Five theses on the Swiss commercial real estate market

Swiss Life Asset Managers expects low inflation and interest rates over the next few years as well as a robust private sector in the Swiss domestic market. Commercial properties, especially in central locations, are benefiting from this. Five theses highlight the economic and structural developments that will shape this market in the future.

Despite the volatility when it comes to foreign trade, Switzerland’s domestic economy remains stable: real wage growth and the Swiss franc’s increased external value are helping boost purchasing power. Sales volumes are stable or rising, and employment in the services sector is on the rise, driven by immigration and above-average tourism levels.

This directly benefits retail space tenants through higher sales; indirectly, however, it also increases demand for workspace and, in particular, office space. At the same time, the monetary policy environment with low interest rates and stable real estate yields creates attractive conditions for investment.

Persistently low inflation and the stronger franc suggest that the interest rate environment will remain favourable over the medium term. According to our baseline scenario, yields on ten-year Confederation bonds are likely to remain below 1%, while average mortgage interest rates for real estate vehicles fluctuate between 1% and 2%. The resulting higher spreads relative to real estate yields have already provided momentum for the commercial real estate transaction market.

In the first quarter of 2025, net initial yields on acquisitions fell year-on-year and, according to Wüest Partner, are currently between 1.9% (offices in Zurich) and 3.2% (retail in Basel) – a clear sign of ongoing interest from investors.

A look back shows that owners of portfolio properties in the business segment benefited from slightly higher and more stable income returns than in the much larger residential segment. Over the past ten years, they have been 3.4% for retail properties and 3.5% for office properties, while residential property only reached 3.2%.

These returns depend to a large extent on the demand for space. And it is precisely in this area that the predicted trends – a complete relocation of office workplaces to working from home and the decline of retail space due to e-commerce – have not materialised.

The remote tracker of the most visited job platform “Indeed”, which tracks terms such as “remote” or “hybrid” in job advertisements shows that the trend for working from home has passed its peak. In the US, the share of positions advertised that offer the option to work from home has been declining since the end of 2021 and currently accounts for around 8%, while in Germany it is around 15%. Even in professions that do not require any physical presence – for example, software development – the proportion is now less than 50%.

Demand for office space remains stable as companies still require social working environments. Modern offices offer not only functional workspaces, but also space for meetings and social interactions. In Switzerland, well-known office tenants and employers have already started reintroducing attendance requirements for staff – currently with a maximum of two days working from home per week.

E-commerce is only partially replacing bricks-and-mortar retail, as “going shopping” is a firm part of people’s everyday lives and leisure time, often associated with enjoying the experience and a certain social status. In addition, a large proportion of retail is not focused on standardised, mass-produced goods. According to the Swiss trade association and GfK, online shopping in the food sector, which accounts for almost half of retail sales, accounted for just 3.1% of sales in 2024 (after a peak of 3.8% in 2021). Even in the non-food sector, the share of online sales has stagnated at 18.8%.

Demand for physical space therefore remains stable, especially in the food segment. The situation is more nuanced for non-food goods: there is demand for well-frequented locations selling products that people want to try out or that have a unique selling point as luxury goods. This unique case is also reflected in the location-dependent market data.

Central business districts and high streets perform significantly better than peripheral locations due to their familiarity, better accessibility and higher footfall. In these areas, it is easier to let and re-let buildings, vacancies are less frequent and rents are systematically higher.

According to real estate service provider CBRE, the supply rate in central business districts (CBDs) was around 3.5% in the first quarter of 2025 – six percentage points lower than in peripheral locations. There are also clear differences in headline rents: in urban areas in large agglomerations, rents – regardless of segment – are around 30% above the Swiss average. In the city districts of the five largest cities, the difference is even around 80%. If you are looking for higher returns and lower vacancy risks, you should pay particular attention to the location and quality of the properties.

If the letting situation for commercial space is challenging, converting a property can open up new opportunities. In view of the persistent housing shortage, converting properties to permanent housing – or, in zones with restricted residential use, to managed housing – is a clear choice.

Our market data shows that average asking rents for residential space are more than 20% above those for office space and therefore already offer potential to generate additional returns on new lettings. Combined with the expectation that demand for office space in peripheral locations and in existing properties will continue to decline, converting properties like this is becoming increasingly important.

However, beyond economic factors, the structural situation and building law requirements must be carefully examined for such conversions. Even if the hurdles in these projects are significantly higher than with new greenfield construction, we assume that this potential will be exploited to a greater extent in the future. This could benefit not only the owners of such properties, but also the resident population, as between 100 000 and 200 000 new dwellings could be created through converting existing properties.

The Swiss commercial real estate market benefits from a robust domestic economy, low interest rates and ongoing demand for centrally located space. Despite digitalisation and structural changes, such spaces remain in demand, especially in prime locations.

Targeted conversions open up additional potential for more challenging commercial properties. They not only benefit their owners thanks to the capital appreciation, but they also help to relieve the strained housing market.

Source: Schweizer Personalvorsorge 09/25