Real Estate is long-term and local

The past year has reminded us to be careful about what we take for granted. Reality as we know it has changed significantly. A terrible war rages in Europe and has, among other things, made us aware of how global events impact our part of the world.

How international investors reason is always relevant, not least because Nordic and Baltic investors act on assumptions about global investment behavior. But ultimately, markets remain very domestic. They are not as affected by foreign investors as it is often claimed. For that reason, moving forward with a long-term perspective, we can focus slightly less on observing and making sense of how they act. Newsec’s assumption is instead that domestic investors will continue to drive the market in 2023. In the end, business is local.

We also know from experience that trends and markets tend to fluctuate, and that uncertain times call for long-term perspectives. With a projected 80% of buildings in use in 2050 already having been built, the property industry is stable and able to stand the test of time. Isn’t it somehow reassuring that significant parts of today’s global cityscapes will outlive most of us?

My belief moving forward is that maintaining, or increasing, property values can be achieved through a focus on consistency, where measures are driven long-term and with an eye on real, lasting investments. In-depth knowledge of tenant needs, movements in local markets and ability to adapt assets, such as real estate and premises, in an efficient manner will be crucial to continued success. Genuine management and development driven by local knowledge, experience and above all, the ability to understand the market's needs will be essential going forward when yield compression, low interest rates and excessive access to capital will not be driving forces.

The Nordic and Baltic real estate sector and transaction year started out strong and, despite slowing down during the second half, the market is relatively stable. We look back on a 2022 which on the whole reminds us of many previous years, with the exception of the record-shattering 2021.

We tend to focus on the global real estate market, and while it is relevant to have a broad network of investors, focusing too much on the actions of the large global players is much less important than we think. Non-Nordic (and Baltic) investors will continue to have a presence on the market, often on the buyside of mega-deals. However, it is very unlikely that international investors will drive the transaction market in the coming year.

A changed environment, potential recession in large parts of the world, a devastating war in Europe –there are many reasons to reevaluate our view of the world today. But it’s always darkest before the dawn, and we will see positive events in the not-too-distant future. Despite sometimes rapidly changing circumstances, the market moves steadily forward.

Max Barclay, Deputy CEO at Newsec