We are pleased to invite you to join the publication webinar of The Finnish Property Market 2021 report on Thursday March 18 at 2PM – 3PM (EET). KTI’s annual report provides a comprehensive overview of the Finnish property market structure, practices and players as well as recent development. The webinar will present the key contents of the report and discuss the market outlook for 2021. Webinar speakers Hanna Kaleva, KTI: The Finnish Property market in 2021 Mikko Tenhola, Newsec: Outlook for the property transaction market in 2021 Ville Raitio, Kojamo: Trends and opportunities in the Finnish rental residential market KTI wishes to thank the partners of the publication: The City of Helsinki, KIINKO Real Estate Education, Kojamo, Newsec, RAKLI, SEB Group, Sirius Capital Partners, Skanska and SRV. Please sign up below by Wednesday March 17 to receive a webinar link to your e-mail. REGISTER HERE

 

 

The attractiveness of property remains strong in the investment market, but transaction volumes remain subdued in the Finnish property market. Current market conditions emphasise the differentiation between prime and riskier assets in both investment and rental markets: while yields for the best properties continue to decrease and rental demand remains stable, the liquidity and rentability of riskier properties is challenging. Uncertainty is increasing in the office and retail rental markets. Demand for rental housing remains strong in largest cities.

Read more at KTI’s Market Review: Subscribe to KTI Market Review, autumn 2020

The outlook for the Finnish property investment and rental markets has deteriorated rapidly, fueled by uncertainty caused by the outbreak of COVID-19, and in April, most of the property market indicators turned negative. The real estate transactions market remained active in the first quarter of the year, but volumes are likely to slow down significantly in the coming months. In the rental markets, the crisis is treating different real estate sectors differently: retail and hotel properties are the biggest immediate sufferers, while in the office market, the impact is likely to be less dramatic and come with a slight delay. Residential and public use properties are expected to be reasonably crisis-resistant.

Read more at KTI’s Market Review: Subscribe to KTI Market Review, spring 2020

Four esteemed companies in the property sector — CBRE, JLL, Cushman & Wakefield and KTI Property Information — have established the Helsinki Research Forum with the aim of improving the quality of the market data published on the commercial property market in the Helsinki metropolitan area.

“Better market data helps real estate investors and property owners make better decisions. This, in turn, supports the growth of the property market in the Helsinki metropolitan area and increases the transparency of the market in general. The Helsinki Research Forum will work in partnership with RAKLI, which represents property owners and construction clients. RAKLI will provide the framework and technical assistance for this collaboration,” says Miika Kotaniemi, Director, Real Estate Investment at RAKLI.

The purpose of the research group is to produce regularly published summaries of the non-confidential data generated in the business activities of its members. In the early stages, the focus will be on technical specifications of the property stock in the office market and the geographical delineation of the submarkets. The plan is to expand the collaboration later to also include data on the take-up of premises and the vacancy rates for properties.

“The transparency of the property market in Finland is at a good level, but there is still room for improvement. Conflicting information related to submarket-specific vacancy rates, for example, have occasionally led to confusion among international investors,” says Tero Lehtonen, CEO of JLL Finland.

“By increasing openness and transparency, we aim to improve the services in the property sector and provide accurate market data to clients and investors to support their decision-making and for the real estate market in general. Market research forums such as this have produced good results in other European countries, and we now want to bring these proven practices to Finland,” adds Jussi Niemistö, Head of Research at CBRE Finland.

“Harmonised specifications for basic market data, such as the delineation of submarkets and information on the property stock will create a reliable foundation for even more accurate and useful property market analyses and indicators. They will enable us to work together to further improve the transparency of the Finnish property market and the reliability of market data,” says Markus Steinby, Director, Client Relations and Business Development at KTI.

The results of the collaborative forum will be published in the Helsinki Research Forum section of the RAKLI website. The information will be available to the public free of charge. Information on the delineation of the submarkets has already been published on the website. RAKLI recommends that in future its members use the published delineations of the submarkets in their publications of property market information.

