Investors' capital allocation into office and residential markets in ...

KTH Arkitektur
och samhällsbyggnad
Institutionen för Fastigheter och Byggande Examensarbete nr. 456
Avd för Bygg- och fastighetsekonomi
Investors’ capital allocation into office and residential markets in
Sweden and Switzerland
Författare: Handledare:
Ganna Tsyrkulenko Hans Lind
Stockholm 2008

Master of Science Thesis
Title Investors’ capital allocation into office and residential
markets in Sweden and Switzerland
Author Ganna Tsyrkulenko
Department Royal Institute of Technology
Department of Infrastructure
Building and Real Estate Economics
Master Thesis number 456
Supervisor Hans Lind, Professor, Building and Real Estate Economics
Keywords Office market, residential market, legal framework, Sweden,
Switzerland, investment assets
Abstract
In the second half (H2) of 2007 and first and second quarters (Q1, Q2) in 2008 have been
prosperous for real estate markets in most European countries. Both in Sweden and
Switzerland there was an increase in GDP and the unemployment rate stayed low
compared to the same period in the previous years. In Swedish and Swiss commercial
markets vacancy rates decreased due to the strong labour market (strong demand for
office premises), with the increase in rental levels. Residential market developed rapidly
in both countries, having new supply of apartments and high prices. In Switzerland, due
to a strong migration, the demand for residential premises is likely not to decrease.
Property investment markets in Sweden and Switzerland have been attractive for the
foreign as well as domestic investors for a long time. The amount of foreign capital
invested in Sweden totals 70 per cent of all transactions. Swedish real estate market has
high transparency. However, Swiss property market benefits from the laws on ownership
of the properties by foreigners, which favours the inflow of foreign investments in the
country. Investment banks both in Sweden and Switzerland benefit from the new inflow
of the capital. The new funds are opened; they are specified by special regions or type of
property in the country, specifically in Switzerland.
In Swedish property investment market in the first half (H1) 2008, domestic and Nordic
investors have been quite active. These investors were affected less by the financial
crisis. To refurbish the property and deliver it to the market used to be a common thing
for Switzerland while for Sweden the refurbishment of the properties is a recent way of
delivering high quality properties to the market.
2

The treaty between Switzerland and European Union on free movement of people
influenced severely residential market in the country. There is an increase in rents in
Swiss residential market and lack of apartments with low rents.
Both Sweden and Switzerland used to have low yields and low interest rates. Nowadays,
yields and interest rates increased severely in both countries caused by the credit crunch.
3

Acknowledgements
Many people have contributed somehow to the completion of my Master thesis, for
which I am very grateful.
First of all, I would like to thank my university supervisor Hans Lind for his patience,
guidance, interesting discussions and comments, which helped me to be on the right
track.
Furthermore, I appreciate the efforts of contact persons in the companies which
participated in the research. Without their help and cooperation, this paper would not
have been very objective and updated on the current situation in the markets in both
countries.
Special thanks go to my parents and friends, who enabled me to take part in this Master
Programme and for their support during my stay in Sweden.
4

Table of Contents
CHAPTER 1 ................................................................................................................................................. 6
INTRODUCTION ........................................................................................................................................... 6
1.1 Background ..................................................................................................................................... 6
1.2 Aims and objectives ......................................................................................................................... 7
1.3 Limitations of the study ................................................................................................................... 7
1.4 Disposition ...................................................................................................................................... 8
CHAPTER 2 ................................................................................................................................................. 9
METHODOLOGY .......................................................................................................................................... 9
CHAPTER 3 ................................................................................................................................................10
INVESTMENT ALTERNATIVES .....................................................................................................................10
3.1 Theoretical overview on different types of investors and investments. ..........................................10
3.2 Property as an investment asset .....................................................................................................12
CHAPTER 4 ................................................................................................................................................14
COUNTRY OVERVIEW ................................................................................................................................14
4.1 Sweden ...........................................................................................................................................14
4.1.1 Legal framework in Swedish residential market .........................................................................15
4.2 Switzerland .....................................................................................................................................16
4.2.1 Legal framework in Swiss residential market .............................................................................17
CHAPTER 5 ................................................................................................................................................19
AN OVERVIEW ON THE PROPERTY MARKETS IN SWEDEN ...........................................................................19
5.1 Office market overview ..................................................................................................................19
5.2 Residential market overview ..........................................................................................................22
CHAPTER 6 ................................................................................................................................................24
AN OVERVIEW ON PROPERTY MARKETS IN SWITZERLAND .........................................................................24
6.1 Office market overview ..................................................................................................................24
6.2 Residential market overview ..........................................................................................................25
CHAPTER 7 ................................................................................................................................................28
INVESTMENTS IN OFFICE AND RESIDENTIAL MARKETS IN SWEDEN ............................................................28
CHAPTER 8 ................................................................................................................................................31
INVESTMENTS IN OFFICE AND RESIDENTIAL MARKETS IN SWITZERLAND ...................................................31
CHAPTER 9 ................................................................................................................................................34
COLLECTION AND ANALYSIS OF THE DATA ................................................................................................34
9.1 Information about the companies...................................................................................................34
9.2 Data analysis .................................................................................................................................45
CHAPTER 10 ..............................................................................................................................................47
CONCLUSIONS ...........................................................................................................................................47
REFERENCES ............................................................................................................................................49
APPENDIX 1 ...............................................................................................................................................52
APPENDIX II ..............................................................................................................................................54
5

Chapter 1
Introduction
1.1 Background
Property has become one of the main investment assets beside shares and bonds.
However, having low liquidity compared to other assets, property represents an important
asset class in the portfolio. Government, companies and individuals are typical owners of
real estate.
Typically, the main property investors in any market are such institutions as insurance
companies and pension funds. The investors choose among different investment media on
international level. Therefore, the characteristics of each asset and linkages among them
are of great importance for the institutions. Investors’ behaviour is not only driven by
expected performance but also by the institutional framework, traditions, rules and
regulations in the market.
Having stable economies and sophisticated technologies Sweden and Switzerland attract
important flows of funds to their markets. The active growth of venture capital and
private equity in Sweden is ranked second in Europe while at the same time Switzerland
takes the last place as for the promotion of these capital investments. A country’s
legislation system, tax policies and company management are factors that prevent or
contribute to the growth of the capital investments, flows of funds (Hoesli M. and
Macgregor B., 2000).
The structure of real estate markets in Sweden and Switzerland is rather different. Offices
represent the major property type in the Swedish Real Estate market (60 per cent)
whereas the Swiss market comprises more than 50 per cent residential properties (IPD,
April, 2006).
There has been done some research about the situation in international markets and the
properties allocation in international portfolios. Property is traded more often today due
to the new technique in property valuation (time-weighted returns). Nowadays, real estate
has been placed on the same level with shares and bonds in the context of capital markets
and the wider economy. Being more liquid, property as an asset could have lower risk
premium which influences the cap rate (which takes into account the risk of investing
into the asset, with good liquidity the risk is lower, so is the cap rate) as well as capital
value. This particular research provides specific description of Swedish and Swiss office
and residential markets. Pension funds, insurance companies and large international
investors can benefit from the research project as it would give clear and rather new
information about the two specific markets as well as will save their time and resources.
6

1.2 Aims and objectives
The aim of the research is to explain investors’ behaviour in Swiss and Swedish office
and residential markets.
The objectives of this research project are to:
- describe current situation on Swiss and Swedish office and residential markets
- examine and compare investors’ behaviour in both markets
1.3 Limitations of the study
This paper does not include all the transactions made by foreign as well as domestic
investors both in Sweden and Switzerland. It is an attempt to collect the data on foreign
and domestic investors in both countries and be able to compare the investors’ interest in
property sectors. The particular research is concentrated only on office and residential
markets in both countries. The credit crunch caused the downturn in the economies. As a
result, the majority of the developed as well as developing countries was affected by the
situation in the USA. Therefore, only institutional investors in both countries are in the
main focus; which made it easier to get the data.
The initial idea was to compare and make an overview on Swedish and Swiss real estate
markets and investors’ behaviour in both countries.
The scope of the study is limited by the interviews made with large insurance companies
as well as pension funds and real estate investment managers in both countries. The paper
does not cover the investment strategies of all investment institutions which are active in
Sweden as well as Switzerland. Not all the companies managed to answer the questions.
Instead of answering the questionnaire, some companies sent the latest reports which
were produced by them. This gives the lack of information on company’s investment
strategies in Q1, Q2 2009 as well as company’s point of view on the current situation in
the real estate market after the financial crisis. In the research Geneva and Zurich
property markets are mainly analysed. In case of Sweden, Stockholm, Gothenburg and
Malmö real estate markets are overviewed.
To get the relevant and up-to-date information, the internet sources were mainly used due
to the unstable and unpredictable situation in the global economy and situation on the real
estate markets, caused by the credit crunch. Some data in the research does not include
the changes in the real estate markets in both countries after October 2008.
7

1.4 Disposition
The first chapter describes the background, aims, objectives and limitations of the study.
Methodological part of the research is overviewed in chapter two. In chapter three, there
is a theoretical overview on the types of investors and investments as well as property as
an asset.
The overview on economical situation and legal framework in residential markets in
Sweden and Switzerland is presented in chapter four to introduce current situation in both
countries. In chapters five and six there is detailed information on the office and
residential markets in Sweden and Switzerland.
In chapters seven and eight there is information on current situation about investments in
office and residential markets in both countries.
The analysis of the data received from the companies, which participated in the research,
is presented in chapter nine. In this chapter there is also information on the companies,
which were chosen for the research.
In the last chapter, chapter ten, there are final conclusions, discussion and
recommendations which are made on the basis of this research.
8

Chapter 2
Methodology
In the paper the qualitative research was used, combining the review of the literature and
other resources with the distribution of the questionnaires among the potential investors
in Sweden and Switzerland. The activity of the institutional investors in Swiss and
Swedish office and residential markets were in the main focus during the research. The
review of different literature sources was made, such as: recent research performed at the
Division of Building and Real Estate Economics at the Royal Institute of Technology in
Stockholm, internet sources (business newspapers and real estate related sources). Due to
the annual and up-to-date reports Wuest & Partners, Credit Suisse, NAI Global as well as
ISA Report, Knight Frank, Colliers and Newsec, the size and behaviour of the real estate
markets in Sweden and Switzerland were overviewed.
The interviews with institutional investors such as pension funds and insurance
companies as well as investment banks were made to get a better understanding of the
investors’ way of thinking (pros and cons of investing into real estate in a certain
country). Investment institutions for the research were chosen by the presence in both
countries and their investment activities in real estate markets in both countries. Such
institutions were participants in the research as The AXA Group, AMF Pension, Credit
Suisse, UBS and FOLKSAM.
The interviewees were selected by several criteria:
- the size of the fund, company
- amount invested into domestic/ foreign real estate
- presence of the investment institution, preferably in both countries.
The data from 2007 as well as Q1, Q2 2008 was used to get latest overview on the real
estate markets. In the appendix, the questionnaire and detailed data on transactions made
in 2007 in Swedish real estate market are presented.
9

