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Swiss economy shows solid performance in 2024

Despite the global choppy waters, the Swiss economy was remarkably resilient in 2024, growing by 0.9%. The weak foreign trade, which negatively affects the manufacturing sector, was offset by above-average growth in private consumption and thus strong domestic demand. However, the labor market cooled over the course of 2024 from previously high levels. After robust employment growth in 2023, the increase of 40,800 FTEs in 2024 flattened and fell short of the 10-year average. The unemployment rate rose from 2.4% in March 2024 to 2.9% in March 2025, particularly driven by job losses in manufacturing.

After a brief optimistic start to the year, the US government's high tariffs announced on 2 April and subsequent fluctuating announcements quickly dampened economic sentiment. The Swiss export industry would be significantly impacted by the announced tariffs. Should negotiations fail, exports to the US will face 31% tariffs starting in July 2025, initially exempting pharmaceutical products. In the short term, these tariffs are expected to have a limited direct effect on the Swiss economy, especially if pharmaceuticals, which make up the largest share of exports to the US, remain exempt. The greater concern is that uncertainty may deter company investments, potentially dampening global growth prospects. Compared to our earlier forecast of 1.5% growth at the beginning of the year, we now anticipate Swiss GDP growth of 1% in 2025.¹

Despite the particularly high tariffs on Swiss products, the Swiss franc (CHF) has appreciated substantially. This significantly increases the risk of inflation rate turning negative in Switzerland. In April, headline inflation fell to 0.0%. While some of the CHF appreciation may already be reflected, the full effect will likely take a couple of months to fully emerge. This development therefore justifies further monetary policy easing by the SNB in the form of interest rate cuts. We’ve revised our previous forecast, that the SNB would keep the interest rate at 0.25%, and now anticipate another 0.25 percentage point cut to 0% in June, with risks tilted towards negative interest rates. Swiss government bond yields have dropped significantly, due to reduced growth expectations and increased uncertainties following the US tariff announcements.

Attractiveness of real estate investments increased

The SNB's interest rate cut of a total of 150 basis points since March 2024 has already spurred greater interest in real estate investments (see our Outlook 1H25). Recent market movements are likely to further boost demand for Swiss real estate. After reaching a low of 15 basis points in 4Q22, the risk premium on Swiss direct real estate investments rose again to 180 basis points in 4Q24. The increased attractiveness is also evident in capital market transactions. After low momentum in 2022 and 2023, volumes increased significantly in 2024, surpassing the CHF 4 billion mark again. In the first four months of 2025, CHF 1.8 billion was raised and another CHF 700 million was announced (see Figure 1).

Figure 1: Capital market transactions (debt and equity) on the Swiss real estate investment market (CHF million)

Besides the positive outlook for real estate investments due to lower interest rates, the defensive characteristics of real estate are becoming more prominent in the current volatile environment. Over the past 25 years, Swiss real estate funds have achieved an average return of 5.5%, just 90 basis points below Swiss equities. However, due to the high share of rental income in total returns, their volatility is significantly lower, driving the demand for real estate, especially in more turbulent times. This is particularly true for the residential segment, which is fundamentally strong in Switzerland and largely unaffected by any economic uncertainty arising from the current tariff development.

Although net immigration declined slightly in 2024 compared to the record year of 2023, it reached 83,400, marking the third-highest level in the past 25 years, following 2008 and 2023. This growth means that Switzerland's permanent population has increased by around 375,000 people over the past five years. In the first three months of this year, net migration was 20,800, remaining at about the same level as last year (see Figure 2).

Figure 2: Net migration in Switzerland (total, permanent population)

Despite the strong increase in demand, construction activity remains subdued, even though there was some improvement in 2024 due to interest rate cuts, better financing conditions, and the stabilization of construction prices. From 44,000 building applications at the low point at the end of 2022, the annual total rose to 49,000 in the first quarter of 2025. The number of approvals has also increased compared to the low point in 2023 but remains significantly below the long-term average. The widening gap between building applications and building permits likely indicates the increasing duration and complexity of approval processes. This means that construction activity and the completion of additional living space will remain subdued for some time, and price dynamics in the rental market are expected to stay strong.

According to figures from Wüest Partner, asking rents rose by an average of 4.7% in Switzerland in 2024, which is a record high for the past 25 years. This increase was also facilitated by the two reference interest rate hikes in 2023 that were reflected in in-contract rents in 2024. In 2024, the reference interest rate, and thus in-contract rents, remained constant. Due to the high proportion of fixed-rate mortgages in Switzerland, the decline in mortgage interest rates over the course of 2024 showed with a certain delay but became apparent in the reference interest rate published on 3 March 2025. As the underlying average mortgage rate dropped from 1.63% to 1.52%, the reference interest rate was lowered from 1.75% to 1.5% (see Figure 3).

As a result, in-contract rents that were at the reference rate of 1.75% are likely to decrease again in the summer of 2025. From this point forward, we expect a sideways movement. Asking rents, on the other hand, continued to rise in 1Q25, although the YoY increase of 2.3% is slightly weaker than in 2024.

