Press release, 9 March 2021

According to the KTI Property Index, the total return in the Finnish property investment market decreased to 3.0% in 2020. The total return was weighed down by a 1.2% decline in market values. Net income also decreased from the previous year and stood at 4.3%. The year was characterized by increasing differences between the performance of different property sectors and regions. Residential properties continued to produce healthy returns, and their role in the investment market continues to strengthen. Retail properties suffered the most from the COVID-19 pandemic.

KTI Property Index results are based on the portfolios of 29 professional property investors, with a total property portfolio value of approximately €32 billion. The Index covers 39% of the total property investment universe. The Index reflects the total return on properties held throughout the whole year and comprises of annual net income and capital growth.

Total return by property sector in 2020

Source: KTI Index

The exceptional year increased differences between property sectors

The COVID-19 pandemic and its impact on various property sectors was clearly reflected in investment returns in 2020. Differences in total returns between property sectors were larger than ever before in the Index’s history, which dates back to 1999. Residential and public use properties outperformed all other property sectors, with a total return that was 13.4 percentage points higher than that of retail properties.

Spread of total return by property sector 2010-2020

Source: KTI Index

Positive capital growth supports residential property returns

Total return on residential properties decreased from its peak level in 2019, but remained at a healthy level of 7.1%. Also in 10 and 20 year periods, residential properties outperform all other property sectors with their average annual returns exceeding 8%. Positive capital growth is the main driver for residential returns: market values of residential properties have increased every year since the start of the KTI Index. Net income continued to decrease in 2020 and fell below 4%. Net income was pressured by both increasing capital values and slightly decreasing occupancy rate.

Office property returns vary between regions

Office properties retain their position as the largest commercial property sector. In 2020, office properties produced a total return of 3.3%, while market values decreased by just over one per cent. In the Helsinki

central business district, market values remained stable, whereas in all other areas, market values declined. Net income decreased also for office properties in 2020. Occupancy rates declined after a couple of years’ positive development and stood at approximately 85%.

Total return on retail properties lowest ever in the KTI Index history

Total return on retail properties collapsed to -6.3%, which is the lowest sector-level annual total return ever in the KTI Index history. Approximately 75% of all retail properties in the KTI dataset are shopping centres, which were hit severely by the COVID-19 pandemic. Uncertain outlook for retail markets increase yields and decrease rental values, and market values decreased significantly in the Helsinki metropolitan area shopping centres in particular. Income return on retail properties was pressured by both decreasing rents and occupancy rates.

Logistics properties performed best among industrial property sector

The industrial property sector covers various kinds of manufacturing, warehouse and logistics properties. The sector’s average total return remained healthy at 7%, supported by a strong net income. Within the sector, the best returns of almost 8% were generated by logistics properties in the Helsinki metropolitan area.  Market values of manufacturing and warehouse properties declined slightly, but, due to the high net income, total returns amounted to 6-7%.

Public use properties produced a total return of over 7%

Public use properties have increased their attractiveness in the investment market in recent years, and, according to the KTI estimates, the total value of public use properties in the investment market amounted to approximately €6 billion at the end of 2020. The sector includes, for instance, educational, health care and assisted living properties. In 2020, the sector’s average total return amounted to 7.1%. Net income varied between 4.5 and 5.5% for different kinds of public use properties.

For further information, please contact:

Hanna Kaleva, managing director, KTI Property Information lrd, +358 40 5555 269

KTI is an independent market information and research service company servicing the professional property investment sector in Finland.

Contributors for the KTI Index in 2020: Aberdeen Standard Investments, Akiva Kiinteistöt I Ky, Erikoissijoitusrahasto Aktia Toimitilakiinteistöt, Antilooppi, CBRE Global Investors, Alma Property Partners, Areim Fastigheter, Avara, Avain Vuokrakodit, Citycon, Elo, eQ, Exilion Management, Evli, Genesta, Ilmarinen, Julius Tallberg-Kiinteistöt, Keva, Kojamo, LocalTapiola, Mercada, OP Property Investment, Premico, Sampo, SBB, Turku Technology Properties, Varma, Veritas and Ylva.

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

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.