NEWSEC PROPERTY OUTLOOK AUTUMN 2020
FAST FORWARD
NEWSEC PROPERTY OUTLOOK
THE CORONA PANDEMIC AS AN ACCELERATOR One of the aspects of my job that I enjoy the most is that it enables me to listen and gather input from each and every part of the real estate market, from the small entrepreneurial tenant to the multinational corporation, the CEO of a listed property company or a large international investor. This is a way for me to collect pieces that can be puzzled together to forecast where the market is going. Naturally the spread of the Covid-19 virus has overshadowed everything this year and my heart goes out to everyone who has been personally impacted by the pandemic. Earlier this spring I started contemplating the duality of the situation. On the one hand, a lot of activities were stopped as countries were shutting down one after another, while on the other hand mega trends and developments already taking place in our society pre-Covid-19 were being enforced and speeded up. It was clear that we were jumping several years into the future regarding for example digitalization. Not only has the Corona pandemic in many ways accelerated already ongoing societal trends, but
it is also leaving a significant mark on the world of property. In this edition of the Newsec Property Outlook we focus on five of the key trends that have been accelerated: public properties, flexibility, regional cities, the merge of logistics and retail parks and the lack of alternatives to investing in property. There is still a lot of uncertainty surrounding this pandemic and how the Covid-19 virus will impact the property market. As the Full Service Property House, Newsec has access to more data and information than any other real estate company in the Nordics and Baltics and we are leveraging our entire platform to explore this theme. I hope you will enjoy this report, which is just a first taste of what’s to come ‌
Max Barclay, Head of Newsec Advisory
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CONTENTS Property After Corona..................................................................................................... 7 Fast Forward.......................................................................................................................... 12 The Swedish Property Market ................................................................................. 18 The Norwegian Property Market ......................................................................... 20 The Danish Property Market .................................................................................. 22 The Finnish Property Market ................................................................................. 24 The Estonian Property Market .............................................................................. 26 The Lithuanian Property Market ......................................................................... 28 The Latvian Property Market ................................................................................ 30 European Property Markets .................................................................................... 32 Macroeconomic data..................................................................................................... 34 Property data ..................................................................................................................... 37 Definitions .............................................................................................................................. 41 The Newsec Property Outlook Team ................................................................ 42 The Full Service Property House ......................................................................... 44 Newsec’s market reports .......................................................................................... 45 Contact and addresses ............................................................................................... 46
Copyright Newsec © 2020 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, www.newsec.se. You may use the information in the Newsec Property Outlook but acknowledgement must be made for all quotations and use of data/graphics. Cover photo: iStock
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YOUR PARTNER IN THE NORTH Newsec, the Full Service Property House in Northern Europe, is the solid choice of partner within Advisory and Property Asset Management. With sharp analyses, hard facts and just the right skill set, we’ve got you covered.
PROPERTY AFTER CORONA ●
Photo: iStock
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY AFTER CORONA Klas Eklund, Senior Economist, Mannheimer Swartling
Gradually, we seem to be moving out of the most acute phase of the crisis, after the most brutal downturn in modern history. But it will take time before we can declare victory. Unemployment remains high, productivity is hurt by trade wars – and of course, the virus may come back in new waves. Amazingly, property markets have held up well during the pandemic – spurred by record-low interest rates. Economically, the Nordics have fared better than most European countries, but the Swedish death toll during spring was frightening. A gradual recovery In February, when I penned the macro piece for the spring edition of the Newsec Property Outlook, I stated: “Chinese growth H1 2020 will take a hit… Several nejghbor countries will also suffer, but direct effects on Europe and the US will be small”. How wrong I was! Economically, the second quarter of 2020 turned out to be the worst ever in peace time in the Western world. While China was the first to start climbing out of the abyss,
