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

Press release – 28 February 2019 at 14.00

The Finnish property investment market delivered a total return of 6.6% in 2018, reflecting an income return of 5.3% and capital growth of 1.3%. Of the property sectors, residential properties delivered the highest total return while retail delivered the weakest.

Total returns by property sector in 2018

Residential properties back on top
Of the main property sectors, residential properties delivered the best returns for nine consecutive years between 2008 and 2016. After a year’s break, institutional residential property investments returned to the top position in 2018 with a total return of 8.8%. Hotels and industrial property investments also made it to the top three with total returns of 8.4% and 7.0%, respectively. Offices delivered a total return of 6.7%, virtually in line with the market average, whereas the total return of retail properties reached only 2.1%.

Residential income returns edged higher
Income returns for residential property investments edged slightly higher in 2018 on the back of higher rental income and occupancy rates. For Finland as a whole, the occupancy rate in residential properties averaged 97%. Residential returns in the Helsinki metropolitan area as well as in other major cities (Tampere, Turku, Jyväskylä, Oulu, Kuopio and Lahti) were somewhat higher than in the rest of the country supported by higher capital returns. The residential rental market has in recent years attracted more capital from institutional investors leaving residential as the largest sector in the Finnish institutional property investment market and with a 44% share of the KTI Index in 2018.

Record-low income returns for offices
Total returns for offices fell by one percentage point from last year to 6.7% in 2018. Positive contributions to capital values from lower yields and higher rental income were offset by higher operational and maintenance costs as well as capital expenditure needed to attract tenants. Overall occupancy rates improved somewhat averaging 84% in 2018 for Finland as a whole. The average income return for Finnish offices reached new record lows dropping below 5% for the first time in the history of the KTI Index. The lower returns reflect both continued high levels of interest towards higher valued properties with core characteristics as well as lower utilisation rates and higher costs.

Offices in Helsinki CBD outperformed by offices in the rest of the Helsinki metropolitan area
Office returns in Helsinki CBD fell from the record levels of 2017, leaving the total return at 4%, reflecting only marginal capital returns and a record-low income return. In contrast, offices in the rest of the Helsinki metropolitan area delivered a total return of close to 9% supported by strong capital growth. Outside the Helsinki metropolitan area capital values for offices outside continued to show declines in capital values on average.

Retail property values continued to head lower
In the retail property investment market, total return fell to 2.1% from 3.7% in 2017. Returns for shopping centre properties fell below the returns of other retail properties due to declining capital values also in the Helsinki metropolitan area. For other retail properties, capital values increased in the Helsinki metropolitan area and declined in other parts of Finland.

Hotel properties continued to show strong returns
The attractiveness of hotel properties has remained strong in the investment market in recent years. Hotel properties outperformed other sectors in both 2016 and 2017, and 2018 saw total returns expand further supported by a stable income return and higher capital values. Also for hotel properties, the Helsinki metropolitan area delivered higher returns compared to the rest of the country.

Total return by property sector 2000–2018

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 2018, 26 property investors contributed to the KTI Index and the database covers some €24 billion worth of properties.

The contributors to the KTI Index include: Aberdeen Standard Investments, Ahlström Capital, Castellum, CBRE Global Investors, Alma Property Partners, Areim Fastigheter, Avara, Avain Vuokrakodit, Citycon, Elo, Exilion Management, Genesta, HYY Real Estate, Ilmarinen, Julius Tallberg Real Estate Corporation, Keva, Kojamo, LocalTapiola, Mercada, Renor, Sampo, SATO, Tarkala-Rettig Kiinteistökehitys, Turku Technology Properties, Varma and Veritas.

According to the statistics of KTI, transaction volume in the Finnish property market reached EUR 9.3 bn in 2018. This is the second highest volume ever in the Finnish property market, reflecting a decrease of 9% compared to the previous year’s record-high volumes. The volume of the last quarter of 2018 amounted to EUR 3.7 bn, which is also the second highest quarterly volume in Finland ever. In total, the quarterly transaction volume has now exceeded EUR 1 bn for 15 consecutive quarters.

The largest transaction of the year took place in Q4, when Kildare Partners acquired all shares in the listed property company Technopolis. The market value of Technopolis’ Finnish property portfolio amounts to some EUR 950 million. Altogether, more than a dozen transactions exceeding EUR 100 million were completed in 2018. Foreign investors remained very active in the market, accounting for 66% of the total volume in 2018 (71% in 2017).

