Each intervention by the SNB brings the policy rate one step closer to its historical average. This is still the case today with an increase of 50 basis points. Mechanically, the returns on properties demanded by investors adjust and, as in every quarter since June 2022, transactions show a decline in asset prices offsetting the increase in financing costs.
"Bad trend", some would say. That is not our analysis.
The real estate market has lived under a bell jar for several years, sclerotic, as if locked in by historically low yields. Institutional players, forced to invest large sums to avoid negative interest rates, could no longer differentiate, through prices, well-maintained assets from obsolete assets, well-placed assets from eccentric assets, ecologically exemplary assets from energy strainers, etc.
Fundraising that no longer achieves the expected results, and investors whose savings are still substantial, who are waiting for the end of the increase in interest rates, are contributing to a decrease in demand. Some owners, with their eyes still riveted on the indicators of the last three years (as do some appraisers), are putting their properties up for sale to get the upper hand. It is too late. Eroding demand, abundant supply and economic uncertainties have taken their toll. Prices are going down. Buyers are returning to more significant returns. Buyers now have a choice and have regained pricing flexibility.
Equity buyers, such as insurers and pension funds, are therefore particularly benefiting from the increase. The outlook is therefore better for policyholders and retirees.
What do we find?
Logically, investments are focused on the most attractive assets, i.e., well located, energy-efficient and offering long-term lease terms. The price gap between more and less qualitative assets is thus widening and makes it possible to reconsider value-added acquisitions.
Of course, this dynamic will have an impact on portfolio valuations and the appraisers’ reckless attitude who believed that there was no evidence of decline at the end of 2022 will contribute to the slump to come. By refusing to note the trends already marked during the second half of 2022, the appraisers working for large institutions have only postponed the problem and made a "soft landing" impossible. A wise interlocutor told me during Mipim that "acting in this way is like driving a car without the windscreen and using only the rear-view mirror". It can be said that the losses in value will be considerable by the end of 2023.
It is therefore a new era that opens up to us. The paradigms of negative interest rates are over; the market is returning to conventional logic. The period looks to be rich in opportunities and real estate advisors find a clearer added value; selling well and buying well today require know-how, experience and an excellent network. Let's talk about real estate again !
by Grégory Grobon, CEO