Newsec Property Outlook Autumn 2021

NEWSEC PROPERTY OUTLOOK AUTUMN 2021

NEWSEC PROPERTY OUTLOOK

LOGISTICS, LOGISTICS, LOGISTICS I often get asked why I enjoy working in real estate so much and my answer is that it affects everyone in some way. Everything in the physical environment that surrounds us - from where we live, work, and socialize to schools and where we shop, is real estate. At first glance, logistics may seem more distant and industrialized from an end-consumer perspective, but it is very much intertwined with retail and e-commerce.

As our consumer behaviours are changing, so are the needs for even more efficient and creative logistics solutions to match the increasing demands for flexibility and speed. And as such, there are a lot of exciting developments taking place within the sector, both with regard to last mile deliveries and larger hubs, not to mention dark stores and ghost kitchens, robots and drones… I am convinced that we have seen nothing yet!

In this edition of the Newsec Property Outlook, we take a closer look at the increasingly popular asset class logistics, and see what the future holds for the Nordic and Baltic real estate market. Over the last few years logistics has seen a massive increase in popularity – from being considered relatively niche, to now being the third largest asset class on the Nordic and Baltic property market. It’s fair to say that logistics has really been in demand the past year.

To further enhance our real estate advisory offering to large international investors and global tenants, we decided to appoint a New Head of Logistics & Industrial at Newsec during the past year. We are very pleased to have Anita Simaza onboard the Newsec team.

Logistics is the most borderless asset class and as the Nordics is the third largest market in Europe, after the UK and Germany, this brings great opportunities for investors active in the region. For instance, one insight presented in this report is that compared to the rest of Europe, significantly less logistics buildings have been developed per capita in the Nordics.

With that, I wish you an interesting read!

Max Barclay, Head of Newsec Advisory

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CONTENTS A difficult return to (some kind of) normalcy?................................................... 7 Storage is the new black: A dive into the logistics market .................... 12 The Swedish Property Market ..................................................................................... 18 The Norwegian Property Market ............................................................................. 20 The Danish Property Market ........................................................................................ 22 The Finnish Property Market ....................................................................................... 24 The Estonian Property Market ................................................................................... 26 The Lithuanian Property Market .............................................................................. 28 The Latvian Property Market ...................................................................................... 30 European Property Markets ........................................................................................ 32 Macroeconomic data........................................................................................................... 34 Property data ........................................................................................................................... 37 Definitions ..................................................................................................................................... 41 The Newsec Property Outlook Team .................................................................... 42 The Full Service Property House .............................................................................. 44 Newsec’s market reports ............................................................................................... 45 Contact and addresses ..................................................................................................... 46

Copyright Newsec © 2021 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report.

Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, www.newsec.se.

You may use the information in the Newsec Property Outlook but acknowledgement must be made for all quotations and use of data/graphics.

Cover photo: Getty Images

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A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? ●

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NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? Klas Eklund, Senior Economist, Mannheimer Swartling

After a year of wild gyrations in the wake of the pan­ demic, the global economy will gradually return to more normal growth. The “new normal” will, however, be different from the pre-pandemic normal. New virus mutations may come and go, and we will need continu­ ous new vaccine jabs. Supply disruptions will be with us for some time, as will bottlenecks in the labour market.

Inflation will be higher than before the pandemic.

Central banks will struggle with exit strategies.

Property markets will still be supported by low bond yields – but headwinds will increase as the demand pull

from the pandemic and ultra-loose policies wane.

The main risk – both in the Nordics and other developed economies – is that inflation stays high and inflationary expectations rise, which would force central banks to abandon their loose policies and cause strains in asset markets.

All this holds also for the Nordics, who in general will perform better than Europe as a whole. Inflation will fall back after peaking this year and low rates will remain.

Here, Norway is the odd one out, with a steeper return to normal interest rates.

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● A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

»The consensus view is that GDP in the Euro zone, after falling a whooping 7 per cent in 2020, will grow by some 5 per cent in 2021 and 4 per cent in 2022«

A strong rebound…

After the sharp contraction in 2020, the OECD economies have rebounded during 2021. The upturn has been stronger than anticipated, courtesy of the roll-out of the vaccine. This helped unwind many of the regulations and lock-downs that created economic havoc during the early phases of the pandemic. However, vaccination has been much slower in most emerging markets, meaning their economic recovery is hurting.

Another reason behind the strong recovery has been record-breaking expansionary policy, both monetary and fiscal. During the past year, both real key rates and bond yields have been negative in most countries, liquidity injections have reached new highs, and fiscal deficits have grown. In the US, where the fiscal stimulus was the biggest, personal disposable income rose sharply, despite slumping GDP and rising unemployment. As a result, several Western countries seem poised to reach pre-pandemic GDP levels already by year-end or in early 2022, although the UK and some countries in Southern Europe are still lagging.

Predictably, inflation has risen as a result of base effects (falling prices in 2020 autumn are not repeated in the 12-month statistical series), rising commodity prices, supply bottlenecks and high demand. These effects are stronger in the US than on the European continent, and American inflation has reached 5 per cent. Here, inflation expectations have risen and labour markets may start to tighten enough for wages to have inflationary effects. Although levels are lower in Europe, even in Germany inflation now has reached 3 per cent, and in Sweden

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2.5 per cent. Most of this is, however, caused by transitory factors, and inflation will fall back in 2022. Wage inflation is not expected in Europe.

…will gradually cool Looking ahead, these wild swings – first down, then up – will gradually turn into a more normal pattern. As the strong cyclical and political stimulus will fade, growth will gradually cool.

This process has already begun, but the exit strategies will be rather slow as central banks are afraid to tighten prematurely, and as the political climate seems to favour fiscal expansion for some time yet.

Thus, the consensus view is that GDP in the Euro zone, after falling a whooping 7 per cent in 2020, will grow by some 5 per cent in 2021 and 4 per cent in 2022. Inflation will hover just below 2 per cent. The trend is similar in the UK, but inflation is higher and the cyclical swings are even stronger.

All this, of course, presupposes that new dangerous variants of the virus will be contained. This is not assured.

It is likely that, after Delta, there will new mutations. New vaccine jabs will probably be needed, and regional restrictions will probably be necessary here and there. Furthermore, lack of containers, semiconductors and other inputs will put a brake on manufacturing and trade. This realization has dented consumer confidence and helped hold down real yields. But the forecasts lean heavily on the assumption that no lasting, general lockdowns will take place.

In China, the situation is aggravated by convulsions in the real estate

sector. A macro risk would be if banks are hit by contagion, but the main forecast is that the government will protect them.

Globally, it is likely that mobility and travel will suffer for some time yet.

Supply chain disruptions are hurting trade and cause local and sector bouts of price increases. Thus, there will be a whiff of stagflation in the air as the aftermath of the pandemic causes disruption to production as well as some inflation. Digitalization will continue to change the way we communicate, meet, shop and work. The labour market will see lingering negative effects on groups with poor education and lacking core competences.

A difficult exit from loose policy…

For the inflationary shocks to give permanent effects, they would have to cause higher wage increases and higher inflationary expectations. Such risks do exist in the US, but hardly in the Euro-zone or in the Nordic region.

As inflation in most countries will fall back again, central banks will only gradually take their foot of the throttle. Among the big economies inflation risks are highest in the US, where labour shortages occur in all sectors and fiscal stimulus has increased real disposable income for households.

Thus, the Fed will move first, reducing liquidity injections already this year, but being careful not to cause any “taper tantrum”.

The ECB has missed its inflation target on the downside for a full decade and will keep its key rate below zero at least another year. The huge pile of debt amassed during the pandemic

A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? ●

Photo: iStock

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

could cause a financial crisis if rates are hiked rapidly. Both the Fed and the ECB have also adopted new strategies, according to which an overshoot of the old inflation targets can be accepted after many years of undershooting.

The Fed and the US Treasury explicitly state they are aiming at more than full employment; a red-hot labour market to radically increase labour participation and reduce poverty.

With rates that low, budget deficits will not be regarded as dangerous.

Also, political priorities are changing in the wake of the pandemic. Inequality is seen as more of a problem than before, and most governments will

spend more to fight it. Vast programs for education, social insurance, infrastructure and against climate change will keep expenditure high in most countries all of 2022.

Jittery financial markets The ultra-loose monetary policy has supported financial markets throughout the pandemic. Real bond yields have been extremely low – and fell further during summer as worries regarding the Delta variant hit the market. Equity markets have boomed, as well as property markets. Looking ahead, monetary support will still be there, but it will slowly weaken. Bond

yields will still be historically low, but the trend will nonetheless point upwards. Also, after many strong years, stock valuations are historically high. It is not unreasonable to believe that we will see some profit-taking and cooler equity markets. The market will understandably be nervous and we are bound to see some volatility.

Property markets have set records in many countries, both with regard to prices and transaction volumes.

The pandemic has triggered increasing demand for larger apartments and renovation of houses, in order to accommodate work from home.

Also here, it is reasonable to see a

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● A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

»The Nordics – Finland, Denmark, Norway and Sweden – have fared better than the Euro Zone«

somewhat slower development ahead as yields have dropped substantially already and the pandemic’s effects gradually wane.

Nonetheless, there will still be a lot of money chasing rewards and looking for investments. Investors will look for alternatives to stock markets. With only a slow rise of bond yields ahead, it is difficult to see any market-induced property crisis ahead. However, should inflation for some reason stay elevated longer than anticipated, there is a risk that central banks will rethink and that rates move up more rapidly. This would rock all financial markets, including property.

The Nordics and Baltics The Baltic countries – Estonia, Latvia and Lithuania – have all recovered swiftly. The recession last year was milder than in the Euro zone as a whole, in particular in Lithuania.

The rebound this year has been exceptionally strong in Estonia, but

all three countries are back to their pre-pandemic GDP levels already. In all countries, the recovery has been broad-based, as well as helped by a massive inflow of EU funds.

Inflation will be slightly higher than in the Euro zone average, in particular in Lithuania, because of labour shortages and bottlenecks. But since all three countries have adopted the euro, key rates are set by the ECB, which means that real rates will be clearly negative.

In all the three Baltic states, property markets are been strong, courtesy of the factors mentioned above. Transaction volumes have been high and prices have risen.