Chapter 3
Investment alternatives
3.1 Theoretical overview on different types of investors and
investments.
Real estate asset market or a property market is the market with the ownership of real
estate assets. Real estate assets can be compared to other capital assets as stocks and
bonds. Therefore, property market must be viewed as a part of the larger capital market.
In any type of capital market investors belong to the demand side and investments belong
to the supply side. Before mentioning different types of investments and investors, it
would be necessary to talk about capital markets. The capital markets can be private or
public. “Public markets are those in which small homogeneous units (or “shares”) of
ownership in assets trade in public exchanges in which many buyers and sellers are
generally simultaneously participating in the market with price quotes available for all to
observe. The stock market is the classic example of a public capital market” (Geltner D.,
Miller N., Clayton J., Eischholtz P., 2007: pp.11). Transaction prices of the asset units
which are traded in such markets are reported on a daily basis. There is also a high
liquidity on these types of markets, meaning that it is easy/quick to buy or to sell asset
units at a last quoted price. There is informational efficiency on public markets that is
asset prices are able to respond quickly to the relevant news on the asset value (Geltner
D., Miller N., Clayton J., Eischholtz P., 2007).
According to Geltner et al. “private markets are those in which the assets are traded in
private transactions arranged between individual buyers and sellers who have “found”
each other, often through the aid of brokers” (Geltner D., Miller N., Clayton J.,
Eischholtz P., 2007: pp.11-12). In these markets the whole assets such as an entire
company or property are to be traded in a single transaction. Therefore, the average size
of the individual transactions is larger in private markets compare to the size of
transactions in public markets. Due to the facts mentioned above, the liquidity in private
markets is low compare to public markets, as it takes time for the seller to find a buyer.
Moreover, transaction costs are normally high in private markets. Privately traded assets
are traded less frequently due to the transaction and search costs. Private deals between
the buyer and the seller also influence the nature of the asset price information which is
publicly available (Geltner D., Miller N., Clayton J., Eischholtz P., 2007).
The price of any investment depends on the expectations on economic growth and
inflation. All the investments can be divided into equity (real) investments and debt
(money) investments. Equity (real) investments are linked to the real economy and
protected against the inflation. Shares are an equity investment and their fortunes are
linked to the real economy. This means that shares should provide protection against
inflation, at least over certain holding period. Debt (money) investments are prone to
inflation and linked to the inflation and interest rates. Conventional bonds are a debt
investment; they do not have a direct link to the real economy, and have a fixed income
in nominal terms. However, the nominal discount rate will increase as the inflation
10

expectations rise, making the price of the asset to fall. Therefore, conventional bonds are
prone to inflation. At the same time, index-linked gilts are not linked directly to the real
economy but they provide protection against inflation. Property in many countries has
similar features to the shares and conventional bonds. It is linked to inflation and real
economy, providing the investor with the protection against inflation in long terms
(Hoesli M. and Macgregor B., 2000).
Different investors have different requirements while investing their capital; therefore
they choose certain assets with suitable features. On the market the main investors are
organisations but wealthy individuals are quite active as well. These organisations are
pension funds, insurance companies, saving banks, property companies, unit trusts,
building societies and investment trusts. People use the organisations to invest their
capital by transferring responsibilities of choosing the investment strategy to the
organisations.
For a better understanding of the investment markets it is necessary to understand
investors’ requirements. General insurance funds, life assurance funds and pension funds
are among major types of institutional investors in many countries. Each fund invests in
all of the main assets. At the same time the percentage of the assets in the investment
portfolio varies from country to country. The differences are caused by legal frameworks
which set the limits for the particular assets. In Switzerland investment institutions hold
19 per cent in shares and 16 per cent in properties in their portfolios (Hoesli M. and
Macgregor B., 2000).
Considering investment requirements, general insurance funds require cash flow for
claims and invest into liquid assets with fixed income as short-dated gilts and short-term
cash deposits. Life assurance companies require long-term holdings with competitive
returns. Pension funds can be divided into occupational funds and other funds.
Occupational pension funds are based on the final salary and require such investments as
equities and properties, in this case long-term income and capital income are linked to the
real economy. In a competitive market the money purchase scheme operate requiring
investments in real estate as these assets give competitive long-term returns.
The investors can also be classified into three types: core, core plus, opportunistic,
renting and institutional. Core investors focus on stable income stream and low volatility
which decreases the risk of the investments. The strategy of the core investors is to put
their capital in mature and liquid markets with steady risk/return profile. These
investments used to involve low loan-to-value ratio and return ranging 8-10 per cent
(Blomkvist A., 2005).
“Core plus investors focus on regions with good expectations about income and capital
appreciation. The investments typically give stable cash flows form established markets,
but with higher risk than with low risk markets. These investments are usually quality
properties in markets that are not fully leased. The leverage is typically between 60-80
per cent and generates returns between 10 and 15 per cent. These investors normally have
a holding period of 5-10 years”(Anop S., Kharlamova D., 2007).
11

Opportunistic investors’ strategy is to focus on capital growth by investing in properties
which need some renovation/improvements on mature markets or in high-quality
properties in emerging markets. The return on these investments is over 16 per cent
which requires high risk and leverage (Blomkvist A., 2005).
Renting investors are interested in financial stability and long-term income with low risk
or full management and maintenance of the properties. The type of contract in this case is
renting or lease-back contract. These investors require the property which is strategically
valuable for the seller and the seller is ready to sign long-term lease contract ranging 10-
25 years (Blomkvist A., 2005).
“Institutional investors have large amounts to invest. They appear as investment
companies, mutual funds, brokerages, insurance companies, pension funds, investment
banks and endowment funds. Institutional investors are covered by fewer protective
regulations because it is assumed that they are more knowledgeable and better to protect
themselves. They account for a majority of overall investment volume”(Anop S.,
Kharlamova D., 2007).
3.2 Property as an investment asset
Before talking about property as an asset investment, it would be interesting to see how
real estate assets or properties are priced. On the supply side of the property market there
are property owners who want to sell or reduce the holdings of real estate assets. On the
demand side there are other investors who want to buy or increase the holdings or real
estate assets. According to Geltner “The balance between supply and demand determines
the overall level of real estate asset values relative to other forms of physical capital in
the country. Within this overall general valuation context, the specific values of
individual properties or buildings are determined by the perceptions of potential investors
regarding the level and riskiness of the cash flows that each individual property can
generate in the future”(Geltner et. al., 2007: pp.14). Properties (for example, individual
properties and buildings) vary in size and magnitude.
In general, property prices and values are usually taken in terms of property value per
dollar of current net rent or income (Geltner D., Miller N., Clayton J., Eischholtz P.,
2007). In this way it is easier to compare the prices of different properties. In commercial
markets the inverse of the price/earnings multiple is used for the description of the
property values and prices. The measure is called capitalisation rate, cap rate, which is
the property operating earnings (operating income for the owner) divided by the property
asset value or price. Capitalisation rate and current yield are similar. Current yield is the
amount of current income which is received by investor per dollar of current value of the
investment (Geltner D., Miller N., Clayton J., Eischholtz P., 2007). So, the property value
equals to earnings divided by the capitalisation rate.
Knowing how the properties are priced, it would be interesting to look at property as an
asset in single assets or multi/mixed assets portfolios. Investors allocate their capital in
12

single assets or in a multi/mixed asset portfolio, which contain shares, bonds and
property. According to a Modern Portfolio Theory, at first the efficient frontier of
portfolios containing shares and bonds is constructed and then property is included in the
portfolio and efficient frontier for the second portfolio is constructed. If the portfolio
which contains property lies above the efficient frontier of the asset portfolio with shares
and bonds only, then the property is a good diversifier in the mixed-asset portfolios. In
this case, the risk is low at the certain return, or at the certain level of risk the return is
high. The frontiers are constructed with the help of the data on the expected return and
risk of different assets. In a diversified portfolio assets with negative correlation between
each other are combined (Hoesli M. and Macgregor B., 2000).
Direct as well as indirect investments into properties are applied in the multi/mixed asset
portfolios. Direct investments include commercial and residential properties and indirect
investments into properties, which means allocating capital in property companies.
Commercial properties are considered to be mainly offices, industrial property and retail.
In some countries such as the USA, hotels are included into commercial properties.
Depending on the country’s legal framework in the property market and the availability
of data on property indices influences the investment priorities into commercial or
residential properties in the certain country. There are two types of property indices such
as appraisal-based and transaction-based. For residential property the appraisal-based
indices are used to measure risk and return of a multi-/mixed-asset portfolio. For
commercial property in most cases the transaction-based indices are used (Hoesli M. and
Macgregor B., 2000).
Both commercial and residential property assets have slightly positive correlation with
shares and slightly negative correlation with the bonds. This fact makes direct property
assets good diversifiers in multi-/mixed asset portfolios. At the same time the indirect
assets have high correlation with the shares and that is why they are not good diversifiers.
13

Chapter 4
Country overview
4.1 Sweden
Sweden is situated in northern Europe and considered to be the largest country in the
region. Stockholm is the capital of Sweden. The density of population is 22 per sq. km.,
the lowest in Europe. There are 9 million people reside in the country. The wealth is
distributed homogenously, which makes Sweden a prosperous country. There are three
main industrial and financial centres in Sweden such as Stockholm (population in
metropolitan area is 2 million), Gothenburg (population in metropolitan area is 905,729)
and Malmö (population in metropolitan area is 628,388).
As for the economic condition, Sweden is an export-oriented market. There has been
privatization going on with the social reforms. Communication services and
pharmaceutical industry favour the growing economy. Compare to other countries in
Europe, Sweden has performed quite well during the global economic crisis in the mid-
2001. Its GDP growth is forecast at 2.4 per cent this year though it is going to decrease to
1.2 per cent in 2009. Rising energy and food prices caused the increase in the inflation
rate. In the later part of H1 2008 the inflation rate was 4.4 per cent. Due to the weakening
economy the slow increase in the employment rate is expected this year. Private
consumption is forecast to grow by 2.4 per cent and disposable income will increase up to
3.1 per cent in 2008 and by 2.3 per cent in 2009. However, due to the weakening labour
market and slowing house market the saving ratio increases. The consequences of the
slowing global economy, caused by the credit crunch in US, had a slight effect on exports
in Sweden. In 2008 the expected growth in exports is 5.2 per cent which is lower
compare to 5.6 per cent last year. Sweden’s most important export market is Western
Europe (Newsec Nordic Report, autumn 2008, see Table 4).
In Q1 2008, house price index was quite strong at 9.1 per cent, which is marginally lower
than in Q4 2007 when the price index was 10.6 per cent. Despite of the low transaction
volume, northern part of Sweden had highest rates of growth at approximately
13 per cent over the financial year (Q1 2007–Q1 2008). Due to the Oresund Bridge,
which connects Sweden and Denmark, Skåne region in southern part of Sweden, had
high transaction volume at 5 per cent (over the financial year Q1 2007-Q1 2008), which
is lower then national average rate. Stockholm had rates of growth at 10 per cent over the
financial year (Knight Frank report, May 2008, see Table 4.1).
The Riksbank, the Swedish national bank, was influenced by the global slowdown in the
economy and expensive monetary policy and had to raise the repo rate in July from
4.0 per cent up to 4.5 per cent. However, in October 2008, the repo rate was decreased by
0.50 per cent to 4.25 per cent (Riksbank, 2008).
14

