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UBS sees consolidation in Swiss property market

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SWITZERLAND – Pointing out that the number of real estate investment funds has fallen sharply in the last few years, UBS says the sector is now showing signs of “consolidation”.

“Real estate 2004 was another year of change for the real estate sector,” the bank said in its outlook for the Swiss economy. “With investors continuing to favour real estate investments, be it on a direct or indirect basis, there is still considerable momentum on both the demand and supply side.”

It said: “Existing investment vehicles are attracting ever increasing volumes and new instruments are coming onto the market.” But it added that there are “signs of consolidation”.

“Mergers and acquisitions are being used as a way of achieving growth targets and ensuring broader diversification despite tight investment markets.

“This is visible in the fact that the number of real estate investment funds in Switzerland has gone down from 28 in 2001 to 17.

Listed real estate companies similarly experienced the beginnings of a consolidation process in 2004. “One result of this for real estate companies was a growing concentration of potential institutional clients and a need to aim for geographic expansion if mandates are to be processed for such institutional clients.”

It added that “booming demand” boosted real estate companies active in sales and promotional activities. In 2004, this sub-sector saw sales, earnings and growth that were all well above the figures recorded by real estate and facility management companies.

But these segments also “had a very good year in 2004 and were able to expand payrolls”.

UBS said: “Strong demand for investment properties, particularly multi-family units, from private investors and the ongoing outsourcing of real estate services to professional providers had a positive impact on sales growth in all sub-sectors.

“Most of the earnings forecasts issued a year ago proved too modest. While real estate management companies are expecting an increase in earnings growth this year, firms active in sales and promotional activities are somewhat more subdued in their estimates.”

The survey shows that earnings growth will slow in this segment, but will remain very much positive. The investment market is expected to witness a general deceleration in 2005 or 2006 at the latest.

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