The Nordics – Finland, Denmark, Norway and Sweden – have also fared better than the Euro zone. All the Nordic countries will have surpassed pre-pandemic GDP levels by year-end.

Growth has been broad-based, and labour markets are improving.

Here, monetary policy will move in different ways since the Nordic countries have different monetary regimes: Finland has adopted the euro, Denmark has a fixed exchange rate to the euro, Sweden has a floating exchange rate despite having no formal opt-out from the euro, and Norway is not an EU member at all.

Sweden Sweden is set for the fastest growth among the Nordics during 2021, and will still grow stronger than usual in 2022. Growth has been broad-based, with manufacturing leading the way but services are now catching up. A high household savings ratio enables increasing consumption.

Unemployment is falling, but from a high level, and wage increases remain subdued. Inflation follows the common pattern with a sharp rebound this year – but probably falling back next year. The Riksbank will gradually slow the pace of liquidity injections, but its repo rate will be held at zero all through 2022. Fiscal policy will remain expansionary, courtesy of low public debt and 2022 being an election year.

The property market has been strong, but both the Financial Supervisory Authority and the Riksbank have expressed concern that household debt is getting dangerously high. The FSA has consequently announced that compulsory amortization of mortgage loans (temporarily abandoned during the pandemic) will be re-introduced this autumn.

Photo: Shutterstock

Denmark Denmark re-opened in the spring and has seen good growth since then.

Already in the second quarter, GDP

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NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

A DIFFICULT RETURN TO (SOME KIND OF) NORMALCY? ●

»After the gyrations of recent years, the Nordic and Baltic economies are set to return to some kind of normalcy«

surpassed its pre-crisis level. As in Sweden, both manufacturing and services have rebounded, and looking ahead consumption will be bolstered by pent-up demand.

The labour market has recovered faster than anticipated and is approaching pre-pandemic levels.

Labour shortages are clearly visible, and wage pressure is returning to some sectors, such as construction.

Still, the consensus view is that inflation will remain low. Since the Danish krone is fixed to the euro, the central bank will continue to shadow the ECB. Recently the krona has been strong, which may open up for the central bank to actually make a small, symbolic cut of the policy rate.

The property market was booming during spring, with transactions growing and foreign capital flowing in.

The residential market is strong, but it is reasonable to expect housing to cool somewhat next year. Supply of homes for sale has been limited, but residential construction is picking up speed. A tightening of amortization requirements has been discussed, but no changes have been announced.

Finland The recovery in Finland has been uneven this year, but picked up during summer. The positive cyclical forces have been strong, with household consumption from pent-up demand the driving force. Investments are also picking up speed. However, Finland has some structural ailments, with weak productivity growth and a shrinking working-age population.

These underlying structural problems will remain, which means that growth will slow down again in 2023.

Unemployment has stayed stubbornly high. Inflation will stay below the ECB target, and since Finland is part of the Euro zone, the ECB’s negative key rate will persist also in Finland. Public debt is clearly higher than in the other Nordic countries, and will continue to rise. Yield spreads will remain narrow, though.

The housing market has been strong, and the number of housing starts has been historically high this year. Liquidity has returned and the transaction volume rose sharply during summer.

Foreign investors have shown increasing interest in the Finnish property market.

Norway The commodity-dependent Norwegian economy was hit by a double whammy last year – the pandemic and crashing oil process. Both these negative factors reversed this year as the economy is opening up and fossil fuels have made a recovery. GDP has surpassed the pre-pandemic level.

The recovery is broad-based, with both manufacturing and services contributing. Unemployment is falling.

Inflation remains low. But while the other Nordic and Baltic central banks will stay put and/or follow the ECB, Norway’s is ready to hike. Norway has no obligation to shadow the ECB, since it is outside the EU with an independent central bank, its own currency and a flexible exchange rate.

One reason for tightening is the hot housing market. Norway has a history of over-heating property markets, and the central bank wants to act in a precautionary manner. During spring and summer the real estate market

was boosted by new capital, also from foreign investors, and transaction volumes will set a new record this year.

The housing market is expected to cool somewhat, but the central bank is still determined to hike.

Parliamentary elections have ushered in a change of government. A left turn can be expected, but the new labour-led coalition is not expected to undertake any policy changes which will impact the property market in any significant way. An important, yet undecided, issue is how the sovereign wealth fund should be used and if it will be politically affected.

Summing up After the gyrations of recent years, the Nordic and Baltic economies are set to return to some kind of normalcy.

The hectic pace of the rebound will slacken, but growth will still be decent.

Unemployment is coming down, but inflation risks seem small. In all countries – bar Norway – key rates will stay where they are.

The underlying financial forces supporting property markets will therefore mainly remain in place. Transactions have reached or surpassed record levels all over the region, and prices have risen sharply. However, it’s not likely that property markets will stay quite as hot in 2022. Bond yields will rise, albeit slowly. The exceptional stimulus caused by pandemic relief will gradually shrink. Further, regulators are worried about debt levels.

Property markets, too, will see a return to some kind of normalcy after the hysterical pandemic episode.

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● STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

STORAGE IS THE NEW BLACK:

A DIVE INTO THE LOGISTICS MARKET The rise of industrial, and in particular its sub-segment logistics, as a property segment has escaped very few. In just a few years, the segment has gone from being relatively niche, to being the third largest property segment in the Nordics & Baltics, not far behind residential and office. Even pre-covid, the segment was pushing new highs, which has been further escalated by the impacts of the virus. Now, the segment is seen by investors as one of the safest segments to invest into on the property market, with the enormous growth of e-commerce further increasing interest.

In this edition of the Newsec Property Outlook, Newsec explores the growth of logistics, the state of the market in the Nordics & Baltics contra the rest of Europe, and the opportunities and risks that the segment faces.

1. The new core segment The growth in investment into the industrial segment over the past few years has been sizeable. In 2015, the segment accounted for 9% of the total transaction volume, while in 2021 YTD, the segment has instead accounted for 17% of the volume in the Nordics & Baltics. This means that the segment is on course for the strongest transacted volume ever – the current record is EUR 5.9 billion (set in 2020), while transactions over EUR 5 billion have already been recorded in 2021.

Though the growth has been progressive, the biggest jump has been noted since the pandemic, with the industrial segment taking clear market share from offices in particular.

1. Investment into industrial is driving foreign investment in the Nordics & Baltics Per cent

70 60 50 40 30 20 10 0

2015

2016

2017

2018

2019

2020

2021 YTD

2020

2021 YTD

Industrial transaction volume accounted for by foreign investors Total transaction volume accounted for by foreign investors

2. Logistics has established itself as the largest sub-segment

Indeed, foreign interest for industrial & logistics in particular has skyrocketed, with many foreign investors viewing logistics as their new core segment, taking the place of offices.

As shown in graph (1), in 2021 YTD, foreign investors have accounted for over 60% of industrial purchases in the Nordics & Baltics – while in 2020, the share was also over 50%.

In 2018, meanwhile, the share taken of the industrial segment by foreign investors was only 19%. This is despite foreign investment as a whole being a little weaker into the Nordics & Baltics during the pandemic, at around 30% - with this having hovered closer to

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Per cent

70 60 50 40 30 20 10 0

2015 Industrial

2016

2017

Logistics

2018 Warehouse

2019

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET ●

Photo: Shutterstock

»The industrial & logistics segment is on course for its strongest transacted volume ever – the current record is EUR 5.9 billion (set in 2020), while transactions over EUR 5 billion have already been recorded in 2021.

40% in previous years, including 2018. At the same time, the number of transactions within the segment has in recent years also increased by over 50% – from just under 200 in 2015,

to over 300 in 2020. 2021 has already seen over 250 transactions, meaning this year, too, looks set for over 300 transactions in the industrial segment in the Nordics & Baltics.

Definitions Industrial is often used as a catch-all phrase encompassing logistics, industrial and warehousing. However, the sub-segments are generally defined as follows.

Logistics Refers to properties that are used primarily for short-term storage purposes, where goods are then distributed onto last mile locations (“last stop” logistics), distribution centres or end users.

Warehouse Refers to properties that are used for long-term storage purposes, where there is limited production or distribution of goods.

Industrial (light & heavy) Includes both light industrial and heavy industrial. Refers to all other types of industrial properties, primarily used for production of some form.

It is primarily the logistics sub-segment that has been driving demand.

Graph (2) shows that logistics has clearly established itself as the dominant sub-segment, with around 60% of the volume. Second to logistics, the industrial sub-segment tends to hover around 30% of the volume – though this has fallen in recent years – while warehouses hover between 10 and 20% of the total segment volume.

High quality, newly produced logistics properties are responsible for driving much of the demand for the segment.

However, the rise of logistics has also increased demand for the entire industrial asset class. Companies want to be closer to the consumer, and therefore any urban industrial or logistics properties – whether they be cross-dock, cold storage, or light industrial – are experiencing yield compression.

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● STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

»The Nordics & Baltics lag behind continental Europe a little in terms of modern logistics stock«

2. The Nordics & Baltics – an undersupplied logistics market?

Despite rising demand from investors, there continues to be a huge undersupply of modern logistics that meets today’s demands in the Nordics & Baltics. The lack of speculative construction compared to the rest of Europe, strict planning constraints, and general requirement among many players for a large portion of space to be pre-let prior to projects being commenced, has resulted in relative supply being held down relative to the rest of Europe. At the same time, there is enormous potential and interest in the segment.

Graph (3) shows the relative supply of logistics space per capita, in the Nordics & Baltics compared to some key European markets. This shows that there continues to be relatively little logistics space in the Nordics & Baltics. The major Western European logistics markets of Germany, the UK, France & the Netherlands outperform

the Nordics & Baltics – perhaps expectedly, given the presence of significant logistics hubs & trade routes in the countries. Interestingly, Czechia has close to the same amount of logistics space per capita as Sweden & Norway, and more than in Denmark, Finland & the Baltics. Czechia has a similar population to Sweden and is located in a strategically favourable location for logistics, but most importantly the country has traditionally been strongly linked to the manufacturing sectors of Germany, especially automotive.

