Interesting trends on the Finnish property market

Market liquidity improves amid repricing

In Q4 2021 and H1 2022, the Finnish real estate market rebounded towards pre-pandemic investment levels. However, due to monetary policy tightening, rising bond yields, and more expensive lending, the market became uncertain, leading to a low transaction volume in H2 2022. Buyers became more selective and unwilling to pay previous prices, while sellers held onto their expected prices, causing a price mismatch and low volume. As the yield gap between bonds and real estate returns shrank, this prompted a reevaluation of asset prices. Capital costs are unlikely to decrease significantly in 2023, creating an opportunity for selective buyers. As the market adjusts to interest rates, property values will adjust and support deal volume. When interest rates decline, market liquidity will increase, leading to a pickup in the market in H2 2023 after low transaction volume in Q4 2022.

Social welfare reform accelerating investments into public properties

The new Social Welfare Reform in Finland, which took effect in 2023, increased interest in Finnish public properties. 21 new regions took over social services from municipalities, causing an acceleration of property sales from municipalities to private investors. The safe inflation-hedged cash flows from these properties attracted high investment demand, and rents rose in line with inflation and yields. Property funds focusing on public properties entered the market earlier due to interest in serviced apartments. In 2022, the transaction volume for the segment reached €1.7 billion, with 56% from healthcare and 77% from international investors, up from 73% in 2021. The Helsinki Metropolitan Area accounted for 27% of the volume, the lowest share for the capital city region among all property segments. It is expected that activity in the Finnish public property market will continue, although some deals may not go through in H2 2022 due to price differences between buyers and sellers.

Temporary downturn for the residential segment

Investment volumes for Finnish residential properties declined in Q4 2022 but still ended the year as the third highest on record, accounting for 29% of the total market volume. 2022 saw acquisitions of large portfolios and four megadeals of over €100 million. Higher interest rates affected prime residential yields and decreased the transaction volume for the segment. However, several deals are in the pipeline for 2023.

Continuing polarization on the office market

Office transaction volumes continue to decline in Finland, with investors becoming more cautious with investments. High-quality, certified, and well-located office buildings are preferred for both investments and occupancy. Occupiers seek efficiency from their premises which many times have led to relocations, deepening the polarization of the office market and creating opportunities for opportunistic investors to identify undervalued assets overlooked by the market.

EUR 7 billion

Total investment volume in 2022

EUR 6 billion

Total investment volume expected in 2023

–0.5%

GDP growth expected in 2023