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Donald Trump's tariff announcements on 2 April 2025, have caused significant turmoil in the global economy. Stock markets around the world plummeted and economists adjusted their growth forecasts downwards. On 9 April 2025, there was a brief recovery following the announcement that tariffs would be suspended for 90 days, with only the basic tariff of 10% applied ‒ except for Chinese goods, which faced increased tariffs of first 125% and then up to 145%. However, this recovery was short-lived as recession fears resurfaced. The VIX 'fear barometer,' which measures US market fluctuations, showed levels seen only twice in the last 25 years: during the financial crisis and at the beginning of the COVID-19 pandemic.

The Swiss export industry is significantly impacted by the announced tariffs. Due to Switzerland's high trade surplus of goods, exports to the US will face 31% tariffs starting in July 2025, initially exempting pharmaceutical products. In the short term, these tariffs are expected to have a limited direct effect on the Swiss economy, especially if pharmaceuticals, which make up the largest portion of exports to the US, remain exempt. The greater concern is the uncertainty deterring company investments. The weaker global economy and slower growth in the eurozone will likely further dampen Swiss economic growth. Compared to our earlier ÃÛ¶¹ÊÓƵ forecast of 1.5% growth at the beginning of the year, we now anticipate Swiss GDP (not adjusted for sport events) growth of 1% in 2025.

Despite the fact that tariffs on Swiss products are particularly high, the Swiss franc has appreciated substantially. On 11 April 2025, the USD/CHF exchange rate reached a level seen only twice since 2011. The franc also strengthened considerably against the euro. Consequently, the Swiss National Bank (SNB) is under pressure to address the franc's strength. While interventions in the foreign exchange market could lead to accusations of currency manipulation (this was already addressed during Trump’s first presidency), in the midst of the negotiations on tariffs, the SNB might opt to weaken the franc by cutting interest rates further. We anticipate a 0.25 percentage point cut to 0% in June, although an earlier cut is possible. Swiss government bond yields have dropped significantly due to reduced growth expectations and increased uncertainties after the US tariff announcements. The SNB's interest rate cuts last year have already spurred interest in real estate investments (see our Outlook 1H25). Recent market movements are likely to further boost demand for Swiss real estate.

Besides the positive outlook for real estate investments due to lower interest rates, the defensive characteristics of these investments are becoming increasingly important in the current volatile environment. Over the past 25 years, Swiss real estate funds have achieved an average return of 5.5%, just 90 basis points below Swiss equities. However, their volatility is significantly lower (see Figure 1), which continues to drive demand for real estate today. Pension funds may need to rebalance their portfolios if equity markets remain under pressure in the long term. The Ordinance on Occupational Retirement, Survivors' and Disability Pensions (BVV 2) sets explicit maximum ratios for individual asset classes. For real estate, the maximum quota is 30%, which could present challenges as stock markets decline and interest in Swiss real estate investments remains high, as observed over the past quarters.

Figure 1 – Total return and volatility of select asset classes (2001-2025, %, p.a.)

Generally, real estate investments benefit from a significant portion of income in total returns, which provides some protection against inflation through the indexation of rental income. Although the immediate effects of the tariffs have a deflationary effect in Switzerland due to the strengthened Swiss franc, inflation expectations are likely to rise because of disruptions in global supply chains, and in the medium term, due to tariffs and Germany's planned fiscal package. The income return on Swiss direct real estate investments averaged 4.2% p.a. between 2002 and 2024, which is significantly higher than the average inflation of 0.6% p.a. over the same period. In the core real estate sector, it is estimated that 70-80% of total returns come from income returns, while 20-30% come from capital value growth. The resulting lower volatility of real estate investments thus supports portfolio diversification, especially in more turbulent times.

In the low-interest rate environment of the 2010s, Swiss real estate investments generated significant capital appreciation in addition to stable income. Given this segment’s demonstrated resilience, we anticipate value growth particularly in the residential segment, driven by high rental growth potential due to strong net immigration in recent years and limited construction activity. Although the expected economic slowdown poses a certain challenge for commercial real estate, this segment in Switzerland is however in a robust condition despite the difficult environment of recent years. The retail segment is recovering from the shift towards online shopping and is unlikely to be heavily impacted by current upheavals due to the segment’s domestic focus.

In logistics and industrial real estate, export-oriented companies are likely to face pressure, but domestic logistics should benefit from nearshoring and a focus on resilient supply chains. In the office sector, the focus remains on the quality and location of the properties, but also on tenant quality due to the current economic headwinds. Economic pressures are putting properties with long-term leases in a better position, especially those with tenants focused on the domestic market and in less growth-sensitive sectors. Overall, the residential segment in particular, given its low cyclical dependence and high defensiveness, is likely to experience high interest in the current environment.