinden Zimmerberg
-0.5% -0.5% 0.0% 0.5% 1.0%

Most populous municipalities Zug Baar Cham Steinhausen Risch Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 15'468 20'923 13'315 18'019 11'105 15'019 12'234 16'555 11'815 15'987 7'788 10'536 11'155 16'237 9'082 13'222 8'664 12'615 8'227 11'970 8'173 11'896 7'072 10'294 316 254 272 255 235 227 319 247 263 257 237 249
117
Economic Research
Canton of Zurich: Location Factors

ZH Tax burden on natural persons Tax burden on legal persons Level of education Availability of highly skilled workers Accessibility in terms of transportation Locational quality 2011 ++ = + + ++ ++
AG + ++ = = ++ +
TG + ++ = = + +
SG + ++ = = = =
Broad Appeal The canton of Zurich comes second in the cantonal ranking of locational quality. Particular benefit is drawn from the canton's excellent accessibility to transportation as well as from its tax advantages for natural persons. The above-average availability of highly-qualified workers and the high level of education among the population in comparison to other nearby cantons such as Aargau, Thurgau and St. Gallen also push up the canton's score. Population Boom in Zurich Center Population growth in the canton of Zurich was the third highest nationwide between 2005 and 2010. Zurich's attractive labor market has a global appeal. Over recent years, this has led to a housing shortage in the center of the metropolitan area. As a result of rising house prices, the population boom has now shifted to neighboring communes. The figure on the left shows the population forecast up to 2020. The canton of Zurich is expected to reveal above-average population growth throughout this period. The driving force remains the city of Zurich. The trend is primarily focused in the urban agglomeration and only to a lesser degree in the center itself due to limits on construction there.
Population Forecast 2010-2020

Average annual growth in percent, CH = 0.9%
Canton ZH 4.0% 10.3% 2.0% 4.0% 0.9% 2.0% 0.0% 0.9% -1.0% 0.0% -2.0% -1.0% -7.6% -2.0% 0 5 10 km Aar au Zri ch Schaffhau sen
Fr au enfeld
Zug

25'000 Inter-cantonal 20'000 15'000 10'000 5'000 0 -5'000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 International Total
High International Immigration Between 2005 and 2010, international migration accounted for 80% of the increase in population. In particular, immigration from abroad increased notably from the year 2007 with the introduction of free movement of persons. The trend weakened considerably in the years 2009 and 2010 on account of economic uncertainty. International immigration in 2010 is still around twice as high as it was in 2006. Nearly two-thirds of net migration is attributable to immigrants of between 25 and 39 years of age. Inter-cantonal migration is of much lesser significance. Its contribution to growth has fluctuated between positive and negative balances over the period under review.
Employment Growth 1995-2008

Winterthur-Land 40% Zrich-Stadt Furttal Oberland-West 30% 20% 10% 0% -10% -20% -30% Knonaueramt Glattal
Traditional industry Construction Trading and sales Information, communications, IT Corporate services Administrative and social services
High-tech industry Energy supply Transportation, postal services Financial services Entertainment, hotels and catering
Pronounced Growth of the Service Sector As in Switzerland as a whole, corporate services and administrative and social services were also the biggest contributors to the increase in employment in the canton of Zurich. Financial services and the information, communication and IT sectors also revealed considerable growth. In contrast to in the rest of Switzerland though, the industrial sector is in decline. Both traditional as well as higher value-creating cuttingedge industries recorded contractions in headcount. On a regional level, Furttal has benefited from growth in the information, communication and IT sectors and the Zimmerberg region from a notable rise in employment in financial services.
Weinland
Oberland-Ost
CH
Winterthur-Stadt
Zimmerberg
Pfannenstiel
Unterland
Limmattal
ZH
118
Economic Research
Canton of Zurich: Real Estate Facts

