Article
In the short term, rising interest rates reduce the returns on many properties. But in the medium and long term, fit-for-purpose properties that future-proof the needs of occupiers should outperform, says Robert Rackind. He has been Head of Global Real Estate at Credit Suisse Asset Management (CSAM) since mid-2022.
May 3, 2023
My work is challenging, but it also gives me great pleasure. The success of a company is primarily based on its corporate culture and its employees. That’s why I wanted to get to know the team first. I was pleased to meet highly motivated professionals. Then I needed to understand how the organization functions and interacts internally and externally with its stakeholders.
My primary goal is to drive performance for our investors and to grow and future-proof our business in a rapidly changing economic and occupier environment. This also includes building a platform structure that will meet the expectations of our investors in the next economic cycle. In order to achieve these goals together, we must be brutally honest and self-critical, and we must focus on anticipating occupier trends early on. This is the only way we can stay one step ahead of the market. CSAM has exemplified this by adapting our properties to ESG requirements at an early stage. As a native Brit, I am sometimes told that Switzerland is “different” and that global events have a different impact here than in London or New York. To this I would only say: mathematics is mathematics, and user trends are the same globally. That’s why I’m optimistic that we will achieve our goals.
"In order to achieve these goals together, we must be brutally honest and self-critical, and we must focus on anticipating occupier trends early on. This is the only way we can stay one step ahead of the market."Robert Rackind, Head of Global Real Estate
Real estate remains a first-class investment. In the short term, rental growth and inflation will not be able to fully compensate for rising interest rates, falling yields, and declining valuations. However, in the medium and long term, good times are ahead for global real estate sectors that meet the needs of occupiers. I am also bullish about the future once the impact of rising interest rates has passed through the valuation cycle. Rental growth in prime properties will return simply because supply has been tightly controlled in this cycle. For the most part we have limited speculative construction, and accordingly we have limited vacancy. The world is changing – work-from-home has taken hold. Properties that are in attractive locations and meet ESG regulatory requirements will be among the winners in the future.
In the medium term, inflation will decline somewhat and property values will stabilize. The markets with the most liquidity and transparency – the United States and the United Kingdom – will recover the fastest. However, some sectors will see small declines in value, followed by appreciation thanks to rental growth. Properties for which there is no demand will suffer the most. They must reckon with a loss of value until they reach alternative use value, and we will see many “stranded” properties that won’t trade or be repurposed until such a dramatic drop in value has occurred.
"Switzerland is not immune to global trends. I see a slow, slight decline in property values as inflation and interest rates rise."Robert Rackind, Head of Global Real Estate
Switzerland is not immune to global trends. I see a slow, slight decline in property values as inflation and interest rates rise. I cannot say how much the decline will be, but I am convinced that this will be the case for two-flats and other secondary properties, and perhaps also for prime properties. If the Swiss National Bank raises base rates, then investors will have two choices: either accept lower returns by maintaining current pricing, or push the market down in value until risk-adjusted returns normalize against the new base rate/finance rate. What is certain is that the market will have to make a slow and painful valuation adjustment before liquidity returns and valuations stabilize, here as well as elsewhere in Europe.
I do not favor any particular sector. Rather, I identify a number of trends that I believe will out-perform others. ESG net-zero carbon offices are one of them. They will be among the preferred properties in the future and will generate better rental growth than non-ESG equivalents. Multi-generational flats for rent will also experience increased demand in the coming years. Mixed-age living offers cross-generational family support. Older people benefit from a socially supportive environment, and families benefit from childcare by senior citizens. This asset class is experiencing an upswing, not least due to the fact that young families can hardly afford home ownership and seniors are remaining active for longer.
We rely on a top-down approach and use econometric forecasts and models. They help us understand what drives economic growth and thus real estate demand. After that, we need bottom-up real estate experience in order to identify and correctly classify opportunities. This is where we rely on the know-how of our local experts. They can best assess the prospects of a property, which is a very local asset class. Success is basically a combination of experience in the business and an understanding of how value is created – sometimes this is an art, sometimes a science.
Throughout my career I’ve had to contend with volatile markets in turbulent times. Fortunately, this activity is also my passion. Who doesn’t like to have a roof over their head? We humans are in contact with real estate every day. If I can help manage the performance of the portfolios and maximize returns for our investors regardless of the market condition, I sleep peacefully and deeply at night, even if I wake up every now and then and rack my brain when I have a problem to solve.
Robert Rackind joined Credit Suisse Asset Management in June 2022 as Managing Director and Global Head of Real Estate based in Zurich. He has over 30 years of experience in the real estate industry. Rob’s experience is both bottom-up direct real estate and top-down financial, having held senior management positions for leading global real estate investment, property development, and private equity companies.
The Global Real Estate unit of Credit Suisse covers both direct and indirect real estate investment solutions. It is the largest direct real estate investment manager in Switzerland and ranks among the top 15 worldwide, with approximately CHF 40 billion of assets under management.
Rob is a British citizen and holds a Bachelor of Science degree in Valuation & Estate Management from the University of the West of England in Bristol.
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