For 40 years, Swiss landlords had clear priorities. First send the bill, then shake hands, third, take off the gloves. Nowadays they call tenants clients" and are discovering that marketing is a must. Real estate has become a market like any other.

Until 1990 prices for commercial property just went up. Then, with the economy slowing down, they dropped 45%. Swiss banks lost Sfr35bn ($24bn) on loans and credits related to property. Prices elsewhere in Europe recovered after 1995, Swiss real estate remained depressed.

In the country's most important region, Greater Zurich, with 1m in-habitants, 20% of total industrial real estate is unoccupied. The regional planning office estimates that this figure will double by 2010. Most big companies are moving their production out of Switzerland. Basle and Bern have experienced even stronger price decreases, although the presence of international organisations makes Geneva a special case.

Empty office space dropped from 6.7% in 1996 to 4.8% last year. But according to a market study of Zurich-based Casatip Spaltenstein, this is mainly because unsaleable offices have been taken off the market. Future supply will mainly depend on the service sector and its need for further restructuring. The public administration, Swisscom, the national telephone carrier, and other services are also expected to release space.

The supply is strong, but there is almost no demand for commercial buildings. Therefore trades in this category are "almost non-existent", says Hannes West of Zurich-based market research firm West & Partner. According to his calculations, the Swiss real estate market represents a volume of Sfr45bn a year. Rented apartments dominate. Only 2% of the total are shops, 4% offices and 5% industrial property.

Traditional buyers - companies, banks, insurers - are now selling. Swiss pension funds are overinvested in property. Most neither sell nor buy, because they get a net return of 5-6%. This is more than bonds, but less than the common target for a hold strategy (6.5%).

Foreign investors have been accused of heating up the market and were therefore excluded until 1997 by the Lex Friderich. This law has recently been reformed in response to market pressure. Private individuals and institutions may invest in publicly traded funds, in listed companies or directly in property. However, only commercial property is accessible without restriction to foreigners; homes remain a monopoly of Swiss citizens and companies.

In 1997 the biggest funds showed a performance of 20%, mainly because they built up a premium to net asset value. Because of their high pay-out ratio and a cash return of 4% they are used as an alternative to bonds. Thus future performance will depend on interest rates. The funds are largely invested in homes; most have a regional focus, but no other specific approach. One exception is Swiss Re Immo Plus, which took over a large number of bank buildings. Because of limited marketing activities, only a few funds have assets in excess of the Sfr500m necessary for a diversified portfolio. Traded volume is crucial to institutional investors.

The listed Intershop is withdrawing from international investments and concentrating on shopping centres in Switzerland. According to West & Partners, shopping centres and amusements parks are the most promising sector. Allgemeine Finanzgesellschaft, another listed company, is shifting towards real estate, too. Both have not yet publicly declared their new strategy in detail, but they might be the investment tool with easiest access.

Most observers are optimistic that the market and prices will recover slightly, thanks to low interest rates and a slowly strengthening economy. The new legal situation has persuaded some foreign institutions to examine direct investments, but there is no need to hurry.

Eric Solenthaler is editor of Finanz & Wirtschaft in Zuric"