Why the Nordics are attracting more international investment
Sweden and Finland are increasingly catching the eye of international investors, with some entering the region for the first time.
Growing numbers of international investors are putting capital into the Nordic commercial real estate for the first time as they increasingly push beyond core European markets.
In Finland, several new players have entered the market in the last year. Kildare Partners invested €729 million in pan-Nordic office investor, Technopolis. BlackRock Real Assets also made its Finnish debut, buying two office properties in Helsinki.
Other investors and investment managers are increasing their presence, says Linus Ericsson, chief executive and head of debt & financial advisory, at JLL Sweden.
“We’re seeing investment managers bolstering their portfolios – and that’s happening across the region, as well as across sectors,” he says. “More investors are not only making their debut in the Nordics but there are also some notable moves into new sectors.”
Barings Real Estate, an established investor across the Nordic region, recently took its first steps into Sweden’s housing sector through a commitment to invest €128 million in six residential buildings in Stockholm.
Meanwhile, Sweden’s logistics market, is attracting interest. Earlier this year, Allianz Real Estate and CBRE Global Investment Partners jointly bought a portfolio of eight logistics properties in Sweden and neighboring Denmark.
On the international radar
Foreign capital in the Nordics has traditionally faced significant competition for core real estate in recent years from a swathe of domestic institutional investors snapping up both portfolios and individual properties in and around the big cities.
However, as the flow of institutional domestic capital targeting real estate slows, opportunities for international investors are emerging, says Ericsson.
"We’ve seen less domestic capital entering the bidding within the prime segment - but that's not to say that there are less overall bidders," he says. "Far from it. Global capital that may find other parts of Europe expensive is now turning to the Nordic markets, even though this part of Europe hasn’t become cheaper."
Strong demand for office space has led to significant increases in rent levels, especially in Stockholm’s CBD, in recent years. This has gone some way to justify yields that are at all-time lows, says Ericsson. These currently average 3.5 percent for offices in central Stockholm and Helsinki.
In addition, a sound macroeconomic environment and political stability are bolstering investor confidence in the region: GDP growth across the Nordics is forecast to be around 2 percent in 2019 and 2020.
"Such sound credentials aren't exactly a given in other European markets right now,” says Ericsson.
Second-half transaction volumes in Sweden passed the SEK 100 billion (US$10.4 billion) in 2018, reaching SEK 156 billion (US $16.3 billion) for the full-year. Finland recorded transaction volumes of €7.6 billion (US$8.5 billion), excluding residential, following an unusually high number of €100 million+ deals.
Healthy mix of managers
Investors are taking a long-term view of the region. Allianz Real Estate will open a Stockholm office this year, putting it closer to the market as it looks to add to deals such as its €175 million purchase of Stockholm office property, Gangaren 11.
“There’s an increasingly healthy mix of global investment managers with partnerships across the region, as well as some longstanding platforms with more than one real estate cycle under their belt,” says Ericsson.
More international investment is on the cards. While Korean investors have entered Finland and Denmark in the past two years, Ericsson says it is only a matter of time before capital from Korea is invested in Sweden.
The presence of a wider choice of investment managers able to navigate new capital into Sweden should help, Ericsson says.
“Whether it’s large, single ticket office deals in central Stockholm, logistics portfolios which spread across the Nordic region, or indeed, residential schemes in up-and-coming areas of town, the region has sufficient platforms able to asset manage property and invest new sources of capital.”