Nevertheless, the relatively high amount of logistics space in Czechia, as well as other continental European markets, in comparison to the Nordics & Baltics highlights that the Nordics & Baltics may lag behind a little in terms of modern logistics stock. In particular, geography and long distances between population centres suggests the need for new space. Though a record amount of new development is expected in 2021 – 800,000 sqm in Sweden (similar to the amount set to come to the UK in 2021), 350,000 sqm in Norway, 300,000 sqm in Denmark,

200,000 sqm in Finland – it will take some time for the older existing stock to be replaced with property with higher specifications and sustainable standards. At the same time, investor appetite for logistics continues to rise – and a relative lack of modern supply as well as competition between investors could serve to push down yields further.

3. Investor appetite grows The last few years have generally seen yield compression for most property segments, but few have seen as strong of an increase in investor appetite as industrial & logistics. Indeed, graph (4) shows the relative yield compression for the logistics segment compared to the office segment in the Nordics & Baltics in the past few years, as well as Newsec’s forecast for 2021 and 2022.

The diagram clearly shows that logistics has moved closer to offices in the past few years. A gap that amounted to as much as 200 basis points in the past has been narrowed to less than

3. Modern logistics stock (>10,000 sqm) in the Nordics & Europe Thousand sqm

2,0

140,000 120,000

1,5

100,000 80,000

1,0 60,000 40,000

0,5

20,000 0

Germany United France Kingdom

Total stock (000 sqm, left axis)

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Netherlands

Poland

Czechia Slovakia Romania Sweden Norway Denmark Finland Lithuania Latvia

Total stock per capita (right axis)

Estonia

0,0

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET ●

»Logistics has moved closer to offices in the past few years – narrowing a yield gap that amounted to as much as 200 basis points in the past to less than 100 basis points today«

Photo: Shutterstock

highlighting that there is still further room for compression in the Nordics & Baltics. While the logistics segment is attracting new tenants that need adaptable buildings, the number of genuinely new investors coming into the segment is fairly limited. Instead, we see experienced logistics investors going further afield – having perhaps invested into core European markets, and now instead looking for stronger returns in the Nordics & Baltics, driving yield compression.

100 basis points today across many markets. In 2022, Newsec expects this gap to decrease further in size.

In general, it is not surprising that prime logistics yields are moving closer to prime office yields. Both forms of investments can provide similar income streams and growth opportunities.

Further, despite impressive yield com-

pression in the past few years, yields in the Nordics & Baltics remain relatively high compared to many other European cities. Key markets across Europe are seeing yield gaps narrow to 50 basis points or lower – with some even seeing the gap tending towards closing entirely. Prime logistics yields in Germany and the UK are below 3.5% and continue to compress –

4. The yield gap between logistics & office tightens Basis points

-50

-100

-150

-200

-250

2014

Sweden

2015 Norway

2016

2017

Denmark

2018 Finland

2019

2020

Lithuania

2021E Latvia

2022E Estonia

The primary driver holding back the logistics segment is that the longevity of buildings is not perceived to be as strong as for office space. The latter segment is seen as more sticky in that sense, while logistics is seen as more easily replaceable, as absolute location and quality of the exterior is not as value-driving. Indeed, the industrial segment is the only property segment where the building itself is less important, while what goes inside the building is more important. The existence of a multitude of locations that can compete with any specific logistics location also worries some investors.

Nevertheless, in developed countries, zoning & permitting rules create land constraints which make it difficult to exploit land in practice. While there is plenty of exploitable land – particularly in the Nordics & Baltics – in practice, this land tends to be protected, and subject to lengthy negotiations with local councils and planning & development processes. This means that the downsides associated with logistics may not be as considerable as perceived – though clearly, these risks must still be understood and evaluated fully by any prospective investors.

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● STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

Photo: Shutterstock

»Urban areas that used to cater to a mix of residential, retail, office and leisure could become a little more messy – with logistics join­ing the mix«

4. A segment of risks & opportunities While there are risks associated with the segment, industrial & logistics as a whole also faces a number of major opportunities going forward, associated primarily with technological development and societal change. E-commerce being a driver has escaped no one – with exceptional growth of 40% across the Nordics & Baltics in 2020, e-commerce looks set to continue growing in the coming years, and will

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require more space. At the same time, the desire to improve delivery times and enable “just in time” delivery has popularized last mile logistics, putting pressure on land prices in urban areas. It is likely that in future, we will have to be more creative with storage & fulfillment solutions, as vacancy in urbanized industrial assets is already generally quite limited.

Solutions could include repurposing retail or on-ground office space, meaning that urban areas that used to cater to a mix of residential, retail,

office and leisure could become a little more messy – with logistics joining the mix.

A different dimension that is important to consider is the access to electricity & power. The Nordics & Baltics have already shown some signs of a lacking infrastructure in terms of electricity supply, with e.g.

Pågen delaying their plans to expand in Malmö due to a lack of sufficient power infrastructure, while Finland relies on importing electricity from

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

STORAGE IS THE NEW BLACK: A DIVE INTO THE LOGISTICS MARKET ●

»The importance of ESG considerations for the industrial sector, as well as green financing and certi­fication in general continues to rise«

central Europe and Russia to meet its energy demands. The advent of electric cars and need for charging points will naturally increase the need for electricity further, but warehouses of the future, with a wide range of automated systems, will also need a strong & reliable power supply. This dimension could drive investment into markets where power supply can be more reliably guaranteed, and is thus a risk factor for several Nordic & Baltic property submarkets that must be addressed.

Renewable energy can serve to alleviate some of the issues mentioned above (though whether enough energy can be created via renewable sources is difficult to answer). Indeed, the importance of ESG considerations, as well as green financing and certification in general continues to rise, driven by investors and legislation.

However, impact for the industrial segment has thus far been relatively limited, with only around 20 buildings within the segment across the entirety of Sweden being environmentally certified with BREEAM, LEED or local certifications. Indeed, the amount of office space that is certified is close to 40 times higher than certified industrial space in the Nordics & Baltics. Nevertheless, sustainability is increasingly becoming part of investment committee requirements, and as the perception of a green portfolio premium enhances, it is likely that the importance of ESG for the industrial segment will also increase further.

The introduction of e.g. biodiversity compensation schemes, to compensate for the large amount of land that logistics occupies, could be one form of adaptation that investors will have to make in the future.

5. Industrial transaction volumes in the Nordics & Baltics MEUR

Per cent

8,000

20

6,000

15

4,000

10

2,000

5

0

2015

2016

2017

2018

2019

2020

2021E

0

Transaction volume (millions of EUR, left axis) Per cent of total transaction volume (right axis)

Beyond this, more long-term structural changes will also serve to transform and create opportunities for logistics. The usage of drones for delivery (already impacting pricing in some areas in Norway), as well as the advent of self-driving vehicles could allow for new regions or submarkets to emerge as distribution hubs. Currently, there are human constraints regarding e.g. maximum amounts of hours that drivers can spend on the road, as well as desired delivery times which necessitate logistics hubs in certain locations. With self-driving, this limitation goes out of the window, and at the same time, congestion should ease as driving at less busy times of the day should become possible in due course.

Clearly this will require structural long-term change, and is unlikely to change the market overnight (as drivers must generally still be inside & awake in many of the self-driving cars currently being tested on the market), but the long-term transformative potential is substantial. Should technologies like those being trialed

by Einride – self-driving, remote controlled trucks – take off, the potential

for change on the logistics market as a result of this is enormous.

What does this all mean for the industrial & logistics market? Graph (5) shows that volumes have been relatively stable but strong over the past few years, and 2021 has served to accelerate demand for the market further. Going forward, it is likely that demand for the segment will continue to rise – as more and more money seeks to be allocated towards real estate assets. Are you curious about what the new hot submarkets will be on the logistics market in the Nordics & Baltics, or are you looking for other types of property advice related to the industrial market or property market as a whole? Newsec, the full service property house, always has your every need covered.

Adam Tyrcha, PhD adam.tyrcha@newsec.se Ulrika Lindmark ulrika.lindmark@newsec.se

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● THE SWEDISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE SWEDISH PROPERTY MARKET

Photo: Shutterstock

ASTOUNDING VOLUMES SO FAR THIS YEAR – 2021 WILL SHATTER ALL PREVIOUS RECORDS

Though there have been some minor setbacks, 2021 has generally constituted a strong year of recovery for the Swedish economy. Economic growth throughout 2021 has been substantial, and is projected to end up at approximately 4.5 per cent for the year as a whole – one of the strongest growth rates among the economies that performed well in 2020. Unemployment has fallen and is approaching 7 per cent – high in a European context, but low when factoring in the very high employment rate that Sweden also boasts. After an initially sluggish vaccination process, vaccination rates picked up and Sweden now, together with the other Nordic countries, boasts one of the world's highest vaccination rates. Inflation continues to not quite

18

reach the Swedish Riksbank’s goal of 2.0 per cent, but the Riksbank is expected to leave the key interest rate at 0 per cent for the foreseeable future despite this. All in all, the Swedish economy has fared well throughout the covid-19 crisis, and the country has generally been substantially less impacted than many major European economies as a result.

While Swedish economic performance has been strong, the Swedish real estate market has performed astoundingly well throughout 2021. As of the end of September, the full-year transaction volume record of SEK 218 billion – set in 2019 – has already been broken. The transaction volume in 2021 is expected to exceed SEK

300 billion – an astonishingly strong performance, which is set to make Sweden the third largest real estate market in Europe, behind Germany and the United Kingdom but ahead of France. On the per capita level, the Swedish real estate market is by far the strongest in Europe, and on a global level is only outperformed by city states like Singapore and Hong Kong.

Record volumes have been noted throughout every quarter thus far this year, driven both by large M&A transactions, as well as strong demand for virtually all property segments.

Contact: Adam Tyrcha, PhD adam.tyrcha@newsec.se

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE SWEDISH PROPERTY MARKET ●

»The transaction volume in 2021 is expected to exceed SEK 300 billion – an astonishingly strong performance, which is set to make Sweden the third largest real estate market in Europe«

Interesting trends on the Swedish property market in 2021

ASTONISHING VOLUMES ON THE MARKET Record transaction volumes have been noted in both Q1 and Q2 thus far this year, and at the time of writing, Q3 looks set to also be a very strong quarter. Both Q1, at SEK 46 billion, and Q2, at SEK 103 billion, constituted the strongest Q1 and Q2’s of all time. It is noteworthy that even without some of the large M&A transactions, the performance of the market would have been record-breaking.

