The Finnish Property Market 2016 -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.
Despite the challenges in the Finnish economy, the Finnish property market continues to attract both foreign and domestic investors. Market volumes are boosted by both new investors coming into the market and portfolio restructurings of traditional investors. In the commercial property markets, strongest demand is targeted at prime assets and areas. Residential properties have rapidly strengthened their position in the investment market, supported by both continuous rental growth and inflow of new capital.
Transaction volume increased to €5.5 billion in 2015; brisk start for 2016
The total property transaction volume in 2015 increased to €5.5 billion, which is the second highest volume ever and 27% higher than in the previous year. The volume was boosted by several major portfolio transactions. Domestic funds and investment companies actively increased their portfolios in 2015, while foreign investors accounted for one third of all transactions. 2016 has started briskly in the transactions market, and already by the end of February, the volume has reached some €1.4 billion. This is the first time since 2008 when the first quartile’s volume will exceed the €1 billion threshold.
The total size of the property investment market increased by 9% in 2015
The total size of the invested property market increased by some €4.5 billion in 2015, ending up at €54.5 billion. The growth is a result of both newly developed properties in the investors’ portfolios as well as some major sale-and-leaseback transactions from corporations to investors. Domestic institutions remain the biggest player group in the market, although their share has decreased markedly in recent years and currently stands at some 29%. Domestic funds and non-listed investment companies have increased their shares rapidly, and they currently account for some 37% of the total market. Foreign investors owned some €12 billion worth of Finnish properties at the end of 2015, and accounted for some 22% of the total market.
Institutional investors restructure their property portfolios
Finnish pension institutions have contributed to the transactions market through active implementation of their renewed property investment strategies. In the past, direct domestic investments had a dominant position in their portfolios, but in recent years, many pension funds have targeted the majority of their new investments abroad with the aim of increased international diversification. This has also resulted in major restructurings in their domestic portfolios. In 2014 and 2015, several major transactions were released, where institutions transferred their formerly direct property holdings to joint venture structures with other, most often Swedish, institutions. In total, Finnish institutions sold some €1.2 billion worth of properties in 2015.
Helsinki CBD offices outperform all other submarkets
The strongest international interest is targeted at offices in the Helsinki metropolitan area. However, due to the oversupply of office space, investor interest is almost solely targeted at prime areas and assets, where the perceived risk in the cash-flow is the lowest. This has resulted in yield compression in the Helsinki CBD in particular, with prime yields currently standing at some 4.7%. This still represents a healthy gap compared to most other European capitals. In the KTI Index, the total return for Helsinki CBD offices increased to 11.6% in 2015, supported by strong capital growth. In most other submarkets in the Helsinki metropolitan area, the market values of offices continued to decrease. The main driver for falling values is the high vacancy rate, which, according to Catella, currently stands at 13.3% in the Helsinki metropolitan area.
Retail market characterised by active new development
At the end of 2015, there were almost 190,000 sqm of new retail space under construction in the Helsinki metropolitan area, and some major projects just about to be started. New development is mostly concentrated around the station areas of the new rail connections – Ring Rail Line and the western metro line. Need for new retail space is based on the continuous population growth in the area. Main shopping centres and retail property portfolios have recently attracted both domestic and foreign investors, and in 2015, retail accounted for some 32% of the total transaction volume.
Residential continues to perform strongly
Residential investments have increased in attractiveness in recent years supported by strong demand for rental apartments in main cities. Increasing rents have attracted new investments in the market and several new funds investing in the residential sector have been established. In 2015, the total value of residential property transactions increased to €1.2 billion, which is the record volume ever by a large margin. Thanks to the large amount of capital coming to the market, residential became, together with offices, the biggest sector in the property investment market, with a share of 29% of the total market. Residential has been the best performing sector in the KTI Index for eight consecutive years, supported by increasing market values. In 2015, residential properties delivered a total return of 8.9%.
For more information, please contact:
Hanna Kaleva, KTI Finland, +358 40 5555 269, hanna.kaleva(a)kti.fi
Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2016 -report, published today.
