Market Commentary March 2025

Swiss real estate funds have closed an exceptionally volatile quarter. While the average performance of +1.9% may appear encouraging at first glance, it remains fragile given the challenging market environment. Although past and potentially further interest rate cuts by the Swiss National Bank (SNB), along with high market liquidity, supports a positive environment for real estate investments for the coming months, listed real estate funds currently struggle to convince investors in a sustainable manner. This is reflected in a wide performance range of individual funds this quarter, spanning from -8% to +8%. Meanwhile, economic stimulus packages and increased defence spending have led to a noticeable rise in long-term interest rates across Europe. The yield spread between real estate funds and risk-free investments has now narrowed to less than 200 basis points, leaving uncertainty as to whether this is a temporary reaction or the beginning of a structural shift. What is clear, however, is that strong demand has driven prices of many funds to excessive levels, decoupling current developments from realistic long-term value potential. This perception is gradually being recognized in the market. The upward trend in the SWIIT Index, which tracks all listed Swiss real estate funds, has either stalled or significantly cooled in recent weeks. Following the challenging years of 2022 and 2023, many investors are reassessing their strategies. One often overlooked yet fundamentally strong segment is real estate equities with a residential share exceeding 50%. Despite frequent criticism over their low free float, these stocks offer stability. Data from recent years clearly show that active management has continuously generated value, whereas passive approaches have led to capital erosion.

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