INVESTING IN THE NORDICS

Europe’s north star

Cities like Oulu in Finland are proving a beacon for overseas capital

Last year broke investment records in Northern Europe, with residential leading the way and a net positive flow of foreign investment for the sixth year running. Mark Faithfull reports

The Nordic property markets set a ground-breaking record in 2021, with transaction volumes of more than €71bn, 65% up on the previous year and by far the highest volume ever recorded, according to figures from property advisor Pangea Property Partners. “This is an extraordinary year, with high transaction activity all across the Nordics. After a strong first half of the year, activity has just accelerated during a second half that will be difficult to beat,” Mikael Söderlundh, head of research and partner at Pangea Property Partners, says. The volumes in Sweden, Norway and Denmark hit all-time highs in 2021. In Sweden, the transaction volume increased 93% to €35bn, representing half of the Nordic transaction market. In Norway (54%) and Denmark (61%), volumes increased significantly, while budging up 6% in Finland. The total number of transactions in the Nordics exceeded 1,300 for the first time and the average deal size increased to €53m from €41m.

Pangea’s bullish outlook is shared by Copenhagen-based Lior Koren, partner, capital markets, Cushman & Wakefield, who adds: “We had a record-breaking year in Denmark in 2021, with transactions totalling €14.2bn, ahead of the former highest of €12bn in 2017. With constrained supply, the capital flows have been going further and further out of Copenhagen to other cities, with the top 25 cities the main target. “For international investors, it’s quite a big story to head to smaller cities and one of the main appeals for investors is demographic development and for around 20 of those cities, these figures are moving in a positive direction,” Koren says. Koren describes the situation as the most liquid Denmark has ever had, adding that residential investment included multi-family, apartment blocks, student housing, senior living and even row houses. Pangea says foreign buyers accounted for a third of Nordic transaction volumes in 2021 but only 15% of sales, which gave a positive capital inflow to the region for the sixth consecutive year. In Finland and Denmark, the share of foreign buyers was more than half and investor interest in Finland has headed north, boosting some of the country’s furthest flung cities and regions according to Janne Ylitalo, service manager, investments, BusinessOulu, Invest in Oulu. Ylitalo adds: “The north has attracted large industrial investments in mining, green energy,

and heavy industry like steel and wood processing. Also, tourism has been booming in Finnish Lapland as a safe travel destination with clean nature and climate.” He says that industrial investments in Oulu such as the Stora Enso paper mill conversion for Kraftliner — two phases, both of €350m — and the €75m Junnikkala’s sawmill investment, have increased employment, requiring new construction for logistics, industrial facilities and retail. Growing tourism has boosted accommodation needs in the whole of northern Finland, especially Lapland. “Tourism is also growing in Oulu where the hotel capacity utilisation rate was the highest in Finland during the summer,” he says. “Oulu has been the ‘Riviera of the North’ for long time and now the seaside resort Nallikari is evolving and Nokia’s decision to build a new €220m R&D and production campus for 2,500 employees is significant in the development of new technologies and businesses. The biggest investment in the city centre under planning is a €500m travel centre including hotels, offices, services, housing, and an event arena.” Retail is also more robust in the Nordics than most of Europe. Citycon recently agreed to sell convenience-based centre Columbus in Helsinki, Finland to NREP for €106.2m and Scott Ball, Citycon’s CEO, adds: “Columbus has been transformed to a grocery-anchored urban hub, which has also been reflected in its increase in value. The transaction highlights the attractiveness of high-quality, Nordic real estate assets to investors.”

WP Carey recently bought a €41m grocery store portfolio in Denmark in a sale-and-leaseback deal, acquiring 11 stores totalling 13,100 sq m leased to grocery retailer Coop Danmark for 15 years. Karolis Adlis, senior investments vice-president at WP Carey, says the Nordic countries continue to be a key market for WP Carey, having invested approximately €800m in the region since 2001. Another foreign investor is Aberdeen Standard Investments (ASI), which recently sold its Nordics asset management business to Denmark’s DEAS Group. DEAS Group is taking over the management of a €2.5bn AUM portfolio of 131 properties consisting of offices, warehouse/logistics, retail, and residential. Neil Slater, global head of real estate, ASI, says: “Our growth strategy is built around our clients’ needs and that very much includes exposure to Nordics real estate. Working with our own Nordics hub in Frankfurt, the relationship ensures we have excellent asset management on the ground and the capability to source and project manage developments for clients.” Pangea Property Partners adds that the largest property segment in 2021 was residential, accounting for 32% of total volumes, followed by offices with 23%, and logistics with 17% and Cushman & Wakefield’s Koren notes that in Denmark the office market remains mostly based around prime locations in city centres. “Outside of these sites, the location needs a specific appeal to attract capital. Retail is the area where investors are the most cautious, although we are seeing even that picking up a bit,” he says. “Because of constrained supply we are seeing investors taking more risk, getting in earlier, forward funding and looking at land deals. “We expect a strong 2022 but constrained supply means it will be challenging to top 2021. With the market opportunities-driven, we may see activity in terms of consolidation, with major investors acquiring smaller companies and this could create more activity.” This being the Nordics, sustainability is also a key priority and NREP has committed to being carbon neutral by 2028 without offsets, encompassing both operational and embodied carbon. Claus Mathisen, CEO of NREP, says of the initiative: “From the largest Nordic rooftop solar plant to embodied carbon concrete, NREP has always pushed the boundaries when it comes to ESG innovation and investment, and we have no intention of slowing down. To achieve the ambitious targets, we have said many technologies need to be deployed in parallel and at scale, and we are determined to demonstrate how this can be done.” With approximately €12.5bn AUM, by 2025 NREP will have completed the development of three large-scale, net zero innovation projects — a residential and logistics project, as well as an office retrofit — which will act as a benchmark for portfolio-wide construction practices.

Investors are impressed by the bright outlook of the Danish capital

Mikael Soderlundh, head of research and partner at Pangea Property Partners

CONFERENCES & EVENTS AT MIPIM 2022

NORDIC INVESTMENT FOCUS

WEDNESDAY, MARCH 16, 17.30 - 19.00 – VGA

NORDICS FOCUS

Why have cross-border investment volumes increased so much in the Nordics in the past year? What asset classes and regions are exciting for investors? What are the challenges and opportunities in the region?