In 2007 the transaction volume in the property market was EUR 15.5 billion due to the
investments. However, there was a significant decrease in foreign investment activity in
the country to one third of all investments as a result of the world financial crisis. There
has been an increase in yields, higher interest rates as well as increased credit costs
(Newsec, Nordic Report, autumn 2008).
4.1.1 Legal framework in Swedish residential market
Ownership on Swedish residential property market 37 per cent belongs to housing
cooperatives, 28 per cent to municipal housing and public companies, 23 per cent to
institutions, listed companies and foreign owners, 10 per cent to private owners and 2 per
cent others.
Some favourable conditions for the investors should be mentioned: low effective
corporate tax rate, interests fully deductible for tax purposes, no thin capitalization rules,
no withholding taxes on interests, no stamp tax or capital duties on share capital,
extensive double tax treaty network, favourable holding company regime.
There is also a good availability of property lenders, good transparency (online analysis
and forecasting tools available). There is internet access to land register. It takes two days
to buy commercial property. Only one procedure should be made during the buying/
selling process. Two copies of the sales application should be submitted at a local bank
with the signatures of both sides. The buyer or buyer’s bank should submit the deed of
accession signed by the seller and the buyer to the Land Registry (The World Bank
Group). It takes two days to complete the process. Moreover, Sweden has one of the
highest Real Estate transparencies Index among UK, Netherlands and France (ISA
Report).
Land ownership in Sweden includes buildings and other facilities and a property may be
demarcated horizontally and vertically. There is no notary procedure required to transfer
land and no need for the title insurance. The procedures for mortgaging and title
registration are simple.
Nevertheless, Sweden has the most strict rent regulation system among OECD countries.
Due to this system it is not possible to match supply and demand on the market and
people are not free in their choices of tenure. Many people are forced to be owner
occupiers instead of renting the apartment which probably would not be the case under
other circumstances. Outsiders have to wait for 4 years to get the apartment outside the
suburban area of the city and more then 10 years to get accommodation in the city area.
The circumstances of the system are: 1) lower construction activity; 2) inefficiencies in
the use of the existing housing stock; 3) leads to black market activity; 4) might even
increase segregation (Hufner & Lundsgaard, 2007). In construction sector there is a lack
of competition due to the domination of the big local construction companies on the
15

market. Sweden is also famous for high construction costs which influence the price of
the apartments. Zoning regulations are the hindrance to new construction (supply) in
Swedish real estate market.
4.2 Switzerland
Switzerland is situated in the Central Europe and borders with France, Austria, Italy,
Germany and Liechtenstein. Berne (population 129,000) is the capital of the country.
Country’s financial and commercial centre is Zurich (population 364,000) and the other
major cities are Basel (population 199,000), Geneva (population 180,000) and Lausanne
(population 124,000). Compared to other countries in Europe Switzerland has a strong
economy and it performed strongly during 2007 with GDP growth of 3.1 per cent. In
2008 the GDP growth is expected to be 1.9 per cent and 1.3 per cent in 2009. In Q2 2008
its real GDP was CHF 122,879 billion. The unemployment rate declined and is 2.3 per
cent, as of June 2008. During H1 2008, the inflation rate increased dramatically at 2.9 per
cent as of June 2008, compare to June 2007. On average the inflation rate is expected to
be 2.5 per cent in 2008. An exchange rate of the Swiss franc against the Euro is 1.61, as
of end of June 2008, which is considered to be weak (CBRE, Zurich and Geneva property
market view, Q2 2008, retrieved in October, 2008, see Table 4).
Table 4 Economic overview Sweden vs Switzerland
Sweden Switzerland
Population, million 9 7
GDP growth, % 2.4* 1.9*
Inflation rate,% 4.4** 2.9**
Unemployment rate,% 6.6* 2.3**
* forecasted in 2008
** in later part of H1 2008
(Sources: IMF, ISA,CBRE and Wuest & Partner )
In Q1 2008, house price index continued to grow slowly at 0.4 per cent, which is lower
than current inflation rate of 1.0 per cent. Swiss housing market reached a peak at the end
of 2002 when the price index was almost 5.5 per cent (Knight Frank report, May 2008,
see Table 4.1).
Table 4.1 Global House Price Index (annual % growth)
Country 2007 Q1 2008 Q1
Sweden - 0.3 9.1
Switzerland 2.5 0.4
(Source: Knight Frank, May 2008)
There are discussions going on for Switzerland to enter the EU, and even Swiss laws to
become compatible with EU legislation. In June 2006 Swiss Government report
16

concluded that the continuation of a series of bilateral agreements between Switzerland
and the EU was the best short- and mid- term option. Switzerland is a member of UN and
the second largest per-capita contributor to the UN system. A number of UN agencies are
based in Geneva (Economic and Financial Data, Statistics Switzerland).
4.2.1 Legal framework in Swiss residential market
In 2007 the Swiss Government submitted to Parliament the approval of the removal of
restrictions that had prevented non-Swiss nationals from owning business or residential
properties without any complex authorization processes. According to this fact, the
market is opened to foreign investors though there are some restrictions in the number of
ownership in secondary residences in areas where they are highly concentrated. An influx
of investors and strong growth in property projects are expected on the Swiss property
market. Since 1960s, the regulations have already determined the owners of certain kind
of property and the purpose of the ownership.
According to the Federal Law on the Acquisition of Real Estate by Persons Abroad (The
Lex Friendrich, on the 16 th of December, 1983) foreign companies and individuals
required to have a specific authorization from the relevant canton to acquire property in
Switzerland. It was impossible to buy property for the investment purposes. However, the
acquisition of the holiday houses by the foreigners was allowed but the number of
authorizations was limited by quotas of the specific canton (Peregrina D. and Ducrey O.,
2007).
Since 1997, according to the Lex Kohler (revised regulations), non-Swiss nationals can
buy real estate for business purposes without any authorisations. Building space used for
commercial, industrial or trading purposes is a business property and the owners can rent
it out to the third party. Therefore, for a foreign investor it is a good opportunity to invest
the capital and to pursue the economic activity. At the same time accommodation and
administration are not business activities. According to this fact, Government activities
are defined as administrative or public-private partnerships and not allowed to acquire
Swiss real estate.
“Foreign people” are considered to be the nationals of non-EU and non-EFTA (European
and Free Trade Association) countries, they may only buy a single family house or
apartment to reside there without any authorisation. Similar rules are applied to the
purchase of the land plots for construction works which start within one year. At the same
time foreign purchasers are required to have an authorization to be able to buy a holiday
house or a second residence. In popular touristic places in some cantons the quotas are
limited and the real estate transactions for the purchase of these types of properties are
blocked (Peregrina D. and Ducrey O., 2007).
Nevertheless, the Lex Kohler law allows the “foreign people” to acquire residential real
estate in the form of subsidized housing where the rent is low or reasonable compare to
17

the similar premises in the same area. The ownership of the apartment in a newly-built
building is possible once there is a local shortage of the apartments of the same type in
the area. Investors are not attracted by these types of investments because of the low
returns. The situation looks better for the nationals of the EU and of the EFTA countries,
who reside legally in Switzerland. Since the 1 st of June, 2002, the Lex Kohler law is not
applicable towards these individuals as they are considered to have the same rights as
Swiss nationals concerning the acquisition of the real estate in the country (Peregrina D.
and Ducrey O., 2007).
Nowadays, the non-Swiss are able to acquire residential and business properties in
Switzerland without any authorisation procedures. It is also possible for foreign investors
to invest their capital in single-family houses, block of flats, apartments and building land
planned for construction. After the restrictions on the purchase of the business property
were abolished, the prices went up due to the foreign investments; similar situation is
going to be on the Swiss residential market and potential purchasers are going to compete
as the amount of the properties available on the market is limited. In Switzerland it takes
16 days to buy commercial property. The direct investments in the construction of
residential properties in Switzerland will cause the national economy to go up at the same
time the rents will balance out as the new supply of the residential stock is going to be
delivered (Peregrina D. and Ducrey O., 2007).
The situation for foreign banks looks better after the abolishment of the restrictions on the
property acquisition by non-residents. These banks will be able to participate in the
auction sales of the real estate by following debt enforcement procedures. At the same
time non-residents will be able to buy shares of the real estate companies and investment
funds. In general, foreign investors can invest into any type of the real estate properties in
Switzerland without limits. Taxes are optimized for real estate properties acquired by
foreign investors. The changes in the legal system will make an impact on trusts and
make them legally recognized (Peregrina D. and Ducrey O., 2007).
Once there is no difference between the buyers of the properties, Swiss authorities will
try to control the development of the holiday houses and the measures will be applicable
towards all purchasers (both Swiss and non-Swiss) of secondary residences in the
country. Still, removing the old regulations will speed up the development of Swiss real
estate market giving opportunities for real estate trusts, residential and business
developments and public-private partnerships (Peregrina D. and Ducrey O., 2007).
18

Chapter 5
An overview on the property markets in Sweden
5.1 Office market overview
Between 2002 and 2007 the office market has recovered from weakness. There has been
an increase in trends in Stockholm CBD area in 2007. There are 11.6 million sq.m. of
office space in the Greater Stockholm market, only Stockholm CBD area comprises
approximately 1.8 million sq.m.. Major office locations in Stockholm area are
Stadshagen, Norrtull, Frösunda, Solna Business Park, Solna Station, Solna Strand, Kista,
Globen, and Nacka Strand, Alvik, Hammarbyhamnen and Marievik. The large domestic
commercial property owners are AP Fastigheter, Vasakronan (now bought by AP
Fastigheter), SEB, Alecta, Humlegården, Folksam, AFA, AMF Pension, Diligentia,
Hufvudstaden, Balder and Fabege. Due to many ongoing development projects, there will
be a new supply of the office space in 2008, 2009 and 2010.
The demand for modern buildings prevents both less attractive and modern submarkets to
develop. The refurbishment projects are the solution to the problem. The vacancy rate in
Stockholm is 10 per cent. Strong rental market influences the vacancy rates both in the
Greater Stockholm area and attractive suburban office premises. There has been an
increase in the number of large leasing transactions recently. At the same time in
attractive locations the vacancy rate for modern office buildings is below 10 per cent. The
Kista office market, located outside of the central area of Stockholm, has a vacancy rate
of 12 per cent. In attractive Solna submarkets the vacancy rate has fallen down from
20 per cent to 14 per cent (December 2007). Office locations in the suburbs such as
Globen, Alvik, Marievik and Nacka Strand have average vacancy rate of 15 per cent
(Newsec Nordic Report 2008).
Notwithstanding to the slow growth during 2008, vacancy rates will continue to decrease
because of the strong labour market in H1 2008. Due to the fall of vacancy rates the rents
increased over 10 per cent in 2007 in Stockholm CBD area and will continue to go up in
early 2008. The new supply of office premises in 2009–2011 should be able to slow
down the dramatic growth of the rents in CBD area. The rents for modern office premises
(CBD AA) are SEK 3,800–4,500/sq.m. and for less modern premises (CBD A) they are
SEK 2,700–3,400/sq.m. The same situation is in the suburban submarkets where the
decrease in vacancy rates below 10 per cent pushed the rents up. The rent levels in Solna,
Marievik, Kista and Globen are SEK 1,700–2,100/sq.m. (for modern premises) and
SEK 1,000–1,400/sq.m. (older premises in similar locations). Today refurbished office
space in CBD, Kista and main road to Arlanda, international airport, is of great interest
for potential tenants (data on development in Stockholm area see below Table 5.1).
19

Table 5.1 Development in Stockholm area
Property
type Project/ Location
20
Size,
´000
sqm
Expected
completion
Office ÅF HQ, Solna 28 2008
Office Diligentia, Jericho 12 2008
Office Skanska,Flat Iron Building, CBD 14 2008
Office Vital/NCC, Kungsbron, CBD 16 2009
Office CSAM/NCC, Västerport 20 2009
Office Stockholm Waterfront, CBD 25 2010
Office Skanska,Skandia HQ, Stadshagen 30 2009-2010
Office Diligentia, Putten,CBD 16 2008
Office Skanska, Black Building, Sundbyberg 11 2009
Office Jernhusen, Kungsbrohuset, CBD 20 2010
Office Skanska, Bylingen, Södermalm 18 2009
(Newsec Nordic report 2008)
In other two main cities (Gothenburg and Malmö) the vacancy rates are around 9–10 per
cent. In the Gothenburg area the total supply of the office premises is around 4.5 million
sq.m.. The CBD area of Gothenburg comprises Nordstaden, Inom Vallgraven and the
area next to Avenyn and Lilla Bommen/Gullbergsvass. There are other office locations in
Gothenburg such as Gårda (situated in the city centre and has a good location for
communication) and the area in the Norra Älvstranden, in the island of Hisingen, with
where the most modern office premises are located. Vasakronan, Walenstam, Diligentia,
Bygg-Göta, Castellum, Alecta, Balder, Platzer and AP Fastigheter are the largest
domestic property owners in the Gothenburg area.
In early 2008, the vacancy rates started to go down as several new developments have
been entering the market since last year. However, newly built offices with efficient floor
plans are still of great demand in the area. Many older office premises were renovated to
be able to compete with the modern buildings. During 2008 the vacancy rates in the
Gothenburg area will continue to decrease and the reason for that is the strong demand
for modern office premises and low construction activity in the area. Average rents in the
area are getting closer to the market level. Market rental level for office premises in the
Gothenburg CBD area is SEK 1,750–2,050/sq.m. while the prime rents are in the range
SEK 2,050–2,300/sq.m. The increase in rental levels is expected in H1 2008 as the
demand is high and the vacancy rates fall (Newsec Nordic Report 2008, see below Table
5.1.2 and Table 5.1.3).

