Switzerland just recorded something that sounds like a landlord’s dream but has turned into an investor’s puzzle. The country’s dwelling vacancy rate fell to exactly 1%, representing just 48,455 empty units nationwide and marking the fifth straight annual decline. The Swiss Federal Statistical Office’s release prompted headlines across Swiss and international media, with swissinfo and RTS leading coverage of what they framed as an intensifying housing shortage.
When virtually every rentable apartment in an entire country is occupied, conventional wisdom suggests property investors should be celebrating. The reality proves considerably more complex.
The tightness varies dramatically by location, with some of Switzerland’s most desirable cities experiencing conditions that approach full occupation. Geneva sits at roughly 0.34% vacancy, Zug at approximately 0.42%, and Zurich at around 0.48%, all well below the commonly cited 1.5% threshold that economists consider the dividing line between healthy market function and genuine shortage.
Table of Contents
Key Takeaways
Navigate between overview and detailed analysis- Vacancy near 1% signals shortage, not easy profits. Geneva around 0.34%, Zug 0.42%, and Zurich 0.48%—all well below the roughly 1.5% healthy threshold. Occupancy is maxed, but returns aren’t.
- Yields are razor-thin. Gross residential yields average about 2.5–3.0% (Zurich around 2.6%, Geneva about 2.5%), with net yields lower after operating costs.
- Debt spread is tiny. Even with the SNB policy rate at 0.00%, 10-year mortgages run roughly 1.3–2.0%, leaving only 50–150 basis points of gross spread—too thin for meaningful leveraged returns.
- Build and ownership costs keep rising. Construction costs increased 0.6% in six months, while Geneva remains among the world’s most expensive build markets, pushing maintenance and renovation expenses higher.
- Supply can’t catch up while regulation slows rent adjustments. Only 42,000–49,000 new units are expected in 2025 versus about 50,000 needed annually. Asking rents rose 4.7% in 2024, but legal caps delay increases for existing tenants.
- Demand is structural and persistent. Switzerland’s population surpassed 9.05 million in 2024, driven by net immigration and job growth in Zurich, Geneva, and Zug—keeping scarcity entrenched even as rates cool.
- Who:
- Property investors, institutional funds, and private buyers navigating Switzerland’s mature yet yield-compressed residential market.
- What:
- A national housing shortage with a record-low 1% vacancy rate and gross yields of only 2.5–3.0%, creating a paradox where full occupancy does not translate into strong returns.
- When:
- Trend intensified from 2021 to 2025, with five consecutive years of falling vacancy and rising construction costs, despite the SNB cutting its policy rate to 0.00% in mid-2025.
- Where:
- Tightest conditions in Geneva (0.34%), Zug (0.42%), and Zurich (0.48%), with shortages affecting both rental and owner-occupied segments nationwide.
- Why:
- High demand from domestic and foreign buyers, rigid rent regulation, elevated construction costs, and limited buildable land have produced a market defined by scarcity, high prices, and low yields—better suited for long-term appreciation than income generation.
Why Low Vacancy Rates Hurt Investors Instead Of Helping Them
The counterintuitive problem with Switzerland’s ultra-low vacancy becomes clear when you examine actual investment returns rather than just occupancy statistics.
National gross residential yields sit between 2.5% and 3.0% as of Q2 and Q3 2025, with Zurich around 2.6% and Geneva at roughly 2.5%. These represent extremely low returns by global standards, the kind of yields you might accept for truly risk-free government bonds but which feel inadequate for real estate carrying leverage, maintenance obligations, and regulatory constraints.
Boutique core assets in prime city center locations often deliver even less, sitting in the mid-two percent range on a gross basis or lower once you account for operating expenses on a net basis.
Julius Baer’s market report citing Wüest Partner data on net initial yields reveals how intense capital competition and regulated rent growth compress returns for exactly the properties that scarcity should theoretically benefit most.
When everyone wants to own prime Zurich or Geneva real estate, the acquisition prices get bid up to levels where the rental income barely covers costs even with full occupancy.
The costs investors face aren’t standing still while they wait for rents to catch up to property prices. Switzerland’s Construction Price Index rose 0.6% in just the six months from October 2024 through April 2025, and Geneva ranks among the most expensive build markets globally in 2025 per Arcadis data.
This means renovation costs, building maintenance, and any improvements needed to keep properties competitive all cost more each year, eating into returns that were already minimal before accounting for inflation in operating expenses.
Even with cheaper debt following Swiss National Bank rate cuts, the spreads between borrowing costs and rental yields remain uncomfortably thin. The SNB cut its policy rate all the way to 0.00% in June 2025 and reaffirmed that level in September, yet 10-year fixed mortgages still price between roughly 1.3% and 2.0% as Comparis data shows.