More information:

Miika Kotaniemi, RAKLI
+358 40 702 0015

Tero Lehtonen, JLL Finland
+358 40 565 5389

Jussi Niemistö, CBRE Finland
+358 40 537 5760

Markus Steinby, KTI Property Information
+358 50 464 7587

Ville Suominen, Cushman & Wakefield Finland
+358 44 568 4300

The Finnish property investment market continues to grow supported by a healthy capital growth and active new development. The investment universe is expanding in both traditional and emerging property sectors, including, for instance, properties needed for public service provision. Foreign investors currently account for approximately one third of the total invested market. Of the domestic investor groups, property funds and companies continue to strengthen their position in the market.

The total size of the Finnish property investment market exceeded €77 billion
The total size of the invested property market increased by 11% in 2019, and amounted to €77.1 billion at the end of the year. The growth was a result of both increasing market values and overall growth in the investment property stock. Foreign investors continued to increase their Finnish exposure, and currently represent 32% of the total investment universe. Also domestic property investment funds and companies continued to increase their property investments in 2019. Finnish institutional investors’ direct domestic investments grew slightly, by some €0.4 billion in 2019, but their share of the total market fell to approximately 22%, having stood at 32% only five years earlier.

Residential retains its position as the largest sector in the investment market
The share of residential properties of the invested property stock continued to increase in 2019, and stood at 32% at the end of the year, up from 29% in 2018. The increase was supported by a healthy capital growth, which amounted to 9.7% in the KTI Index, as well as by the active new development of rental residential properties. In 2019, Finnish rental residential properties continued to attract all kinds of investors, with also foreign investors increasing their role in the market. The share of office properties decreased slightly to 26%, while the shares of public use and hotel properties amounted to 7 and 5%, respectively.

Transaction volume amounted to €6.3 billion in 2019
Despite the significant decrease from the previous two years’ record high volumes, property transaction market remained active in 2019. The total volume amounted to €6.3 billion, of which foreign investors accounted for 45%. The 33% decline in the total volume compared to the previous year was mainly a result of the lack of individual exceptionally large transactions in 2019. Offices were the most traded property sector with a 37% share of the total volume.

Prime properties’ investment performance remains strong
According to the KTI Index, the total return of the Finnish property market amounted to 8.8% in 2019, comprising an income return of 4.7% and capital growth of 4%. Residential was, again, the best performing property sector with a total return of 14.3%, as the positive rental outlook and continuous yield compression supported the healthy capital growth. In the office market, prime properties continued to perform well supported by both increasing rents and decreasing yields, while in the secondary assets, high vacancy rates and increasing costs pressured the returns. As a result, total return for offices stood at 5.9% for the whole country. In the retail sector, capital growth has remained negative in the past years for both shopping centre and other retail properties, and in 2019, total return ended up at 2.3%. Increasing share of e-commerce, changing consumer behavior as well as the growth in the retail property stock increase the uncertainty in the rental outlook, and investors’ cautiousness create upward pressure on yields. At the same time, retail properties’ share of the total invested universe has continued to decrease.

Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2020 report, published today. The report is published annually in March.

Subscribe to The Finnish Property Market 2020

KTI wishes to thank the partners of the publication: The City of Helsinki, KIINKO Real Estate Education, Kojamo, Newsec, RAKLI, SEB Group, Sirius Capital Partners and Skanska.

Printed reports can be ordered from kti(a)kti.fi (price 49 € + VAT).

For more information, please contact: Hanna Kaleva, hanna.kaleva(a)kti.fi, tel. +358 40 555 5269

Press release, 28 February 2020

The KTI Index, reflecting the Finnish property investment market, delivered a total return of 8.8% in 2019, on the back of an income return of 4.7% and capital growth of 4.0%. The returns were supported by a significant increase in the market values for residential investment properties. Industrial properties delivered the second highest total return thanks to high income returns. Office properties saw modest, positive capital returns, while capital values of retail properties continued to decline. Emerging sectors such as public use properties and hotels have grown in importance in the property investment market.

Total returns by property sector in 2019

Source: KTI Index

The KTI Index reflects institutional property investments worth EUR 27.5 bn, representing some 36% of the Finnish institutional property investment market. The total return reflects the sum of income return and capital growth of standing investments worth EUR 23 bn held during the entire year.

Significant increase in market values of residential properties

Of the main property sectors, residential properties held on to the top position in 2019 with a total return of 14.3%. Increased market values supported capital growth of 9.7% while the income return declined to 4.2%. Residential properties are the largest of the institutional property investment sectors and consequently their weight in the overall index is large. Some large residential investors changed from a transaction-based valuation technique to a yield-based approach, which was a significant driver of the capital growth seen in 2019.