M&A DEALS REACH RECORD HIGHS Though performance has been strong without M&A transactions, the number and volumes traded in M&A transactions have also been astoundingly strong. Thus far this year, M&A transactions have accounted for about 35% of the total transaction volume – the strongest percentage ever recorded. Large deals have included Corem’s acquisition of Klövern, Samhälls­byggnadsbolaget’s investments into Unobo (Riksbyggen) and Offentliga Hus – with more to come in the autumn and winter.

OFFICES RECOVER The office segment has recovered substantially from the trough it experienced in 2020, accounting for 24% of the total transaction volume thus far this year. A large portion of this volume is made up of M&A transactions – however, the total volume traded in office transactions, even disregarding M&A deals, is substantially stronger than in

INTERNATIONAL INVESTMENT IS WEAKER THAN USUAL

SEK 188 BILLION

Total investment volume in 2020

OVER SEK 300 BILLION Total investment volume expected in 2021

+4.5%

GDP growth expected in 2021

2020. Residential continues to be the strongest segment, at 26% of the total transaction volume, but the office segment is hot on its heels, looking to retake its throne.

ALTERNATIVE SEGMENTS PROSPER Segments that used to be termed alternative, such as industrial (including logistics and warehouse) and public properties have performed very well thus far in 2021. The industrial segment has accounted for 18% of the total transaction volume, putting it in a comfortable third place. Public properties, meanwhile, sit at 15% of the total transaction volume, setting the segment up for its second strongest year of all time.

Thus far this year, international investment has accounted for 15% of the total transaction volume – one of the weakest years for foreign investors in recent years. However, this is by and large a result of the very strong transaction volume as a whole – in terms of volume, the amount invested by foreigners is actually higher than the historical average. 62% of international investment into the Swedish market thus far this year has been nonNordic, which is also a little higher than the historical average, and is a testament to strong global interest in the Nordic markets.

GOTHENBURG ATTRACTS STRONG INTEREST In recent years, Gothenburg has fallen off a little, accounting for an average of 7% of the total transaction volume in any given year.

However, thus far in 2021, Gothenburg has accounted for 12% of the total transaction volume – putting the city comfortably ahead of Malmö. The strong volume has been particularly driven by a number of large office transactions, which have eluded the city in previous years. This could signal an impending shift in the coming years, where Sweden’s second city in terms of population once again becomes its second city in terms of the transaction market.

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● THE NORWEGIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE NORWEGIAN PROPERTY MARKET NOTHING CAN BRING DOWN COMMERCIAL PROPERTY 2020 and is projected to level beneath 3% by the end of this year. The GDP growth in mainland Norway in 2021 is expected to amount to 3.6% and growth in the mainland economy is expected to be back at its pre-pandemic level by the end of 2021. Low interest rates and a continued expansionary fiscal policy are the key drivers of growth.

transactions, such as the bidding war for Entra, as well as portfolio and single property transactions. The market has also been boosted from several delayed projects which were pushed from 2020 to 2021. With a continued flow of capital onto the market, 2021 is set to reach record high volumes of NOK 140 billion.

The real estate market in Norway has performed exceptionally well during the year and Q2 showed record high volumes at over 50 billion NOK. The volume has been driven by both M&A

Contact: Øyvind Johan Dahl ojd@newsec.no

Photo: Shutterstock

Due to a higher infection rate and stricter measures to contain the virus, the recovery in Norway was slightly suppressed at the beginning of 2021.

However, as the year progressed the Norwegian economy has shown great promise and Covid-related restrictions will cease sometime in the fall. Underlying inflation passed the target of 2% in 2020 but has edged off during the year as the NOK strengthened.

The CPI 12-month November figure is projected to come in as high as 4%.

By the end of 2021 unemployment is expected to have seen a sharp decline from the high numbers observed in

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NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE NORWEGIAN PROPERTY MARKET ●

»With a continued flow of capital onto the market, 2021 is set to reach record high volumes of NOK 140 billion«

Interesting trends on the Norwegian property market in 2021

THE CREDIT MARKET IS WARMING UP TO REAL ESTATE INVESTORS After restricted borrowing for some time, the credit market is warming up to lending towards the real estate sector and the period of limited access to bank funding is almost over. Banks are instead eager to increase lending portfolios as the funding costs decrease.

The bond market is also improving, with margins back at levels seen pre-pandemic outbreak. Average issuance spreads for real estate widened from around 69 bps to 224 bps in March 2020 and have since fallen to 75 bps per August 2021.

Moving forward, stable lending rates should be expected. Swap rates will slowly increase, but margins and credit spreads are expected to fall further.

FOREIGN INVESTORS ARE MAKING A COMEBACK Foreign investors who previously were highly active especially within logistics have during the pandemic been more absent in Norway.

However, the trend is breaking and projections for the fall show an increase in the activity of foreign investors, foremost in larger deals.

SHOPPING CENTER LIQUIDITY IS SLOWLY STARTING TO IMPROVE The pandemic has left pricing favorable for those who believe customers will return to old shopping habits post pandemic, or for properties where there is potential in terms of adapting to e-commerce,

PRIME LOGISTICS ARE RED HOT

NOK 115 BILLION

Total investment volume in 2020

NOK 140 BILLION

Total investment volume expected in 2021

+3.6%

GDP growth expected in 2021

cross-border shopping and changing customer behavior. The prime yield is at 4.00%.

WITH RISING RENTAL LEVELS, OFFICES STAND STRONG The office segment performed well during the pandemic. Yields were stable for prime assets in Oslo in 2021 and have compressed in the secondary cities. Spreads have widened as investors are keen on core products. The prime yield is at 3.25%. The vacancy rate is at 7.6% in Oslo and is expected to peak at 7.8% towards the end of 2021. The rate in which offices are being let increased sharply in Q2 together with rental levels.

Logistics have continued to show high activity both in terms of volume and number of transactions, due to increased globalization and the sped-up growth in e-commerce during the pandemic. This has resulted in higher demand for distribution hubs. Both prime and average yield has compressed further down to 4.25% and 5.00% for high standard (new builds), with solid tenants and 10-year lease term. Location is most important for yield levels, as tenants compete primarily on lease lengths and not price.

A LONGER FALL THAN BAUMGARTNER BUT THE HOTEL INDUSTRY IS FINALLY SHOWING SIGNS OF RECOVERY The hotel industry has experienced its sharpest decline since the Financial Crisis. Revenue per available room (RevPAR) in Oslo hit its trough in March 2021 at NOK 151, totaling a fall of 80% since yearend 2019 — 6 times greater than the fall following the financial crisis of 2008. Oslo was already heading for a decline in terms of RevPAR due to a large incoming pipeline of new hotels scheduled to open in 2020/21. The hotel industry in Oslo has thus been hit by both a pandemic and a large increase in room capacity. However, the fall seems to have leveled out and stabilized at around NOK 153 as of June this year. The prime yield is at 4.50%.

21

● THE DANISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE DANISH PROPERTY MARKET

Photo: Shutterstock

THE DANISH ECONOMY AND PROPERTY MARKET IS BACK ON TRACK

The Danish economy is back on track.

Activity picked up in Q2 2021 as restrictions were gradually eased, and the economy has now regained what it lost since the onset of the COVID-19 crisis in Q1 2020. Employment rose significantly in Q2 and unemployment dropped to 3.8% in June, approaching pre-crisis levels. An increasing number of businesses report that they cannot find the necessary manpower, and shortage of labour is now the main impediment to growth in many industries. The Danish Central Bank expects GDP to grow by 3.3% in 2021. This is a significant upward adjustment compared to the previous forecast. Economic growth rates are expected to remain high in the coming years and, most likely, we will see a

22

continuation of the current sizable employment growth and further decline in unemployment numbers. Inflation has been rising since March and is expected to reach 1.3% in 2021, up from 0.4% in 2020. Interest rates are also rising, although from low levels.

The yield on a 10-year Danish government bond has risen from -0.5% at the beginning of 2021 to -0.3% in July.

Most forecasts predict that Danish interest rates will only be moderately higher by the end of 2021.

Strong macroeconomic fundamentals, low interest rates and ample capital chasing property provide beneficial conditions for the Danish real estate market. The transaction volume reached DKK 40 billion in H1, up by

54% compared to H1 2020. Foreign investors have been very active on the investment market acquiring property for DKK 22 billion in H1. Foreign players have increased their presence on the Danish market with a market share of 55% so far this year. Investors from the UK, USA and Sweden have been especially active acquiring property in 2021. In light of the high investment activity during H1 and the positive sentiment, Newsec has made an upward adjustment of our expectations to the total transaction volume in 2021 from DKK 75 billion to DKK 80 billion.

Contact: Robin Rich robin.rich @newsec.dk

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE DANISH PROPERTY MARKET ●

»Foreign players have increased their presence on the Danish market with a market share of 55% so far this year«

Interesting trends on the Danish property market in 2021

THE GENERAL SOCIETAL DEVELOPMENT AFFECTS THE PROPERTY MARKET The market for residential rental properties continues to benefit from stable demographic demand and favourable household income growth. The market for industrial and logistics properties is characterised by high demand for, and limited supply of, modern, wellsituated facilities. Renewed employment growth boosts the need for office properties, and new offices in the major cities are particularly attractive to prospective tenants.

The difficult situation in many service industries continues to affect the retail segment.

THE RESIDENTIAL MARKET KEEPS BOOMING The COVID-19 crisis did not curb the – already hot – Danish housing market. Prices on owner-occupied homes grew by 15% from Q1 2020 to Q1 2021 – almost three times faster than the EU average. Rapidly increasing prices on owner-occupied housing mean that rental housing is often seen as an attractive alternative. Investors are attracted by the positive long-term outlook for demand and rental growth in this segment. Residential properties are – by far – the most popular asset amongst investors. Residential property transactions amounted to DKK 19 billion in H1 2021. Investor interest in this segment was

DKK 72 BILLION

Total investment volume in 2020

DKK 80 BILLION

Total investment volume expected in 2021

+3.3%

GDP growth expected in 2021

particularly high in Q2 2021 where residential acquisitions accounted for 68% of the total transaction volume. An unquenchable demand from investors and a shortage of investment products is driving yields down for both new properties with unregulated rent as well as for older properties with rent regulations.

