| Ramzi Chamat
Switzerland, a country often cited for its economic stability, its quality of life and its leadership in infrastructure, finds itself at a crossroads when it comes to its residential real estate sector. In a global context marked by rapid and unpredictable changes, the Swiss construction market presents contrasting dynamics. If the slowdown in construction is perceptible at the national level, certain regions, notably Zurich, are emerging as oases of growth.
The real estate landscape of a country reflects its economic health, demographics, and urban policies. In Switzerland, despite a strong economy, the residential construction sector is showing signs of slowing down. However, distinct regions exhibit remarkable activity, offering a nuanced picture of the market. This analysis sheds light on current trends in the Swiss construction market, focusing on regional variations, factors influencing supply and demand, and future prospects.
Residential construction in Switzerland has always been a key indicator of the country's economic health. Yet recent trends are showing worrisome signs that deserve increased attention.
Over the past four quarters, a decrease in construction requests and permits issued has been observed. This trend has been reflected in various regions of the country, indicating some reluctance among investors and developers to initiate new residential projects.
The third quarter of 2023, in particular, was emblematic of this shift. Although 9,000 units applied for construction permits, a figure 10% higher than the previous year, it does not necessarily signify a recovery in the sector. To put this figure into perspective, it is essential to consider permit levels from previous years. When comparing the data, it becomes evident that despite this annual increase, the figure falls well below levels from two or three years ago.
Several reasons could explain this decrease in requests. Firstly, like many countries, Switzerland is still adapting to the economic consequences of the COVID-19 pandemic. Economic uncertainties may have prompted developers to take a more cautious approach.
Furthermore, stricter regulations, rising construction material costs, and environmental concerns could also be influencing this trend. Local and regional authorities, in their pursuit of more sustainable development, may be more reluctant to greenlight large residential projects.
However, it is worth noting that this "optimistic" 10% growth figure could be attributed to specific circumstances, such as the completion of certain major projects awaiting approval. Alternatively, it could reflect efforts to boost the post-pandemic economy by promoting construction.
Zurich, the economic and financial capital of Switzerland, continues to be a beacon for residential construction despite divergent national trends. Its ability to attract investments, international companies, and talent from around the world has had a positive impact on housing demand and, consequently, construction.
The Zurich metropolitan area stands out for its dynamism. In a relatively short period, it has witnessed remarkable expansion, with over 1% growth in its real estate portfolio. This growth is not solely due to population density or its status as an economic center but also to progressive urban planning policies and a willingness to innovate in construction.
Peripheral regions of Zurich, such as Knonaueramt and Freiamt, have also distinguished themselves. These areas, although somewhat distant from the bustling city center, have received special attention, obtaining permits for an impressive increase of more than 2% in their real estate portfolio. This could be attributed to a combination of factors, including relatively more affordable land prices, proximity to nature, and the development of modern transportation infrastructure facilitating access to Zurich's center.
In contrast, when examining French-speaking Switzerland (Suisse romande), Lausanne leads in residential construction. The city, with its proximity to Lake Geneva and international institutions, continues to attract numerous residents. However, cities like Geneva and Basel, despite being important economic hubs, have experienced a noticeable slowdown. This could be due to a combination of stricter regulations, limited space for construction, and higher costs.
When discussing residential construction in Switzerland, it is undeniable that certain locations stand out significantly from others, both in terms of current activity and future projections.
Zurich continues to lead the way, strengthening its position as a construction leader. Several areas in the outskirts of Zurich, such as Schlieren, Affoltern am Albis, and Egg, serve as striking examples. These regions have undergone rapid transformation, transitioning from predominantly suburban areas to hubs for new residential and commercial developments.
Schlieren, once known for its industry, is now an innovation hub with rapid growth in the technology sector. This, combined with excellent connectivity through public transportation networks, makes it a prime location for new residential projects.
Affoltern am Albis offers a charming blend of nature and urban access, attracting many professionals seeking a balance between city life and a quieter atmosphere. Future projects planned in this region will likely capitalize on this unique dynamic.
