Solid first half-year 2021
Both the core Real Estate business and Services segment pressed ahead with the implementation of their strategic and operational goals despite the challenges posed by the COVID-19 pandemic, which in some cases were considerable. The marked recovery in the economic and social situation from the second quarter of 2021 also played a role here. Thanks to the stabilisation of the epidemiological situation, the long lockdown, which had restricted life in a variety of ways and challenged us as a group, could be lifted. We remain optimistic for 2021 as a whole and for the years beyond.
Moving into the future with flexibility, digitalisation and sustainability
We have been grappling with the COVID-19 pandemic for more than a year. It is now slowly becoming evident what this means for our company in the long term. Location and quality – with an emphasis on «healthy buildings» – are still the key criteria for attractive office space. But flexibility is now part of the mix: the increase in working from home has become a reality in Switzerland too. Companies are therefore increasingly looking for central locations and high versatility for future rental spaces. They want to offer their employees hybrid models which involve regular time at the office. In addition to an attractive environment, this demands in particular ample room to move in order to quickly adapt to changing internal and external demands. We are ready to benefit from this trend with our properties in prime locations and also our innovative and flexible concepts, such as in YOND or JED. Demand for co-working, as a supplement to traditional rental contracts and in combination with home working, is also likely to continue growing. To respond to this market trend and also lead the way here in the real estate sector, we are working together with selected providers throughout Switzerland. At several of our properties, we already offer our clients attractive, modern and flexible solutions for co-working, meeting places and workshop spaces.
Another take-home for us is that retail space in prime locations is still attractive, and will remain so. In July 2021, we recorded customer footfall at Jelmoli and other premium locations comparable to pre-pandemic levels. Meanwhile turnover, with the exception of gastronomy, is similar to 2019 levels. Re-lets and first-time lettings in Zurich further confirm this. The increasing number of omnichannel concepts is also feeding demand.
Another impact of the pandemic is the dizzying acceleration in digitalisation. As a company, we made the decision years ago to be a pioneer in this area with significant investments. In 2021, we are now seeing the first results of this decision. For example, we put our new ERP system for Jelmoli into operation at the start of the year. The platform provides real-time data so that our brand and category managers can respond quickly and flexibly to changes. Jelmoli’s new online store also runs on this platform, which has integrated warehouse and order management. Other digital components will also go live at Wincasa in 2021. Following on from «Sihlcity» – the shopping and entertainment centre – the airline company Swiss is now the second major customer to be connected to our new, fully digitalised core system. Since August, we have also been rolling out our «Wincasa Home» tenant app to around 30 000 tenants throughout Switzerland. New construction projects for our properties are now managed mostly digitally. Third-party customers will follow in the next few months. Further milestones in Wincasa’s digital transformation will follow. All these projects have a common goal: we are reducing the manual workload, are becoming more efficient and flexible and can therefore offer our clients a better, customised service.
The pandemic has once again shown us as a company how important sustainable management is. As a business, we have been committed to comprehensive sustainability for some time now. To embed this deeper within the organisation and define the associated goals, we set up a Sustainability Board two years ago comprising high-calibre members. The Environmental Policy and Code of Conduct for Suppliers that we drew up and implemented in 2021 was just one of the outcomes achieved. We prioritise the topic of sustainability, particularly in the context of our property developments and modifications, and are pursuing the goal of achieving climate neutrality in our portfolio before 2040. In Switzerland’s first ever large-scale circular economy project, on Müllerstrasse in Zurich, we were pleased to sign a tenancy agreement with Google.
The property, in which existing materials and components are to be reused, will become the third base in Zurich for the technology company. In the first half of 2021, we also launched our second green bond with a volume of CHF 300 million. Demand for this bond was again very high. It offers sustainably-minded investors the opportunity to invest directly in green real estate and the reduction pathway. We are also making great progress in these areas. In the past three years, we have reduced the CO2 intensity of our investment properties by around a quarter. In addition, development projects are being planned as carbon neutral and certified to internationally recognised standards such as SNBS, SGNI, LEED and BREEAM.
Higher rental income and lower vacancies in the Real estate segment
Although the situation remains challenging, we increased rental income in our core Real estate business by 2.2% to CHF 213.4 million [CHF 208.9 million excluding Tertianum]. The growth was driven by new tenants moving in during 2020 and early 2021. One highlight is the JED project in Schlieren, which we were largely able to complete by the summer, marking the opening of the adjoining park with a small ceremony. We have also cut vacancies by 0.4 percentage points to 4.7% since the end of 2020. Overall, in the first half of 2021, we signed new or renewed rental contracts for a total of more than 47 000 m2 of space across the entire real estate portfolio, reducing vacancies in the process (previous year: 41 000 m2). The volume of leased office and retail space has increased significantly, especially in the second quarter 2021. As mentioned above, Google will move in as a new sole tenant on Müllerstrasse in Zurich from 2023, occupying a total of over 15 000 m2 of rental space. We are delighted to provide the company with attractive, flexible and above all sustainable rental space. Contracts were signed with two anchor tenants for the promising Alto Pont-Rouge project in the canton of Geneva.
We are implementing the project pipeline as planned. Projects with an investment volume of CHF 902 million (including land) are currently under construction. In the first half of the year, we invested CHF 110 million in this area, creating significant value. Other projects with an investment volume of CHF 539 million (including land) are in the planning stage. At the same time, we are continuing to optimise the portfolio. For example, we sold another building in the Espace Tourbillon project in Geneva on attractive terms. Along with an investment property at Stadelhofen station in Zurich, which was also sold at very favourable market conditions, we have already exceeded the targeted sales profits (target: CHF ~30 million) for the 2021 financial year with CHF 36 million in the first half of 2021. We also acquired a plot with good development potential for city logistics in Zurich-Altstetten.
New clients, higher revenues and digitalization in the Services segment
In the Services segment, we achieved operating income of CHF 135.1 million. Adjusted for Tertianum, this was a 3.8% increase year-on-year. Our real estate asset management business for third parties, which is operated by group company Swiss Prime Site Solutions, enjoyed particularly buoyant growth. For our client Swiss Prime Investment Foundation, we launched the investment vehicle «SPA Living+ Europe», which is designed for European retirement living, indirectly giving us a foothold in the very large and stable German market for the first time. The first transactions have already been completed. In addition, the Swiss Prime Site Solutions team arranged an issue with a volume of CHF 91 million for the SPIF Real Estate Switzerland investment group and made acquisitions of around CHF 118 million. In the first half of 2021, we also acquired an important new client in a competitive process, whom we will help to build up a portfolio. This is impressive proof of our strengths in winning over real estate investors with our services. Last but not least, we also took key steps to expand our business model. At the end of the first quarter of 2021, we submitted a fund management application to FINMA. As soon as we receive approval, we will be able to launch our first product. Preparations are well underway. Assets under management increased from CHF 3.0 billion at the end of 2020 to CHF 3.2 billion as at the end of June 2021.
Wincasa impressed an important major client with its range of services so that the term of the main contract was extended by a further five years until 2026. The transformation of the business model is ongoing and will allow us to continuously add additional services to the new platform. Assets under management increased from CHF 72.0 billion at the end of 2020 to CHF 73.6 billion at the end of June 2021.
As in the previous year, we had to accept an officially imposed lockdown at Jelmoli in the first half of 2021. This lasted from 18 January to 1 March 2021. In addition, almost all the catering facilities within the flagship store on Bahnhofstrasse Zurich remained closed until the end of May. The new location at Zurich Airport (Circle) was also affected by the lockdown. Despite the huge negative impact from this, Jelmoli posted higher operating income than in the previous year. We also worked extensively on the omnichannel strategy in the first half of 2021, simplifying the organisational structure and optimising processes. The goal here is to better meet the needs arising from the changed customer journey. This was based on the new ERP system, which we successfully launched in 2021 and which will give us more speed and flexibility.
As already communicated, we will make further improvements to the portfolio in our core business. Our strategies include actively reducing vacancies, increasing like-for-like rental income through project-related conversions or targeted new lettings, and sucessively focusing the portfolio on promising types of use. At the same time, we are steadily moving ahead with the attractive project pipeline of around CHF 2.0 billion and supplementing the disposals with new opportunities from our own portfolio. Following the strategic sale of Tertianum, the Services segment is back on its growth path, particularly with the asset management services for third parties which Swiss Prime Site Solutions provides. The foundations have been laid for new products and customer groups. We believe that our market opportunities for 2021 as a whole will remain intact. In view of the development projects that were completed in the previous year, we expect rental income to rise in the 2021 financial year, subject to other unforeseeable upheaval linked to the COVID-19 pandemic. Vacancies in the portfolio will be kept below 5%. Similarly, we are expecting another increase in earnings in the Services sector – along with an improvement in margins.