The Swedish property market

New competitive landscape – opportunistic investors, cash strong players, and desperate sellers

The market has in the last decade been characterized by an almost uninterrupted bull run. This trend has been driven by an abundance of low-cost capital, which many had believed would be a permanent feature of the economic landscape. However, in 2022, the conditions shifted and returned to preexisting norms, as rising inflation and interest rates re-emerged in Europe. As we move into 2023, it is anticipated that the majority of Europe and the world will be facing at least a technical recession, although some analysts predict the possibility of positive GDP growth for the EU. In Sweden, GDP is expected to decrease by -1.5% and a recession is expected to be noted throughout the year. Additionally, in December, CPI came in at 12.3%, higher than November and than expected, despite declining figures being observed in other European countries. As a result, it is likely that the Swedish Central Bank will continue to raise interest rates until, at least, the summer. By the end of 2022, the policy rate reached 2.50%, while in February 2023 a further increase of 50 basis points was noted. Despite this, the labour market remains relatively stable, though unemployment in Sweden remains at elevated levels of 6.7% with foreign-born unemployment still at even higher levels.

The Swedish real estate market arguably saw both its peak and fall in 2022. However, the transaction market remained relatively liquid throughout the year, although the autumn noted a steep decline in volume, especially when compared to 2021. The full year ended at SEK 219.5 billion, a historically high volume, however partially driven by the record high volume noted in both Q1 and Q2. The second half of the year was clearly weaker, and investors shied away from deals. Sellers and buyers did not meet, and distressed sellers started to pop up in the market, especially among publicly listed real estate companies. Yields rose across all segments and although CPI adjusted rents stopped values from sharply declining, all segments noted value declines by the end of the year. Moving forward, the transaction volume is expected to decline in 2023, however, Newsec is not expecting to observe any sharp break such as the one we noted in 2009 when the volume fell by 77%. Newsec expects the transaction market to be fairly liquid and for the average ticket size to shrink (could be offset by public buyouts or distressed mega deals).

Contact:

Adam Tyrcha, PhD, adam.tyrcha@newsec.se Ravi Barot, ravi.barot@newsec.se