INDUSTRIAL & LOGISTIC INVESTMENTS ARE BECOMING INCREASINGLY POPULAR

transaction value in 2020. This was a relatively high share and so far the trend has continued in 2021, with this type of property constituting 12% of the total transaction volume.

There has been a sustained decline in the availability of industrial and logistics facilities. High demand for modern, well-situated warehouse and logistics properties, combined with a limited supply of these types of buildings, has led to rental growth and yield compression.

THE IMPACT OF HIGHER INTEREST RATES – WHEN, HOW FAST AND HOW MUCH? That is the question. Rising interest rates, reflecting higher inflation and growth expectations, are a natural development in a phase of increasing economic activity. For the property market, growth with steady and moderately increasing interest rates is desirable. As the current level of interest rates is so low, interest rate increases may have relatively large price effects on owner-occupied housing and commercial properties. A scenario of sharply increasing interest rates constitutes a potential risk for a general price decline in the property market. However, as described above, there are no expectations of such development in 2021.

Industrial and logistics properties accounted for 9% of the total

23

● THE FINNISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE FINNISH PROPERTY MARKET A RETURN TO FORM FOR THE FINNISH TRANSACTION MARKET pandemic, but has now recovered and is around 7%. Finland is, much like the rest of the Eurozone, likely to continue to benefit from low interest rates set by the European Central Bank, and in general, the outlook for the Finnish economy remains strong.

Last year we saw a clear U-turn on the investment market in Finland: the first quartile was the most active in many years, then the market slowed down during the summer, and the end of the year was very active again. At the beginning of 2021, market activity was slower than expected but the market picked up again in the spring.

Particularly the beginning of H2 has been extremely active: large platform deals have been taking place on the market. Consequently, we expect that end of the year will still be very active – meaning that liquidity has returned strongly to the market after the covid crisis. Expectations are that a transaction volume of EUR 7.5 billion will be achieved in 2021, meaning that the year will be the strongest for the Finnish transaction market since 2018.

Contact: Kauri Melakari kauri.melakari@newsec.fi

Photo: Shutterstock

Though Finland has been relatively spared from the brunt of the impact of the covid pandemic medicinally, with one of the lowest death rates in the world, the country’s economy was still substantially impacted by the pandemic. Recovery has now begun to occur globally, and the Finnish economy is no exception. Finland is set to post a robust growth rate of 2.8% in 2021, which will repair much of the decline that the economy experienced in 2020. Inflation continues to be relatively weak in Finland, and will not meet the 2% target in 2021, though is likely to exceed 1.5%. Unemployment rose following the outbreak of the

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NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE FINNISH PROPERTY MARKET ●

»The end of the year on the Finnish transaction market will be very active – meaning that liquidity has returned strongly to the market after the covid crisis«

Interesting trends on the Finnish property market in 2021

ACTIVE TRANSACTION MARKET The YTD transaction volume amounted to approx. EUR 4.0 billion at the end of August – that means that EUR 1.5 billion was transacted in July and August.

The most traded property type has been residential portfolios: multiple large either old stock or new stock portfolios have been sold. For example, DWS in collaboration with Newsec acquired three residential projects of 257 apartments to be built in Helsinki, Espoo and Kerava from the Finnish construction company SRV for EUR 82 million.

LOGISTICS IS BOOMING Alongside residential properties, the logistics property market is booming in Finland as it is in the Nordics in overall. We see logistics prime yields declining in Helsinki Metropolitan Area to slightly over 4 %. In addition, in the Turku region, logistics prime yields have decreased significantly over the past year. Moreover, we see increasing demand for light industrial properties as e-commerce continues to grow.

RETAIL REMAINS TRICKY Investor interest has been selective in retail property segment – invest­ ment demand remains strong in grocery store properties and high-quality big-boxes, as well as service focused shopping centres.

The retail property segment transaction volume amounted to EUR 270 million after H1 where over

EUR 6.0 BILLION

Total investment volume in 2020

EUR 7.5 BILLION

Total investment volume expected in 2021

+2.8%

GDP growth expected in 2021

60 % of the volume concerned grocery store properties. The largest retail property transaction was published in June when Swedish investor company Cibus Nordic Real Estate AB bought 72 grocery stores from another Swedish investor AB Sagax for EUR 71.6 million.

It may be that the allocation to retail properties in investment portfolios will again increase as the competition in many other sectors continues to intensify.

NEW PLAYERS ENTER THE MARKET The Nordic and Baltic property markets have been very attractive among international investors over the past few years, but Finland has still seen the entry of a number of

new players onto the market this year. The Swedish property company Nyfosa has bought three portfolios (total of twenty commercial properties). The German based investor company Real I.S. acquired an office building in Helsinki in April for its fund, making it its first acquisition in Finland. In addition, we have seen that some international investors have changed their preferences: Union Investment made their first residential transaction in Nordics in March when they bought a residential tower (216 rental apartments), Hyperion, located in Vuosaari district in Helsinki for approx. EUR 74 million.

LARGE OFFICE TRANSACTION AS CASTELLUM ACQUIRES KIELO In July, one of the largest office property transactions in the Nordics was completed in Finland when Swedish investor company Castellum acquired the real estate company Kielo, part-owned and managed by Brunswick Real Estate, for approx. EUR 640 million.

The portfolio comprises approx.

237,000 sqm lettable area. Right after the mega deal, Castellum sold the properties located in the city of Jyväskylä to Nyfosa for approx.

EUR 200 million. The properties comprise approx. 67,000 sqm.

Castellum has acquired multiple office properties in Finland during the last year. At the end of last year, they bought the Finnish real estate group Lindström Invest (EUR 150 million / 36,000 sqm).

25

● THE ESTONIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE ESTONIAN PROPERTY MARKET

ESTONIA’S REAL ESTATE INVESTMENT MARKET CONTINUES TO POST STRONG RESULTS

Estonia took the lead in the Baltics with a record 8.5% GDP growth in the first half year and a 12.9% increase in Q2 2021 alone. The biggest contributors to economic growth were the rapidly recovering manufacturing, transportation, and warehousing sectors. The economy also received a boost from the information and communication segment. Increases in private consumption were reflected in retail turnover growth, especially from mid-spring onwards, and recovery in both the accommodation and catering sectors has also commenced.

According to the latest assessments, the Estonian economy is estimated to grow by 8.0% this year and maintain this pace into 2022 as well.

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Estonia’s real estate investment market continues to post strong results, with 2020 proving a successful year.

In fact, the country contributed one third to the Baltic investment market.

The first half of 2021 was more active in terms of the number of deals and nearly 1/4th of the total transaction volume – more than 100 million EUR – was closed in the capital city and regions. The largest segment, accounting for almost half of the volume of Estonian sales, was industrial/logistics. This remains the hottest sector across the entire region. Smaller local investors are mainly on the lookout for smaller scale retail, hotel properties and office projects. The investment market in Estonia remains tight as

larger investment grade properties are rare and local capital investors compete for smaller scale opportunities. In fact, there have been no large scale investment deals that exceeded EUR 25 million size per transaction so far in 2021. With the construction market experiencing an 18% increase only in 2021, it will be the active traditional segments of office, industrial and logistics which will be responsible for creating new investment grade properties to attract both local and international investors.

Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE ESTONIAN PROPERTY MARKET ●

»According to the latest assessments, the Estonian economy is estimated to grow by 8.0% this year and maintain this pace into 2022 as well«

Interesting trends on the Estonian property market in 2021

INDUSTRIAL AND LOGISTICS SEGMENT IN DEMAND The Tallinn region is the most advanced Baltic capital area, offering pre-developed modern infrastructure for manufacturing and logistics companies. The largest RE investment deals closed in 2021 H1 came from this segment and involved Estonian and Swedish investors acquiring modern and sustainable properties with secured long-term tenants.

LOCAL COMPANIES DIRECTED THEIR FUNDS TO REAL ESTATE The stock of deposits held by residents in Estonia increased in 2020 by 15% and by 9% in H1 2021 . Business companies followed a tighter regime in 2020 and saved more as the stock of deposits increased by 24%. However, at the end of July 2021, savings were even lower.

High activity on the RE investment market may lead to more changes in property ownership going forward.

OFFICE DEVELOPMENT GROWTH INCREASED Tallinn is the largest office market among the Baltic capitals. After a short halt in growth, its 2021 supply will most likely see it maintain its top position. Annual growth of 10% will bring Tallinn’s supply to ca. 960,000 sqm. At least another 60,000 sqm is planned for the next two years. There is a demand for new supply from office targeted investors, as the share of investment into this segment has been in decline recently.

THE LOCAL TOURISM AND HOTEL MARKET NEEDS AN INCREASED INFLUX OF ESTONIANS

EUR 235 MILLION

Total investment volume in 2020

EUR 165 MILLION

Total investment volume expected in 2021

+8%

GDP growth expected in 2021

ESTONIA IS NO. 1 IN EUROPE BY NUMBER OF UNICORNS PER CAPITA Estonia is currently leading the way when it comes to unicorn start-ups per capita in Europe, with 7 unicorns including Skype, Playtech, Wise, Bolt, Pipedrive, Zego and ID.me being founded by Estonians. Estonia welcomed 162 new start-ups in 2020, increasing its number by 16% up to 1,172. By the end of summer 2021, the total number of companies reached 1,217. The largest employers in the Estonian start-up sector are Wise (1,079 employees), Bolt (818), Veriff (265). Indeed, the growing start-up community may in the future become one of the largest office tenant groups.

Facing at least 1–2 additional years of slow international tourism recovery, the hotel market is now accommodating increased flows of Estonian citizens. The Estonian market is expanding its supply with innovative and modern solutions – such as attractive locations that are close to nature, and resorts which offer health and wellness tourism.

The number of local tourists using accommodation experienced a 26% year on year increase during H1 2012, while the number of foreign guests remained low. The EU Digital Green Certificate remains the biggest hope for the revival of travel in Europe, and Tallinn’s hotels may welcome more business guests in autumn and winter.

ESTONIA PROCEEDS WITH NONTRADITIONAL COMMERCIAL AND RESIDENTIAL RE INVESTMENTS In 2021, the Estonian EfTEN Capital’s EfTEN United Property Fund invested its first capital into a residential development project.