Table 5.1.2 Development in Gothenburg area
Size,
Property type Project/ Location ´000
sqm
Expected
completion
Office Gårda 30 2008-2009
Office Gårda 18 2008-2009
Office Gårda 15 2008-2009
Office Mölndal 24 2009
Office Frölunda 5 2009
Office Norra Älvstranden 18 2009
Office Gårda 16,5 2009-2010
Office Gårda 15 2009-2010
Office,
Residential CBD 18 2008
(Newsec Nordic report 2008)
Table 5.1.3 Development in Malmö area
Property type Project/ Location
Size,
´000
sqm
21
Expected
completion
Office University Island 7,5 2008
Office Western Harbor 7 2008
Office Western Harbor 3,8 2008
Office University Island 8,5 2008
Office Western Harbor 8 2009
Office University Island 5,5 2009
Office Western Harbor 8,5 2009
Office, sports
arena, incl. 6000
sqm Hyllie Arena 45 2008
(Newsec Nordic report 2008)
The Greater Malmö area comprises office stock of approximately 1.5 million sq.m.. The
CBD area is going to expand and will include some parts of the Western Harbour (today
it is a prime development area) and the area situated to the North from the Central station.
Due to the close connection to Copenhagen Airport many companies establish their
Nordic head offices in Malmö. For instance, Vestas Northern Europe plans to move its
new head office from Falkenberg to Malmö in 2008 and Daimler Chrysler will relocate
its Nordic head office to Brygghuset in the Western Harbour from Copenhagen.
There has been a decrease in vacancy rate since last year due to the high demand for
office premises. The situation is similar to Stockholm and Gothenburg. Some office
buildings were converted to residential premises, both rental and condominiums, at the
same time there were retail conversions. Some hotel conversions are in the pipeline. The
Western Harbour has low vacancies compare to the Malmö CBD area. The vacancy rates
fell due to the strong labour market. There was a rise in rents for modern office premises.
In the CBD area market rents for office buildings are SEK 1,400–1,850/sq.m. and even

higher in the area of the Western Harbour. However, prime rental levels are SEK 200–
300/sq.m., which is higher than the rental level of market rents. The increase of rents is
expected during 2008. As for Malmö and Gothenburg construction has increased due to
the large infrastructural projects (Newsec Nordic Report, 2008).
5.2 Residential market overview
The production of new apartments and single family houses has been increasing during
last 10–13 years, totalling 31,000 sq.m. in 2005 (where 61 per cent apartments and 39 per
cent single family houses). In 2006 there was an expected increase of about 10 per cent,
according to the National Board of Housing, Building and Planning. There are four large
construction companies dominating in the Swedish Residential Construction market. The
companies are quoted on stock exchange and active all over the country. Together with
other construction companies these four dominating ones strive for better quality.
“Quality assurance programs permeate practically all parts of residential construction,
thus reducing the hazard of defects and damage” (Bostads Garanti Fösäkring AB).
There has been a dramatic increase in house price in the major metropolitan areas in
Sweden such as Stockholm (15.6 per cent), Gothenburg (8.9 per cent) and Malmö
(9.2 per cent). The situation in construction sector was quite good and new dwellings
have been delivered to the market. There are more than 70 per cent of small households
reside in multi-dwelling houses (see below Table 5.2).
Table 5.2 Development in Gothenburg area
Property type Project/
Location
Residential
Residential
Mutliple
locations
Norra
Älvstranden
Residential Gårda
Norra
Residential Älvstranden
Size,
´000
sqm
1,500
Expected
completion
units 2006-2010
600
units 2006-2015
750
units 2007- 2012
2,000
units 2009- 2015
Residential Frölunda 20 2010- 2011
(Newsec Nordic report 2008)
In 2006 the volume of 29,832 new dwellings was completed. In general, residential
market in the major metropolitan areas comprises 16 per cent of households living in
owner-occupied apartments in multi-dwelling buildings, 7 per cent living in owneroccupied
or rental dwellings in one or two-dwelling buildings and only about 2 per cent
sublet rental apartments (Global Property Guide).
22

(Global Property Guide, August 2008)
From the diagram above, the influence of the credit crunch on Swedish residential market
can be noticed. The crash in housing market was caused by high interest rates. The house
price fall all over the country and in Q2 2008 the average price of the house fell by 3 per
cent compare to Q1 2008. In Stockholm house prices fell by 2.55 per cent from SEK
3,496,000 (EUR 373,757, as of 27 th of August, 2008) in Q1 2008 to SEK 3,407,000
(EUR 364,242, as of 27 th of August, 2008) in Q2 2008. In other regions of Sweden price
falls varied from 0.87 per cent in the Southern part of Sweden to 7.7 per cent in Central
Norrland (Global Property Guide, August 2008).
23

Chapter 6
An overview on property markets in Switzerland
6.1 Office market overview
Swiss office market has recovered from overcapacities recently. The excess in supply
was reduced as there was an increase in office-based employment. Due to the economic
activity in Switzerland the rise of 22,000 office-based jobs is expected in 2008 and the
vacancy rate for office space will fall. However, many development projects are still at
the stage of approval. Zurich and Geneva are Switzerland’s two biggest office property
markets. Nevertheless, there is a contrast in the supply between these two cities, Zurich
has 250,000 sq.m. (4.6 per cent) of vacant office space to offer, while Geneva has only
36,000 sq.m. (1.1 per cent) (Swiss Real Estate Market in Relatively Good Shape,
retrieved in July, 2008 from “Financial”).
The decrease in the vacancy rate in both markets continued in Q2 2008 and reached
below 1 per cent in Zurich, City or Enge area, and 1 per cent in Geneva, canton and the
City. There is a significant decrease in the overall available office space in both cities. In
Q2 2008, 186,000 sq.m. of office space is available in Zurich, compare to 226,000 sq.m.
available office space in Q1 2008. There was a slight decrease in the available office
space in Zurich CBD area, while in Geneva CBD area the amount of available space
decreased dramatically. Sub-markets in Zurich area had a decrease in supply of
commercial space totalling 45,000 sq.m. in Q2 2008, while in Geneva the fall in submarkets
was not significant.
In Geneva CBD area rents have increased as demand for office space is strong. At the
same time the increased demand for office space in Zurich CBD area is expected to slow
down during the rest of the year. The demand for the office space in the city centre has
always been high and this influenced the rental levels for new lettings. Despite of
decrease in demand for office space in Zurich area, the rents have not been affected yet.
Prime rents in CBD area in Zurich region are CHF 950/sq.m. per annum, average rents
are CHF 550/sq.m. per annum. In Zurich-West, prime rents are CHF 360/sq.m. per
annum, while the average asking rents have been pushed up to CHF 270/sq.m. per
annum, by the lack of available space. In Zurich-Altstetten the vacancy rate is high. Still,
the average rents and prime rents are CHF 200/sq.m. per annum and CHF 330/sq.m. per
annum respectively. In Zurich-North the demand increased and the average asking rents
are at CHF 260/sq.m. per annum, prime rents are at CHF 370/sq.m. per annum (Market
overview, CBRE) .
Commercial property market in Geneva is under pressure as strong demand (sustained
demand from multinationals and financial sector) is combined with the low availability of
the space, as of Q2 2008. Therefore, there was an increase in rental levels both in the city
and other areas in the canton during Q2 2008. According to CBRE-PI, the top current
rent in the city centre is approximately CHF 800/sq.m. per annum, the highest asking rent
24

in the heart of Geneva CBD area is CHF 1,200/sq.m. per annum. The average rental level
for the city is CHF 350/sq.m. per annum (CBRE, retrieved in October 2008). In Table 6.1
there is data on rents, supply and yields in Swiss office market.
Table 6.1 Swiss office market
Supply
rate, %
(2008,Q2)
Asking
prices
(Median
2008, Q2)
Prime
rents
(2008,
Q2)
Prime
yields, %
(2008,
Q2)
Zurich 8.0 280 1,050 3.9
Berne 6.7 230 450 4.2
Basel 4.8 220 530 4.3
Lausanne 6.2 250 400 4.3
Geneva 7.5 400 1,150 3.9
(Wuest & Partner, Q2 2008)
6.2 Residential market overview
In 2007, construction activity in Swiss residential market peaked at 43,000 new
apartments and single-family houses. According to the latest Real Estate Study made by
Credit Suisse’s economists, Swiss residential market is quite balanced and will not have
any dramatic changes compare to real estate markets in other European countries in 2008.
On a country level supply and demand are quite balanced but still there is some
imbalance in specific segments in some regions. However, the market is cyclical and the
extensive expansion of oversupply on the market is quite possible. There is no price
bubble on the Swiss real estate market; still there are signs of increase in prices in the
market for second homes in various parts of the country (Credit Suisse, Press Release,
March 2008).
There will be no decrease in demand due to the strong inward migration. The residential
market is well supplied and more than 42,000 residential units are expected to be
delivered to the market in 2008. The construction activity decreases gradually, as for the
rental apartments the construction activity is expected to be quite high during the current
year. The balance between supply and demand is guaranteed by the wave of immigration
from EU and EFTA countries (extra demand) and increase in Swiss households’ income
in real terms in 2008. The fraction of the extra income will be spent on housing costs as
households used to spend 16–18 per cent of the income on housing (Credit Suisse, Press
Release, March 2008).
During Q2 2008, demand for rental apartments was stable and there was an increase of
the average price in the market. Decrease in demand for prime rental apartments, aimed
for the skilled workers from abroad was caused by the slowdown of employment growth
in the service centre. Therefore, prime rents went down, mainly in Zurich area, from
CHF 630/sq.m. per annum in Q1 2008 to approximately CHF 600/sq.m. per annum,
remaining stable in other major cities. In Table 6.2 there is an overview on the rents in
Swiss residential market in major cities.
25

