Office property market in Western Switzerland

Over the past ten years, more and more multinational companies have relocated their European headquarters to the region between Geneva and Lausanne. This interest is no coincidence: the political stability, the robust economy, the high standard of living, the international school system and, last but not least, the excellent transport links make the Lake Geneva region an extremely attractive location for foreign companies and highly specialized workers from a wide range of sectors. French-speaking Switzerland also benefits from the settlement of multinational companies. In Vaud, they were responsible for more than two-thirds of all new jobs created between 2000 and 2010. And in the canton of Geneva, employment by multinationals increased by an average of eight percent per year over the same period. By comparison, the average for the canton as a whole is two percent.

"Landlords need to learn how to deal with this current uncertain situation and the new demands from tenants."
Beat Seger, KPMG Zurich

Attractiveness increased

Last but not least, attractive tax structuring options have also favored the relocation of European company headquarters. Until now, companies whose main business activities were concentrated outside Switzerland (so-called mixed companies or principal companies) have benefited most from the flexible tax structuring options. However, these tax structures are a thorn in the side of the European Union. It accuses Switzerland of violating the 1972 Free Trade Agreement, which is currently presenting the Swiss government with the challenge of adapting corporate tax law to EU requirements while at the same time maintaining Switzerland's attractiveness as a business location. It will present its proposals in the coming months. Multinational companies in the cantons of Geneva and Vaud will also be affected by the changes to tax law. Depending on the form of the solutions, it must be assumed that many will reduce or even completely abandon their locations.

"A noticeable withdrawal of multinationals from the cantons of Geneva and Vaud would shake up the real estate market considerably."
Timothy Keeling, KPGM Geneva

Real estate under pressure

In the wake of these legal uncertainties and due to the strong Swiss franc, which is causing costs to skyrocket compared to other countries, many multinational companies have begun to rethink their real estate needs. Space reductions and restructurings could already be observed. As a result, more commercial space is available, which is reflected in increased supply figures. These are 6.3 and 4.5 percent in the cities of Geneva and Lausanne respectively, well above the national average of 3.4 percent. In Geneva, city center locations are particularly affected: Office space on offer in the fourth quarter of 2012 totaling 70,000 square meters exceeded the previous year's level by almost three times, making it the highest quarterly level since 2006. The supply of office space in Lausanne also increased sharply to 111,000 square meters at the end of 2012, 18 percent above the previous year's figure. These developments are having a direct impact on rents. While these have soared in recent years due to demand from multinational companies, the market outlook for the first half of 2014 is correspondingly pessimistic.

New business models needed

A noticeable withdrawal of multinational companies from the cantons of Geneva and Vaud would not only have a negative impact on the prosperity and innovation focus of the region, but would also shake up the real estate market considerably. Landlords must learn to deal with this current uncertain situation and the new demands on the part of tenants. An adjustment of business models seems inevitable if owners want to retain their tenants - especially multinational companies - as well as rents for value preservation purposes. The change in demand behavior must become a mandatory part of strategic planning and the size, development standard, lease structure as well as building technology of the properties must be aligned accordingly. Market statements and forecasts by proven experts can support landlords in their planning. However, restructuring and rising management and marketing costs will have to be accepted, as will longer vacancy periods.