The active stock office market, where commercial, storage, and productive functions are consolidated within a single project, is receiving more attention from local RE investors, as investment deals are being closed and the properties are in demand.

27

● THE LITHUANIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE LITHUANIAN PROPERTY MARKET RESIDENTIAL PROPERTY PORTFOLIOS BEGIN A NEW TREND Economic growth has returned to Lithuania. After experiencing a slight -0.9% decline caused by the pandemic in 2020, the Lithuanian economy began showing distinct signs of recovery, posting 4.7% of growth in GDP for the first half of 2021. Both businesses and the general population at large have adapted to the new reality. The accelerating vaccination process and declining operational constraints have laid the grounds for a gradual recovery, and the Lithuanian economy in 2021 could grow by 4.1-5.1% based on various forecasts. Meanwhile, in the coming years, the economic recovery is expected to continue, with growth projected to reach up to 4% in 2022.

Wages are expected to grow above

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10% this year, followed by a significant increase in retail turnover, decreasing unemployment and intensifying competition for talent. Unfortunately, improving customer confidence, increasing inflation and rising demand in various segments is giving rise to talk about possible economic overheating, as well as the need for more attentive control of the relief funds that have been provided.

A rally in the second half of 2020 allowed the Lithuanian real estate investment segment to end the year on a high note. In 2020, the total volume of investment deals made in Lithuania was 60% of the previous year’s, reaching EUR 265 million. Rapidly

growing interest in the industrial and logistics segment, and stable demand for prime offices, were the main driving forces. The same trend remained in the first half of 2021, when close to EUR 200 million in transactions were closed mainly in the industrial, logistics and retail segments. Q3 2021 was dominated by transactions in the retail sector, illustrating that the demand for well performing projects in very good locations persists.

Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE LITHUANIAN PROPERTY MARKET ●

»Q3 2021 was dominated by transactions in the retail sector, illustrating that the demand for well performing projects in very good locations persists«

Interesting trends on the Lithuanian property market in 2021

INDUSTRIAL AND LOGISTICS CONSTRUCTION EXPECTED TO SURGE The largest property developers in this segment have more confidence and have commenced construction of new projects, often at the full pre-lease stage. This is mostly related to the manufacturing segment, however. Many logistics and warehouse projects were constructed for the actual end user. Moreover, growth in traditional retail, e-commerce and production volumes reflect the increasing demand for speculative space as well.

EUR 265 MILLION

Total investment volume in 2020

EUR 300 MILLION

Total investment volume expected in 2021

ACTIVITY ON THE VILNIUS OFFICE MARKET REMAINS HIGH The capital city office segment is expected to experience annual supply growth of around 15% or above 110 thousand sqm. Take-up had already reached the annual forecast‘s midpoint of around 90 thousand sqm in July, which was in line with the 5-year historical average for transactions. This year has witnessed activity from both large and small companies alike, and existing demand is seen from international and local tenants.

Girteka, Dexcom, Wargaming, Alter Domus, Amber Grid and others were among the office tenants who made the biggest deals in the active Vilnius market.

PLANS FOR NEW HIGH-RISE OFFICE BUILDINGS IN VILNIUS CBD Increased activity should soon be seen in the development of investment-grade office projects.

4.5%

GDP growth expected in 2021

A number of large scale multiple tenant type Class A properties have been scheduled or are already under construction in the Central Business District. A total of four – CORE, Artery, FLOW and HERO – will deliver more than 100,000 sqm of office space. Total market supply in 2022–2023 may increase by about 200,000 sqm or 21% and form a new investment-grade supply for investors.

RESIDENTIAL PROPERTY PORTFOLIOS BEGIN A NEW TREND

nities for investors in the developing rental market, with portfolios of apartments for lease being developed. This reflects the long-term business plans of property developers and investors in all three Baltic states. The announcement at the beginning of September of a co-investment vehicle by YIT and the BTA Baltic Insurance company for investment in rental apartments is a clear barometer for where the market is heading.

THE GIANT OF BALTIC SHOPPING CENTRES BECOMES EVEN STRONGER Akropolis Group, the leading shopping and entertainment centre development and management company in the Baltic States, finally announced the development deadline of their new project in Vilnius.

H2 2024 is when the multifuntional cultural, leisure, business and shopping center Vilnius Akropolis Vingis will be delivered. The complex will consist of a 90,000 sqm shopping, services and cultural activities area and about 32,000 sqm of office complex. Following the closure of the SC ALFA acquisition, the group will, by the end of 2021, be managing a portfolio of 5 large scale shopping centres across the Baltics. The Akropolis Group will have 316,000 sqm of retail GLA in their hands alone and enjoy coverage in 4 major Baltic cities.

The booming residential market is delivering new agreement opportu-

29

● THE LATVIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE LATVIAN PROPERTY MARKET LATVIAN INVESTMENT MARKET EXPERIENCING UNPARALLELED GROWTH

The economy in the first quarter of 2021 continued to follow the trends of 2020, remaining relatively slow and still unpredictable. However, Q2 was more active, with GDP growth jumping by 11.1% compared to the same period last year. Annual average inflation also climbed to 2.7%. The economy reached pre-crisis levels and is expected to maintain this path towards growth. Although the economy is expected to stabilize in 2021, and grow in 2022, there are still several uncertain factors which may significantly alter the picture. First, Latvia has a relatively low vaccination rate and as a Covid-19 cases go up; restrictions may come into force again. In addition, there is the threat posed by the Delta Variant, which has already wreaked havoc globally. Any restrictions and limitations that arise from this may undermine the economy and erode

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the population’s optimism and confidence for the future.

The decision to change the current cadastral values of real estate has been delayed. Beginning in 2020, the government has been working on a plan to set new and increased values from 2022. Having cadastral values that were close to actual market value would significantly increase the amount of property tax paid by individuals and businesses. However, in June 2021 current cadastral values were frozen until 2025. This decision brings relief for business as it gives them extra time and will not impose a further tax burden on current properties, especially during the period of planning, construction, or when business activities are low or even absent and cash flow is limited.

Despite the prevailing uncertainty and risks in the health segment, the real estate investment market is amassing record market deals. By September 2021 there were 9 significant investment transactions in various sectors - hotel, office, retail, industrial and logistics, and residential. The total investment volume reached about EUR 310 million and exceeded 2020 full-year volumes by 25%. This year will definitely be the most successful year for real estate in Latvian history.

Contact: Inita Nitiša i.nitisa@newsec.lv Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE LATVIAN PROPERTY MARKET ●

»This year will definitely be the most successful year for real estate in Latvian history«

Interesting trends on the Latvian property market in 2021

RECORD SIZE INVESTMENT DEALS FOR THE LATVIAN MARKET

OFFICE PLANS ARE NO LONGER JUST ON PAPER

One significant shopping centre transaction is of particular note.

The Akropolis Group, which owns four large shopping and entertainment centres in Vilnius, Klaipeda, Siauliai and one in Riga, agreed to buy the largest shopping centre in Latvia – Alfa. The purchase consisted of a 9.7 ha land plot and a building with a total area of 154,000 sqm including large parking space.

The shopping centre underwent a major EUR 55 million expansion and upgrading in 2019, while its annual visitor numbers now reach 7 million. The EfTEN Real Estate Fund’s acquisition of Jaunā Teika office campus in Riga from Hanner Group for EUR 131 million is also significant. The campus consists of four office buildings, one of which was completed in 2009, with the remaining three being finished in 2016. The gross leasable area of the campus amounts to almost 59,000 sqm with 1,100 parking spaces.

Construction works were commenced on a few large properties in 2021. Plans are in progress to deliver 240,000 sqm of new office space by the end of 2023, most of which will be Class A. This will account for 32% of current office space in the Riga market and provide tenants with a great opportunity to choose from a variety of high-class offices. With the expectation of such a large area being absorbed in the near future, the market must be ready for an intensive period of movement.

Active relocations from lower class offices, expansions, new local and foreign businesses will be necessary so that market oversupply can be avoided.

THE OFFICE SECTOR IS ESPECIALLY ACTIVE Although only three small offices will be commissioned during this year, both tenants and developers have been active in 2021. Several expansions and relocations to higher class offices decreased vacancy by 2% and at the end of H1 it stood

EUR 250 MILLION

Total investment volume in 2020

EUR 500 MILLION

Total investment volume expected in 2021

+4.0%

GDP growth expected in 2021

at 13.2%. Developers, meanwhile, are continuing with their future plans, including the acquisition of new development properties and the commencement of construction works. Linstow Baltic has concluded a EUR 10.5 million deal with NP Properties, acquiring the Sporta 2 quarter with the aim of developing a modern, high quality, multifunctional urban environment that focuses on office premises, but also includes retail, service and residential functions, as well as premises designed for public entertainment.

NEW SEB OFFICE – A GOOD NEW START AND A TRENDSETTER A relocation plan has already been made by SEB Group’s business services centre in Riga. SEB has signed an agreement with the real estate developer GALIO Group to move its office to the newly constructed business centre GUSTAVS at Gustava Zemgala gatve in the first half of 2023. SEB will occupy approximately 11,000 sqm area, which will accommodate more than 1,000 employees.

31

● EUROPEAN PROPERTY MARKETS NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

EUROPEAN PROPERTY MARKETS 2021 A YEAR OF CHALLENGES AND OPPORTUNITIES Since 2012, Newsec has been a BNP Paribas Real Estate Alliance Partner, which gives Newsec access to an international network of clients and relevant connections. The alliance allows for both Newsec and BNP Paribas to expand coverage, and help to advise you and drive your real estate strategy internationally.

Real estate market momentum has certainly been picking up with most European markets witnessing good levels of investment activity in Q2 2021. This is a sign of markets now adapting and working around COVID19 restrictions while other markets are further along in terms of life returning to normal.

Rome (5.3%) and Madrid (5%).

Shopping centres will continue to see the lowest returns across Europe.

Total investment volume in Europe in the first half of 2021 stood at €105 billion which is 5% below the same period in 2020, with a strong second quarter across most markets. We expect investment volumes to increase this year, with volumes reaching €260bn, up 10% compared to 2020.

As was the case in 2020 we are likely to see investors targeting non-traditional asset classes and logistics, which offer the better returns.

