One of Switzerland’s largest real estate companies, PSP Swiss Property, is having problems increasing its net profit. One circumstance in particular is really hitting home.
Real estate group PSP Swiss Property has suffered a slump in profits. For the first three quarters of the current financial year it went down by 34 percent, to 284 million Swiss francs, as the company announced on Tuesday.
However, the core business of renting out properties did not do so badly. Income from real estate increased by 2.3 percent to 237 million Swiss francs.
But net changes in fair value of real estate investments decreased by around 200 million Swiss francs, or about 60 percent, compared to the previous year.
The decline in net income compared with the same period of the previous year was explained by the lower portfolio revaluation, it said succinctly. So the rise in interest rates and lower growth rates for real estate are probably also having an impact. The revaluations do, however, have an impact on profits.
Compared to the half-year results, which were also reported by muula.ch, that negativity improved by about 40 percent.
Vacancy rate reduced
Profit excluding gains on real estate increased by 8.7 percent to 181.3 million Swiss francs in the first three quarters at the real estate portfolio – once spun off from the Zurich insurance group – compared with the first three quarters of the previous year.
At the end of September 2022, the vacancy rate was 3.1 percent, an improvement from the 3.8 percent at the end of 2021.
Non-food retail difficult
The office leasing market has improved in recent quarters, it said. Demand for attractive office space is good in target markets. They are central locations in Switzerland’s main business cities, such as Zurich, Geneva, Basel and Lausanne, it indicated.
However, the rental market for older office properties in B and C locations as well as non-food retail space remains challenging, the Group said, describing that situation.
The company, which employs around 100 people, expects demand for modern office spaces and more attractive retail space in central locations to continue. However, the market for lower-quality offers in peripheral locations is likely to remain tight.
Target already achieved
For the 2022 financial year, PSP Swiss Property continues to expect an operating profit at Ebitda level excluding gains/losses on real estate investments of 290 million Swiss francs. In 2021, the company had come in at 278.8 million Swiss francs.
However, in the first three quarters, the real estate company already generated 227 million Swiss francs. So almost 80 percent of this figure is already achieved.
In terms of vacancies, PSP Swiss Property now expects a rate of less than 3.5 percent at the end of 2022.
Previously, the Group had assumed a vacancy rate of less than 4 percent for the current portfolio value of around 9.4 billion Swiss francs. But the value as of the end of September, with the aforementioned 3.1 percent, is of course already very good.