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 investorsÂ´ 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 â‚¬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.