The total return calculations are based on property valuations, that are subject to changes in market structure and practices from time to time. More detailed drivers of total returns provide further insights to analysing investment performance.

Low interest rates and high investor demand in the last few years have resulted in a decline in the valuation yield on residential property investments to only 4.2%, that in turn was a clear driver of the positive capital growth for residential properties in 2019. In addition, increases in rental values had a positive effect on market values.

Income returns for offices fell further

Total returns for offices nudged lower from last year to 5.9% in 2019, reflecting a positive contribution from capital growth of approximately one per cent while income return fell to 4.6%. An increase in average occupancy rates to close to 88% was offset by higher maintenance spending to attract tenants and hence depressing income returns. The lower income returns also reflect an increased focus on higher-valued, lower-yielding office properties. The highest capital growth was again recorded in Helsinki CBD, where the income return fell to 3.6%.

Retail property values continued to head lower

Market values of retail properties have shown consecutive annual declines since 2011 on the back of the growth in online retailing and changes in consumer behaviour affecting demand and rental levels negatively. In 2019 market values for retail properties declined another 2.2%, reflecting lower values in the whole country for both shopping centres and other retail properties. Income returns also fell on the back of lower rents and occupancy rates in combination with higher operating costs.

Income returns for industrial properties, i.e. industrial, warehouse and logistics properties, declined slightly from the previous year but remained relatively high at around seven per cent. In combination with a slight increase in market values, Industrial properties reached a total return of close to eight per cent.

Growing investor interest in public use and hotel properties

The stable income returns of property investments have attracted large inflows of capital in recent years. Investor interest has spread from traditional property sectors into other parts of the market. As a result, the combined market value of public use properties has increased to over EUR 5 bn. The sector includes a mix of properties used for, for example, assisted housing, health care, education and culture. The total return for the sector reached 6.9%, reflecting an income return of 6.3% and a modest capital growth.

Hotel properties have continued to gain investor interest with new hotels actively being developed in several larger cities. Particularly in Helsinki, many older office properties are being converted to hotels. Total returns for hotels remained strong in 2019 at around seven per cent on the back of market values continuing heading higher and an income return above five per cent.

Total returns by property sector 2000–2019

Source: KTI Index

For further information, please contact:
Markus Steinby, tel. +358 50 464 7587
Hanna Kaleva, tel. +358 40 555 5269

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KTI Finland is an independent research organisation and service company providing information and research services for the Finnish real estate industry. KTI Finland has calculated the KTI Index since 1998 and it reflects the total return of annual income and capital returns on property investments. In 2019, 28 property investors contributed to the KTI Index and the database covers some €27.5 billion worth of properties.

The contributors to the KTI Index include: Aberdeen Standard Investments, Ahlström Capital, Akiva Kiinteistöt I Ky, Erikoissijoitusrahasto Aktia Toimitilakiinteistöt, Alma Property Partners, Areim Fastigheter, Avain Vuokrakodit, Avara, Brunswick Real Estate, CBRE Global Investors, Citycon, Elo, Erikoissijoitusrahasto eQ Hoivakiinteistöt, Exilion Management, Genesta, Hemsö, Ilmarinen, Julius Tallberg Real Estate Corporation, Keva, Kojamo, LocalTapiola, Mercada, OP Real Estate Asset Management, Sampo, Turku Technology Properties, Varma, Veritas and Ylva.

According to the statistics of KTI, transaction volume in the Finnish property market reached EUR 6.3 bn in 2019. The volume decreased by 34% from the previous year. However, the number of transactions remained high, since KTI recorded almost 300 transactions that exceeded one million euro in 2019 (approx. 350 in 2018 and approx. 300 also in 2017). The decrease in volumes was mostly caused by the lack of exceptionally large transactions, that were recorded in the two previous years.The largest individual transaction carried out in 2019 was the acquisition of the EUR 249 million share of shopping centre Jumbo by pension insurer Elo in the first quarter. Also several large office property and residential portfolio transactions were recorded last year. The largest residential portfolio transaction was completed by Starwood Capital Group, who, together with the Finnish Avara, acquired almost 2,200 dwellings from pension insurer Elo and OP Group’s insurance companies. Due to high investor demand, the transaction prices of the best properties continued to increase especially in the Helsinki metropolitan area. Quarterly volumes amounted to EUR 1.3 –1.9 billion. The volume of the last quarter of 2019 amounted to EUR 1.5 bn, which was as much as 60% lower than exceptionally high volume in Q4/2018.