Demand: Inhabitants (in 1'000) Population growth Net migration Absorption Supply: Housing stock (in 1'000) Growth in housing stock Market outcome: Vacancy rate Price trend condo Price trend SFD Price trend in relation to income trend 2007 1'308 1.8% 1.5% 1.4% 658 1.3% 0.79% 6.2% 6.2% 0.91 2008 1'333 1.9% 1.6% 1.1% 665 1.2% 0.61% 6.3% 6.6% 0.93 Canton of 2009 1'351 1.4% 1.2% 1.0% 671 0.9% 0.65% 2.9% -0.5% 0.97 Zurich 2010 1'369 1.3% 1.0% 1.2% 680 1.2% 0.62% 8.8% 4.6% 1.01 2011 1'391* 1.6%* 2012 1'411* 1.5%* 2007 7'593 1.1% 1.0% 1.2% 3'950 1.1% 1.04% 7.7% 6.5% 0.93 2008 7'702 1.4% 1.3% 1.2% 3'995 1.1% 0.94% 5.3% 4.6% 0.95 Switzerland 2009 2010 7'786 7'864 1.1% 1.0% 1.0% 0.8% 0.9% 1.1% 4'034 1.0% 0.87% 2.6% -0.7% 0.99 4'079 1.1% 0.91% 7.3% 3.0% 1.02 2011 7'949* 1.1%* 2012 8'042* 1.2%*
688* 1.2%* 0.65% 10.1% 6.8% 1.09
697* 1.2%*
4'125* 1.1%* 0.94% 9.4% 7.1% 1.09
4'172* 1.1%*
Agglomeration of Zurich is Still Growing The canton of Zurich is growing, and the demand for housing is high, particularly in the city itself as well as in the economic regions close to the city. Accordingly, there is a significant amount of housing construction. However, the possibilities in the city are limited; growth is therefore channeled primarily into the Glatt Valley, but also further towards the north into the Unterland, in the direction of Winterthur, and along the Limmat Valley towards Aargau. Ownership and renting are equally in demand because of low interest rates and considerable immigration. Due to high levels of construction activity in the agglomeration region around the city, the number of commuters is increasing, meaning that the city of Zurich is also reaching its limits from a transportation perspective. Until now, the significant increase in the housing supply was not able to bring an end to the growth in prices. Stable prices cannot be expected until the period of low interest rates comes to an end. Higher Vacancies at Luxury Locations The high demand for housing in the city of Zurich can be seen in the limited structural difference between rental and ownership vacancies. This means the overall vacancy rate within the city limits is at the record low level of 0.06%. In contrast, there is an above-average amount of vacancies at Pfannenstiel, where building land is expensive because of its good location on the sunny side of the lake. The marketing of exclusive properties, particularly those at expensive B locations, takes longer on average than for standard residential units. Because the market environment has become more difficult for upscale rental apartments due to interest-related distortions, the vacancy rate at Pfannenstiel has increased even further compared to its long-term average. Homogeneous Price Structure Prices in the city of Zurich are considerably higher than those of the other larger municipalities in the canton. Of these, the property prices along the arterial routes to the west (Dietikon) and the east (Dubendorf, Uster) have adjusted significantly, thereby resulting in an above-average price level overall. Winterthur remains attractive with regards to rental apartments. Moreover, this regional center, as an actual city, offers more than commuter communities, and the public transportation connections to Zurich are very good. The highest prices in the canton are found in the region of Pfannenstiel.

Zrich-Stadt Winterthur-Stadt Limmattal Furttal Weinland MFD SFD Glattal Oberland-West Unterland Knonaueramt Zimmerberg Pfannenstiel Winterthur-Land Oberland-Ost
12'000 10'000 8'000 6'000 4'000 2'000 0
1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1997 1999 2001 2003 2005 2007 2009 2011

2.5% Avg. 10-year vacancy rate 2.0% 1.5% 1.0% 0.5% 0.0% -0.5%
Zrich-Stadt 9 regions Zurich Winterthur-Stadt Winterthur-Stadt Knonaueramt CH Zimmerberg Weinland Knonaueramt Oberland-Ost CH Glattal Pfannenstiel Oberland-West Pfannenstiel Unterland Winterthur-Land
Limmattal Furttal
Rent Own 1.0% 1.5% Vacancy rate 2011 2.0% 2.5%
-0.5%
0.0%
0.5%

Most populous municipalities Zrich Winterthur Uster Dbendorf Dietikon Switzerland SFD Condo Rent Moderate Upscale Moderate Upscale Moderate Upscale 16'903 22'865 9'468 12'813 10'750 14'542 12'242 16'568 10'097 13'652 7'788 10'536 11'818 17'200 7'591 11'044 8'100 11'793 7'882 11'467 7'445 10'830 7'072 10'294 269 211 235 245 235 227 267 207 238 255 230 249
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Economic Research
120
Economic Research
Explanations
Real Estate Indicators
Population: permanent resident population at year-end Net immigration/emigration: balance of international immigration and emigration as a percentage of the population Absorption: share of houses and apartments that the market can absorb; as a percentage of the housing stock Vacancy rate: number of vacant residential units as a percentage of the housing stock; record date: June 1 every year Price trend: growth rates of transaction prices, every third quarter year-on-year Price/income ratio: quotient from the trend (indexed, 1990 = 100) of prices of condominiums and household income Price level of average properties: new building, 110 m2 (condo/rent)/124 m2 (SFD) net living area, average features, good location Price level of upscale properties: new building, 135 m2 (condo/rent)/155 m2 (SFD) net living area, upscale features, very good location
Switzerland's Economic Regions