Table 6.2 Swiss residential market
Supply
rate, %
(2008,Q2)
Asking
prices
(Median
2008, Q2)
Prime rents
(2008, Q2)
26
Prime
yields, %
(2008, Q2)
Zurich 1.8 280 600 3.9
Berne 4.7 210 340 3.9
Basel 6.8 200 380 4.1
Lausanne 4.4 230 370 4.3
Geneva 1.1 310 650 3.8
(Wuest & Partner, Q2 2008)
Despite of rising interest rates, demand for single-family houses continued to be high
over Q2 2008. The average prices for single-family houses remained positive with the
low vacancy rates and stable supply in this particular sector of the residential market.
Still, Geneva stayed to be the most expensive city in Switzerland, where the price for an
average single-family house approaches CHF 14,000/sq. m. (see below Table 6.2.1).
Table 6.2.1 Single-family houses in Switzerland
Market
value of
the house
(mill. CHF
2008, Q2)
Planning
appl. (mill.
CHF 2008,
Q2)
Vacancy
rate, %
(2007)
Supply
rate, %
(2008, Q2)
Asking
prices
(Median
2008, Q2)
Transaction
prices (av.
object
2008, Q2)
Zurich 12,650 13.9 0.0 1.2 7,170 11,900
Berne 3,470 0.5 0.0 2.1 5,260 7,360
Basel 6,960 8.7 0.2 1.9 5,880 9,770
Lausanne 2,100 30.2 0.0 9.9 6,060 8,700
Geneva 1,270 4.7 0.5 9.5 8,590 13,820
(Wuest & Partner, Q2 2008)
During Q1, Q2 2008 there was a constant increase in supply of the owner-occupied
apartments in Berne, Lausanne and Geneva but the average price remained positive (see
below Table 6.2.2).
Table 6.2.2 Owner-occupied apartments
Market
value of
the house
(mill. CHF
2008, Q2)
Planning
appl. (mill.
CHF 2008,
Q2)
Vacancy
rate, %
(2007)
Supply
rate, %
(2008, Q2)
Asking
prices
(Median
2008, Q2)
Transaction
prices (av.
object
2008, Q2)
Zurich 18,900 1,106.0 0.0 2.6 7,400 8,590
Berne 6,330 138.9 0.1 6.4 5,430 5,900
Basel 8,780 162.3 0.3 4.4 5,590 6,450
Lausanne 6,950 186.1 0.0 5.5 6,140 6,720
Geneva 21,720 184.0 0.0 3.2 9,830 11,020
(Wuest & Partner, Q2 2008)

However, there has been an increase in vacancy rate in the single-family dwelling
segment. In a longer perspective the four rooms and more apartments will have
absorption problems. Nevertheless, in the regional centres there is a shortage of houses
due to the major concentration of immigrants in these areas. The housing market in the
area of Lake Geneva has a decrease in supply and an increase in demand (Wuest &
Partner, Q2 2008).
27

Chapter 7
Investments in office and residential markets in Sweden
Sweden attracted most of international investments in 2007. Swedish property investment
market is the largest in the Nordic region as half of the total investment volume invested
into the Nordics belongs to the Swedish commercial property sector. Domestic as well as
foreign investors have been attracted by Swedish real estate market. Mainly due to the
foreign investors on the market Swedish economy and Real Estate Market have been
strong for the last ten years. The amount of foreign capital invested in Sweden was more
than 50 per cent in 2007. Sweden is the fourth largest investment market in Europe as
well as one of the main recipients of cross-border investments. In 2007, around SEK 70
billion (EUR 7.7 billion) was invested in Swedish Real Estate. The investors outside the
Nordics accounted for more than 50 per cent of capital inflow in Swedish Real Estate in
2007. Investments come from Belgium, Germany, Ireland, US, UK, Finland, Norway,
Netherlands, Denmark. There has been a strong demand in all asset classes in Swedish
Real Estate Market in the last five years. Since 2006 until 2007, there had been a strong
demand for such types of properties as offices (35 per cent), Industrial/Logistics
(26 per cent), Retail (19 per cent), Residential (11 per cent), mixed (7 per cent) and other
(2 per cent). In 2007 types of premises were acquired by the foreign investors such as
offices (34 per cent), mixed (25 per cent), retail (14 per cent), residential (12 per cent),
industrial (11 per cent), hotel (2 per cent) and other (2 per cent). The total demand of real
estate in Sweden is 5.1 million sq.m.. Foreign investors are interested in properties in any
region in Sweden. However, the investment preference is given to the main metropolitan
areas as Stockholm, Gothenburg and Malmö (ISA Report, see Table 7.1 below for the
types of premises acquired in 2007).
Table 7.1
(Source: JLL, sited in ISA Report 2007/8)
Swedish property market attracts investments due to: 1) low transfer taxes; 2) low costs
for tax, legal and other advisory services; 3) transparent property market (reliable legal
system and common use of standardized documentation, available documents in
English); 4) easy access to the database (openness of public property records, easy access
to market data); 5) large pool of professional portfolio managers and facility management
companies. Domestic investors have been very active during 2007 making competition
28

for the foreign investors in properties in sale (ISA Report 2007/8 and Global Market
Report, Sweden, NAI Global 2008).
During 2007 the investment activity was high with the transaction volume of EUR 15.6
billion. As for the purchase of real estate and transactions made in Commercial Market in
Sweden, half of them come from abroad (foreign investors). On percentage level 59 per
cent of the owners of commercial property are institutions, listed companies and foreign
owners, 19 per cent municipal housing and public companies, 15 per cent private owners,
5 per cent housing co-ops, 2 per cent other occupiers (ISA Report 2007/8, see below
Table 7.2).
Table 7.2
(Source: Newsec, sited in ISA report 2007/8)
The area of the Greater Stockholm comprises 11.6 million sq.m. of office space. The
largest owners of commercial property are such institutions as AP Fastigheter, it acquired
Vasakronan in July 2008, SEB Trygg Liv, Alecta as well as property companies (Atrium
Ljungberg, Castellum, Fabege, Hufvudstaden and Kungsleden). Foreign owners were
major property owners in Swedish market, owning real estate assets with acquisition
value of more than SEK 210 billion (EUR 23.1 billion), by the end of 2007. Among the
major foreign owners in 2007 there were such institutions as Acta, Boultbee, DnB Nor,
GE Real Estate, ING Real Estate, Landic Property, Northern European Properties, Orkla,
Property Group, Unibail-Rodamco and Vital (Newsec Report 2008).
In H1 2008 the transaction volume in Sweden declined amounting EUR 4.9 billion,
compare to EUR 7.6 billion in H1 2007. Swedish pension funds and private dedicated
funds with a low loan-to-value ratio are the major domestic buyers of the property.
During last couple of years international investors have been active in the Swedish
investment market. Their market share comprised half of the total investment turnover in
2007. At the same time during the Q3, Q4 2007 and H1 2008 there has been a significant
decrease in the foreign investment volume caused by the international financial turmoil.
However, both domestic and Nordic buyers have been still dominating on the Swedish
investment market recently. This fact is an indication that these players have not been
affected by the global economic situation as much as international investors (Newsec
Report 2008).
Nevertheless, transaction activity in Q2 2008 reached a high level due to large
transactions such as acquisition of Vasakronan by AP Fastigheter (it was concluded at a
price of EUR 4.4 billion), acquisition of 90,000 sq.m. in Stockholm (out of 190,000 sq.m.
29

of total office and retail portfolio located in Oslo, Helsinki and Stockholm), Norwegian
retail company Steen and Ström (owner of 30 shopping centres in Norway, Sweden with
nine shopping centres out of 30, and Denmark) was sold at EUR 2.7 billion, acquisition
of a part of the Vasakronan portfolio and one additional property by NIAM at
approximately EUR 750 million (Newsec Report 2008, see the Table 7.3, Table 7.4
below and full data of transactions made in 2007 in Appendix II).
Table 7.3
Table 7.4
(Source: Newsec Report, sited in ISA report, 2007/8)
(Source: DTZ, sited in ISA report, 2007/8)
30

Chapter 8
Investments in office and residential markets in Switzerland
Since a few years ago Swiss market has been having over supply but in 2007 the volume
of transactions increased due to the numerous significant transactions. Recently, the
interest from foreign investors in Swiss investment market has increased. Interest rates
drive the present Real Estate Market. Pricing pressures on the building industry from
China and India caused the increase in construction costs as well as in construction
projects.
Foreign companies were allowed to buy commercial properties in Switzerland since
1997. However, only a few years ago foreign investors started to enter the Swiss
commercial property market. Swiss low interest rates caused low yields, primary
waterfront buildings have 4 per cent yield and secondary yields are fluctuating within
5 per cent to 7.5 per cent (Global Market Report, Switzerland, NAI Global, 2008).
Moreover, yields depend on tenant mix and the standard of the building. As for the Swiss
office rental market, it has increased within the main cities. There is an upward trend in
financial sector in Geneva while Zurich is considered to be the largest commercial centre
in Switzerland. There are also changes in other cities as Lausanne, Basel, Lugano and
Berne. After the period of over supply 2000–2006 in Zurich the market has recovered and
the investors got the income growth during 2007. Prime office rents in Geneva are CHF
1,000/sq.m. per annum while in Zurich they are only CHF 850/sq.m. per annum in
Zurich’s prime location along Bahnhofstrasse. As for the secondary areas in Zurich the
prices went down dramatically to CHF 500–600/sq.m. per annum (Global Market Report,
Switzerland, NAI Global, 2008). In Table 8.1 there is a data on main foreign investors
and the volume of their investments in Switzerland.
Table 8.1 Foreign Direct investment in Switzerland-by country
Country 2005 2006 2007
Germany 768 1,074 15,387
Netherlands 9,102 15,780 13,154
Austria 9,826 2,534 5,083
Luxemburg - 3,409 2,911
France 2,158 13,886 2,677
United
States - 3,980 3,219
(SNB, September 2008)
The performance of Swiss property investment companies such as SWX
Immobilienfonds Index (the index of real estate investment funds), SWX Real Estate
Index (it contains Switzerland’s real estate investment companies) changed during the
last year. Domestic property investment companies and funds used to have an excellent
performance until 2007. In 2007, the SWX Immobilienfonds Index had a negative
31

performance of 3.4 per cent, Swiss Real Estate Index decreased by more than 10.9 per
cent. Together with real estate other assets performed poorly, such as The Swiss Bond
Index (SBI) was recorded at the end of 2007 with the return of -1.1 per cent, Swiss
equities performed at -0.1 per cent (Credit Suisse Real Estate Market report 2008, see
Table 8.2).
Table 8.2 Performance of Swiss real estate investment vehicles 2007
(Source: Credit Suisse Economic Research, Datastream)
There are 17 Swiss Real Estate investment funds, among them there are four main large
funds such as Credit Suisse Real Estate Fund Interswiss, Credit Suisse Real Estate Fund
Siat, UBS (CH) Property Fund Anfos and UBS (CH) Property Fund Sima. Credit Suisse
Real Estate Funds performed better compared to UBS Real Estate Funds, achieving the
overall returns of - 0.2 per cent and 2.4 per cent. At the same time UBS Real Estate
Funds achieved the overall returns of - 6.1 per cent and - 10.1 per cent in H2 2007 (Credit
Suisse Economic Research 2008, see below Table 8.2).
Table 8.2 Performance of the four largest Swiss investment property funds 2007
(Source: Credit Suisse Economic Research, Datastream)
32

