Outlook

Based on the low level of interest rates and a further rise in the domestic population, Allreal assumes that the pleasing economic trend will continue beyond 2014. It is expected that the positive employment situation and low unemployment rate will continue. However, it is not expected that the number of employees in the services sector will grow so strongly that they can fully absorb the large volume of new or modernised office space coming on the market. As a result, the supply of commercial space will inevitably exceed demand. This development will further accentuate the competitive situation among market participants and result in lower rental prices in the short to medium term. Consequently, both market value and yield will increasingly come under pressure.

In contrast, no signs of slowing down can be made out in residential construction in Switzerland. The brisk construction activity follows a rising residential population on the one hand and is the result of social changes and growing demands on the other. Construction of rental space and condominiums is currently ensuring good utilisation in the construction industry. However, it is expected that residential construction will level off in the medium term. For the present, prices for residential real estate will probably rise and yields drop.

With its tried and tested business model and very advantageous financing, Alreal is extremely well positioned and armed for the future. Thanks to the combination of a stable-income real estate portfolio with the activity of a general contractor, Allreal is able to swiftly react to changes in the market and flexibly take advantage of opportunities as they arise.

Thanks to the completion of several commercial and residential buildings, such as Toni-Areal in Zurich-West leased to the canton of Zurich, the portfolio of yield-producing real estate will feature significant growth both in terms of number and space connected with a further rise in rental income. The rental income will become income relevant for an entire year in 2015 for the first time. For 2013, Allreal expects its vacancy rate to rise as significant vacancies are emerging in Zurich and Winterthur. Real estate expenses for 2014 are anticipated to grow to over 15% of rental income and be significantly higher than in earlier years. The main reason for this development lies in the higher investments required for upgrading the infrastructure of the Escher-Wyss-Areal and the refurbishment of the office building there leased to MAN Diesel & Turbo Switzerland Ltd. Moreover, lower profits are expected from the sale of yield-producing buildings and residential property. Reduced margins and profits obtained from contract awarding to sub-contractors will have a noticeable effect on the 2014 result of the Projects & Development division. However, thanks to good capacity utilisation and a high order backlog, a result comparable to that of the previous years seems to be realistic.

Owing to emerging developments, Allreal’s Board of Directors and Group Management expect operating results for 2014 to remain below the very good results for the period under review.