The Swedish property market

THE SWEDISH PROPERTY MARKET THE STRONGEST TRANSACTION YEAR OF ALL-TIME – BY FAR

2019 was a relatively weak year for the Swedish economy, with a GDP growth rate of around 1.2 per cent. Despite a slowdown in the economy, the Swedish Riksbank deemed that Sweden was close enough to reaching the inflation goal of 2.0 per cent to warrant an increase in the key interest rate, which resulted in this being increased from -0.25 per cent to 0 per cent just before Christmas. This means that Sweden now does not have a negative key interest rate for the first time since 2015. The SEK strengthened a little as a result, but remains a weakly performing currency. Going into 2020, GDP growth of 0.9 per cent is expected. Further, the economy is expected to continue to grow at a low, but stable rate in the coming years and a recession is deemed highly unlikely. Though the Swedish economy may be struggling a little, the Swedish real estate market is most certainly not. 2019 saw a record transaction volume of SEK 218 billion – the strongest year of all-time, by far. The previous record year, 2016, had seen a transaction volume of SEK 201 billion, which was eclipsed by almost 10 per cent. As in previous years, average deal sizes continued to rise, with the average deal now being close to SEK 500 million. A number of major M&A transactions as well as major portfolio purchases resulted in a record 42 deals over SEK 1 billion, which drove the rise in the size of the average deal. However, despite this rise, the number of deals over SEK 40 million also rose when compared to 2018, from 433 to 448. Both international and domestic interest in real estate appears to be at a post-crisis high, as the property market continues to be the high-yielding, low risk choice for all kinds of investors. In 2020, a strong transaction volume of around SEK 200 billion is expected, while in 2021, the market is expected to reach new record highs.

Contact: Alexandra Lövgren alexandra.lovgren@newsec.se Adam Tyrcha, PhD adam.tyrcha@newsec.se

»2019 saw a record transaction volume of SEK 218 billion – the strongest year of all-time«

Interesting trends on the Swedish property market in 2019 and 2020:

RESIDENTIAL RETAINS ITS CROWN The residential segment remained the most popular segment for the third year running in 2019, accounting for a 32 per cent share of transaction volume. The strength of residential was primarily driven by Vonovia’s purchase of 61.19 per cent of the shares in residential giant Hembla for SEK 32.7 billion, the largest transaction of the year. Amasten’s purchase of Urbano for SEK 3 billion, as well as a number of portfolio purchases also contributed to the strength of residential. Nevertheless, the office segment was also strong in 2019, retaining its second place at 24 per cent of transaction volume, the strongest share taken by offices since 2016. The strength of offices was not driven by any individual transaction, but rather a number of major purchases, with 17 office purchases over SEK 1 billion in 2019.

PUBLIC PROPERTIES JUMP INTO THIRD PLACE The public properties segment experienced its strongest year of all time in 2019, accounting for over 18 per cent of transaction volume. The segment’s strength was primarily driven by SBB’s purchase of Hemfosa (with SEK 39.8 billion in assets, of which SEK 27.4 are in Sweden). However, there were 64 transactions over SEK 40 million involving public properties in 2019, indicating the segment’s wide popularity. Logistics, meanwhile, dropped into fourth place, but still produced one of its strongest volumes of all time at SEK

SEK 218 BILLION 2019 transaction volume

166,000 SQM Office stock expected to be added to the Stockholm market in 2020

THE RETAIL SEGMENT dropped to just 6 per cent of transaction volume in 2019

RETAIL SLUMPS Though retail is far from a fullblown crisis, interest in the segment has weakened. Retail accounted for just 6 per cent of the total transaction volume in 2019 – the lowest level since 2003. Nevertheless, prime retail rents have continued to rise, and it is primarily the poor retail – in worse locations, with limited catchment areas and with lower adaptability to other uses – that is struggling. Strong shopping centres and outof-town retail remain attractive, and should properties of this kind be put up for sale, they are likely to attract considerable interest. Furthermore, the strength of logistics is in many ways driven by the strong growth of e-commerce, meaning the retail segment is likely to remain integral to society, and thus also real estate, in the future.

33 billion, taking 15 per cent of transaction volume. It is likely that logistics will continue to rise in popularity over time.

FOREIGN INVESTMENT AT A POST-CRISIS PEAK Accounting for 30 per cent of transaction volume in 2019, foreign investment reached the highest levels seen since 2007. Foreign investors of various origins remain highly interested in the Swedish property market, with multiple purchases for over SEK 1 billion being made by American, British, German and Korean purchasers, while Nordic investors also remained active.

OFFICE CONSTRUCTION IS AT RECORD LEVELS – WITH MORE TO COME 2019 saw approximately 154,000 sq m being added to the Stockholm office stock, which is the largest amount of new stock since 2003. In 2020, even more stock is expected to be added, at 166,000 sqm, and the years that follow are expected to be as strong or even stronger. In Gothenburg, too, the office sector is booming, and large amounts of new stock are expected to be completed in the coming years, coinciding with the city’s quadricentennial jubilee. Despite this, net take-up remains strong across Sweden, and office vacancy rates are low.