GDP in the US and most European countries fell by more than 10 per cent. In some countries in Southern Europe about one third of all economic activity was closed down for more than a month. If we add Q1 and Q2 and look at all of the first half of the year, the decline in Spain was 24 per cent and in the UK 23 per cent. The Nordic countries did better, with e.g. Finland down only 5 per cent. A number of observations indicate that Q3 will showcase an improve-
ment just about everywhere. China is already up and running, and global supply chains were not interrupted as severely and for as long as we feared in the spring. The USA is also rebounding, and the number of temporary layoffs has started to fall. In Europe, too, most countries show improving economic numbers. Sentiment indicators are up – albeit a bit wobbly. In July, as the rebound picked up speed, there was a general feeling that the recovery could be
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● PROPERTY AFTER CORONA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
»Economic growth will see spurts and fits and setbacks for the foreseeable future. Sentiment will shift up and down, and economic activity with it«
stronger than expected. However, the August numbers were not as convincing. Growth was positive, but slower than in July. In several countries there was a marked slowdown in indicators of mobility, travels, hotel nights etc. – again. One reason was signs of the virus spreading again. This creates new uncertainties and makes forecasting difficult. Uncertainty is great • First of all, we don’t know when there will a tested vaccine available and distributed. That can take time. During that period we run the risk of new virus waves. • Secondly, the number of new virus cases in emerging markets is still rising. This will continue to dampen global demand and international exchange of both goods and services. The number of people in poverty will rise. • Thirdly, part of the economic rebound has been fueled by extra ordinary fiscal stimulus, which is not sustainable in the long run. How and when that stimulus is pulled back can have crucial effects. • Fourth, economic pain in several sectors will be with us for a while. Tourism, air travel, and some other parts of the service sector will suffer a long time before customers deem it safe to pick up demand again. • Fifth, the labor market is a lagging variable. Often, it takes time for those who lose their jobs to find new ones. The risk is obvious that unemployment will remain high for quite a while.
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The labor market is crucial. Here, unemployment numbers rose to over 10 per cent in the US during summer, and 7 per cent in the EU. The reason unemployment did not rise even more was big support schemes and shortterm work programs. Hopes were that by now unemployment would decline. But the hoped-for improvement is already showing signs of petering out. This puts governments in a bind. They need to move from wage subsidies to more traditional jobless benefits – while also providing incentives to look for work. The short-term work schedules are not designed for this. “The dance” Despite all this fog of uncertainty, it seems reasonable to assume a gradual recovery in the economies in the advanced economies. But it will probably be uneven, with setbacks as new, major or minor virus outbreaks occur. This is happening both in the US and in several European countries. However, even if there are new regional clusters of virus outbreaks, my guess is that authorities will not revert to full-scale lockdowns on a national scale. Like it or not, I simply don’t believe citizens will accept another round of confinement after the experiences of last spring. Thus, we will probably see what has been called a period of “dance” with less stringent measures intermittent with stricter ones, varying locally and over time, as the virus comes and goes. A full restart of the economies is probably not viable until there is access to an effective vaccine. Economic growth will thus see spurts and fits and setbacks for the foreseeable future. Sentiment will shift up and
down, and economic activity with it as people will change their behaviour, e.g regarding travel and dining out. Possibly, countries with a greater degree of trust will show stronger resilience. The conclusion is that GDP numbers will turn out negative for the whole of 2020, and the uptick next year will not be enough to bring us back to where we were before the pandemic struck. Low inflation, low rates Despite a massive monetary stimulus, inflation will stay low, in all European countries, due to low demand, low capacity utilization, high unemployment and low energy prices. During summer, the ECB set in place a policy framework – Pandemic Emergency Purchase Programme PEPP - which will provide ample support throughout this year and well into 2021. Consequently, the bank’s policy rates will remain extremely low for the foreseeable future, as will market rates, thus supporting asset prices. Nonetheless, central banks are starting to scratch their heads, pondering what to do in the longer term. Nobody knows whether the growing pile of debt will bring financial repression (i.e financial regulation to hold down market rates) or maybe a bout of inflation. It seems as though some central bankers in the latter case would be willing to let inflation rise above the present target, to stimulate growth and repay some of the government debt. The Federal Reserve is debating this. Such a development, however, would be somewhere in a hazy future – since it means key rates will be raised later rather than sooner – and does not bother financial markets right now.
