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The Finnish Property Market
2021 – A YEAR OF UPS AND DOWNS BUT A PROMISING FORECAST GOING INTO 2022
The Finnish economy has, much like the rest of the world, been affected by covid-19 in 2021. Despite hitting the intended 80% vaccination rate in the last quarter of the year, Finland has had strict restrictions in both society as well as for foreigners entering the country. The year of 2021 started slow, but the economy made quite a comeback in the last quarter where the unemployment rate dropped to the lowest it has been since before the pandemic. Economic sentiment hit all-time highs both in October and November and the inflation rate was at 3.7% in November, the highest it has been for over 10 years. Thus, hopes are high that Finland will maintain and also increase its economic growth in 2022.
The Finnish real estate market had a very different year in 2021 compared to 2020. After the U-curve of 2020 in the real estate investment market (Q2-Q3 2020), activity intensified towards the end of the year. In 2021 on the other hand, the first quarter was quiet, followed by a booming spring and summer. In the last quarter of 2021, trading volume was EUR 2.42 billion. In the light of history, this is a high number, as the average quarterly trading volume in 2015-2021 has been EUR 1.8 billion. Consequently, market liquidity remains strong, with an active end of the year carrying momentum into early 2022. Finland's transaction volume in total was approximately EUR 7 billion in 2021.
The Nordic real estate markets saw exceptional activity in 2021, especially those in Sweden, Norway and Denmark, with new record-breaking transaction volumes. The 2021 Finnish transaction volume was not a record volume, but the strongest since 2018. Since the Finnish market often follows the Nordic market with a slight delay, liquidity is expected to remain strong in 2022. Many indicators show that the increased activity of the second half of 2021 will continue, and with increased cross-border flows and active international investors in residential, office, logistics and public property segments, it is possible that record Finnish transaction volumes could be forthcoming in 2022.
Contact: Valtteri Vuorio valtteri.vuorio@newsec.fi
Photo: Shutterstock
Interesting trends on the Finnish property market in 2021 and 2022
FOREIGN INVESTORS CONTINUE TO DRIVE THE FINNISH REAL ESTATE MARKET
Foreign investors accounted for 56 % of the total transaction volume. Swedish investors in particular have continued to take an active part in the Finnish property market. 51% of the total transaction volume was transacted in the Helsinki Metropolitan Area.
THE RESIDENTIAL SEGMENT TAKES FIRST PLACE WITH SWEDISH INVESTOR HEIMSTADEN BOSTAD AB ENTERING THE MARKET
The residential segment was the largest segment with a transaction volume of EUR 2.6 billion and 55 % of the transactions consisted of new residential stock. The interest of international investors in residential properties continued to be strong. The Swedish investor Heimstaden Bostad AB entered the market as a new investor, acquiring apartments in Helsinki and Kuopio, among others. In addition, interest among international investors in residential projects under development has been very strong.
INVESTORS BROADENING THEIR VIEW – LARGE OFFICE TRANSACTIONS OUTSIDE HELSINKI
The office segment share remained stable and was approximately 30 % of the total transaction volume, which is perfectly in line with the five previous years. The most significant office transactions of Q4 included the sale of the HQ of Metsä Group & Mela in Espoo to NREP for EUR 90 million, as well as the Fredriksberg D office building in Helsinki developed by NCC and sold to Aberdeen Property Nordic Fund for EUR 75 million. The largest office transaction of Q4 occurred in Oulu where LCN Capital Partners entered a “forward funding” agreement with Nokia for the construction and lease of new facilities to Nokia. The year 2021 has seen an increasing office investment demand outside the Helsinki Metropolitan area in prime assets, and it is notable that reasonably large office transactions have been completed outside the Helsinki region.
EUR 7.0 BILLION
Transaction volume in 2021
EUR 8.0–8.5 BILLION
Transaction volume expected in 2022
+2.8%
GDP growth expected in 2022
A CONTINUED COOLER INTEREST IN THE RETAIL SEGMENT – GROCERIES SAVING THE DAY
The transaction volume of retail properties continued to reduce to approximately EUR 650 million in 2021 and accounted for only about 9 % of the total volume. In 20152018, the share of retail properties was on average 28% and in 20192020 it averaged about 15%. Thus, the trend is clearly declining. Recently, grocery-driven local service centers near populated areas and transport hubs, individual grocery stores and their portfolios, as well as high-quality big-boxes have become popular. Grocery store properties accounted for a big part of the retail property segment, where for example Cibus Nordic Real Estate and domestic funds were active.
DECLINING YIELDS AFTER ALL TIME HIGH VOLUMES WITHIN THE LOGISTIC SEGMENT
Logistics properties saw a turnover of approximately EUR 900 million – as much as in the previous two years combined. This activity has also been reflected in a sharp decline in prime yield for logistics properties. In the Helsinki Metropolitan area, the lowest yields have fallen below 4 %. In 2021, the total transaction volume in logistics properties rose to the third largest, after residential and offices. Further increases within this segment are expected and international investors are expected to remain active.