Despite the challenges in the Finnish economy, the Finnish property market continues to attract both foreign and domestic investors. Market volumes are boosted by both new investors coming into the market and portfolio restructurings of traditional investors. In the commercial property markets, strongest demand is targeted at prime assets and areas. Residential properties have rapidly strengthened their position in the investment market, supported by both continuous rental growth and inflow of new capital.
Transaction volume increased to €5.5 billion in 2015; brisk start for 2016
The total property transaction volume in 2015 increased to €5.5 billion, which is the second highest volume ever and 27% higher than in the previous year. The volume was boosted by several major portfolio transactions. Domestic funds and investment companies actively increased their portfolios in 2015, while foreign investors accounted for one third of all transactions. 2016 has started briskly in the transactions market, and already by the end of February, the volume has reached some €1.4 billion. This is the first time since 2008 when the first quartile’s volume will exceed the €1 billion threshold.
The total size of the property investment market increased by 9% in 2015
The total size of the invested property market increased by some €4.5 billion in 2015, ending up at €54.5 billion. The growth is a result of both newly developed properties in the investors’ portfolios as well as some major sale-and-leaseback transactions from corporations to investors. Domestic institutions remain the biggest player group in the market, although their share has decreased markedly in recent years and currently stands at some 29%. Domestic funds and non-listed investment companies have increased their shares rapidly, and they currently account for some 37% of the total market. Foreign investors owned some €12 billion worth of Finnish properties at the end of 2015, and accounted for some 22% of the total market.
Institutional investors restructure their property portfolios
Finnish pension institutions have contributed to the transactions market through active implementation of their renewed property investment strategies. In the past, direct domestic investments had a dominant position in their portfolios, but in recent years, many pension funds have targeted the majority of their new investments abroad with the aim of increased international diversification. This has also resulted in major restructurings in their domestic portfolios. In 2014 and 2015, several major transactions were released, where institutions transferred their formerly direct property holdings to joint venture structures with other, most often Swedish, institutions. In total, Finnish institutions sold some €1.2 billion worth of properties in 2015.
Helsinki CBD offices outperform all other submarkets
The strongest international interest is targeted at offices in the Helsinki metropolitan area. However, due to the oversupply of office space, investor interest is almost solely targeted at prime areas and assets, where the perceived risk in the cash-flow is the lowest. This has resulted in yield compression in the Helsinki CBD in particular, with prime yields currently standing at some 4.7%. This still represents a healthy gap compared to most other European capitals. In the KTI Index, the total return for Helsinki CBD offices increased to 11.6% in 2015, supported by strong capital growth. In most other submarkets in the Helsinki metropolitan area, the market values of offices continued to decrease. The main driver for falling values is the high vacancy rate, which, according to Catella, currently stands at 13.3% in the Helsinki metropolitan area.
Retail market characterised by active new development
At the end of 2015, there were almost 190,000 sqm of new retail space under construction in the Helsinki metropolitan area, and some major projects just about to be started. New development is mostly concentrated around the station areas of the new rail connections – Ring Rail Line and the western metro line. Need for new retail space is based on the continuous population growth in the area. Main shopping centres and retail property portfolios have recently attracted both domestic and foreign investors, and in 2015, retail accounted for some 32% of the total transaction volume.
Residential continues to perform strongly
Residential investments have increased in attractiveness in recent years supported by strong demand for rental apartments in main cities. Increasing rents have attracted new investments in the market and several new funds investing in the residential sector have been established. In 2015, the total value of residential property transactions increased to €1.2 billion, which is the record volume ever by a large margin. Thanks to the large amount of capital coming to the market, residential became, together with offices, the biggest sector in the property investment market, with a share of 29% of the total market. Residential has been the best performing sector in the KTI Index for eight consecutive years, supported by increasing market values. In 2015, residential properties delivered a total return of 8.9%.
For more information, please contact:
Hanna Kaleva, KTI Finland, +358 40 5555 269, hanna.kaleva(a)kti.fi
Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2016 -report, published today.
