Total return on the Finnish property investment market amounted to 6.6% in 2017. Income return continued to decrease and stood at 5.4%. Capital growth amounted to 1.2% on average. In all property sectors, the Helsinki metropolitan area outperformed other parts of the country.

Returns by sector in 2017

Residential properties continued to perform well
Of the main property sectors, residential properties delivered the best returns for nine consecutive years between 2008 and 2016. In 2017, residential continued to perform well, but lost its top position for hotels and offices. Total return for residential properties amounted to 7.5% in 2017 (8.0% in 2016). Other major cities (Tampere, Turku, Jyväskylä, Oulu, Kuopio and Lahti) and the Helsinki metropolitan area outperformed the rest of Finland due to the negative capital growth outside the main cities.

Capital growth for residential properties decreased slightly from previous years. However, supported by both increasing rents and strong occupancy rate, income return increased slightly in 2017 compared to the previous year. Occupancy rate for residential properties stood at 96.5% in 2017 on average.

Professional investors have increased their investments in rental residential properties in recent years, and residential is currently the largest sector in the Finnish property investment market. Its share of the KTI Index database stood at 41% in 2017.

Total return for offices strengthened in 2017
Offices outperformed the other main property sectors in 2017 with a total return of 7.7%. Supported by decreasing yields, capital growth turned positive after several years of sluggish development. Income return continued to decrease due to both low occupancy rate and increasing costs. Occupancy rate for offices stood at 82.6% in 2017. Also, professional investors’ concentration on higher-quality assets with higher market values and lower yields has decreased the level of income return.

Investment performance continued to be strongest for Helsinki CBD offices, with total return exceeding 14% in 2017 – the highest annual return in the KTI Index history. Supported by high returns in the CBD, the total return for the Helsinki metropolitan area offices exceeded 8%. For the main cities outside the Helsinki metropolitan area as well as for the rest of Finland, capital growth for offices remained negative.

Capital values for retail properties decreased outside the Helsinki metropolitan area
In the retail property investment market, total return remained low at 3.6%. Geographical differences were, however, emphasized in the retail property markets: for the Helsinki metropolitan area the total return exceeded 7% mainly due to the strong performance of shopping centre properties. In the metropolitan area, capital growth of shopping centre properties was supported by both decreasing yields and increasing rental values. For other retail properties in the Helsinki metropolitan area, as well as for both shopping centres and other retail properties outside the metropolitan area, capital growth was negative in 2017.

Hotel properties delivered the best returns in 2017
The attractiveness of hotel properties has increased in the investment markets in recent years, and the hotel property stock has increased in the Helsinki metropolitan area in particular. In 2017, hotel properties delivered the highest total return among all sectors, amounting to 8.7%. Also in the hotel property market, the Helsinki metropolitan area clearly outperforms the rest of Finland.

Total return by property sector 2000–2017

For further information please contact: Pia Louekoski, tel. +358 400 959634 and 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 been calculating the KTI Index since 1998. 28 property investors contribute to the KTI Index. The database currently comprises some €25.5 billion worth of properties, thus covering about 40% of the total property investment market in Finland.

The contributors to the KTI Index include: Aberdeen Asset Management, Ahlström Capital, Alma Property Partners, Areim Fastigheter, Avara, Avain Vuokrakodit, Barings Real Estate Advisers, Citycon, Elo, eQAsset Management, Etera, Exilion Management, Genesta, HYY Real Estate, Ilmarinen, Julius Tallberg-Kiinteistöt, Keva, Kojamo, LocalTapiola, Mercada, OP, Renor, Sampo Group, SATO, Tarkala-Rettig Kiinteistökehitys, Turku Technology Properties, Varma and Veritas.