PROPERTY AFTER CORONA ●
Photo: iStock
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
Market rates are extremely low – nominal 10 year government bonds trade around zero in many countries. Stock markets have consequently rebounded. The hunt for yield in this market environment has tightened the spread to mortgage bonds as well. As a result, property markets have fared surprisingly well, also during the pandemic. In the US, e.g. the housing market (housing starts as well as existing home sales) has shown a clear V-shaped pattern with a strong rebound during summer. Winners and losers The virus has forced us to change behavior. Working from home, hardly any travelling or dining out, less physical shopping – but a quantum leap for e-shopping and zoom meetings. The tech sector has gained – both in sales and when it comes to stock market
capitalization. Traditional brick-andmortar services have suffered; hotels, restaurants, event managers, travel companies. Market caps have swung wildly, despite being given support by low interest rates. Housing has done well, courtesy of low interest rates. House prices fell in the early spring in most countries, but during summer prices recovered in most countries. In the Nordic countries, as we shall see, real estate has been more stable than in many other countries. Long-term trends may shape the housing and property markets in hitherto unexpected ways. Digitalisation and social distancing have changed the way we use our homes. Many of us have streamed meetings from home, which necessitates bandwidth and
sometimes encryption. Travelling to work does not occur every day. To a large extent these trends will stay with us also after the pandemic. Those who can afford to may want to upgrade their homes, maybe adding an extra room that can be used as an office. Maybe the demand for houses further away from work will increase, at the expense of smaller apartments in the city. This means demand patterns may change. The Nordics The Nordic region has followed the general trend, but with a slightly better economic performance than most of Europe, in particular for Finland. Sweden stands out, with health measures (lockdown, quarantines, social distancing) less stringent than its neighbors, and indeed less stringent
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Photo: i Stock
● PROPERTY AFTER CORONA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
than almost all other advanced economies. This is probably one reason why the death toll has been far higher in Sweden than in the other Nordic countries.
GDP change (%), 2020 H1 (preliminary numbers) Sweden
-8.3
Norway
-8.3
Denmark
-9.3
Finland
– 5.0
Euro zone
-15.3
A debate has raged regarding whether the Swedish economy may have gained slightly from this lenient
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approach. The evidence is not clearcut. Sweden has indeed performed better than Southern Europe. But Finland has recorded a better growth performance so far, and Norway and Denmark about the same, despite more stringent lockdowns. Although the jury is still out – we have to wait with a verdict until the pandemic is defeated – it is clear that the Swedish virus-related deaths during the spring were much higher than the country’s neighbors.
Sweden The consensus view is that Swedish GDP will shrink by 4–5 per cent in 2020 and gain 3–4 per cent next year. Private consumption experienced a record-breaking fall in Q2 but is now recovering. Manufacturing and
tech will do well, the public sector is expanding courtesy of fiscal stimulus, but the service sector is lagging. Unemployment is high and will rise well into next year. Recession and fiscal stimulus mean that public debt will rise. But the level will still be low, as Sweden is AAA-rated, and the yield on 10-year government bonds is zero. Inflation remains far below the Riksbank’s target. Even so, the bank has so far not shown any willingness to go back to negative rates. However, since the Riksbank crawled out of negative territory, the SEK has strengthened considerably, pushing down inflation even more. There may, consequently, be some pressure on the Riksbank to
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY AFTER CORONA ●
»Property has been resilient in all the Nordics throughout this turbulent period, and should perform well also for the foreseeable future«
cut the repo rate below zero again. But the main forecast is still that the repo rate will remain at zero with an even more active use of quantitative easing and yield curve control. House prices fell in 2017, recovered, fell again at the beginning of the pandemic and jumped back during summer. Households have turned more optimistic about future prices. Construction has remained solid throughout the economic crisis. All in all, the housing and construction markets have shown resilience.
Denmark The Danish experience is different than that of Sweden, since Denmark enforced a strict lockdown early on. This has held down virus contagion and corona-related deaths far below the Swedish level. Still, the GDP contraction has been even worse than in Sweden. The GDP fall in H1 eradicated four years of growth in just six months… Private consumption is rebounding, as the economy is opening up at a swifter pace than in most countries. The government has decided upon new stimulus packages also for 2021–22. The consensus GDP forecast is minus 4–5 per cent in 2020, which is clearly stronger than the European average. For 2021 the forecasts hover around plus 3 per cent growth. Unemployment has risen to 7 per cent, which is close to the European average. Inflation is low, as everywhere else, and Denmark’s central bank shadows the ECB in order to hold the krone in a very narrow trading band to the euro. No change in monetary policy is visible on the horizon.