The total return on the Finnish property investment market was 6.3% in 2015. Residential was the best performing property sector for the eighth consecutive year, due to appreciation in market values. Challenging economic conditions in Finland pressured commercial property values that continued to decrease with the exception of offices, where values remained stable due to the strong performance of the Helsinki CBD offices. The income return remained relatively stable, which makes property an attractive investment class in the zero interest rate investment universe.
KTI Market Review, autumn 2015 has been published.
The globally high investment demand impacts also the Finnish property market. Transaction volume of the first three quarters of the year is already close to last year’s total volume, which was already significantly higher than in previous years.
The number of players in the market is increasing due to both new international investors entering the market and new domestic structures being established. Thanks to investors’ varying strategies, investment demand is targeted at numerous sectors and regions. Strong demand has pressured prime yields to record low levels. However, the tight economic situation has kept investors cautious, and yield premiums for secondary assets remain rather high. Higher yields have started to attract investors also to risker assets. Differently from the previous years, also some properties with high vacancies have been sold this year.
Tight economic conditions are clearly seen in the commercial rental markets. Office rents in Helsinki CBD, which have increased steadily during the past years, have now stabilized or even decreased slightly. Some significant moves of major companies have brightened the sentiment in the rental market slightly. However, companies demand efficient space and – almost without exception – move to smaller premises, due to which office vacancy rate keeps increasing.
Retail rental markets are challenged both by the economic conditions and the changing behavior of consumers. The ongoing structural change in the retailing business is also impacting space needs and usage. In the shopping centre markets, this is seen in increasing differentiation between centres, as well as changes in their tenant base. Traditionally large retail sectors – for example clothing – are decreasing their space usage, while the role of services is increasing in order to attract consumers to shopping centres.
The supply of rental residential apartments is increasing as new capital is being targeted at residential property investments. Residential rents continue increasing, especially in areas with lower rents, whereas in the most expensive areas, the affordability seems to become an issue. Good location and traffic connections are increasing in importance.
The Finnish Property Market 2015 -raportti on julkaistu. Raportti tarjoaa kattavan kuvauksen Suomen kiinteistömarkkinoiden rakenteesta, toimintatavoista, toimijoista sekä viimeaikaisesta markkinakehityksestä. KTI julkaisee raportin vuosittain maaliskuussa.
Avaa The Finnish Property Market 2015 PDF-muodossa
Raportin painetun version voi tilata Riikka Takilta, riikka.takki(a)kti.fi.
Lisätietoja raportista: Hanna Kaleva, hanna.kaleva(a)kti.fi tai puh. 040 5555 269.
The total return on the Finnish property investment market was 5.6% in 2014. Residential was the best performing property sector for the seventh consecutive year, due to the positive development of market values. In all commercial property sectors, capital growth remained negative. Income return remained stable.
The KTI Index measures the total return on direct, unleveraged property investments, and is composed of two components: income return, which measures net rental income in proportion to market value, and capital growth, which measures the annual change in market values. Income return remained stable at 6.3%, which is a strong level by international comparison. Despite the challenging economic situation in Finland, both occupancy rates and rents passing remained stable. Capital growth was positive for the residential sector, while all commercial property sectors witnessed negative capital growth. Market values decreased by 0.6% across all property sectors.
Residential properties have been the best performing property sector in the KTI Index every year since 2008. In 2014, they delivered a total return of 8.2%. Strong demand for rental apartments supports the attractiveness of residential properties in the investment market, and their share in the KTI Index database has increased rapidly. It now stands at 26%, having been less than 20% just two years ago. In 2014, market values of residential properties increased by 2.6% on average, with the Helsinki metropolitan area showing the strongest performance. Continuing increase in rents and high occupancy rates support the income return, which was 5.5% in 2014.
Office properties have traditionally been the most favored property sector by Finnish institutional investors. However, due to their poor outlook, their attractiveness has decreased during the past years, and their share of the KTI Index database has now decreased to less than one third. Market values of offices have fallen every year since 2008. In 2014, the capital growth was -2.0%, which was, however, less negative than the year before when values dropped by 4.6%. More than one million square meters of vacant office space in the Helsinki metropolitan area led to quite strongly depreciated market values in some areas outside the Helsinki central business district. The Helsinki CBD, however, retained its attractiveness and capital growth remained in positive territory. Office properties´ income return increased to 6.2%, mainly supported by decreasing market values. Rents remained stable and occupancy rates remained unchanged although low at 86%. As a result, office properties delivered a total return of 4.1%, which was, however, higher than the year before when total return for offices was the lowest in KTI Index history, at 1.1%.