MSCI KTI NORDIC PROPERTY SEMINAR
24 May 2018 | Helsinki, Finland

We are pleased to invite you to join us at 14th MSCI KTI Nordic Property Seminar in Helsinki. The program will focus on the following themes:

Setting the scene: financial and macroeconomic conditions and their impact on property investment

• Leena Mörttinen, Director General, Financial Markets Department, the Finnish Ministry of Finance
• Bård Bjölgerud, CEO, Pangea
• Will Robson, Executive Director and Global Head of Real Estate Applied Research, MSCI

Focus on cities: the impact of urbanisation on property investment markets and strategies

• Jeremy Kelly, Regional Director, JLL Global Research
• Brenna O’Roarty, Principal, RHL Strategic Solutions

Structuring real estate investments

• Niklas Hammarskjöld, Investment Manager, Aberdeen Standard Investments
• Mika Ohtonen, Partner, Roschier Attorneys

Residential investment markets: outlook in the Nordics

• Mika Matikainen, Senior Partner, Head of CapMan Real Estate
• Fredrik Söderlund, Head of Asset Management & Transactions in the Nordic Region, AXA IM Real Assets

More speakers will be published soon at https://kti.fi/nordicpropertyseminar/.

Register and join us for the premier Nordic property investment event. We look forward to seeing you in Helsinki in May!

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EVENT DETAILS

Time: Thursday 24 May 2018 8.30 – 17.00, followed by drinks reception

Venue: Finlandia Hall, Mannerheimintie 13, Helsinki, Finland

Fees: Conference Fee: EUR 600 + VAT, MSCI/KTI Clients: EUR 500 + VAT

Improving economic conditions support property investment and rental markets. Attractiveness of the Finnish market is supported by competitive yield levels and, increasingly, the positive outlook of the economy. In the transaction market, another record volume will be reached this year. Foreign investors dominate the current transactions market, while domestic investors are increasing their portfolios predominantly through investments in new development.

Construction volumes continue to increase. The positive development of real estate markets is concentrated in largest cities in terms of investment and new construction as well as rental development. In the Helsinki CBD, office rents in best locations and premises are higher than ever before. On the other hand, the amount of vacant space remains high. In the retail rental markets, there is increasing differentiation: the attractiveness of the largest retail centres in the Helsinki metropolitan area is strengthening, whereas in the smaller cities and centres, the uncertainty is increasing. Residential rents continue increasing in all major cities despite the rapid growth in supply.

Read more at the new KTI Market Review.

The KTI Rental Residential index for new agreements increased by 1.1% p.a. in the Helsinki metropolitan area. Rents increased most in Vantaa, by 1.6%, whereas in Helsinki and Espoo, rental growth slowed down close to 1.0%. Rental growth figures were now the lowest since 2007.

In the main cities outside the Helsinki metropolitan area, rents in new rental agreements increased by 1.2% p.a. Outside the metropolitan area, rents increased most in Turku, Jyväskylä and Oulu, while in Tampere and Lahti rents remained almost unchanged.

Rents in all prevailing rental agreements have now increased almost at the same pace as those in new agreements. The KTI Rental Index for all prevailing rental agreements increased by 1.4% p.a. in the Helsinki metropolitan area, and by 1.3% in other main cities.

KTI Rental Residential indices comprise rental residential dwellings owned by professional property investors. KTI Rental database includes information on some 84.000 rental agreements. Indices for new rental agreements comprise agreements started within the past six months (1 October – 31 March). Indices for all agreements include all agreements prevailing as of 1 March. Based on the KTI database, rental levels can be calculated on 260 submarkets in 35 cities.

 

The volume of property transactions remains high in Finland. Strong investment demand has pressed down yields, which have reached record low levels. The improving economic conditions support office rental markets, where a clear turn to the better has taken place during the winter. The volume of new rental agreements, as well as rental levels in the best areas have increased during the past six months. The expectations for the development of retail rents are now clearly less positive than in the office markets.

Residential construction volumes increased significantly in 2016, supported by strong investment demand. Due to active new development, together with the positive development of market values, residential became the largest sector in the Finnish property investment market in 2016. An increase in supply is now seen in the residential rental markets, where the increase in rents seems to have almost stopped in all major cities. Strong rental demand supports, however, positive expectations with regard to both stable rental growth and high occupancy rates.

Read more at the new KTI Market Review.

The Finnish property market continues to attract both foreign and domestic investors. In 2016, residential properties continued strengthening their position in the property investment market, supported by continuous rental growth and strong investment demand. In the commercial property markets, investment demand expanded also beyond the prime assets and locations.