Figure 3: Reference interest rate and underlying average mortgage rates (%)

Despite the expected economic slowdown posing a challenge for the commercial market, the Swiss real estate market finds itself in a favorable position, having maintained stable conditions up until now, despite the turbulences over the last five years.

While remote work and a sluggish global economy have impacted office markets worldwide, office vacancies have also risen in Switzerland. From 2019 to 2024, the average supply rate in the five major centers increased from 4.1% to 5%. This relatively moderate increase, in international comparison, is due to strong employment growth generating additional office demand in Swiss cities. Despite a significant slowdown compared to 2023, around 40,800 full-time equivalents were added in 2024 (see Figure 4).

Figure 4: Employment growth (FTEs)

The uncertainty caused by the pandemic-related shift to remote work seems to be decreasing. According to the Wüest Partner Office Space Barometer, Swiss companies do not expect further increases in home office hours. On the contrary, more and more large companies are now enforcing ‘return-to-office mandates.’ The increased demand for quality and location is likely to persist, favoring very well-located, central, high-quality properties. Flexible concepts also remain popular. Sustainability is becoming increasingly important in renting, especially for larger companies. While demand for high-quality space has driven up prime rents over the past three years, average rents are also showing signs of recovery, with YoY growth of 3.4% in 1Q25.

Retail spaces have faced significant challenges from online shopping over the past decade, compounded by low consumer confidence in recent years. As consumer sentiment saw a slight uptick from very low levels and real wages got a boost from easing inflation in 2024, retail sales experienced a modest recovery. Following declining sales volumes in 2022 and 2023, a real-term increase of 1.4% was recorded in 2024.

Consequently, rents for retail spaces are also rebounding, with asking rents rising by 2.9% quarter-on-quarter in 1Q25 (see Figure 5). Properties anchored by food retailers have benefitted the most due to positive developments in the food segment.

However, consumer sentiment fell significantly again in 1Q25, as high uncertainty affected the outlook. Despite this, we expect private consumption to remain stable in Switzerland. Given its domestic market focus, Swiss retail should be less exposed to global disruptions and continue its recovery.

Figure 5: Asking rents growth for retail space (%, QoQ)

The logistics segment has been on the rise globally for years and is gaining traction in Switzerland as well. However, due to a high proportion of owner-occupancy, it remains a niche market, although demand for space is likely to keep growing. Alongside the continued growth of online trade, increasing protectionism may also support the domestic industrial and logistics sector as companies enhance the resilience of their supply chains. Export-oriented companies may face pressures, but with limited modern rental supply, prime rents are expected to continue to rise moderately.

The Swiss hotel industry has defied the gloomy consumer sentiment both domestically and internationally, achieving another record year for overnight stays in 2024 – totaling 42.6 million (see Figure 6) – despite the strong Swiss franc. In the first three months of 2025, results matched those of the previous year. The recovery observed since the onset of the pandemic is broad-based. Contrary to many concerns, the hotel industry in city centers is thriving and setting new records. Although the USD depreciated significantly against the Swiss franc, potentially affecting arrivals from US tourists, who accounted for 8% of overnight stays in 2024, strong domestic tourism and major events like the ESC in Basel and UEFA Women’s EURO suggest another robust year for Swiss hotels.

Figure 6: Number of overnight stays in the Swiss hotel industry (million)

Yield forecasts: upturn from interest rate cuts

Globally, real estate markets have experienced significant value corrections during the interest rate hike cycle. In Switzerland, the corrections in 2023 were relatively moderate. In 2024, the market as a whole recorded positive performance again, buoyed particularly by the residential market, which represents almost 0.5 of the Swiss index and saw capital growth of 1.8%. Offices appreciated slightly at 0.2%, while retail space grew by 0.6%. Logistics properties still registered slight depreciation in values of 0.2%, whereas hotel values, supported by above-average rental income growth in cities, increased by 2.2%.

The interest rate cuts have significantly boosted demand for real estate once again. We expect capital values to rise by around 1.6% in 2025 due to continued positive rental growth prospects in the residential segment and high demand given its low cyclical dependence and defensiveness. In the commercial segment, performance is expected to be more subdued due to the threat of an economic slowdown. These pressures make commercial properties with long-term leases more favorable, especially those with tenants focused on the domestic market and less growth-sensitive sectors.

Figure 7: Total return all-property Switzerland (%, p.a.)

¹The mentioned GDP figures are adjusted for sporting events. International sports organizations such as FIFA, UEFA and the IOC have their headquarters in Switzerland. The license income recorded in connection with major sport events is recognized as value added in the entertainment sector.

Given the moderate size of the Swiss economy, the value added generated by these sporting events is a noticeable quantity in the national accounts. Major sporting events usually take place every two years and only in certain quarters, leading to fluctuations in annual and quarterly gross domestic product (GDP). In order to make GDP rates comparable over the years, the State Secretariat for Economic Affairs (SECO) publishes sport-adjusted GDP.