Finland The Finnish economy has shown remarkable resilience, with growth numbers clearly stronger than most European countries. Finland was quick in closing down during spring, and working from home was more common in Finland than in any other European country. The per capita number of dead from covid-19 is the lowest in Europe, and this has helped hold up consumer confidence, which is now even higher than before the pandemic. Consequently, consumption has shown resilience. Manufacturing was less affected in Q2 than in any other European country. But looking ahead, the structure of Finnish exports (investment goods) may be hampered by slow foreign demand. Unemployment has risen to 8 per cent. The GDP forecast for 2020 is minus 3 per cent. The forecast for 2021 is growth of around 2 per cent, which is the lowest in the Nordic region. So Finland may experience the shallowest recession among the Nordics; the downturn was less abrupt, but the upturn will also be less vigorous. Inflation this year is close to zero. Since Finland is a member of the Euro Zone, the key rate is set by the ECB – meaning it is negative, giving strong support to the property market.
Norway The Norwegian development saw more stringent measures than in Sweden during spring and summer, but the economic performance has been similar to Sweden. One reason is that Norway’s oil and gas sector was also hit by low energy prices. Now, a recovery is under way and consumer
spending is gathering momentum. Oil prices have risen somewhat and tax reforms support investments in the offshore sector. GDP is expected to fall by 4 per cent in 2020. Norway is different in the sense that it is not an EU member. Strong growth and slightly higher inflation for a long time made Norges Bank keep key rates clearly above neighboring countries, strengthening the krone. The pandemic, however, made the central bank cut its key rate in two bold steps to zero, whereupon NOK was corrected from overvalued levels. Falling rates and a loosening of credit has led to a rise in housing prices. Indeed, there are already signs that over-heating may return. Norges Bank is worried about financial imbalances, and will probably be the first central bank to hike – but not for at least another year. All in all While I underestimated the corona effects in the spring edition of Newsec Property Outlook, I was a little more lucky in predicting strong property markets. Indeed, property has been resilient in all the Nordics throughout this turbulent period. The reason is, of course, record-breaking stimulus, from both monetary and fiscal policy. As rates will continue to stay low and fiscal policy will not be tightened for some time – out of fear of halting the recovery – property markets should perform well also for the foreseeable future.
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● FAST FORWARD NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
FAST FORWARD Things move quickly in our increasingly global world. Video killed the radio star, and smartphones eclipsed analogue phones. Ridesharing is changing transport while Venmo and their local equivalents (Swish, Vipps, MobilePay, Siirto etc) mean that physical cash is no longer king. The property industry, too, has seen numerous trends in terms of digitalization and otherwise, many of which have been discussed in previous editions of the Newsec Property Outlook. The spread of the covid-19 virus has in many ways acted as an accelerator for the property market – putting the pedal to the metal and speeding up many trends as a result. In this edition of the Newsec Property Outlook, Newsec investigates what the acceleration of these trends means for those working in the world of property, both now and in the next 5–10 years.
5 TREND: 10 YEARS
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Public properties become a top three segment in the entire Nordics Public properties are defined as prop erties used predominantly for taxfinanced operations and/or specifically adapted for community service, with examples including hospitals, nursing homes, schools, courthouses, police stations and more. In year 2000, public properties accounted for 1% of the total transaction volume in Sweden, while offices accounted for 53%. The picture was similar in the other Nordic & Baltic countries, with public properties being involved only in sporadic
transactions, while offices and retail were king. Over the past decade, the segment has grown substantially, particularly in Sweden, Norway and Finland, and in 2019, public properties accounted for 14% of transaction volume in the Nordic & Baltic region. In 2020, the share taken is expected to be up to 20%. The safe cash flows provided by public properties, with falling yields despite covid-19, means the segment will continue to attract investors and establish itself as a mainstay on the commercial investment market. Indeed, in several Nordic countries, property funds focusing solely on public properties have begun to be established.
1. Public Properties Transaction Volume in the Nordics & Baltics MEUR
Per cent
8,000
20
6,000
15
4,000
10
2,000
5
0
2015
2016
2017
Transaction volume (millions of EUR, left axis)
12
2018
2019
2020E
0
% of total transaction volume (right axis)
Nevertheless, the segment is not without struggles. Covid-19 has tarnished the reputation of elderly care homes globally, and focused efforts to make sure the asset class remains appealing to users are likely to be required. Equally, though, over the next 10 years, the amount of people aged over 80 is set to increase by over 40% in the Nordic & Baltic region. Meanwhile, stable international migration flows and strong birth rates mean that the necessity of schools and childcare is also likely to rise. This means that there is substantial potential for property investors in the segment. The public properties segment is still relatively new to investors in Denmark and the Baltics, partly due to legislative differences that impact private actors’ ability to purchase these, as well as a preference for traditional core assets. However, covid-19 has seen public properties emerge as clear winners and made it clear that in 2020, these assets are core. Investor interest in the segment across the entire region is rising as a result, with volumes set to rise further in Denmark & the Baltics in due course.