Transaction volume increased to €7.4 billion in 2016
The transaction volume reached a new record in 2016, boosted by several major portfolio transactions. Domestic funds and investment companies actively increased their portfolios in 2016. The share of foreign investors amounted to some 26% of all transactions. The transactions market was characterised by some major residential property portfolio transactions, and the share of residential properties amounted to 38%. Several foreign investors entered the Finnish residential investment market in 2016. Thanks to active new development as well as continuous capital growth, residential became the biggest sector in the invested property market with a share of some 30%.

The total size of the property investment market increased by 7% in 2016
The total size of the invested property market increased to €58.2 billion at the end of 2016. The growth is mainly a result of newly developed properties in the investors’ portfolios. Domestic institutions remain the biggest player group in the market, although their share has decreased markedly in recent years and currently stands at some 27%. In 2016, institutions continued restructuring their portfolios, and were involved in several major transactions. As a result, the absolute amount of their investments remained unchanged. Domestic funds and both listed and non-listed investment companies increased their portfolios rapidly in 2016. Foreign investors account for some 21% of the total market.

Residential continues to perform strongly, Helsinki CBD offices outperform all other submarkets
Of the main property sectors, residential has shown the strongest performance in the KTI Index for nine consecutive years. In 2016, total return on residential amounted to 8.0%. Smaller investments sectors, hotel and healthcare properties, outperformed residential with total returns of 12.4 and 9.8%, respectively. Yield compression continued to support capital growth of Helsinki CBD offices, where total return ended at 8.2%. In the whole country on average, total return of offices decreased to 4.8%. Returns on offices were pressured by high vacancy rates, which currently stand at some 14% in the Helsinki metropolitan area.

Retail property market in the Helsinki metropolitan area is characterised by active new development with some 165,000 sqm of new retail space under construction, and an additional 200,000 sqm to be started in the near future. Need for new retail space is based on the continuous population growth in the area. New development is mostly concentrated around the station areas of the new rail connections – Ring Rail Line and the western metro line.

• For more information, please contact:
  Hanna Kaleva, KTI Finland, +358 40 5555 269, hanna.kaleva@kti.fi

Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2017 -report, published today.

The Finnish property market continues to attract both foreign and domestic investors. In 2016, residential properties continued strengthening their position in the property investment market, supported by continuous rental growth and strong investment demand. In the commercial property markets, investment demand expanded also beyond the prime assets and locations.

Transaction volume increased to €7.4 billion in 2016
The transaction volume reached a new record in 2016, boosted by several major portfolio transactions. Domestic funds and investment companies actively increased their portfolios in 2016. The share of foreign investors amounted to some 26% of all transactions. The transactions market was characterised by some major residential property portfolio transactions, and the share of residential properties amounted to 38%. Several foreign investors entered the Finnish residential investment market in 2016. Thanks to active new development as well as continuous capital growth, residential became the biggest sector in the invested property market with a share of some 30%.

The total size of the property investment market increased by 7% in 2016
The total size of the invested property market increased to €58.2 billion at the end of 2016. The growth is mainly a result of newly developed properties in the investors’ portfolios. Domestic institutions remain the biggest player group in the market, although their share has decreased markedly in recent years and currently stands at some 27%. In 2016, institutions continued restructuring their portfolios, and were involved in several major transactions. As a result, the absolute amount of their investments remained unchanged. Domestic funds and both listed and non-listed investment companies increased their portfolios rapidly in 2016. Foreign investors account for some 21% of the total market.

Residential continues to perform strongly, Helsinki CBD offices outperform all other submarkets
Of the main property sectors, residential has shown the strongest performance in the KTI Index for nine consecutive years. In 2016, total return on residential amounted to 8.0%. Smaller investments sectors, hotel and healthcare properties, outperformed residential with total returns of 12.4 and 9.8%, respectively. Yield compression continued to support capital growth of Helsinki CBD offices, where total return ended at 8.2%. In the whole country on average, total return of offices decreased to 4.8%. Returns on offices were pressured by high vacancy rates, which currently stand at some 14% in the Helsinki metropolitan area.

