Portfolio
In a challenging environment, Züblin generated rental income of CHF 9.2 million in financial year 2020/21. The value of the portfolio as of March 31, 2021 amounts to CHF 218.7 million.
Portfolio development
The value of the portfolio increased slightly as of March 31, 2021 and amounted to CHF 218.7 million, CHF 0.8 million higher than at March 31, 2020. The 0.4% increase in value mainly relates to a further reduction in discount rates, particularly for the properties in the city of Zurich.
Annualized rental income amounted to CHF 8.3 million in financial year 2020/21, compared with CHF 9.4 million in the previous year. The decrease of CHF 1.1 million was due to the move-out of Roland Berger, the second-largest tenant at Holbeinstrasse. With their departure the amortization component (overrent) no longer applies and the rent was therefore adjusted downwards to market level. The rise in the vacancy rate from 8.2% to 15.7% also needs to be seen in this context. The overall weighted average lease term (WALT) of the portfolio is 3.8 years, but over 5 years for the five largest tenants.
Portfolio overview
Portfolio details
Letting success in a challenging rental market
In general, the situation on the letting market has eased slightly as compared to summer 2020. Nevertheless, the environment remains challenging due to the uncertainties about the consequences of the pandemic and the question of how increased home office working will impact on demand for space. The industry is facing some hesitancy on new office leases and experiencing growing pressure on the extension of existing leases, especially long-term leases.
Open, transparent and flexible – office space with forward-looking potential
Nevertheless, Züblin was able to successfully close several leases. A 10-year contract for an attractive ground floor space at Zurich Hardturmstrasse 76 was concluded with a leading company in the construction management sector. Furthermore, another 10-year contract was signed for a 330 m2 space in our Baden property Rütistrasse 3. Our tenant is a successful quasi-state company providing geo-survey data. Both companies are an excellent fit for the current tenant structure of the two properties. Moreover, two smaller offices in neighbouring Rütistrasse 3a will be combined to create a more spacious offering and equipped with modern wet rooms. The aim of making space more flexible in this way is to accommodate tenantsʼ evolving needs and create the optimum offering where possible. At Holbeinstrasse 22 our marketing activities are aiming at a floor-by-floor letting approach to first-class tenants instead of the previous single-tenant layout. A 5-year contract for the 170m2 attic floor was signed with a well-established Securities Dealer in October 2020. Negotiations on other floors are progressing and are at an advanced stage. In the meantime, parts of the leasable space are let to a financial services provider for interim use until the end of summer 2021.
Major tenants
Rental contract analysis
COVID-19 impact
The measures imposed by the Swiss authorities to combat the COVID-19 pandemic affected Züblinʼs 2020/21 financial year from the first lockdown in the spring of 2020. The hardest-hit tenant segments were hospitality, retail and sports/leisure activities. Züblinʼs portfolio only has limited exposure to these sectors, representing around 8% of rental income. Züblin was able to agree workable solutions with the affected tenants to secure leases in a sustainable and forward-looking manner. Our estimates and assumptions made in the first half of the 2020/21 business year proved to be realistic and we are confident that the impact of rental risks following the second lockdown will not exceed our projections in the already started business year.
Analysis of rental income by type of use and risk
Sustainability
The measures imposed by the Swiss authorities to combat the COVID-19 pandemic affected Züblinʼs 2020/21 financial year from the first lockdown in the spring of 2020. The hardest-hit tenant segments were hospitality, retail and sports/leisure activities. Züblinʼs portfolio only has limited exposure to these sectors, representing around 8% of rental income. Züblin was able to agree workable solutions with the affected tenants to secure leases in a sustainable and forward-looking manner. Our estimates and assumptions made in the first half of the 2020/21 business year proved to be realistic and we are confident that the impact of rental risks following the second lockdown will not exceed our projections.
Outlook
The recovery of the Swiss economy was stopped in its tracks by the second lockdown at the beginning of the year. Developments from here and the long-term effects of the pandemic on the economy and real estate sector are difficult to predict. Züblin remains cautiously optimistic and expects a gradual economic recovery in the second half of the year.
Züblinʼs portfolio remains stable owing to its central location and diversified tenant structure. Our main focus is ongoing monitoring and analysis of the current situation, while continuing to optimize the portfolio, in particular by reducing vacancies. The transaction market slowed down briefly due to the pandemic last spring, but demand has already almost recovered to pre-pandemic levels. This applies to prime inner-city locations in particular, which are hitting new record low yields. In such a transaction environment, Züblin will only acquire assets if they enable the creation of long-term added value.
Strategic focus
Züblin continues to focus on selective investments in office properties in its established core markets, with an emphasis on its home market of Switzerland. In the current market environment, acquisitions will only be made if they meet the defined investment criteria, complement the portfolio sustainably and assure long-term added value.
