The Finnish Property Market

A RETURN TO FORM FOR THE FINNISH TRANSACTION MARKET

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 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

»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.

EUR 6.0 BILLION

Total investment volume in 2020

EUR 7.5 BILLION

Total investment volume expected in 2021

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 – investment 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 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.

+2.8%

GDP growth expected in 2021

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).