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
FAST FORWARD ●
»In 2019, public properties accounted for 14% of transaction volume in the region. In 2020, the share taken is expected to be up to 20%«
0 TREND: 5 YEARS
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Flexibility goes global Much like public properties, the office segment is also seeing growth and change, with trends such as co-working, and its extension co-living, having had a clear impact on the office market already. Though the co-working industry will see some consolidation as a result of covid-19, in general, the move towards a more flexible workplace, with activity-based workspaces and the like, continues.
2. The Evolution of Public Property Yields in the Nordics
OSLO YIELD 2015 4.5%
2020E 3.8%
STOCKHOLM YIELD 2015 4.5%
2020E 3.4%
HELSINKI YIELD 2015 4.5%
COPENHAGEN YIELD 2015 5.25%
2020E 4.4%
2020E 3.9%
Across the Nordics, we have seen examples of major actors reducing the size of their workspaces, with many now expecting a continued move towards more digital and home-office work in the future. New leases signed since covid-19 are often for smaller areas than previously, as the expectation is that not all workers will be at the office at the same time. The workplace is instead increasingly beginning to be seen as more of a meeting place, where new ideas take shape – while less critical details can be ironed out at home. This could have clear impacts on the office stock in our cities – with a survey conducted by Newsec in the Nordics & Baltics showing that 44% of tenants expect fewer square meters per employee to be required in the future. This is in itself not a new trend, as office space per employee has been steadily decreasing since the 1950’s, with this being accelerated over the past few decades by digitalization – and now by covid-19. However, we now see different forces concurrently pulling the office market in different directions – employees may wish to have more office space per worker at the office, but more employees will also be working from home.
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● FAST FORWARD NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
»Some of the office stock in subprime locations that is no longer preferred may have to be substantially renovated and modernized to retain larger actors, be let to smaller local actors, or be converted to other asset classes where appropriate«
10 TREND: 20 YEARS
3. Changing Office Trends Office space per employee (sqm)
3 Traditional/ cubicle office
Flexible/ open office
Activitybased office
Co-working
?
1990
2000
2010
2020
2030
What does this mean for office space? Currently, many tenants are still locked into leases, but eventually, vacancies may increase substantially in subprime areas, many of which were already struggling before covid19. If workers can work from home, there is little reason for them to go to a local office – instead, they may commute to the central office a few times a week, and work from home, a café or a coworking space the other days of the week. Some of the office stock in subprime locations that is no longer preferred may instead have to be substantially renovated and modernized to retain larger actors, be let to smaller local actors, or be converted to other asset classes where appropriate. Office demand in prime locations, however, will remain strong, driven by the prominence of economic opportunities, desirability of social connectivity and the like. Interestingly, it is not just office space which is seeing a trend of increased flexibility. Retail space has seen an increased amount of pop-up stores, and across many other segments multiusage has seen increased prominence. Flexibility in the form of
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shorter lease lengths is increasingly beginning to be demanded by many tenants across various segments on the property market (33% of tenants responding to Newsec’s survey highlighted that they desire more flexibility in their leases), with some property owners beginning to offer shorter lease lengths where appropriate. Covid-19 may speed up this rate of change and make leases of 3–5 years become more common across all segments (perhaps at higher rental levels to compensate for higher vacancy in renegotiation periods), while 10+ year lease terms fade from prominence. Two thirds of tenants responding to Newsec’s survey increasingly see a need to be able to quickly increase or decrease their lettings, and the ability to be flexible and relocate is therefore likely to develop into a non-optional necessity. As a result, some adaptations are likely to be required to the mindsets of property owners – on the office market and beyond.