The fall in the prices of Swiss Real Estate Funds was caused by several factors such as
credit crunch, the lack of demand of real estate funds and increase in supply of real estate
funds as three new property funds were established in H2 2007, such as Procimmo,
Patrimonuim Swiss Real Estate Funds and Credit Suisse Real Estate Fund LivingPlus.
Not only real estate funds but real estate investment companies performed poorly in
2007, making investors disappointed in their expectations.
While office market is quite volatile as an investment, the residential market is
considered to be more resistant to economic cycles. Currently, Swiss housing market is
influenced severely due to the treaty between Switzerland and European Union on the
free movement of people. The rents increased above average in the urban areas of Zurich,
Basel, Geneva and Lausanne. At the same time there is a lack of apartments with low
rents and a growing number of households were spending more than a quarter of their
incomes on rents. More incentives for housing construction were suggested by the
minister, Leuthard, including more land to be made available and less complicated
regulations.
“However, Leuthard said housing policy should not solely be an issue of quantity. It
should also include the integration of different population groups, demographics and the
use of alternative energy means”(Swiss info).
33

Chapter 9
Collection and analysis of the data
9.1 Information about the companies
AMF Pension
AMF Pension has about SEK 321 billion in assets under its management. It is one of
Sweden’s leading pension companies and the sixth largest owner on the Stockholm Stock
Exchange. AMF Pension has approximately 200 employees. The company is a limited
liability life insurance company that is owned equally by the Confederation of Swedish
Enterprise and the Swedish Trade Union Confederation (LO).
AMF Pension focuses on occupational pensions in the retail and corporate markets,
particularly traditional life insurance and unit-linked insurance. In addition, AMF Pension
Fondförvaltning AB focuses on direct savings in mutual funds. The company operates
different types of investments such as equity investments, fixed-income investments, real
estate investments and mutual funds.
In 2007, the total return on AMF Pension’s investments amounted to 4.9 per cent (9.6).
The highest return was generated by the property portfolio at 17.4 per cent (19.7). The
total return on the equity portfolio was 3.6 per cent (16.8). The Swedish equity portfolio
fell to a negative return of 2.2 per cent (positive: 27.9). The return on the fixed-interest
portfolio was 3.3 per cent (0.9).
AMF Pension AB, is the parent company and includes AMF Pension Fondförvaltning
AB and AMF Pension Fastighetsförvaltning AB. AMF Pension Fondförvaltning AB
conducts mutual fund business while AMF Pension Fastighetsförvaltning AB manages
the Group's real estate holdings.
AMF Pension is a process-oriented organisation with two units, Pension Market and
Asset Management, as well as six staff functions. The Pension Market unit is responsible
for sales activities, market communication, development of the customer offering, and for
customer management and administration of AMF Pension's insurance products.
The Asset Management unit is responsible for investment of the policyholders’ life
insurance assets and for management of mutual funds. Asset management at AMF
Pension consists of three business departments that manage fixed-income securities,
equities and real estate as well as one administrative department. The portfolio is
managed internally. The staff functions support the other parts of the organisation in their
respective areas of responsibility.
34

Total return from the investments into real estate amounted to 17.4 per cent (19.7) in
2007. At the end of 2007, AMF Pension owned properties with a market value of
SEK 20.3 billion (18.6), that is about 7.3 per cent (7.0) of the total portfolio.
In the rental market, pressure increased compared with the preceding year. This benefited
AMF Pension with its favourably located office and commercial properties. There was an
increase in the rent levels, while the vacancy level went down to slightly less than 5 per
cent from 8 per cent in the preceding year.
Swedish and international investors showed an extensive interest in Swedish properties
during the first three quarters of 2007. However, during the autumn, the banks became
stricter in their lending. Despite this, demand for properties remained strong, although
fewer were interested in buying.
Investment assets, distribution, 2008-09-30, %
Swedish bonds and money market instruments 20,8 %
Foreign bonds 35,8 %
Swedish equities 14,8 %
Foreign equities 20,1%
Real Estate 8,5 %
Investment assets, distribution, 2007-12-31, %
Swedish bonds and money market instruments 21,1 %
Foreign bonds 29,1 %
Swedish equities 21 %
Foreign equities 21,5 %
Real Estate 7,3 %
(Source: http://www.amf.se/templates/Page.aspx?id=9469 )
35

AMF Pension's total return top of the league
Average total return
Company 20 years 15 years 10 years 5 years 3 years
AMF Pension 11,20% 11,20% 8,30% 10,10% 10,10%
LF Liv 10,20% 9,30% 5,90% 8,90% 9,70%
Alecta (SPP) 9,60% 9,60% 7,50% 9,60% 9,10%
SEB Trygg former 9,30% 9,20% 7,30% 9,80% 9,70%
Skandia Liv 9,10% 9,80% 7,20% 8,90% 9,00%
Folksam Liv 9,00% 8,60% 5,30% 6,10% 5,20%
SHB Liv 8,70% 8,10% 6,20% 6,80% 6,90%
SPP Liv - - 4,70% 5,00% 4,60%
Source: Swedish Insurance Federation as on 2007-12-31
36

Credit Suisse
The company provides with advisory services, comprehensive solutions, and innovative
products. Registered shares of Credit Suisse Group AG (CSGN) are listed in Switzerland
(SWX) and as American Depositary Shares (CS) in New York (NYSE). Business areas of
the company are private banking, investment banking and asset management. Assets
under management are about CHF 1 554,7 billion, as of December 31, 2007. Credit
Suisse Group reported a net loss of CHF 1,261 million in Q3 of 2008, as indicated on
October 16, 2008, compared with net income of CHF 1,302 million in the third quarter of
2007. Core net revenues were CHF 3,109 million, down 48 per cent from Q3 of 2007
(Zurich, October 23, 2008)
In Asset Management the company is focused on equities, fixed income and multi-asset
class products, to alternative investments such as real estate, hedge funds, private equity
and volatility management. Credit Suisse’s Asset Management business manages
portfolios, mutual funds, and other investments for governments, institutions corporations
and private individuals. The company has offices, focused on asset management, in 23
countries. Asset Management business is managed as follows:
• Global Investors: Equity and fixed income investments, including money market
investments
• Multi-Asset Class Solutions: Active asset allocation strategies and solutions across
all asset classes
• Alternative Investments: Private equity, real estate, single and multi-manager hedge
funds and other alternative investment strategies
Credit Suisse’s Alternative Investments business is involved in private equity, hedge
funds and other related activities. It includes Funds and Alternative Solutions, Leveraged
Investments, Quantitative Strategies, and Volaris as well as a diverse family of private
equity funds, including leveraged buyout funds, mezzanine funds, core and opportunity
real estate funds, secondary funds and private equity fund of fund businesses. Alternative
Investments business manages approximately USD 165 billion in assets. Alternative
Investments raises capital for third-party managers through its Private Fund Group and
Real Estate Private Fund Group.
Real Estate Asset Management works with
• Core and core plus investment funds and mandates. Over 1,000 properties managed
through more than 20 direct investment vehicles packaged as open customized
37

mandates or closed ended property funds, property companies and foundations for
retail and institutional investors
Opportunistic:
• Global opportunistic real estate private equity fund. Responsible for the successful
performance of three predecessor funds with over USD 3.1 billion of aggregate equity
commitments in 165 investments since 1996
Securities
Real Estate Securities
• Extensive capabilities in publicly traded real estate securities across the globe.
Long/short and event-driven hedged strategies focused on real estate securities
including REITs, lodging, homebuilders, gaming, mortgage finance and asset-backed
operating companies
Fund of RE Funds (Secondary)
Secondary
• Investing in secondary limited partnership interests
• Real estate stand-alone funds
Commodities
• Pure commodity index exposure by investing in commodity-linked futures
• Flexibility to select appropriate benchmark to meet specific client needs
Credit Suisse has different segments such as:
• Private banking it comprises the Wealth Management and Corporate & Retail
Banking businesses. Its income before taxes of CHF 789 million in Q3 of 2008, a
decrease of 39 per cent from the third quarter of 2007.
• The Wealth Management business. Its income before taxes of CHF 389 million in
Q3 of 2008 went down 57 per cent from Q3 of 2007.
• The Corporate & Retail Banking business reported income before taxes of
CHF 400 million in Q3 of 2008, up 3 per cent from Q3 of 2007.
• In Investment Banking, the loss before taxes was CHF 3,225 million in Q3 of 2008,
compared with income before taxes of CHF 6 million in Q3 of 2007.
38

Fixed income trading revenues were significantly lower in the third quarter of 2008
compared with the same period of 2007, primarily reflecting the above-mentioned net
writedowns and losses in the corporate lending business. The results also included net
writedowns from Credit Suisse's investments in the preferred shares and hybrid capital
securities of certain financial institutions and losses in commodities. Partially offsetting
the results were strong revenues in the global rates and foreign exchange businesses.
Equity trading revenues declined substantially from Q3 of 2007, primarily due to
significant losses in convertibles and Credit Suisse's long/short and event and risk
arbitrage strategies, as well as weaker results in global cash equities. These results were
partially offset by good performance in prime services and equity derivatives. Fixed
income and equity trading benefited from fair value gains of CHF 1,876 million due to
widening credit spreads on Credit Suisse debt. The underwriting and advisory businesses
produced lower revenues compared with Q3 of 2007, in line with the overall decline in
market activity.
Asset Management
In Asset Management, the loss before taxes was CHF 58 million in Q3 of 2008,
compared with income before taxes of CHF 45 million in Q3 of 2007. The loss reflected
private equity and other investment-related losses of CHF 109 million and net
writedowns from securities purchased from Credit Suisse's money market funds of
CHF 36 million.
39

FOLKSAM
Folksam has over four million customers and manages SEK 220 billion of assets on their
behalf. In 2007 Folksam enters into a collaborative venture with Swedbank in respect of
non-life insurance, unit-linked insurance and asset management. The same year Folksam
also acquired the company Tre Kronor AB from Trygg-Hansa and Sparebank1.The
acquired company will continue their non-life insurance business via Swedbank’s branch
network. During 2007 Folksam mainly concentrated on strategic business deals with
Swedbank and KP. Due to these agreements Folksam will strengthen their core business
in non-life and life insurance and pension savings.
KPA Pension is Folksam’s major-owned subsidiary which manages the occupational
pensions of one million employees in Swedish municipalities and county councils.
During 2008, KPA’s equity holdings in traditional pension insurance are expected to
amount to approximately 40–50 per cent of all the equity which is hold in KPA.
The Folksam Group is made up of Folksam General Group and the Folksam Life Group
including non-consolidated subsidiaries. The Folksam General Group’s profits decreased
slightly to SEK 1,043 million. At the same time profits for the Folksam Life Group
decreased dramatically, almost SEK 1 billion to SEK 1,988 million. The decrease in the
profits was caused by the rise in interest rates and lower returns. However, the Folksam
Life Group reported an increase in premium to more than SEK 12 billion. Property, being
one of the assets in Folksam Life Group, performed best in 2007, due to a high increase
in values. In four years Folksam’s funds under management had increased from SEK 115
billion to SEK 210 billion, in February 2008.
40