Growth and reliance of e-commerce continues and will remain the main driver for logistics. Combined with the lack of space, the strongest rental growth will be generated by the logistics sector, with growth of 2.2% for 2021 and 2022 across Europe. As the development pipeline picks up, rental growth is expected to ease. In 2021 the Nordics will exhibit strong rental growth of 4.0%. We also forecast prime yield compression in all markets, due to the sheer weight of capital targeting the sector.

Over the past few years, we have witnessed capital growth take a backseat while income growth has largely contributed to total returns. Looking ahead capital growth will now play a greater role in returns. The strongest capital growth is likely to occur in the logistics sector with growth of 3.2% across Europe, generating a total return of 7.4% over 2021 to 2025.

The retail sector will exhibit the lowest returns. Capital growth for prime high street is forecast at -0.4% and shopping centres will generate -1.6% over the forecast period. Within Europe there are disparities with best performers to include Milan (5.7%),

32

To no one’s surprise logistics is the only sector that will see double-digit returns. The top performing markets will be Poznan (11.2%), Copenhagen (10.9%) and Warsaw (10.4%).

The worst performing sector in terms of rents will be the retail sector. Over 2021, prime high street rents are expected to fall by -5.0% and -1.5% in 2022. Shopping centres will perform slightly worse than prime high street with rents falling by -6.8% over 2021 with the UK (-11%) and Southern Europe (-10%) the worst performing.

We do anticipate shopping centres to begin recovering from 2023 onwards, with rental growth averaging 1.4% p.a. thereafter. We will see the strongest bounce-back in the UK (3% in 2025) and Southern Europe (2.1% in 2025).

Although the retail sector’s metrics

do not look particularly attractive, we do believe there are now reasons to be cautiously optimistic. Over the medium term, we expect strong total returns at the end of the forecast period, with Spain (6.0%), Italy (5.6%) and Sweden (4.5%) the top performers.

In the office sector, the return to office has resulted in occupational demand picking up again. Although it is unclear what impact flexible working practices will have on future office demand,

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

EUROPEAN PROPERTY MARKETS ●

Photo: Shutterstock

»We expect investment volumes to increase this year, with volumes reaching €260bn, up 10% compared to 2020«

we are likely to see a fall in average floorplates required. For prime offices across Europe, we expect rents to remain stable (0.2%) in 2021.

The strongest rental growth will be witnessed in France at 3.0%, with the weakest seen in the CEE region (-2.6%). In contrast average market rents will fall in 2021, with rents declining by -2.9% in Europe, and staying flat in 2022. Rental growth in the office sector will be led by the prime segment, of which there is low supply.

This will be reflected in the yields. We expect European prime office yield to harden by an average of 13bps over the forecast period. In comparison, yields on average assets will fall 3bps over same period.

European real estate remains an attractive asset class and is now entering a renewed stage of the cycle.

The difference in this cycle will be the growth of alternative and emerging asset classes such as BTR, Health-

care, logistics and Life Sciences. Total returns will moderate into single digits over the medium term and across prime assets in Offices (+6.0%), Logistics (+7.4%), High Street Retail (+3.7%) and Shopping Centres (+4.0%).

Sukhdeep Dhillon, Senior Economist & Associate Director, BNP Paribas Real Estate

33

● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

MACROECONOMIC DATA Sweden Economic Indicators

Interest Rates

Per cent

Source: Newsec

6

Per cent

Source: Swedbank, Swedish Central Bank

3

4 2

2 0

1

-2 0 -4 -6

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

2020 2021E

-1

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

2012

2013

2014

2015

2016

Central Bank Interest Rate

2017

2018

STIBOR 3M

2019

2020 2021E

STFIX 5Y

Inflation, Yearly Average

Norway Economic Indicators

Interest Rates

Per cent

Source: BNP

4

Per cent

Source: BNP

3

2 0

2

-2 -4 1

-6 -8 -10

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

2020 2021E

0

Private Consumption, Annual Percentage Change

2012

2013

2014

2015

Central Bank Interest Rate

Employment, Annual Percentage Change

2016

2017

2018

2019

2020 2021E

SWAP 5Y

NIBOR 3M

Inflation, Yearly Average

Finland Interest Rates

Economic Indicators Per cent

Source: BNP

Per cent

Source: BNP

2

3 2 1

1

0 -1 -2

0

-3 -4 -5

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2020 2021E

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

34

2019

Inflation, Yearly Average

-1

2012

2013

2014

2015

Central Bank Interest Rate

2016

2017

2018

EURIBOR 3M

2019

2020 2021E

SWAP 5Y

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

MACROECONOMIC DATA ●

BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se

Denmark Interest Rates

Economic Indicators Per cent

Source: BNP

Per cent

Source: BNP

2

4 3 2

1

1 0 -1

0

-2 -3 -4

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

2020 2021E

-1

Private Consumption, Annual Percentage Change

2012

2013

2014

2015

Central Bank Interest Rate

Employment, Annual Percentage Change

2016

2017

2018

2019

2020 2021E

SWAP 5Y

CIBOR 3M

Inflation, Yearly Average

Estonia Economic Indicators

Interest Rates

Per cent

Source: BNP

6

Per cent

Source: BNP

2

4 2

1

0 0

-2 -4 -6

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

2020 2021E

-1

2013

2014

2015

2016

2017

2018

2019

2020 2021E

SWAP 5Y

EURIBOR 3M

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

2012

Inflation, Yearly Average

Latvia Economic Indicators

Interest Rates

Per cent

Source: BNP

6

Per cent

Source: BNP

2

4 2 1

0 -2 -4

0

-6 -8 -10

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

2020 2021E

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

-1

2012

2013

EURIBOR 3M

2014

2015

2016

2017

2018

2019

2020 2021E

SWAP 5Y

Inflation, Yearly Average

35

● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

MACROECONOMIC DATA Lithuania Economic Indicators

Interest Rates

Per cent

Source: BNP

Per cent

6

Source: BNP

2

4 1

2 0

0

-2 -4

2012

2013

2014

2015

2016

GDP, Annual Percentage Change

2017

2018

2019

-1

2020 2021E

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

Inflation, Yearly Average

GDP Growth 2020–2021E Source: Newsec, BNP

6 4 2 0 -2 -4 -6

2020 2021E Sweden

2020

36

Norway

Finland

2021E

Denmark

Estonia

Latvia

Lithuania

2013

EURIBOR 3M

GDP Growth Per cent

2012

2014

2015 SWAP 5Y

2016

2017

2018

2019

2020 2021E

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

PROPERTY DATA ●

PROPERTY DATA

BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se

Office rents Prime Office Rents (CBD) | Nordic Region

Source: Newsec

Per cent

EUR/m2

8

800

6

600

4

400

2

200

0

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

0

Prime Office Rents (CBD) | Baltic Region

Source: Newsec

Per cent

EUR/m2

2

300

1

200

0

100

-1

Tallinn

Riga

0

Vilnius

Average Annual Rental Growth 2016–2020 (left axis)

Average Annual Rental Growth 2016–2020 (left axis)

Forecast Average Annual Rental Growth 2021E–2023E (left axis)

Forecast Average Annual Rental Growth 2021E–2023E (left axis)

Rent Level 2021E (right axis)

Rent Level 2021E (right axis)

Office yields Prime Office Yields | Nordic Region

Prime Office Yields | Baltic Region

Per cent

Source: Newsec

5,5

Per cent

Source: Newsec

8

5,0 4,5

7

4,0 3,5

6

3,0 2,5

2013

2014

Stockholm Oslo

2015

2016

2017

Gothenburg Helsinki

2018

2019

2020

2021E

5

Malmö Copenhagen

2013

2014

Tallinn

2015

2016

2017

Riga

2018

2019

2020

2021E

Vilnius

Retail rents Prime Retail Rents | Nordic Region

Source: Newsec

Per cent

EUR/m2

4

4000

2

3000

0

2000

1000

-2

-4

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

0

Prime Retail Rents | Baltic Region

Source: Newsec

Per cent

EUR/m2

2

500

1

400

0

300

-1

200

-2

100

-3

Tallinn

Riga

Vilnius

Average Annual Rental Growth 2016–2020 (left axis)

Average Annual Rental Growth 2016–2020 (left axis)

Forecast Average Annual Rental Growth 2021E–2023E (left axis)

Forecast Average Annual Rental Growth 2021E–2023E (left axis)

Rent Level 2021E (right axis)

Rent Level 2021E (right axis)

0

37

● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

PROPERTY DATA Retail yields Prime Retail Yields | Nordic Region

Prime Retail Yields | Baltic Region

Per cent

Source: Newsec

Per cent

6

9

5

8

4

7

3

2013

2014

Stockholm Oslo

2015

2016

2017

2018

Gothenburg Helsinki

2019

2020

2021E

6

Malmö Copenhagen

Source: Newsec

2013

2014

Tallinn

2015

2016

2017

Riga

2018

2019

2020

2021E

Vilnius

Logistics rents Prime Logistics Rents | Nordic Region

Source: Newsec

Per cent

EUR/m2

5

150

4

120

3

90

2

60

1

30

0

0

-1

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

-30

Prime Logistics Rents | Baltic Region

Source: Newsec

Per cent

EUR/m2

4

80

3

60

2

40

1

20

0

Tallinn

Riga

Vilnius

0

Average Annual Rental Growth 2016–2020 (left axis)

Average Annual Rental Growth 2016–2020 (left axis) Forecast Average Annual Rental Growth 2021E–2023E (left axis) Rent Level 2021E (right axis)

Forecast Average Annual Rental Growth 2021E–2023E (left axis) Rent Level 2021E (right axis)

Logistics yields Prime Logistics Yields | Nordic Region

Prime Logistics Yields | Baltic Region

Per cent

Source: Newsec

Per cent

8

10

7

9

6

8

5

7

4

2013

2014

Stockholm Oslo

38

2015

2016

Gothenburg Helsinki

2017

2018

2019

Malmö Copenhagen

2020

2021E

6

2013 Tallinn

Source: Newsec

2014

2015 Riga

2016

2017

2018

Vilnius

2019

2020

2021E

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

PROPERTY DATA ●

BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se

Residential Prime Residential Rents | Nordic Region

Source: Newsec

Per cent

EUR/m2

4

400

3

300

2

200

Prime Residential Yields | Nordic Region Per cent

Source: Newsec

5 4 3 2

100

1

0

Stockholm

Gothenburg

Malmö

Helsinki

Copenhagen

0

1 0

2013

2014

2015

Stockholm Oslo

Average Annual Rental Growth 2016–2020 (left axis) Forecast Average Annual Rental Growth 2021E–2023E (left axis)