Office properties most traded property type

Office properties were the most traded property type for the third consecutive year in 2019, accounting for 37% of the total volume (EUR 2.3 billion). Residential portfolios accounted for 25% of the total volume, followed by retail (17%) and care properties (10%). The share of retail properties was the lowest in the past 15 years, while care properties have increased their share in recent years. In early 2020, the largest ever care property transaction in Finland will be carried out, as Belgian investor Aedifica is about to complete the public tender offer to purchase all shares in the listed Finnish care property investor Hoivatilat Plc.

Share of foreign investors decreased

The share of foreign investors decreased from the past two years, and amounted to 45% of the total volume in 2019 (65% in 2018). However, the Finnish property investment market remains attractive, and several new foreign property investors entered Finland last year. In total, foreign investors acquired properties worth EUR 2.8 bn, while their sales totalled EUR 1.5 bn in 2019. Of the domestic property investor groups, the property funds were the most active buyers, accounting for 29% of the total volume.

Transactions volume in the Finnish property market

Source: KTI

More detailed information and analysis on property transactions in Finland can be found in the KTI Transactions information service. For more information, contact: Mikko Soutamo (mikko.soutamo(a)kti.fi, +358 50 548 0480) or Olli-Pekka Virkola (olli-pekka.virkola(a)kti.fi, +358 50 330 5287). The guidelines of KTI’s transaction statistics can be found here.

The slowing economy does not yet seem to be impacting the sentiment in the Finnish real estate investment or rental markets. Transaction activity remains high, although, due to the smaller average size of transactions, year-to-date volume is clearly lower than in the corresponding period in two previous years. Property market professionals expect investment demand to remain high as the period of extreme-low interest rates continues. Due to the strong investment demand, prime property yields continue to compress.

In the Helsinki Central Business District (CBD) offices, rents have, again, reached new records, and the outlook is positive for the near future. Strong rental demand has spread from the Helsinki CBD to the surrounding areas, where occupancy rates and rents have continued to increase. The supply of high-quality, modern office space continues to increase also in other submarkets, due to active new development.

Despite the challenging outlook of retail trade and shopping centre markets, property market professionals’ expectations for retail rents are now more positive than in the spring. The increasing shopping centre supply in the Helsinki metropolitan area, is however, increasing the uncertainty in the market, and pressuring the outlook for rents and occupancy rates.

Residential rents continue to increase in all major cities despite the rapid increase in supply. In 2020, a record number of new rental apartments will be completed in the Helsinki metropolitan area. Strong rental demand supports the attractiveness of residential properties in the investment market.

Read more at KTI Market Review, autumn 2019

Property transaction volume remains high in Finland. Investor interest is targeted at all sectors and regions. Foreign investor interest remains strong, but also domestic players are active in the transactions market. Strong investor demand and high development volumes contribute to the growth of the invested market. Total transaction volume amounted to €9.4 bn in 2018, and €1.3 bn in the first quarter of 2019.

After a short break late in 2018, property yields have continued to compress. During the first quartile of 2018, transactions of the very best properties in the Helsinki CBD have been carried out at record low yield levels. In the RAKLI-KTI Property Barometer, yield for a prime office in Helsinki CBD stood at 3.95%.  In addition to the Helsinki metropolitan area, yields have decreased also in Tampere and Turku regions.

In the commercial property rental markets, office rents in Helsinki CBD increased by 2.4% p.a., according to the KTI rental index. Outlook in the retail market remains more negative, and rents are expected to remain stable in the best areas in Helsinki, but to decrease in all other areas, according to the RAKLI-KTI Property barometer.

Supply in rental residential market is increasing due to active new development. Despite this, the increase in rents accelerated in all major cities after a couple of years of slower growth. In the Helsinki metropolitan area, residential rents for new agreements increased by 3.3% p.a., and in other main cities by 4.1% on average. Foreign investors strengthened their position in the Finnish residential property investment market in 2018, and their interest is expected to remain strong also in the future.

