KTI Index: Finnish property investments delivered a total return of 5.6 % in 2014

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 was the best performing sector – again

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.

Market values for offices decreased for the seventh consecutive year

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%.

Capital growth slightly negative also for the retail property sector

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:

  • Pia Louekoski: +358 400 959 634
  • Susanna Vartiainen: +358 40 869 7762
  • Hanna Kaleva: +358 40 5555 269

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.

Attached:

  • Total returns by property sector 2000-2014
  • Returns by property sector 2014

IPD KTI Nordic Property Investment Briefing: The Nordic property markets continue attracting domestic and foreign investors

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

For further information, please contact:

  • Hanna Kaleva at KTI: +358 40 5555 269 / hanna.kaleva(a)kti.fi
  • Christina Gustafsson at IPD: +46 70 813 5757 / christina.gustafsson(a)ipd.com

The Finnish Property Market 2014

The Finnish Property Market 2014 -raportti on julkaistu. Raportti tarjoaa kattavan kuvauksen Suomen kiinteistömarkkinoiden rakenteesta ja toimintatavoista. Raportti julkaistaan vuosittain maaliskuussa.

Avaa The Finnish Property Market 2014 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.

 

KTI Index: Finnish property investments delivered a total return of 4.4 % in 2013

The total return on the Finnish property investment market was 4.4 % in 2013. The total return was pushed down especially by office properties that delivered a total return of only 1.1 %. The best performance was recorded for the sixth consecutive year for the residential sector, due to increasing market values.

Decrease of commercial property market values accelerated
The KTI Index measures the total return on property investments, and is composed of two components: income return, which measures rental income against market value, and capital growth, which measures the annual development of market values. Income return remained stable at 6.3 %, which is a strong level by international comparison. Occupancy rates continued to decrease during the year, but this was partly offset by increasing rents. Capital growth was positive in the residential sector, while all commercial property sectors witnessed negative capital growth. Market values fell overall, mainly due to a rise in yields.

Office properties delivered historically low total return
Office property has traditionally been the largest sector in the institutional investors´ portfolios, and therefore the challenging office market conditions are clearly reflected in the KTI Index results. Office market values have fallen since 2008, and last year the capital growth was even more negative than in the previous years, at -4.6 %. The market values decreased the most in the cities of Espoo and Vantaa, pushed down by an uncertain space demand and low occupancy rates. The income return decreased as well, ending at 5.9 %. As a result, office properties delivered a total return of only 1.1 %, which is the lowest figure in KTI Index history since its beginning in 1998.

Capital growth remained slightly negative for the retail sector
Market values of retail properties showed a decrease of 0.6 %, mainly due to increasing yields. However, income return increased, due to increasing rents, and therefore the retail sector delivered a slightly higher total return compared to the previous year, at 5.9 %. Both shopping centres and other retail properties contributed approximately six per cent total return in 2013.

Residential once again the best performing sector
Strong rental demand has supported the total return of residential investments. In 2013, residential properties were once again the best performing sector, delivering a total return of 8.2 %. Income return remained stable at 5.4 %, supported by high occupancy rates and increasing rents, although operating costs continued to increase as well. Capital growth was slightly less positive compared to previous years, at 2.6 %.

For further information, please contact KTI Finland:

  • Pia Louekoski: +358 400 959 634
  • Susanna Vartiainen: +358 40 869 7762
  • Hanna Kaleva: +358 40 5555 269

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 €23.4 billion worth of properties, thus covering about 46 % 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.

Attached:



  • Total returns by property sector 2000-2013
  • Returns by property sector 2013

KTI Index results for year 2012 have been launched

KTI Property Index: Finnish property investments delivered a total return of 6.0% in 2012


The total return on the Finnish property investment market was 6.0% in 2012. There was an increase in the total return for offices and industrial properties, whereas all other major property sectors had lower total returns compared to the previous year. The total return was pushed down by the slight increase in yields, which led to a decrease in market values. Income return remained at a healthy level of 6.3%. The best performance was once again recorded for the residential sector, which delivered an 8.6% total return. Total return on the office sector amounted to 4.9%.

Download the press release and the graphs.