Property transactions activity remains high in Finland. In 2018, several new foreign investors entered the market, and investor interest was widely spread across property sectors and major city areas. In the rental markets, prime office rents continued to increase, while in the retail market, uncertainty increased due to increasing supply and changes in consumer behavior. Urbanisation supports rental residential markets in main cities.
The total size of the property investment market increased by 9% in 2018
The total size of the invested property market increased to €69.5 billion at the end of 2018. Foreign investors continued to increase their weight in the investment market, and at the end of the year, they accounted for some 32 per cent of the total market. The amount of property investments of domestic institutions and property funds increased slightly and stood at €16.4 and €11.7 billion, respectively. The Finnish listed property sector increased markedly through the listing of the largest residential investment company Kojamo in summer 2018, but will, again, decrease in 2019 when the shares of Technopolis will be delisted due to the acquisition of the company’s shares by Kildare Nordic Acquisitions S.à.r.l.
Residential properties retained their position as the largest property sector in the investment market with the share of 29 per cent. Office and retail properties accounted for 28 and 23 per cent of the total market, respectively. Care properties continued to attract investment capital, and at the end of the year, the total amount of care property investments stood at some €3 billion.
Transaction volume amounted to €9.3 billion in 2018
Despite of the 9 per cent decrease from the previous year’s record levels, transaction volume remained high, at €9.3 billion, in 2018. Foreign investors accounted for almost two thirds of the total volume, and in all the largest transactions, the buyer was a non-Finnish player. Investor interest was widely spread across property sectors, and office properties were the most traded property sector with a share of 39 per cent of all transactions. The Technopolis acquisition contributed to the office transaction volume with some €950 million. Retail properties accounted for 24 per cent of all transactions. In the retail sector, the largest transactions were carried out by the newly established Cibus Nordic Real Estate, who acquired a retail property portfolio worth €767 million, as well as by a fund managed by Morgan Stanley Real Estate Investing, who invested €516 million in the Itis shopping centre.
Rental residential market attracts foreign investors
Rental residential property portfolios accounted for 19 per cent of all transactions in 2018. Also in this sector, the majority of largest transactions were carried out by foreign investors. Foreign ownership has increased rapidly in the Finnish residential property investment market in the past years, and in total, foreign investors currently own more than 11,000 rental dwellings in Finland. Urbanisation increases the demand for rental housing in largest cities, and rents have continued to increase. In addition to rental growth, residential properties’ investment performance has also been supported by decreasing yields, and residential was, again, the best performing sector in the KTI Index in 2018 with a total return of 8.8%.
Office rents increased by 6% in Helsinki CBD in 2018
Healthy economic development has supported office space demand in recent years, and in Helsinki CBD, rents increased by some 6 per cent in 2018. However, office vacancy rate remains high in Helsinki metropolitan area, which increases, together with the increasing costs and improvements required for tenant retention, pressures on income return on office properties. In 2018, office properties produced a total return of 6.7%. In the retail property markets, space supply is increasing rapidly in the Helsinki metropolitan area. At the same time, uncertainty is increasing due to the changing consumer behavior, as well as the weakening economic outlook, which contribute to the negative capital growth for retail properties. Investment performance of retail properties has remained weak in the KTI Index, and of the largest sectors, retail has produced the lowest total returns in all investment periods.
Read more about the structure, players, market practices and conditions in the Finnish property investment market on The Finnish Property Market 2019 -report, published today. The report is published annually in March.
Download The Finnish Property Market 2019
KTI wishes to thank the partners of the publication: The City of Helsinki, KIINKO Real Estate Education, Kojamo, LocalTapiola, Newsec, RAKLI, SATO, SEB Group, Sirius Capital Partners, Skanska and YIT.
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For more information, please contact: Hanna Kaleva, hanna.kaleva(a)kti.fi, tel. + 358 40 555 5269