2016

2017

Gothenburg Helsinki

2018

2019

2020

2021E

Malmö Copenhagen

Rent Level 2021E (right axis)

Public Properties Prime Public Properties Rents | NordicRegion

Source: Newsec

Per cent

EUR/m2

Prime Public Properties Yields | Nordic Region Per cent

6

300

6

4

200

5

2

100

4

0

3

0

Stockholm

Gothenburg

Malmö

Source: Newsec

2013

Average Annual Rental Growth 2016–2020 (left axis) Forecast Average Annual Rental Growth 2021E–2023E (left axis) Rent Level 2021E (right axis)

2014

Stockholm Oslo

2015

2016

2017

Gothenburg Helsinki

2018

2019

2020

2021E

Malmö Copenhagen

Annual transaction volumes Transaction Volumes — Annual | Nordic Region BEUR

Transaction Volumes — Annual | Baltic Region Source: Newsec

MEUR

Source: Newsec

500

35 30

400

25 20

300

15

200

10 100

5 0

2013

2014

Sweden

2015

2016

Norway

2017

2018

Finland

2019

2020 Denmark

2021E

0

2013

2014

Estonia

2015

2016 Latvia

2017

2018

2019

2020

2021E

Lithuania

39

● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

PROPERTY DATA

BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se

Transaction Volume Transaction Volumes — Quarterly | Baltic Region

Transaction Volumes — Quarterly | Nordic Region BEUR

Source: Newsec

MEUR

12

250

10

200

8

Source: Newsec

150

6 100

4

50

2

0

0 2013

2014

2015

Sweden

2016

2017

Norway

2018

2019

Finland

2020

2013

2021E

2014

Estonia

Denmark

2015

2016

Latvia

2017

2018

2019

2020

2021E

Lithuania

Office stock

Office new construction Office New Construction (Capital Office Market) Thousand m2

Source: Newsec Per cent of stock

200

16

150

12

100

8

50

4

Office Stock Q4 2021E (Capital Office Market) Million m2

Source: Newsec

14 12 10 8 6 4 2

0

Stockholm

Oslo

2020 (left axis)

40

HMA

Copenhagen Tallinn

2021E (left axis)

Riga

Vilnius

2021E (right axis)

0

0

Stockholm

Oslo

HMA

Copenhagen Tallinn

Riga

Vilnius

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

DEFINITIONS ●

DEFINITIONS General

Logistics

Public Properties

• All rents, yields and vacancies are end-of-year values.

• The forecast is referring to warehouses and logistics premises.

• All forecasts are referring to nominal values.

• The rents are referring to premises of 5,000-10,000 sqm with a 10 year lease agreement.

•A public property is defined as a property used predominantly for tax-financed operations and specifically adapted for community service.

In this document, public properties are limited to schools (pre-schools and primary schools), hospitals, and elderly care homes.

• The rental levels are the most probable prime rent when signing a new lease agreement.

• The rent is excluding heating and property tax.

• The rent refers to modern, newly built premises with a solid lease contract and tenant A properties.

•T he market data refers to public property premises of normal to modern standard with normal space efficiency.

• The forecast is referring to new/refurbished modern and flexible office premises with normal area effectiveness.

Residential

•T he market rent refers to the rent excluding supplements.

• The rents are referring to premises of at least 500 sqm.

• Definitions generally, as well as of new and old housing depend on the country.

• All yield levels are referring to net initial yield.

Offices

• The rent is excluding heating and excluding property tax.

• The forecast is referring to attractive locations with an area of around 80 sqm.

Exchange rates All rents and transaction volumes are calculated using the average exchange rates in 2021.

Retail • The rents are referring to modern retail premises of 70–250 sqm.

• The rent is excluding heating and excluding property tax.

• The rents refer to prime areas with definitions by each country.

41

● THE NEWSEC PROPERTY OUTLOOK TEAM NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE NEWSEC PROPERTY OUTLOOK TEAM

Max Barclay Head of Newsec Advisory

42

Ulrika Lindmark Head of Valuation & Strategic Analysis ulrika.lindmark@newsec.se

Adam Tyrcha, PhD Head of Research adam.tyrcha@newsec.se

Øyvind Johan Dahl Head of Research ojd@newsec.no

Karen Cecilie Thunes Senior Analyst karen.cecilie.thunes@newsec.no

Christian Hagen Analyst christian.hagen@newsec.no

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

Morten Jensen Head of Newsec Advisory Denmark morten.jensen@newsec.dk

THE NEWSEC PROPERTY OUTLOOK TEAM ●

Robin Rich Head of Research robin.rich @newsec.dk

Kauri Melakari Head of Data Science kauri.melakari@newsec.fi

Mindaugas Kulbokas Head of Research & Analysis m.kulbokas@newsec.lt

Kristina Živatkauskaitė Senior Analyst k.zivatkauskaite@newsec.lt

Inita Nitiša Real Estate Economist i.nitisa@newsec.lv

43

● THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec — The Full Service Property House in Northern Europe — is by far the largest specialised commercial property firm in Northern Europe.

Newsec manages more properties and carries out more transactions, more lettings and more valuations than any other firm in Northern Europe.

Through this great volume, and the knowledge and depth of our various operations, we acquire extensive and detailed knowledge of the real estate market. In turn, we can quickly identify business opportunities that create added value.

Our prime market is Northern Europe, but through our alliance membership with BNP Paribas Real Estate, we offer our services on the global market. This makes Newsec Northern Europe’s only full service property house, and provides us with a unique ability to forecast the future.

A history of growth Newsec is the result of a unique history of growth, characterised by constant originality of thinking. The first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001.

44

The Group expanded internationally into Finland in 2001, Norway in 2005, the Baltic countries in 2009 and Denmark in 2016. The Norwegian asset and property management companies First Newsec Asset Management and TM Partner were acquired in 2012. In 2013, Newsec acquired Jones Lang LaSalle’s Swedish property management operation. In 2017, Newsec grew with the acquisitions of Norwegian Basale and Danish Datea, further strengthening the position within Property Asset Management. In 2018, Newsec opened a London office to assist international investors interested in the Nordic and Baltic region.

Newsec was founded in 1994 and is today a partner-owned company with some 2,000 co-workers, spread

across the seven Nordic and Baltic countries. Newsec has approx. EUR 65 billion under management and annually signs lease agreements of approx.

1.6 million square meters, transactions of some EUR 7.6 billion and does real estate valuations with an underlying property value worth almost EUR 188 billion. Thanks to large volumes and local presence combined with in-depth understanding of a range of businesses, Newsec has a unique expertise of the real estate market in northern Europe.

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

NEWSEC’S ANALYSIS PRODUCTS ●

NEWSEC’S MARKET REPORTS

REQUEST ANY REPORT IN ENGLISH adam.tyrcha@newsec.se

Thanks to Newsec’s comprehensive knowledge we are able to offer a number of analyses and segment market reports which provide you with a valuable summary of the property market.

Market Report Residential

Market Report Construction Rights

Market Report Future Growth Markets

Market Report Office

Market Report Logistics

Market Report Projects

Market Report Retail

Market Report Public Properties

Sedis Report

Newsec's Transaction List

Valueguard

Market Report Nordic Market

Access Newsec’s market report portal here: https://www.marknadsrapporter.se/store

45

● CONTACT AND ADDRESSES NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

CONTACT AND ADDRESSES Sweden

Norway

Finland

Lithuania

info@newsec.se

info@newsec.no

info@newsec.fi

info@newsec.lt

Stockholm Stureplan 3 P.O. Box 7795 SE-103 96 Stockholm, Sweden Tel: +46 8 454 40 00

Oslo Filipstad Brygge 1 P.B. 1800 Vika NO-0123 Oslo, Norway Tel: +47 23 00 31 00

Stockholm Humlegårdsgatan 14 P.O. Box 5365 SE-102 49 Stockholm, Sweden Tel: +46 8 55 80 50 00

Trondheim Beddingen 10 NO-7042 Trondheim Norway

Helsinki Mannerheiminaukio 1 A P.O. Box 52 FI-00101 Helsinki, Finland Tel: +358 207 420 400

Vilnius Konstitucijos ave. 21C, Quadrum North, 8th floor LT-08130 Vilnius, Lithuania Tel: +370 5 252 6444

Tampere Aleksanterinkatu 32 B FI-331 00 Tampere, Finland Tel: +358 207 420 400

United Kingdom

Gothenburg Sankt Eriksgatan 5 P.O. Box 11405 SE-404 29 Göteborg, Sweden Tel: +46 31 721 30 00

Denmark

Gothenburg Kungsportsavenyn 33, 5 tr SE-411 36 Göteborg, Sweden Tel: +46 31 733 86 00 Öresund Office Davidshallsgatan 16 SE-211 45 Malmö, Sweden Tel: +46 40 631 13 00

Newsec Advisory in Denmark info@newsec.dk Copenhagen Silkegade 8 1113 Copenhagen Tel: +45 33 14 50 70 Aarhus Skanderborgvej 277, 1. sal, blok 1 8260 Viby J Tel: +45 87 31 50 70 Newsec Property Asset Management in Denmark pam@newsec.dk +45 26 01 02 Lyngby Lyngby Hovedgade 4 2800 Kgs. Lyngby Aarhus Viby Ringvej 2B, #.

8260 Viby J Næstved Ringstedgade 24, 1.tv 4700 Næstved

46

Turku Yliopistonkatu 16 C FI-20100 Turku Finland Tel: +358 207 420 400

Estonia info@newsec.ee

Tallinn Pärnu mnt 12 EE-10146 Tallinn, Estonia Tel: +372 533 05313

Latvia info@newsec.lv

Riga Vesetas iela 7 LV -1013 Riga Latvia Tel: +371 6750 84 00

London The Clubhouse 50 Grosvenor Hill W1K 3QT London

NEWSEC PROPERTY OUTLOOK • AUTUMN 2021

EXECUTIVE SUMMARY ●

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE 47

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE