A purely energy-efficient renovation – heating or insulation – can be carried out as a partial renovation. But if a large part of the building technology also needs to be replaced or if the floor plans need to be modernized, a total renovation with termination of all tenancies will be necessary, including the associated risk of objections. Apart from structural reasons, a total renovation is often also desirable for purely financial reasons. The loss of two to three years’ rent during the renovation period must be accepted. However, rents can be increased more for new rentals than in the case of an energy-efficient partial renovation. This is due both to the improved quality of the building and the adjustment of the rents to the usual market level.
The total renovation pays off if the added value created exceeds the renovation costs. With an average rent increase of around 40 percent for an apartment in excellent condition compared to one from the 1970s, the rent for a 3-room apartment can be increased by an average of CHF 500 per month. For example, with investment costs of CHF 150,000 per apartment, this corresponds to a renovation yield of 4 percent. A higher return can be achieved if the rentable space is also expanded and the utilization improved. According to calculations by the UBS Chief Investment Office, the total increase in rent potential should be at least 30 percent.
These considerations strongly depend on the location of your property. A total renovation is especially worthwhile for older buildings in need of renovation in central locations and booming conurbations. This is because the quality and market rent premium are likely to be particularly high here and the risk of vacancies relatively low.
In peripheral areas and parts of extended conurbations, where vacancy rates are significantly above average, major investments in energy-efficient renovations are less worthwhile. Although people are willing to pay more for high-quality apartments, the market will probably only be able to absorb a limited number of such apartments. The potential for rent increases is therefore low. If higher gross rents are not feasible, the effective rental yield will dwindle and the investment may be less worthwhile from a purely financial perspective.