Regional cities experience substantial revitalization Connected to the trend of some office space becoming less necessary, and working from home becoming normalized, is the resurgence of regional cities and the countryside. Over the past few decades, international migration has driven population growth in almost all major Nordic and Baltic cities (with a few exceptions in the Baltics, where outmigration to other countries is more prominent than in the Nordics). However, this is largely exogenously driven, meaning it is not a reliable, sustainable form of growth. Net internal migration can also be exogenously driven but is generally more directly impacted by local trends. Positive net internal migration into smaller cities in the Nordics has been accelerating over the past few years, and in 2019 was three times as strong as in 2013, as seen in graph (4). Meanwhile, internal migration to capital cities has been negative (apart from Helsinki, though the Finnish capital has still seen declining growth). With an increased prominence and propensity for workers to work from home post-covid-19, regional cities are likely to benefit from further localized, sustainable growth streams. Indeed, smaller cities near larger cities, enabling workers to commute to work a few days a week if necessary, with good access to services and nature, are likely to prosper. Cities in the Swedish Mälardalen region, as well as cities such as Fredrikstad, Drammen, Hämeenlinna, Lahti, Roskilde and cities in Jutland are examples of cities likely to benefit further from this
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
FAST FORWARD ●
»A shift towards more regional lifestyles will raise attractiveness of property outside the capital cities«
trend. In the Baltics, the trend has long been for net internal migration to be primarily to capital cities. Covidinduced change could come to impact this trend, too, with stronger migration flows to less populated regions emerging.
4. Net internal migration in the Nordics 16,000 12,000 8,000 4,000 0
What will this mean for the property market? We have seen a fairly constant share of transaction volume taken by secondary & major cities since 2015, hovering at above the 30% mark. A shift towards more regional lifestyles will raise attractiveness of property in these regions, as people with more wealth increasingly locate in these areas. As these areas begin to be viewed as core by investors, who will also be attracted by higher yields in these areas in their continued hunt for returns, this is likely to increase transaction volumes in these regions – possibly at the expense of capital cities.
-4,000 -8,000 Net internal migration capital cities Nordics Net internal migration secondary cities Nordics Net internal migration regional cities Nordics
5. Net internal migration in the Baltics 16,000 12,000 8,000 4,000 0 -4,000 -8,000 Net internal migration capital cities Baltics
5 TREND: 10 YEARS
Net internal migration secondary cities Baltics Net internal migration regional cities Baltics
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6. Transaction volumes by location MEUR
Per cent
30,000
60
20,000
40
10,000
20
0
2015
Millions of EUR, left axis:
2016
2017
2018
2019
2020E
Per cent, right axis
Capital city
Capital city
Secondary & Major Cities
Secondary & Major Cities
Rest of region
Rest of region
0
Logistics and retail parks merge into one segment Similarly to regional cities, logistics, too, is set to thrive during and post-covid-19, while retail, generally, is struggling. However, the picture is not uniform across the retail segment. As the pandemic has raged, retail parks have emerged as relative winners, with visitor numbers, where retail parks were permitted to remain open, staying strong. The results can be seen in the property fundamentals for the segment. While retail parks have seen some yield increases, much like many other segments, these have been quite limited when compared to
15 Capital city (millions of EUR, left axis)
Capital city (%, right axis)
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● FAST FORWARD NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
»The first step to further integration between retail and logistics is for retail parks and logistics to meld together into one segment«
7. Retail Parks in the Nordics & Baltics Market rent (EUR) per sqm
Yield, per cent
200
8
EUR per sqm, left axis: Market Rent, Stockholm Market Rent, Oslo
150
6
Market Rent, Helsinki Market Rent, Copenhagen Market Rent, Vilnius
100
4
50
2
Per cent, right axis Yield, Stockholm Yield, Oslo Yield, Helsinki
0
2016
2017
retail as a whole. Rents are expected to remain stable throughout the covid-19 crisis and beyond, much like they have previously, and vacancy rates also have not and will not rise anywhere near as much as across other forms of retail. Both during and before covid-19, retail as a whole has faced difficulties, while retail parks and logistics have, for the most part, been thriving. With the continued prominence of e-commerce, increased emphasis on sustainability and environmental friendliness, and rising transaction volumes, it seems clear that the first step to integration between retail and logistics is for retail parks and logistics to meld together into one segment. Many logistics facilities have not been designed to allow for the quick delivery times expected by customers shopping online today – meaning that refurbishment in order to meet the new, higher technical prerequisites required for increased automization is necessary, to avoid obsolescence. Concurrently, surveys show that most major logistics occupiers’ favour modern logistics space – meaning that newly produced
