New submarkets created by development in Geneva
Office space vacancies increased significantly between 2017 and 2018. According to OCSTAT, the new stock of vacancies is 226,000 sq m. The vacancy rate is stable around 5% according to cantonal statistics, while other specialists speak of a rate closer to 9%, taking into account leases not placed on the market and the departure of tenants with current leases. Although the vacancy rate has risen sharply since 2015, with deliveries of new projects, this situation is improved because of higher demand. New projects in the urban periphery (Plan-les-Ouates, Meyrin-Satigny, Praille-Acacias-Vernets, the South Airport area, Vernier) supplied the stock with tens of thousands of sq m of space. The developments represent a new submarket to the older city centre buildings that mostly do not meet modern workplace needs. The historic user base (banks and financial companies) is reducing the space footprint and becoming more flexible and modular in usage; that favours new buildings.
The older buildings are more difficult to convert and costly as rents are generally 40 to 60% more expensive (sometimes even much more) than in the outskirts. They are also smaller with very few units over 1,000 sq m available. And yet the city center remains highly sought-after by high profile companies. The feeling of security and prestige of the location is still present in the minds of companies that do not currently know the peripheral regions as well. 2019 may start to see relocations occurring to take advantage of rent differentials putting downward pressure on pricing.
The investment market is healthy with yields below 3%
The investment market continues to flourish in the Geneva region with commercial building transactions of CHF 1,126bn in 2017 and is expected to be in the same order of magnitude for 2018 when final date is collected. Several transactions worth more than CHF 100m occurred in the city in 2018. The balance is still favourable to the seller with a decrease in the prime yield to less than 3% (confirmed by the capitalization rate used by the Tax Administration at 2.88%). Institutional and foreign investors have liquidity to invest, but they are becoming more attentive to the structure and quality of tenants and lease terms because of the possibilities of relocation created by the new developments. New projects without preleasing are therefore more difficult to market.