(Source: FOLKSAM Life Administration report, 2007)
41

UBS
UBS is one of the world’s leading financial firms, serving a discerning international
client base. UBS is leading global investment banking and securities firm and one of the
largest global asset managers. In Switzerland, UBS is the market leader in retail and
commercial banking.
UBS has three main businesses such as
• Global Wealth Management and Business Banking. Its Swiss retail and
corporate banking business provides a complete set of banking and securities
services for domestic individual and corporate clients.
• Global Asset Management. Investment capabilities comprise traditional assets,
particularly equities, fixed income and asset allocation, alternative and
quantitative investments such as multi-manager funds, funds of hedge funds and
hedge funds as well as real estate.
• Investment Banking. UBS provides securities products and research in equities,
fixed income, rates, foreign exchange, energy and metals. It also provides access
to the world’s capital markets for corporate, institutional, intermediary and
alternative asset management clients.
UBS has four real estate funds under management, such as “Sima”, “Swissreal”, “Anfos”
and “Foncipars”.
Sima fund invests both in residential and commercial properties in Switzerland. The fund
is focused on the large conurbations. The main objective of the fund is to generate returns
in line with the market. Net fund’s assets are CHF 3 672.97 million. Geographically, fund
is active in Canton Zurich (51.1 per cent), Canton Geneva (8.8 per cent), Canton Basel
City/ Country (12.9 per cent). Fund’s property portfolio contains residential property
(48.3 per cent), commercial property (38.0 per cent), and mixed buildings (11.7 per cent),
land/buildings under construction (2.0 per cent).
Swissreal fund invests primarily in Swiss commercial property in large cities. Fund’s net
assets are CHF 606.18 million. Geographically, the fund is active in Canton Zurich
(29.3 per cent), Canton Basel City/ Country (16.1 per cent), Canton Vaud (16.0 per cent),
Canton Geneva (14.9 per cent), Canton Bern (11.7 per cent). Property portfolio of the
fund contains commercial buildings (78.8 per cent), land buildings under construction
(13.0 per cent), mixed buildings (6.2 per cent) and residential property (2 per cent).
Anfos fund invests in residential property in German-speaking Switzerland in large cities.
Fund’s net assets are CHF 1 007.31 million. Geographically, fund invests in Canton
Zurich (38.2 per cent), Canton Basel City/ Country (26.0 per cent), Canton Bern
(11.1 per cent), Canton Lucerne (4 per cent). Fund property portfolio contains residential
property (74.2 per cent), mixed buildings (10.2 per cent) and land/buildings under
construction (2.6 per cent).
42

Foncipars fund invests in residential property in western Switzerland, particularly
Lausanne, Geneva and their environs. Geographically, the fund invests in Canton Vaud
(63.5 per cent), Canton Geneva (28.0 per cent), Canton Fribourg (5.4 per cent), Canton
Neuchatel (1.8 per cent) and Canton Valais (1.3 per cent). Fund property portfolio
contains residential property (70.0 per cent), mixed buildings (28.1 per cent), commercial
buildings (1.4 per cent), and land/buildings under construction (0.5 per cent). Fund’s net
assets are CHF 628.24 million.
43

The AXA Group
AXA is a world leader in financial protection and wealth management, with major
operations in Western Europe, North America and the Asia/Pacific area.
AXA services over 50 million customers throughout the world. In total, the AXA Group
has approximately 110,000 employees and distributors worldwide, working in around
50 countries.
The AXA Group had EUR 1,315 billion in assets under management, as of 31
December 2006.
AXA’s ordinary shares are listed on the Paris Stock Exchange. AXA American
Depository Shares (ADSs) are listed on the NYSE.
AXA Real Estate Investment Managers (AXA REIM) is a wholly-owned subsidiary of
the AXA Investment Managers Group. It is focused on European real estate and manages
over EUR 43 billion assets, as of 30 June 2008.
AXA REIM has an extensive local real estate infrastructure and operates in 19 countries.
It is a global real estate investment management in Europe, expanding in Asia. AXA
REIM manages such funds as
• Pan-European funds. AXA REIM offers clients sophisticated pan-European
funds and investment strategies such as:
- AXA Immoselect
- AXA Immosolutions
- AXA Property Trust
- AXA Real Invest Europa 1
- European Industrial Partnership
- European Logistics Income Venture
- European Office Income Venture
- European Retail Income Venture
- Pan-European Separate Accounts
- Real Estate Private Equity
• Country specific funds. AXA REIM manages a substantial number of interritory
real estate funds and strategies according to the clients’ requirements.
- French Development Venture
- French Development Venture II
- French Institutional Fund
- Greater London Fund Paris
- Office Fund
- Paris Office Fund II
44

- Separate Accounts: France, Italy, Japan, UK
• Property specific funds. AXA REIM frequently creates joint ventures with
suitable partners and arranges syndications of large individual real estate assets
such as Merkens Retail Closed-end Funds and Dloterdijk Amsterdam.
9.2 Data analysis
The following investment institutions have been chosen for the research such as
investment/commercial bank UBS (Switzerland, Sweden), Credit Suisse (Switzerland),
AXA Group/ AXA REIM (Real Estate Investment Managers) (Switzerland, Sweden),
insurance companies and pension funds such as AMF Pension (Sweden) and FOLKSAM
(Sweden).
Insurance and pension companies invest mainly into the equity, bonds, real estate, mutual
funds and fixed shares. According to the companies’ reports and data, received during the
research, Swedish insurance and pension companies invest almost the same amount into
real estate (around 8 per cent). At the same time, investment/commercial banks have
more diversification investing into different kinds of funds such as hedge funds, buyout
funds, mezzanine funds, core and opportunity real estate funds, secondary funds and
private equity fund of fund businesses as Credit Suisse, while UBS diversifies the real
estate portfolio having several Real estate funds.
AXA Group, particularly AXA REIM, reported the decrease in the demand for
commercial property investment in the UK in recent months in 2008. There has been a
significant increase in the level of withdrawals from AXA’s property funds which invest
in commercial property. There has been a deferral period while the properties were on
sale. Now AXA has to sell properties in order to raise the cash to meet those withdrawals.
The company considers property to be an important part in a well balanced portfolio of
investments. Therefore, the property funds remain open to new investors. Any new
investors will need to be aware of the deferral period applying and we will ensure they
are fully informed of the situation.
Insurance companies as well as real estate investment management companies invest not
only into offices, retail but into the hotels as well. Swedish Pension Company invests in
national real estate such as offices, retail and has a small percentage of their investments
in residential properties. In Sweden, properties in main cities, such as Stockholm,
Gothenburg and Malmö, are chosen for the investment as these regions have strong longterm
perspectives. In Switzerland, looking at the investment strategy of UBS, office and
residential properties in all parts of the country are involved such as Canton Zurich,
Canton Geneva, Canton Basel City/ Country. There are also funds in UBS which invest
only in residential properties in German and French parts of Switzerland. While in
Sweden, AMF pension has only 2 per cent of the residential properties in Västerås,
offices and retail are mainly situated in Stockholm (89 per cent) and in Gothenburg only
(9 per cent).
45

All investment institutions are mainly contacted by the consultancy companies, which are
looking for the investment sources for certain projects. Nevertheless, investment
institutions make their own research to find the potential investments and get into contact
with owners of real estate.
Swedish Insurance Company used to take a loan from the national bank for the real estate
funds, while Pension Company manages its own equity (without taking any loan). That
means that the pension company is less sensitive towards, changing interest rates in the
banks and financial crisis consequences. Real Estate Funds in UBS use other banks to
take a loan (depending on the property, up to 70 per cent loan to equity ratio) and pension
money is invested in real estate.
Despite of new methods in property valuation it takes a lot of time and efforts to acquire
the property as well as find a buyer/investor for it. However, real estate as an asset is
considered to be the source of rather stable returns. After the credit crunch, financing of
the property acquisition is the main problem both for the foreign and domestic investment
institutions, including the institutions which invest their own equity while acquiring real
estate in Sweden. The same situation is observed in Switzerland.
International as well as domestic investors are active both in Swedish and Swiss real
estate markets. During 2008, domestic investors became more active and competitive in
real estate markets (office and residential) both in Sweden and Switzerland. All
investment institutions were affected by the financial crisis, some less some more.
However, in 2009, commercial bank UBS (Global Asset Management) plans to invest in
the countries where the prices for the real estate are quite low. Moreover, Swedish
insurance company makes investigations on new properties as well as development
projects in real estate market mainly for its funds excluding direct investments. At the
same time Pension company does not plan to acquire any real estate in Q1 2009, whereas
there will probably be some acquisitions made in Q2 2009.
46

Chapter 10
Conclusions
Real estate assets are traded in private markets. Private markets are the markets where
assets are traded in private transactions, which are normally arranged by brokers, between
individual buyers and sellers (Geltner, Miller, Clayton, Eischholtz, 2007). In these
markets real estate assets are to be traded in a single transaction. Therefore, the average
size of the individual transactions is large in private markets. It takes time for the seller to
find a buyer; therefore, the liquidity in private markets is low compare to public markets.
Transaction costs are normally high in private markets. Due to the transaction and search
costs privately traded assets are traded less frequently (Geltner, Miller, Clayton,
Eischholtz, 2007).
Nevertheless, property is included in the portfolio of any investor as a diversifier.
Investors are quite active allocating their capital in different real estate assets. Office and
residential markets in Sweden and Switzerland were of a particular interest in the
research. Before investing into real estate in every country one should be aware of the
pros and cons of the investments and legal issues in the country. Through the latest data
from internet sources and market reports as well as answers on the questionnaires from
the companies, this research paper has provided the overview on current situation in
residential and office markets in Sweden and Switzerland as well as investors’ activity in
both countries.
Both countries have stable economies and have conservative attitude towards foreign
investors coming into their residential markets. In the second half (H2) of 2007 and first
and second quarters (Q1, Q2) in 2008 GDP was increasing, and unemployment rate was
low compared to the same period in previous years both in Sweden and Switzerland.
Strong labour market in both countries during H2 2007 and H1 2008 caused a decrease in
vacancy rates and increase in rents for office premises. At the same time there was an
increase in supply in residential markets of both countries. In Sweden the rent regulation
system is still a barrier for the investors to enter the market. Therefore, the increase in the
supply was caused by low interest rates and favourable conditions while taking a bank
loan to buy an apartment in Sweden. Instead of new constructions, the renovations had
been made in the renting apartments making the apartments to be owner-occupied.
Having similarities in the economies and population quotient, the real estate markets in
both countries differ in size. Swedish market is bigger and more open for the investors
than Swiss market. The amount of foreign capital invested in Sweden totals 70 per cent of
all transactions. Swedish real estate market has high transparency. It takes two days to
register the property in Sweden, while in Switzerland it takes sixteen days.
The barrier for the investors in Swiss real estate markets is legal system which differs
from canton to canton. Office markets in both countries are quite open and attractive for
foreign capital. The demand for residential premises is likely not to decrease as there is a
strong migration into the country. The residential market has no rent regulations, that is
47

why the supply can be absorbed quickly and there is construction going on, satisfying the
demand. Moreover, Swiss property market benefits from the laws on ownership of the
properties by foreigners, which favours the inflow of foreign investments in the country.
The new funds are opened which are specified by special regions or type of property in
the country. The treaty between Switzerland and European Union on free movement of
people influenced severely residential market in the country. There is an increase in rents
in Swiss residential market and lack of apartments with low rents.
In Swedish property investment market in the first half (H1) 2008, domestic and Nordic
investors have been quite active. These investors were affected less by the financial
crisis. To refurbish the property and deliver it to the market used to be a common thing
for Switzerland while for Sweden the refurbishment of the properties is a recent way of
delivering high quality properties to the market. Both Sweden and Switzerland used to
have low yields and low interest rates. Nowadays, yields and interest rates increased
severely in both countries caused by the credit crunch.
Despite of the better liquidity of real estate as an asset, still the investors are quite careful
to have it in their portfolio. It takes time to enter the real estate market and to leave it,
once it is necessary.
This paper is an attempt to get an overview on the current situation in real estate markets
in comparatively similar countries. The material can be used for further research in the
development of the residential and office markets, particularly risk premium on both
markets in Sweden and Switzerland.
48

