The Real Deal New York

Why pricey offices in Zurich are empty

Institutional investors playing landlord are having trouble finding tenants
December 10, 2017 09:03AM

(Back photo by Marcin Wichary/Flickr; front photo by Public Domain Photos)

Landlords, mainly institutional investors, are letting their buildings in Zurich’s financial district go empty rather than lower rents.

The cause of the lower demand is not entirely clear — some blame big business’ shift to less expensive cities after the financial crisis, however, Bloomberg reports rents for offices fell in the second half of 2016 and are still recovering while vacancies in the district remain at a high — 4.5 percent compared to the city average of 3 percent — and so too do rents.

Regardless though, landlords seem content to wait out the market, confident that the worst is behind them, and not devalue their property along the way.

“It’s better to have a vacant property with potential than lower cash flow and a cheaper valuation,” said Ernst Schaufelberger of French insurance company AXA SA to Bloomberg. In fact many institutional investors are continuing to get in on the real estate game despite the difficulty in attracting tenants.

“We are also looking at this from a portfolio perspective,” said Zurich Insurance’s global head of real estate Cornel Widmer.

Agents in the city are responding by not advertising empty properties to “avoid the stigma of a shelf-warmer,” according to a report by Credit Suisse.

For landlords who aren’t willing to wait for a turning of the tides, they’re enticing tenants with a few months of free rent, which has reportedly become a standard for the district.

“On a 10-year rental contract a rent-free period of several months is usual,” said Swiss Life Asset Managers’ Giorgio Engeli.

[Bloomberg] — E.K. Hudson