Portfolio
Rental income was CHF 8.5 million in financial year 2021/22. The value of Züblin’s portfolio increased by 2.9% to CHF 225.1 million, while the vacancy rate halved to 7.9%.
Portfolio development
The total value of the portfolio amounted to CHF 225.1 million as of 31 March 2022, an increase of CHF 6.4 million compared to 31 March 2021. The upward revaluation of 2.9% was attributable to the reduction in vacancy rates due to the signing of new leases and a further reduction in discount rates, particularly for the two properties at Hardturmstrasse and Holbeinstrasse in Zurich. Annualized rental income amounted to CHF 9.1 million in financial year 2021/22 compared to CHF 8.3 million in the previous year. The increase of CHF 0.8 million was mainly due to the full re-letting of the Holbeinstrasse 22 property, which was also the main reason for the decline in the vacancy rate from 15.7% to 7.9%. The weighted average lease term (WALT) of the overall portfolio is 3.5 years.
Portfolio overview
Portfolio details
Lettings
Following the two lockdowns in the spring of 2020 and 2021, the letting situation for office space in particular has continued to stabilize and even improved in good locations. Demand for good-quality office space is particularly strong in central locations. This was reflected in Züblin’s portfolio in the successful reletting of Holbeinstrasse 22, where a multi-tenant approach was successfully implemented. The property is fully leased again as of July 1, 2022 at an average CHF 660/m2 excluding rental incentives to companies in the sports medicine, asset management and fiduciary services sectors. In Badenʼs TORRE property on Rütistrasse, a 10-year lease was signed with the operator of the Torre restaurant for the existing rental space plus newly leased space of 82 m2 on the 9th floor. After the departure of a large tenant in Egg, the space was repositioned into smaller office units. 230m2 of the 448m2 has already been successfully leased under this approach. The property at Hofwiesenstrasse 360 in Zurich-Oerlikon is fully let. Leases with two long-term tenants were extended by 5 and 10 years respectively. Our vacant space at Morgenstrasse 136 in Bern-Bümpliz also attracted interest. We held in-depth talks with two leading companies in the second half of the year. Above all the location, with its proximity to the A1 motorway, and the flexible expansion options were seen as positives. But both talks were terminated prematurely owing to differing requirements with regard to timing.
Modular space concepts for maximum flexibility
COVID-19 only had a marginal impact on the 2021/22 financial year. The only segment affected by the second lockdown was the restaurant segment, which was able to reopen in two stages - restaurant terraces from April 19, 2021 and the indoor areas from May 31, 2021. 3.4% of Züblinʼs rental income is generated in this segment. The long-term impact of the pandemic on the office market, on the other hand, is only gradually beginning to emerge. Working from home is here to stay post-COVID-19 and it is becoming increasingly clear that hybrid workplace environments will become the norm. This is also reflected in the increased demand for space in top locations, whereas offices in peripheral locations are coming under greater pressure. Location and quality therefore remain the prime criteria for successful letting. Züblin believes its portfolio is well-positioned in this respect.
Our major tenants at a glance
Rental contract analysis
Sustainability
Conserving resources and minimizing CO2 emissions is a leading objective for Züblin. We have been addressing energy efficiency and monitoring since 2006 and implemented this in the core renovations of the properties on Zurich’s Holbeinstrasse, Gewerbestrasse in Egg and Morgenstrasse in Bern, which all meet the Minergie standard. The certification level of the overall portfolio thus amounts to 50%. We are planning to invest in measures that will further reduce CO2 emissions in the portfolio over the next few years. Together with a specialist energy consulting company, we are currently drawing up a catalogue of measures based on energy consumption data to allow us to push forward energy optimization and fully exploit the CO2 reduction potential in our buildings.
Outlook
The global economic recovery continued after the second lockdown in spring 2021. However, there is increased uncertainty surrounding the outlook for relevant macroeconomic variables. Firstly, inflationary tendencies are emerging as a long-term consequence of COVID-19, and secondly the impact of current geopolitical tensions is difficult to predict. On the other hand, earlier concerns about the consequences of the pandemic, particularly the impact of homeworking on the office market, have eased somewhat. Nevertheless, we are continuing to take targeted steps to promote the attractiveness of our offering to meet the demand for flexible workplace design and thus fully realize the marketing potential of the portfolio. As discussed above, the project to reduce CO2 emissions in the portfolio is another key focus.
The transaction market and construction activity have been back to pre-pandemic levels for some time. This is particularly the case for properties with solid rental income in and around the economic centers. In this transaction environment, Züblin will only make acquisitions that contribute to long-term value creation. We therefore do not expect any acquisitions in the short term in the current environment, but continue to monitor the market very carefully.
Strategic focus
Züblin continues to focus on selective investments in office properties in its established core markets, with an emphasis on our home market of Switzerland. In the current market environment, acquisitions will only be made if they meet the investment criteria we have defined, complement the portfolio in a sustainable manner and ensure the creation of added value in the long term.