Retail property market in the Helsinki metropolitan area is characterised by active new development with some 165,000 sqm of new retail space under construction, and an additional 200,000 sqm to be started in the near future. Need for new retail space is based on the continuous population growth in the area. New development is mostly concentrated around the station areas of the new rail connections – Ring Rail Line and the western metro line.

• For more information, please contact:
  Hanna Kaleva, KTI Finland, +358 40 5555 269, hanna.kaleva@kti.fi

Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2017 -report, published today.

The Finnish Property Market 2017 -report has been published. The report provides a comprehensive overview of the Finnish property market structure, practices and players as well as recent development. The report is published annually in March.

Download The Finnish Property Market 2017

Total return on the Finnish directly owned property investments was 6.2% in 2016. Income return decreased from previous year and stood at 5.6%. Residential was the best performing main property sector for the ninth consecutive year.

Returns by sector in 2016

Residential continued strong performance
In 2016, residential investments delivered a total return of 8.0%. Income return stood at 5.0% and property values increased 2.8%. The average income return decreased clearly from previous year mostly due to the increasing amount of new residential properties in the Helsinki Metropolitan Area. Capital growth remained positive and was supported by growing rental values, decreasing valuation yields and strong investment demand.

For years residential properties have performed better than commercial properties. Demand for rental housing is strong compared to offices that are suffering from vacancy. In the retail sector the supply and uncertainty are increasing. The interest for residential investments is increasing and residential became the largest property sector in the Finnish property investment market in 2016. The proportion of residential properties increased to 35% of the KTI Index.

Income return for offices decreased in all regions
During 2016 vacancy for offices in the Helsinki metropolitan area increased further. Also operating costs increased and consequently income return decreased to 5.3%. Due to depreciating capital values the total return amounted to only 4.8% for office properties. The weight of the Helsinki metropolitan area has still increased in the professional property investors’ office property portfolios.

Capital values for retail properties decreased outside Helsinki metropolitan area
Retail and shopping center investment market is clearly split regionally. In the Helsinki metropolitan area rents continue increasing, occupation rate remains strong and valuation yields decrease. Total return in the Helsinki metropolitan area stood at 7.8% and was supported by stable income return and positive capital growth.

Outside Helsinki metropolitan area the returns suffer from increasing vacancy and decreasing rents. Capital values depreciated ca. five percent in larger cities and nearly nine percent in smaller cities.

Total return for all retail properties was 4.0% of which income return stood at 6.0% and capital growth at -2.0%.

Total return by property sector 2000–2016

For further information please contact:

• Pia Louekoski, tel. +358 400 95963
• 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 been calculating the KTI Index since 1998. 26 property investors contribute to the KTI Index. The database currently comprises some €24.9 billion worth of properties, thus covering about 43% of the total property investment market in Finland.

The participating investors are: Aberdeen Asset Management, Avara, Barings Real Estate Advisers, CBRE Global Investors, Citycon, Elo, eQ Asset Management, Etera, Exilion Management, Genesta, Hemsö, HYY Real Estate, Ilmarinen, Julius Tallberg-Kiinteistöt, Keva, LocalTapiola, Northern Horizon, OP, Renor, Sampo Group, SATO, Tarkala-Rettig Kiinteistökehitys, Turku Technology Properties, Varma, Veritas and VVO.

According to the statistics of KTI, transaction volume in the Finnish property market reached new annual record level of EUR 7.2 billion in 2016. The volume exceeded the former record level of EUR 6.3 billion, recorded in 2007, by 14%, and compared to 2015 figures, the volume increased by 30%. The quarterly volumes amounted to EUR 1.5 – 2.2 billion, and the largest transaction of the year was Sponda’s acquisition of the Forum block, comprising six properties in Helsinki CBD, for EUR 576 million.

Residential portfolios were the most traded property type in 2016, accounting for 38% of the total volume (over EUR 2.7 billion). Retail and office properties accounted for 23% and 22% of the total volume, respectively. In the retail and office sectors the volumes remained clearly below the record levels of 2007. Foreign investors accounted for 28% of the total volume (EUR 2.0 billion).

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 Kauri Melakari (kauri.melakari(a)kti.fi, +358 50 338 5068). See the list of the largest recently published transactions in the Finnish property market: Major transactions listing.