Retail properties delivered a total return of 5.7% in 2014. Market values declined by approximately one per cent, but net income remained stable at 6.6%. Challenging times in the retail sector and a poor outlook for consumer demand were seen in the retail properties´ performance: rental values decreased and yields increased slightly. However, occupancy rates remained at the high level of 94%. Shopping centres delivered lower returns than retail properties on average, mainly due to their lower income return, which stood at 5.9%. In 2014, market values of shopping centre properties decreased slightly more than for other retail properties.
For further information, please contact KTI Finland:
The KTI Index measures ungeared total return on direct property investments in Finland, consisting of two components: income return and capital growth. 24 major Finnish property investors contribute to the KTI Index. The database currently comprises some €23.0 billion worth of properties, thus covering about 43% of the total property investment market. The KTI Index is compatible with property indices published by IPD for other countries. KTI is an independent property information and research service company.
Datscha Oy and KTI Finland have entered into a new partnership whereby KTI´s independent Finnish real estate data will be distributed through Datscha´s interactive web service. This service is available for mutual clients and require an agreement with both KTI and Datscha.
KTI Market Review, autumn 2014 has been published. The report summarizes the current conditions in the Finnish property investment and rental markets.
Download KTI Market Review.
Further information:
The 10th IPD KTI Nordic Property Investment Briefing attracted some 120 property professionals to participate debates around series of research-based presentations on trends across and beyond the region. Key themes included the outlook for the Nordic markets, trends in property finance, risks through the real estate investment process, and investor appetite for real estate.
One of the keynote presentations was provided by Timo Ritakallio, Deputy CEO and CIO, Ilmarinen Mutual Pension Insurance Company, one of Europe´s largest pension funds. The presentation explained the shift in strategic allocations to reduce Fixed Income exposure and increase Real Estate, and the plan to grow international real estate. Mr Ritakallio provided a lucid explanation of the evolution of the investment strategy, including disappointment with the performance of closed end real estate funds, and desire to find strong long-term local partners in the Nordics, France, Germany, UK and US. This presentation was complemented by material from Gunnar Herm (UBS) and Peter de Haas (Cornerstone) on the different access routes and range of investment styles in real estate, across global markets.
The sessions on the outlook for the Nordic markets explored the historical context, current pricing and prospects of the markets. The presentation by Håvard Bjorå of IPD demonstrated how the Nordics have performed relatively well in a European and global context, albeit with considerable variations in performance between the stronger, Norwegian and Swedish, markets, and the weaker Danish and Finnish markets. These variations are set to persist, with the panel discussion suggesting the best short term prospects are in Sweden, although there are significant variations within countries as much as between them. The record-low yields of the prime assets in Nordic capital city areas may currently limit some investors´ interest, but good investment opportunities can be found in, for instance, second tier cities for investors with larger risk appetite. One of the positive features for the Nordic markets as a whole relates to the increased availability of debt finance for property investments. The availability has improved significantly during the past year, and various sources can be exploited by different types of investors.
The importance of local and asset-specific variations was a theme addressed in the session focused on risks through the real estate process. Peter Hobbs from IPD explained the ways that risk management is being tightened through the investment process and his presentation explored the ways that real estate risk is being considered in a more systematic way alongside other asset classes, and the particular impact of geographic diversification and leverage. Alex Krystalogianni (Allianz Real Estate) explored some of the key considerations involved in developing a real estate investment strategy, including approaches to the measurement of risk and other considerations including geo-political and real estate transparency. The session was ended by a practical exploration of the ways that risk management is being embedded in the investment processes by David Neil, CEO of Genesta Property Nordic. Mr Neil explained the transformation that is underway at Genesta to strengthen risk management, in response to investor pressure, and to support regulatory compliance such as AIFMD.
Please click here for the seminar program
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