Egg, with its picturesque landscapes and proximity to Zurich, appeals to both families and investors. Increased demand has led to several residential projects, making Egg a hotspot for future developments.
Conversely, French-speaking Switzerland shows signs of slowing down. Lausanne and Geneva, although long-standing pillars of residential construction, face various challenges. Limited available land for new projects, environmental concerns, and high costs could contribute to a slowdown in construction in these regions, fostering a more measured and sustainable approach.
While Zurich and its surroundings appear to be thriving, other regions of the country are adopting a more thoughtful approach. Only the future will reveal how these projections will materialize, but one thing is certain: the landscape of residential construction in Switzerland is constantly evolving.
One of the major concerns emerging from the Swiss real estate landscape is the growing gap between housing supply and demand. While Switzerland is known for its high standard of living, economic stability, and dynamic labor market, it now faces a significant challenge: meeting the housing needs of its growing population.
In 2022, the increase in the number of households in Switzerland was estimated at 1.1%. However, the rate at which new housing units have been introduced to the market has not kept pace with this upward trend. Several factors may explain this phenomenon.
Immigration is a major driver of this issue. Switzerland, with its attractive job opportunities and quality of life, continues to attract a considerable foreign population. While immigration fuels economic growth, it also exerts pressure on the housing market, especially with a strong demand for rental apartments.
Real estate market regulation and land restrictions have also played a role in limiting the construction of new housing units. Building zones are often restricted, and the approval processes for new projects can be lengthy and complex. This not only delays the introduction of new housing to the market but can also increase construction costs.
Internal demographic changes should also be considered. Swiss households are tending to become smaller, with more people living alone or in childless couples. This means that even if the population is growing at a slower pace, the need for housing units may increase disproportionately.
The Swiss construction sector faces a complex set of challenges that hinder its ability to meet the growing residential needs. Several of these challenges have been exacerbated by recent circumstances, including the global pandemic. Let's take a closer look at these obstacles.
Switzerland, with its mountains, lakes, and protected areas, has limited land available for construction. This unique geographical situation, coupled with strict land use regulations, has led to a shortage of buildable land. Additionally, the attractiveness of certain regions for tourism has created conflicts between secondary and primary residences.
Faced with a land shortage, urban densification is often considered a viable solution to address housing needs. However, densification projects can encounter resistance, either from local residents concerned about preserving the character of their neighborhood or due to complex regulations.
The pandemic disrupted global supply chains, leading to increased construction material costs. While some raw materials experienced price decreases, others, such as wood and certain metals, saw soaring prices. These additional costs are often passed on to the final consumer, making housing even less affordable.
Switzerland has also faced a shortage of skilled labor in the construction sector. Travel restrictions during the pandemic limited access to foreign workers who play a crucial role in many construction sites.
While essential for ensuring sustainable and environmentally friendly construction, ecological standards can also add additional costs to projects. Regulations regarding energy efficiency, for example, though beneficial in the long term, can increase initial costs.
Faced with these challenges, the Swiss construction sector must innovate and find tailored solutions to meet urgent housing needs while adhering to environmental standards and citizens' expectations.
The architecture of the Swiss real estate landscape is as complex as its mountains and valleys. Despite a robust economy and growing housing demand, the construction sector faces a myriad of challenges. From urban densification to land scarcity, rising material costs, and demographic pressures, every aspect of the Swiss real estate market is influenced by a unique combination of local and global factors.
Zurich stands as an example of success, combining innovation and growth. In contrast, other regions, such as French-speaking Switzerland, face more pressing challenges in terms of land availability and construction costs.
The pandemic has exacerbated some of these challenges, disrupting supply chains and increasing costs. However, it has also highlighted the need for deeper consideration of how cities and landscapes develop.
As Switzerland navigates these complex waters, one thing is clear: thoughtful planning, balanced regulation, and continuous innovation will be essential to ensure that the construction sector can meet the population's needs while preserving the natural beauty and ecological integrity of the country. In this intricate puzzle, each piece, whether a local authority, developer, investor, or citizen, will play a crucial role in shaping the future of the Swiss real estate landscape.
Source : UBS