Office properties were the most traded property type in 2018, accounting for 39% of the total volume (EUR 3.6 billion). Retail properties and residential portfolios accounted for 24% and 19% of the total volume, respectively. Care property transaction volume amounted to over EUR 600 million, which is the highest figure in this property sector ever. Also some large industrial and hotel properties were sold during the year.

More detailed information and analysis on property transactions in Finland can be found in the KTI Transactions information service. For more information, please 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). See the list of the largest recently published transactions in the Finnish property market: Major transactions listing.

The Finnish property investment market continues to develop strongly, although some weak signs of an expected turn are starting to arise. Uncertainty is increasing due to slowing economic growth as well as developments in the financial markets, where the turbulence in the stock markets and an expected increase in interest rates impact the attractiveness of real estate in the investment markets. Yields of commercial properties finally seem to be reaching their bottom level. Transaction volumes are, however, expected to remain high in the near future.

The strong economic development supports the rental markets, and in the Helsinki CBD office markets in particular, new records in rents have been reached.

In the retail property markets, an increase in the supply of shopping centres as well as changing patterns in consumer behavior are weakening expectations for shopping centre investment.

Demand for rental residential dwellings remains high and rents continue to increase in largest cities. Record-high construction volumes are markedly increasing the supply in 2018 and 2019.

Read more: KTI Market Review autumn 2018

Download KTI Market Review spring 2018

The Finnish property market continues to attract foreign investors. In 2017, foreign investor demand was mainly targeted at office and retail properties in prime locations. The positive outlook for the Finnish economy was reflected in the rental markets in 2017 both in commercial and residential property sectors.

The total size of the property investment market increased by 9% in 2017
The total size of the invested property market increased to €63.7 billion at the end of 2017. The growth is mainly a result of newly developed properties in the investors’ portfolios, but in 2017, also capital growth in most property sectors contributed to the growth. In 2017, foreign investors became the largest investor group in the market with a share of 29% of the total market size. The growth in foreign investors’ investments was a result of their dominating share in the transactions market. Domestic institutions have traditionally been the dominating investor group in the market, but despite the growth of their investment portfolios in 2017, their share of the total market decreased to 25%. Domestic non-listed investment companies and property funds continued to increase their portfolios actively in 2017, and their market shares amounted to 22 and 18%, respectively. The total investments of listed property companies decreased markedly in 2017, due to the delisting of the largest listed company Sponda, following the acquisition of the company by Blackstone’s Polar Bidco.

Transaction volume increased to €10.2 billion in 2017
The transaction volume reached a new record in 2017, showing an increase of 38% compared to the previous record reached in 2016. The total volume was boosted by several major portfolio transactions. At the time of the transaction, the value of Sponda’s Finnish portfolio amounted to some €3.7 billion. Another large portfolio transaction was the acquisition of the European logistics property company Logicor by China Investment Corporation with its investment partners. Measured by space area, some 8% of Logicor’s portfolio is located in Finland. Supported by some other major acquisitions, the share of foreign investors exceeded 70% of all transactions. In the transaction market, office and retail properties were the most attractive property sectors with shares of 40 and 26%, respectively.

Helsinki CBD offices outperform all other submarkets
The total return on the Finnish property investment market amounted to 6.6% in 2017. There were significant differences in the performance of different property sectors: hotel, office and residential properties outperformed the market on average, while negative capital growth in retail and industrial sectors pressured their performance. Helsinki metropolitan area continued to outperform rest of Finland in all main property sectors. The highest total returns were delivered by Helsinki CBD offices, where capital growth exceeded 9%, supported by both positive rental growth and yield compression.

Rental market outlook turned more positive supported by the strengthening economy
The Finnish GDP increased by some 3.2% in 2017. The growth was broadly based with exports, investments and private consumption all showing strong development. The positive outlook for the economy was reflected in the rental markets. According to the KTI rental index, office rents in Helsinki CBD increased by 3.5% in 2017. However, the high vacancy rate of offices limits the rental growth only to best locations and properties. Also residential rents continued to increase in all major cities despite the rapid increase in rental housing supply. Strong investment demand and healthy space demand boost new property development. At the end of 2017, there were some 128,000 sqm of new office space and 277,000 sqm of retail space under construction in the Helsinki metropolitan area.

Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2018 -report, published today. The report is published annually in March.

Download The Finnish Property Market 2018

KTI wishes to thank the sponsors of the publication: The City of Helsinki, Colliers International Finland, KIINKO Real Estate Education, 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).

More information: Hanna Kaleva, hanna.kaleva(a)kti.fi, tel. + 358 40 555 5269