16 February 2017, Finland | Corporate Finance | News
The real estate transaction volume last year exceeded the previous record in Finland, and it seems like the market will remain very active also in 2017. The past year was rather interesting as after the slight uncertainty at the start of the year, nothing could turn the positive direction of the investment market – not even Brexit or Trump’s victory in the US presidential election.
The total transaction volume for 2016 was EUR 7.1 billion, which is a new Finnish record. This time, the all-time high volume was reached during a period of relatively slow economic growth – according to the Bank of Finland, Finland’s GDP grew by only approximately one per cent last year, while in the previous record year, 2007, the increase was more than five per cent. As in recent years, the majority of buyers were domestic investors, while during the previous peak years, the growth in volume was largely a result of international investors operating at high levels of leverage. In addition, a large part of the volume was this time attributable to residential properties, with transactions of more than EUR 2.7 billion. For the first time in the Finnish real estate investment market, residential property transactions exceeded the amount of office or retail property transactions.
Therefore, it seems that current market activity is due more to the increased general popularity of real estate investments as an asset class than the overall economic attractiveness of Finland or the easy availability of leverage. The growing interest is reflected, for example, in the establishment of many new domestic real estate funds that have managed to collect and invest significant amounts of capital rapidly over the past years. Another positive sign is that a significant proportion of the foreign investors currently operating in Finland are Nordic players who are more likely to view Finland as part of their long-term strategies than the foreign investors of the previous boom. All in all, the role of domestic and Nordic players is currently so big that market liquidity may remain reasonably good regardless of the fluctuations in the international investment demand.
The improving economic situation anticipates a stronger rental market The Bank of Finland also predicts moderate GDP growth for this year and next year. As the Finnish economy finally gets back to a moderate growth path, there are hopes for improvement in the rental market. However, the situation in the rental market is still difficult, especially for office buildings in the Helsinki Metropolitan Area, where vacancy rates continue to rise. In spite of this, prime office rents in the Helsinki Metropolitan Area have begun to slightly increase in the best locations, and the same trend can be observed on the retail side. Consequently, the rental market for office properties looks very polarised, with the differentiation into good and bad office areas continuing. Vacancy rate problems seem to have concentrated in weaker office areas and older properties in poor condition, with no easy solution in sight.
Will 2017 be another strong year for property investment?
At the moment, there is no reason to doubt that the record pace in the real estate investment market will continue in 2017. In a low interest rate environment, real estate is seen as a very attractive investment option, to which many investors are willing to direct more capital. In addition, international investors have increasingly begun to show more interest in the Finnish market. In our view, several international investors are currently actively searching for suitable properties in Finland, and we may see more transactions involving foreign players this year than the year before.
From the point of view of international investors, the situation is now favourable in Finland because of the gradually improving economy and significantly higher yield requirement levels compared to other Nordic countries and major Western European markets. Investors can still achieve very attractive yield levels, particularly outside the city centre of Helsinki and in other growth centres, as the yield requirements for business premises have decreased significantly almost only in the central business district of Helsinki and, outside the CBD, only for the best prime properties.
Editorial; Antti Louko, Managing Director
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