References
AMF Pension (2008) http://www.amf.se/templates/Page.aspx?id=9469
Anop, S. and Kharlamova, D. (2007) International real estate investments in Sweden –
effects on the real estate and related markets, Master of Science Thesis, Stockholm: KTH
AXA Group (2008) http://www.axa.com/en/investor/
Blomkvist, A. (2005) Patterns in Foreign Real Estate investments in Sweden, Master of
Science Thesis, Stockholm: KTH
Bostads Garanti Fösäkring AB retrieved in July, 2008 from
http://www.bostadsgaranti.se/English/residential_market.htm
CBRE (October, 2008) Market Overview http://www.cbre.ch/
Credit Suisse (2008) http://www.credit-suisse.com/ch/en/
Doing Business, retrieved in September, 2008 from The World Bank Group
http://www.doingbusiness.org/ExploreTopics/RegisteringProperty/Details.aspx?economy
id=181
Economic and Financial Data, retrieved in November, 2008 from Statistics Switzerland
http://www.bfs.admin.ch/bfs/portal/de/index/themen/systemes_d_indicateurs/economic_a
nd_financial/data.html
“The Financial”
http://www.finchannel.com/index.php?option=com_content&task=view&id=7614&Itemid=45
FOLKSAM (2008) http://www.folksam.se/english
Geltner, D.M., Miller, N. G., Clayton, J., Eichholtz, P. (2007) Commercial Real Estate
Analysis and Investments, Second Edition, Thomson Higher Education, USA
Global house price index (First Quarter 2008) retrieved in September, 2008 from
http://www.knightfrank.co.uk/press/2008-News-Stories/documents/08pr430-
GlobalHousePriceIndex-Q12008.pdf
Global Property Guide retrieved in August, 2008 from
http://www.globalpropertyguide.com/Europe/Sweden/Price-History
Hoesli, M. and Macgregor, B. (2000) Property Investment. Principles and Practice of
Portfolio Management, Pearson Education Limited, London
49

Hufner, F. and Lundsgaard, J. (2007) The Swedish Housing Market – Better Allocation
via Less Regulation, Economic Department Working Paper No.559
International Monetary Fund (Unemployment rate in Sweden, H1 2008)
http://www.indexmundi.com/sweden/unemployment_rate.html
Invest in Sweden Agency (2007) http://www.isa.se/templates/Normal____58937.aspx
Investment Property Databank- IPD (April 2006) http://www.ipd.com
Knight Frank report (May, 2008)
http://www.finfacts.ie/irishfinancenews/article_1013768.shtml (residential market, Swiss
and Swedish), retrieved in October, 2008
The Local (Swedish newspaper online)
http://www.thelocal.se/article.php?ID=2192&date=20050930
Newsec Nordic Report Spring 2008, retrieved in July, 2008 from http://www.emagin.se/v5/viewer/files/viewer.aspx?gIssue=1&gTitle=Nordic+Report+2008+(high)+&gYear=2
008&gUserID=0&gPaperID=9898&gAvailWidth=1014&gAvailHeight=703&gInitPage=1
Office Market Report Switzerland, retrieved in July, 2008 from Colliers report
http://www.colliers.ch/download.php?id=97
Peregrina, D. and Ducrey, O. (2007) retrieved in July, 2008 from
http://www.legalweek.com/Navigation/20/Articles/1002359/Switzerland+Home+Front.ht
ml
Riksbank, Swedish National Bank (October, 2008)
http://www.riksbank.com/templates/Page.aspx?id=29194
Swiss commercial market overview, retrieved in August, 2008 from NAI Global, Global
Market Report 2008
http://www.naiglobal.com/GlobalPubs/pubdownload.aspx?titleid=NAID00000058
Swedish commercial market overview, retrieved in August from NAI Global, Global
Market Report 2008
http://www.naiglobal.com/GlobalPubs/pubdownload.aspx?titleid=NAID00000052
Switzerland: Home Front retrieved in July, 2008 from “Legalweek”
http://www.legalweek.com/Navigation/20/Articles/1002359/Switzerland+Home+Front.ht
ml
Swiss Real Estate Market in Relatively a Good Shape, retrieved in November, 2008 from
“Financial”
http://www.finchannel.com/index.php?option=com_content&task=view&id=7614&Itemi
d=45
50

Swiss info
http://www.swissinfo.org/eng/news_digest/Housing_market_feels_strain_of_labour_acco
rd.html?siteSect=104&sid=9780012&cKey=1222524888000&ty=nd
Swiss National Bank (November, 2008) Investments into Switzerland
http://www.snb.ch/en/iabout/stat/statpub/statmon/stats/statmon
UBS (April, 2008) Wealth Management Research
http://www.ubs.com/1/e/ubs_ch/wealth_management_switzerland/investing/ubs_funds.ht
ml
Wuest & Partner (2008) Property Market Switzerland, retrieved in October, 2008 from
http://www.wuestundpartner.com/home/spm_report/Quarterly_08_3.pdf
51

Appendix 1
Interviewees were chosen from the pension funds, insurance companies and investment
banks both from Switzerland and Sweden. The questions remained similar despite of a
company type.
Questionnaire
Background question
1. What type of a company is it?
a) Investment bank
b) Insurance company
c) Pension fund
d) Other (please, specify)………………………….
Choosing the investment
2. What are the company’s investment priorities?
a) fixed shares
b) real estate (type of the properties)
c) funds (type of the fund)
d) others (please, specify)………………………….
3. Has the investment strategy of the company changed? Why? How?
Real estate investment criteria
4. What types of properties does the company invest into?
5. Are there any specific preferences for the region?
6. How do you choose properties for the investments yourself or you are contacted by the
consultancy company (others)?
Financing of real estate investment
7. Do you have cooperation with a bank? What kind of bank?
8. Do you have better relationship with the domestic or local banks? Why?
9. What kind of loan does the company use by investing into real estate?
52

Real estate in relation to other investments
10. Which companies are your competitors?
11. What types of investors are dominant on the market? Why?
12. Why does the company/fund invest the particular amount into real estate in the
country? Your point of view (Pros and cons)
13. What are the factors which prevent from investing into real estate in the country?
Domestic and foreign investors’ prospective
Financial criteria
14. Whose money was invested?
a) Private equity
b) funds
c) other (please, specify)…………………..
Current situation and strategic management
15. How much has the company been effected by the financial crisis?
16. What are priorities for investments into properties right now, if there are any?
17. Is the company going to invest into real estate in 2009? If yes, what type of real estate
is considered to be profitable?
18. Does the company have any preferences for specific regions while investing into
properties?
19. How are you going to plan your investment strategy for Q1 and Q2 in 2009?
Thank you very much for your cooperation!
53

Appendix II
Some of the cross-border transactions for 2007
Seller, property unit Buyer
54
Price,
MSEK
Area,
m² Type
City of Stockholm, ten shopping centres Boultbee, UK 10,400 350,000 Retail
Kungsleden, 82 properties across Sweden Orkla Finans and DnB Nor, Norway 4,750 751,000 Office, Industrial
Boultbee, retail portfolio across Sweden Protego Real Estate Investors, UK 4,000 300,000 Retail
Kuwait Finance House, logistics portfolio across Sweden Acta, Norway 3,900 360,000 Logistics
Northern European Properties, industrial & warehouse portf. Kungsleden, Sweden 3,000 445,000 Industrial
Doughty Hanson, three office properties in Stockholm/Kista DnB Nor, Norway 2,920 120,000 Office
Keops, residential properties in southern Sweden Property Group, Denmark 2,730 n/a Residential
Keops, office property in Stockholm Vico Capital, Ireland 2,660 47,500 Office
Keops, 37 properties in Linköping and Norrköping Teesland iOG, UK 1,472 224,000 Office, Industrial
Jernhusen, office property in Stockholm DnB Nor, Norway 1,300 22,500 Office
CA Fastigheter AB, ‘Stinsen’ shopping center in Stockholm ING Real Estate, Netherlands 1,300 40,000 Retail
n/a, office portfolio in Göteborg Aberdeen Property Investors, Sweden 1,300 110,000 Office
Jarl Asset Mgmt, NIAM and CVI, part of Stockholm Waterfront Vital, Norway 1,200 40,000 Hotel/Congress
LaSalle Investment Management, property in Stockholm GIC Real Estate, Singapore 1,130 17,200 Mixed
Sveafastigheter, office portfolio ‘Karolinen’ in Karlstad Rutley European Property, UK 1,005 72,600 Office
Swedish Match, office property in Stockholm Aberdeen Property Investors, Sweden 995,000 40,000 Office
Systembolaget, 102 properties across Sweden Nordisk Areal, Norway 948 117,400 Retail
Aspelin-Ramm, retail property in Göteborg Eurocommercial Properties, Netherlands 811,000 33,000 Retail
HDG Mansur, office property in Stockholm Morleys European Property Fund, UK 750 18,000 Office
Sveafastigheter, 13 properties in Karlskrona and Ronneby Property Group, Denmark 740,000 62,500 Office
Jefast, residential portfolio in southern Sweden Norwegian investor consortium 650 78,400 Residential
Scandic, two hotels in Stockholm Norgani, Norway 702,000 22,100 Hotel
Keops, properties in Borlänge and Helsingborg Lathe Investment, UK 680 n/a Retail, mixed
Sveafastigheter, 27 properties in southern Sweden Heimstaden, Norway 680,000 72,600 Residential
AMF Pension, two office properties in Stockholm GE Real Estate, US 665 30,000 Office
NCC, office development project in Stockholm Credit Suisse Asset Mgmt, Germany 658,000 20,000 Office
Sveafastigheter, 38 properties in Katrineholm Heimstaden, Norway 620 88,000 Residential
Kungsleden, five properties in Malmö and Västerås NLI Eiendomsinvest, Norway 605,000 97,600 Industrial
Northern European Properties, property in Stockholm Diös & Kuylenstierna, Sweden 590 60,000 Industrial, Office
Själsögruppen, property in Stockholm Property Group, Denmark 580,000 n/a Office, Retail
Lehman Brothers/NEP Partners, office property in Stockholm Fabege, Sweden 520 23,000 Office
Mekonomen, 45 properties in Sweden and Denmark AXA REIM, France 529,000 90,000 Industrial
Skanska, five retail properties Oppenheim Immobilien, Germany 500 24,300 Retail
Balticgruppen, retail properties in Umeå Citycon, Finland 490,000 32,200 Retail
Atrium Ljungberg, retail portfolio across Sweden Nordic Real Estate Partners, Denmark 458 48,000 Retail
GE Real Estate Norden, four shopping centers in Stockholm Aberdeen Property Investors, Sweden 450,000 32,000 Retail
Brinova, three properties in Klippan and Trelleborg Northern Logistics Properties, Norway 445 75,000 Industrial
Northern European Properties, four properties in Stockholm Folksam and AFA Fastigheter, Sweden 434,000 n/a Office
Granen Fastighetsutveckling, retail property in Stockholm DnB Nor, Norway 400 n/a Retail
Stena Fastigheter, 17 properties in Göteborg and Malmö Teesland iOG, UK 380,000 n/a Mixed
Whitehall Funds/NIAM, five office properties in Stockholm Carlyle Group, US n/a 132,000 Office
Jarl Asset Mgmt, NIAM and CVI, part of Stockholm Waterfront MEAG (Munich Ergo), Germany n/a 25,000 Office
Lehman Brothers/NEP Partners, office portfolio (Linco) Länsförsäkringar Liv, Sweden n/a 125,000 Office

Blackstone, office property “Europahuset” in Göteborg Nordea Markets, Sweden n/a 47,000 Office
Skanska, office property project in Malmö Vital, Norway n/a 10,400 Office
The transactions reflect property asset values. 1 SEK = EUR 0.11, USD 0.15
Source: DTZ, Jones Lang LaSalle, Leimdörfer and Newsec
sited in ISA report2007/8
55