Catella Market Indicator - Finland, Autumn 2017

Finland’s economic growth has finally picked up after a lengthy period of very slow growth. In December 2016, the Bank of Finland only projected growth of 1.3 per cent for 2017, whereas its cur­rent forecast is 2.1 per cent and some banks are forecasting even significantly higher growth rates for the ongoing year. The negative economic climate that has persisted for years has been replaced – at least momentarily – by a positive atmosphere which is gradually also being reflected in the real estate rental market.

As it appears that interest rates in the euro zone will continue to be low for some time, and property yields in Finland are still high compared to the rest of Europe, it is likely there will be exciting opportunities for real estate investors.

International investors active in the first half of the year

International investors have shown increasing interest in Finland this year, concluding several major transactions in the first six months. The most important of these was the US-based Blackstone’s public offer to acquire Sponda’s shares. This represents the single largest real estate transaction of all time in the Finn­ish market, and is strong evidence of the attractiveness of Finland for property investment at the moment. Blackstone was also involved in another exception­ally large transaction, in which Certeum, which it acquired in 2015, was sold to the Chinese CIC as part of Logicor. Other new foreign real estate investors, such as the Swedish Skandia Fastigheter and AREIM, have also been seen shopping in the market.

Due to high demand from investors, yield requirements have continued to decrease in the best districts of the Hel­sinki Metropolitan Area. The Helsinki CBD is still the most attractive, and the yield requirement for an average prime property has already fallen to 4.3 per cent. In the best office districts outside the centre, such as in Ruoholahti and Keilaniemi, prime yield requirements are also, in our view, declining.

Up until now, biggest decline in the yield requirements has been seen in high-quality properties with good rental agreements. However, if the rental mar­ket improves, the phenomenon may also affect the so-called secondary properties in the Helsinki Metropolitan Area and the real estate markets of regional growth centres. There already seems to be increasing interest towards secondary properties in the Helsinki area, and also the first signs of liquidity returning to the regional cities have been seen. For example, the new investment company Agore Kiinteistöt, established in the spring, intends to invest a significant amount of capital in the best areas of the regional growth centers in the coming years.

Real estate investments to stay competitive

Bank of Finland and several other banks are forecasting slightly slowing, albeit clearly positive, growth for 2018 and 2019. However, it seems to be fairly likely that real estate investments will remain as a competitive asset class due to the low interest rates and the continuing rapid urbanization even if the economic growth would slow slightly. Thus, we expect the real estate investment market activity to remain at high level also in the near future.