In addition to the main property sectors, also smaller sectors increase their attractiveness in the investment market. The supply of hotels is increasing in the largest cities, supported by property investor demand. In the public sector properties, investor interest is expanding from care properties to other property types, such as educational properties.

Read more: KTI Market Review spring 2019

Property transactions activity remains high in Finland. In 2018, several new foreign investors entered the market, and investor interest was widely spread across property sectors and major city areas. In the rental markets, prime office rents continued to increase, while in the retail market, uncertainty increased due to increasing supply and changes in consumer behavior. Urbanisation supports rental residential markets in main cities.

The total size of the property investment market increased by 9% in 2018
The total size of the invested property market increased to €69.5 billion at the end of 2018. Foreign investors continued to increase their weight in the investment market, and at the end of the year, they accounted for some 32 per cent of the total market. The amount of property investments of domestic institutions and property funds increased slightly and stood at €16.4 and €11.7 billion, respectively. The Finnish listed property sector increased markedly through the listing of the largest residential investment company Kojamo in summer 2018, but will, again, decrease in 2019 when the shares of Technopolis will be delisted due to the acquisition of the company’s shares by Kildare Nordic Acquisitions S.à.r.l.

Residential properties retained their position as the largest property sector in the investment market with the share of 29 per cent. Office and retail properties accounted for 28 and 23 per cent of the total market, respectively. Care properties continued to attract investment capital, and at the end of the year, the total amount of care property investments stood at some €3 billion.

Transaction volume amounted to €9.3 billion in 2018
Despite of the 9 per cent decrease from the previous year’s record levels, transaction volume remained high, at €9.3 billion, in 2018. Foreign investors accounted for almost two thirds of the total volume, and in all the largest transactions, the buyer was a non-Finnish player. Investor interest was widely spread across property sectors, and office properties were the most traded property sector with a share of 39 per cent of all transactions. The Technopolis acquisition contributed to the office transaction volume with some €950 million. Retail properties accounted for 24 per cent of all transactions. In the retail sector, the largest transactions were carried out by the newly established Cibus Nordic Real Estate, who acquired a retail property portfolio worth €767 million, as well as by a fund managed by Morgan Stanley Real Estate Investing, who invested €516 million in the Itis shopping centre.

Rental residential market attracts foreign investors
Rental residential property portfolios accounted for 19 per cent of all transactions in 2018. Also in this sector, the majority of largest transactions were carried out by foreign investors. Foreign ownership has increased rapidly in the Finnish residential property investment market in the past years, and in total, foreign investors currently own more than 11,000 rental dwellings in Finland. Urbanisation increases the demand for rental housing in largest cities, and rents have continued to increase. In addition to rental growth, residential properties’ investment performance has also been supported by decreasing yields, and residential was, again, the best performing sector in the KTI Index in 2018 with a total return of 8.8%.

Office rents increased by 6% in Helsinki CBD in 2018
Healthy economic development has supported office space demand in recent years, and in Helsinki CBD, rents increased by some 6 per cent in 2018. However, office vacancy rate remains high in Helsinki metropolitan area, which increases, together with the increasing costs and improvements required for tenant retention, pressures on income return on office properties. In 2018, office properties produced a total return of 6.7%. In the retail property markets, space supply is increasing rapidly in the Helsinki metropolitan area. At the same time, uncertainty is increasing due to the changing consumer behavior, as well as the weakening economic outlook, which contribute to the negative capital growth for retail properties. Investment performance of retail properties has remained weak in the KTI Index, and of the largest sectors, retail has produced the lowest total returns in all investment periods.

Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2019 -report, published today. The report is published annually in March.

Download The Finnish Property Market 2019

KTI wishes to thank the partners of the publication: The City of Helsinki, KIINKO Real Estate Education, Kojamo, LocalTapiola, Newsec, RAKLI, SATO, SEB Group, Sirius Capital Partners, Skanska and YIT.

Printed reports can be ordered from kti(a)kti.fi (price 49 € + VAT).

For more information, please contact: Hanna Kaleva, hanna.kaleva(a)kti.fi, tel. + 358 40 555 5269