In terms of individual regions and property types, the breakdown of acquisition costs and market values of the investment properties as at 31 December was as follows:
City of Zurich | | 171.9 | | 144.0 | | 273.4 | | 224.9 | | 20.4 | | 12.9 |
Rest of Canton Zurich | | 375.8 | | 375.0 | | 611.8 | | 569.2 | | 42.0 | | 28.3 |
Other regions | | 84.4 | | 84.3 | | 125.0 | | 116.7 | | 8.3 | | 5.7 |
Residential real estate | | 632.1 | | 603.3 | | 1 010.2 | | 910.8 | | 70.7 | | 46.9 |
City of Zurich | | 1 616.2 | | 1 608.7 | | 1 874.4 | | 1 773.6 | | 93.3 | | 48.5 |
Rest of Canton Zurich | | 964.1 | | 987.4 | | 919.9 | | 956.7 | | –18.8 | | –4.9 |
Other regions | | 531.6 | | 531.6 | | 438.0 | | 460.7 | | –23.1 | | –44.1 |
Commercial real estate | | 3 111.9 | | 3 127.7 | | 3 232.3 | | 3 191.0 | | 51.4 | | –0.5 |
City of Zurich | | 71.7 | | 47.1 | | 99.6 | | 58.1 | | 17.0 | | 14.2 |
Rest of Canton Zurich | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 |
Other regions | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 | | 0.0 |
Investment real estate under construction | | 71.7 | | 47.1 | | 99.6 | | 58.1 | | 17.0 | | 14.2 |
1 From revaluation in comparison with previous year
Costs incurred in connection with the acquisition (purchase price, notary’s fees, property transaction costs, commission payments) are recognised under acquisition costs, as are the actual production costs of the additions from construction activity and value-enhancing investments and total renewals.
The revaluation of the investment real estate is based on the valuation conducted on 31 December by the external real estate valuer using the discounted cash flow method (see pages 123 to 131 of the Annual Report)
The valuation process involves the real estate valuer inspecting each property at least once every three years, as well as after additional acquisitions or on completion of major alterations. The real estate valuer calculates the payment flows on the basis of the rent rolls provided by Allreal (cut-off date 1 January of the following year), all commercial leases, detailed budgets and medium-term planning per property, as well as planned and executed investment projects. From these parameters, the real estate valuer infers his view of the contractual market rents achievable on a sustainable basis and the future real estate expenses. The results of the valuation are discussed with Group Management, which assesses their plausibility.
As in the previous year, Jones Lang LaSalle AG acts as the real estate valuer on a contract basis. There are no further business connections or investments between Allreal and the real estate valuer.
The valuation of the yield-producing properties as at 31 December 2019 was based on the following rent bandwidths for the various regions and types of properties:
City of Zurich | | 220 | | 410 | | 230 | | 410 | | 210 | | 600 | | 210 | | 650 |
Rest of Canton Zurich | | 150 | | 270 | | 160 | | 260 | | 120 | | 390 | | 120 | | 290 |
Other regions | | 210 | | 300 | | 230 | | 380 | | 210 | | 510 | | 200 | | 400 |
All regions | | 150 | | 410 | | 160 | | 410 | | 120 | | 600 | | 120 | | 650 |
A 5% increase or reduction in the market rents (serving as a basis of the valuations) of all investment properties would result in an increase or reduction in value of CHF 213.1 million (2018: CHF 191.8 million).
When determining the highest and best use, the external real estate valuer identified the Escher-Wyss site, Zurich, as a yield-producing property that satisfies the requirements of IFRS 13. The decision not to exploit the potential value of these properties is connected with existing and not immediately terminable rental contracts, some of which run over several years.
On the basis of a sensitivity analysis of properties (without right-of-use assets) with a market value of CHF 4,342.1 million on the balance sheet cut-off date (31.12.2018: CHF 4,159.9 million), an isolated change in discount and capitalisation rates by 50 basis points would lead to an increase or decrease in value of CHF 746.8 million or CHF 551.1 million, respectively (31.12.2018: CHF 642.5 million / CHF 484.5 million). The bandwidths for the capitalisation and discount rates used in the sensitivity analysis range between 2.6 and 3.1% (residential properties) and between 3.1 and 3.6% (commercial properties) for lower interest rates and between 3.2 and 3.7% (residential properties) and between 4.63 and 5.13% (commercial properties) for higher interest rates.
