KTI Market Review, autumn 2024, has been published today. The overall sentiment in the Finnish property market is still subdued, but cautious signs of recovery are emerging across several fronts. The gradually improving economic situation as well as the decrease in interest rates are fostering optimism and provide a more stable foundation for the recovery in the property market. However, despite expectations for a revival in property transactions following the record-low activity of 2023, the first three quarters of this year have proven even quieter. Transaction volumes remain particularly low in the traditional large commercial property sectors – office and retail properties – whereas residential and industrial properties attract more investors, reflecting the outlook for space demand in various sectors. Transaction activity is expected to pick up within the next year, as market professionals anticipate foreign investor demand in particular to increase markedly in the near future.
Read more about the development and outlook of the real estate market in the KTI Market Review.
Together with key real estate fund managers and Rakli, KTI has today published the 2023 Special Investment Fund Review. The review contains the most important information and key figures for 2022 on special investment funds investing in real estate.
2024 has witnessed a slow start in the Finnish property transaction market. The market values of investment properties have decreased in all sectors since the latter half of 2022. It is now estimated that the decrease in values will gradually bring the price perceptions of potential buyers and sellers closer together and thereby support the execution of transactions – but only if interest rates start to decrease as expected. The current economic situation creates pressures in the rental market. The demand for office properties is weighed down by both the weak economic development and the decreasing space needs among occupiers, which weakens the position of office properties in the investment market. The rental residential market is pressured by the oversupply of rental housing in the Helsinki metropolitan area, which is, however, expected to ease fairly soon due to the sharp decline in new construction volumes. In the first four months of 2024, the strongest investment demand has been directed at retail and industrial properties.
Together with key real estate fund managers and Rakli, KTI has today published the 2023 Special Investment Fund Review. The review contains the most important information and key figures for 2022 on special investment funds investing in real estate.
According to the KTI statistics, the property transaction volume amounted to €2.6 billion in 2023, which was the lowest volume since 2013. Both in 2021 and 2022, the annual volume exceeded €7 billion. The average size of the transactions was clearly lower compared to previous years, and the number of transactions decreased markedly. In 2023, approximately 180 professional property transactions exceeding one million euro were carried out, while in previous years the number has varied between 250-350 transactions.
In the last quarter of the year, transaction volume amounted to €820 million, which was 38% lower than in the corresponding period in 2022. The highest quarterly volume in 2023 was recorded in April-June, which was the only quarter when the volume exceeded €1 billion. Both in the first and third quarters, the volume remained at only about €400 million.
Residential properties the most traded property sector
Residential properties were the most traded property sector for the third consecutive year, accounting for 27% of the total volume in 2023. However, the volume of residential property transactions only amounted to slightly over €700 million, which was the lowest volume in this sector since 2014. The largest residential portfolio transaction of the year was recorded in late spring, when the US investor KKR acquired 1,200 rental apartments across Finland from Kruunuasunnot. Avant Capital Partners acted as KKR’s investment partner in the transaction.
Both industrial and public use properties accounted for 22% of the total volume. In the industrial property sector, the volume was boosted especially by logistics property transactions. Public use property transaction volume decreased by 65% compared to record-high volume of 2022, but a couple of large public use property portfolios were sold also in 2023. In the last quarter of 2023, eQ Community Properties Fund sold two care property portfolios to Nrep and Northern Horizon’s fund for a total price of approximately €175 million. Also Kinland was active in the transaction market in 2023.
Office and retail property transaction volumes remained low, and they accounted for 17% and 10% of the total volume, respectively. Swedish investor Niam acquired three significant office assets in Finland in 2023 and was the most active player in the office market.
Foreign investors carried out transactions in all property sectors
Foreign investors continued to be active in all property sectors in 2023. In total, foreign investors acquired properties worth over €1.4 bn, while their sales totalled less than €0.5 bn. More than half of foreign investors’ investments were originated from other Nordic countries. KKR was the only newcomer, who entered the Finnish market during the year. Of the domestic property investor groups, property funds were, once again, the most active buyers, accounting for 21% of the total volume. The shares of other domestic investor groups remained low.
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).
The adjustment of the Finnish property market to the rapid increase in interest rates during the past year and a half is still in progress. Property transaction volume remains low, only at €1.8 billion in the first three quarters of 2023. Property yields continue to increase, although real market evidence for yields remains very scarce. Outlook for rental markets remains subdued in office and retail markets, whereas in industrial space markets, rents are expected to continue increasing. In the rental residential markets, the rapid increase in supply in Helsinki metropolitan area in particular has limited rental growth in recent years, but the construction volumes are now decreasing sharply, which is expected to melt down the oversupply.
Kati Paatela (M.Sc. Tech, BA(Hons)) has started as a Director at KTI Property Information Ltd in August. Her responsibilities include client coverage and service concepts. Kati returns to KTI from Elo Mutual Pension Insurance Company where she was Portfolio Manager responsible for international real estate investments. Kati’s previous experience includes Portfolio Management at Sampo Plc and an Analyst role at SEB.
The property investment market sentiment is dominated by the change in the financial and investment markets and the uncertainty of the overall economic outlook. Property market transaction activity has slowed down dramatically in recent months. Differing price perceptions of potential buyers and sellers effectively prevent transactions from happening. In the rental markets, residential market is characterised by an increasing supply of small apartments, especially in the Helsinki metropolitan area, due to which the increase in rents has been significantly lower than inflation during the past year. In the commercial property rental markets, the economic uncertainty is holding back the renting of office and retail premises. The strongest rental market situation is in logistics premises, where occupancy rates remain high and rents still have room for growth.
Together with key real estate fund managers and Rakli, KTI has today published the 2023 Special Investment Fund Review. The review contains the most important information and key figures for 2022 on special investment funds investing in real estate.
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