54 51 75 52 110 17 107 108 95 94 96 89 90 88 91 97 47 43 16 106 46 15 14 21 45 22 23 44 93 92 109 105 104 103 24 25 27 28 49 50 19 20 18 31 79 53 48 74 30 29 34 32 37 38 33 26 70 69 98 99 100 84 85 86 87 83 73 68 72 76 3 77 4 1 78 5 41 13 12 10 11 2 6 42 7 9 8 62 61 36 35 39 40 80 63 81 82 57 55 56 58 59 60 64 67 65 66 71
101 102
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Zrich-Stadt Glattal Furttal Limmattal Knonaueramt Zimmerberg Pfannenstiel Oberland-Ost Oberland-West Winterthur-Stadt Winterthur-Land Weinland Unterland Bern Erlach/Seeland Biel/Seeland Jura bernois Oberaargau Burgdorf Oberes Emmental Aaretal Schwarzwasser
23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44
Thun Saanen/Obersimmental Kandertal Berner Oberland-Ost Grenchen Laufental Luzern Sursee/Seetal Willisau Entlebuch Uri Innerschwyz Einsiedeln March/Hfe Sarneraatal Nidwalden/Engelberg Glarner Mittel- und Unterland Glarner Hinterland Lorzenebene/Ennetsee Zuger Berggemeinden La Sarine La Gruyre
45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66
Sense Murten (Morat) Glne/Veveyse Olten/Gsgen/Gu Thal Solothurn Basel-Stadt Unteres Baselbiet Oberes Baselbiet Schaffhausen Appenzell A.Rh. Appenzell I.Rh. St. Gallen/Rorschach St. Galler Rheintal Werdenberg Sarganserland Linthgebiet Toggenburg Wil Bndner Rheintal Prttigau Davos
67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88
Schanfigg Mittelbnden Domleschg/Hinterrhein Surselva Engiadina bassa Oberengadin Mesolcina Aarau Brugg/Zurzach Baden Mutschellen Freiamt Fricktal Thurtal Untersee/Rhein Oberthurgau Tre Valli Locarno Bellinzona Lugano Mendrisio Lausanne
89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110
Morges/Rolle Nyon Vevey/Lavaux Aigle Pays d'Enhaut Gros-de-Vaud Yverdon La Valle La Broye Goms Brig Visp Leuk Sierre Sion Martigny Monthey/St-Maurice Neuchtel La Chaux-de-Fonds Val-de-Travers Genve Jura
Source: Credit Suisse Economic Research, Geostat
121
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Economic Research

Swiss Issues Real Estate Real Estate Market 2012

Discussion topic: Serviced living Page 19

Discussion topic: Internet and social media Page 21

Swiss Issues Real Estate Real Estate Market 2012

Office property Page 24

The five largest office property markets in detail Page 29

Retail property Page 41

Discussion topic: Specialty stores Page 50

Real estate as an investment Page 53

Swiss Issues Real Estate Real Estate Market 2012

Regional focus Page 67

Swiss Issues Real Estate Real Estate Market 2012

Growth shares in owner-occupied segment Condominiums Single-family dwellings

Source: Credit Suisse Economic Research, Baublatt, Geostat

Swiss Issues Real Estate Real Estate Market 2012

Condominiums dominate in central regions

Homeowners have lower housing costs than tenants

80% 70% 60% 50% 40% 30% 20% 10% 0%

Demand for residential property will remain high in 2012

Swiss Issues Real Estate Real Estate Market 2012

Robust immigration also in 2012

28% 24% 20% 16% 12% 8% 4% 0%

100'000 90'000 80'000 70'000 60'000 50'000 40'000 30'000

Source: Swiss Federal Statistical Office, Credit Suisse Economic Research

Population growth 2012 again above the 1% threshold

Immigration continues to shape the residential lettings market

Swiss Issues Real Estate Real Estate Market 2012

Nevertheless, the housing stock will expand in 2012

80'000 70'000 60'000 50'000 40'000 30'000 20'000

85% 80% 75% 70% 65% 60% 55%

Building permits at historical high

Supply shifts towards rented housing

Swiss Issues Real Estate Real Estate Market 2012

Source: Baublatt, Credit Suisse Economic Research

Focus of construction activity is outside urban centers in well connected regions

Swiss Issues Real Estate Real Estate Market 2012

as well as a warning in certain regions

Source: Baublatt, Credit Suisse Economic Research, Geostat

Response times are long and are becoming longer

Swiss Issues Real Estate Real Estate Market 2012

Figure 7 Vacancy Rates by Market Segment

Source: Credit Suisse Economic Research, Swiss Federal Statistical Office

Source: Credit Suisse Economic Research, Meta-Sys AG

Even more vacant rental properties in 2012

Swiss Issues Real Estate Real Estate Market 2012

Large regional differences in vacancy rates

No rent increases in 2012 for upscale and new rental properties

Falling rents for existing homes

Worrying price trends for condominiums

Figure 11 Density of Buildings and Location as Crucial Factors

Necessary upgrading p.a.

14% 12% 10% 8% 6% 4% 2% 0%

Region Glarner Mittel- and Unterland Region Aarau Region Zurich

1.1 1.2 1.3

Source: West & Partner, Swiss Federal Statistical Office

Source: Credit Suisse Economic Research

Swiss Issues Real Estate Real Estate Market 2012

Large differences depending on location

Real value myth in condominium segment?

Overheating: Yes or No?

Demand-related overvaluation not speculative bubble

Swiss Issues Real Estate Real Estate Market 2012

Figure 12 Regional Overview of Price of Condominiums