When you’re borrowing at 1.5% to 2.0% to earn gross yields of 2.5% to 3.0%, the leverage spread before any expenses sits at perhaps 50 to 150 basis points, leaving very little room for unexpected costs, vacancy, or regulatory changes that could easily wipe out returns entirely.
Rising Interest Rates And Construction Costs Deepen The Squeeze
The interplay between policy rates, mortgage pricing, and construction economics creates particular challenges for Switzerland’s property market despite the SNB cutting to zero. While the policy rate sits at 0%, actual mortgage offers for 10-year fixes commonly run 1.3% to 2.0% by late 2025, with SARON-linked variable rate products pricing lower but exposing borrowers to future rate risk.
This gap between policy rates and actual borrowing costs reflects bank credit margins and term premiums that don’t disappear just because the central bank cut to zero.
Construction costs keep returns tight for any development projects, as land costs, materials, and labor all remain expensive in absolute terms even if the rate of increase has moderated from pandemic peaks. Building anything new in Switzerland costs so much that developers struggle to make projects pencil out when finished units can only command rents supporting 2.5% to 3.0% gross yields.
Building permits have improved modestly from the 2022 low of roughly 44,000 applications to approximately 49,000 in Q1 2025, yet approvals remain well below long-term averages needed to actually address the shortage.
The government has begun loosening some out-of-zone development limits starting in 2026 to spur supply, as UBS Asset Management noted citing Wüest Partner data, but these policy changes will take years to translate into meaningful additional housing stock given Swiss development timelines.
The supply and demand gap persists despite these marginal improvements, with only approximately 42,000 to 49,000 units likely delivered or approved in 2025 versus estimates suggesting roughly 50,000 units per year are needed just to rebalance the market without reducing the shortage.
This means the 1% vacancy rate isn’t going to improve meaningfully anytime soon, which sounds like it should support investor returns but actually just means acquisition prices will stay elevated while yields remain compressed because regulatory frameworks prevent rents from adjusting quickly enough to create attractive returns on new capital deployed.
Demand Remains Strong As Domestic And Foreign Buyers Compete For Scarcity
The demand side shows no signs of weakening in ways that might ease pressure on prices and allow yields to normalize. Switzerland’s population reached an all-time high, passing 9.05 million residents in 2024, driven by net immigration despite a falling fertility rate that would otherwise put downward pressure on housing needs.
This sustained urban housing demand, particularly in economic centers like Zurich, Geneva, and Zug where job growth concentrates, keeps occupancy rates maxed out regardless of price levels.
Urban centers lead the rental pressure in ways that show up in asking rents rising approximately 4.7% in 2024, the highest increase in 25 years per UBS Asset Management citing Wüest Partner data. These asking rent increases feed through to in-contract rents with significant lag due to Swiss rental regulations, meaning the full impact of current scarcity hasn’t yet translated into income for landlords holding existing properties.
Moreover, the prime and luxury segments have shown particular resilience, with UBS’s Global Real Estate Bubble Index 2025 noting that the return to zero rates buoyed prices in Zurich and Geneva as Swiss prime property remains a global capital magnet.
Wealthy international buyers view Swiss real estate as safe haven allocation regardless of yield, competing with domestic investors and pushing prices to levels where financial returns become almost irrelevant to purchase decisions.
Investor sentiment paradoxically remains upbeat despite these compressed returns, with the KPMG Swiss Real Estate Sentiment Index printing an all-time high in 2025 even as participants lament scarce investable residential stock.
This disconnect between sentiment and actual available returns suggests many investors either expect future capital appreciation to compensate for low income yields or haven’t fully underwritten the all-in costs of Swiss property ownership including taxes, maintenance, and regulatory compliance.
Foreign buyer rules remain tight through Lex Koller restrictions that continue limiting non-resident foreign acquisition of residential property, tempering external speculative flows without actually easing local scarcity. These regulations were designed to prevent foreign capital from pricing locals out of housing markets, but their practical effect has been to concentrate foreign demand into the limited segments where purchase remains allowed, particularly luxury vacation properties in approved zones, while domestic scarcity persists because supply constraints bind more than demand from any particular buyer category.
The bottom line for investors trying to make sense of Switzerland’s 1% vacancy is that a completely full rental market doesn’t automatically translate into attractive returns when regulatory frameworks, construction costs, and capital competition all conspire to suppress yields.
This makes Swiss residential property more of a capital appreciation play than an income investment, requiring long holding periods and confidence in continued scarcity supporting price growth.