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2018
2019
2020E
logistics space, designed to meet technical requirements, is also likely to remain highly attractive. To ensure they remain appealing, larger retail park areas could begin to incorporate last mile logistics, improving offerings in store, reducing delivery times and increasing efficiency for customers. In time, this trend could spread to shopping centres and high-street retail. Physical stores could increasingly offer immediate home delivery of items, as consumption patterns continue to shift with convenience for customers becoming increasingly prioritized. This focus on convenience means that there will also be an increased focus on place-making in society. Malls have been struggling to achieve the growth rates that they desire over the past few years, with some seeing dwindling customer numbers. Covid-19 has furthered this trend, with mall visitor numbers dropping dramatically in previously prime central locations and having yet to fully recover. The expected entry of Amazon onto the Nordic markets is likely to act as a further accelerator in this regard. Therefore,
0
Yield, Copenhagen Yield, Vilnius
in order to draw customers back, more must be done to create attractive places, which retail can then capitalize on. While retail in itself can be an attraction in the Nordics, especially through exciting pop-up stores, stores with a unique function such as IKEA, or stores that are new or scarce such as Disney, Apple or Uniqlo, customers also have to be attracted to the actual location in itself. The standard solution of cinemas and restaurants is one piece of the puzzle, but shopping centre owners should not fear innovation. Creating unique places that draw diverse amounts of people is key, including experiences that people are both willing and excited to queue for. It is not a huge leap to add swimming pools, ice skating rinks, indoor downhill or cross-country skiing (akin to Oslo Snø), padel courts, massage parlours, botanical gardens, waterfalls or similar experiences to a shopping centre. Combining the appeal of the exclusive with the inclusive creates a diverse and unique experience and ensures that people want to come back – and stop by the shops on the way.
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
FAST FORWARD ●
»Newsec expects the transaction volume in 2020 in the Nordics & Baltics to end up just short of the historical average, around EUR 35 billion«
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There is no alternative to property for investors For some time now, it has been clear that property is the safe, long-term investment of choice for investors. In many ways, the covid-19 crisis has underlined this further. While the stock market has fluctuated unpredictably, investments into real estate have remained stable. The transaction volume in the first six months of 2020 in the Nordics & Baltics amounted to EUR 15.9 billion, 10% weaker than the historical average. The volume has been driven by the Swedish market, which accounted for close to 50% of the Nordic transaction volume in H1 and 60% in Q2, with volumes in line with the Swedish historical average. The Baltics also posted a result in line with the Baltic historical average, while Finland underperformed in Q2, but posted a half-year result in line with the Finnish historical average. The Danish H1 was broadly in line with the first six months of 2019, while Norway saw a weak Q2, but a strong start to Q3 with major purchases by SBB and others. Given the turbulence impacting global markets, this strong performance underlines the stability of real estate as an investment class. There is a substantial pipeline for this autumn, and with demand for property set to pick up even further, Newsec expects the transaction volume in 2020 in the Nordics & Baltics to end up just short of the historical average, around EUR 35 billion. In 2020 and beyond, investors are likely to continue to be drawn to property. The largest pension funds in the Nordics and Baltics have increased their allocation towards property from an average of 6% in 2005, to 12% in 2020. Going forward, it is likely capital allocation to real estate will increase
8. Transaction volume in the Nordics & Baltics MEUR
25,000 20,000 15,000 10,000 5,000 0 H1 2015
H1 2016
H1 2017
further, with an allocation strategy approaching 20% in 2030 not being unlikely. Globally, the Nordics & Baltics stand out as a robust and liquid market, with continued high transaction volumes. Many investors do not see individual countries, but rather view the Nordics & Baltics as a wide, stable region, which provides long-term dependability. The region is characterized by a robust legal system, as well as a high degree of reliability and ethics among businesses, ensuring safety in property investments and enticing global players to invest. Even as investment trends change, the region is well-positioned to remain a strong investment market. The next generation of property investment is likely to include segments currently in relative infancy, such as data centres, green/ sustainable properties and renewable energy. These segments have a strong base in the Nordics & Baltics already (in the case of renewable energy, in large part thanks to the Newsec Infrastructure team), making the Nordics &
H1 2018
H1 2019
H1 2020
Baltics a natural choice as interest in these segments strengthens further. The covid-19 pandemic has sped up many trends, creating both challenges and opportunities. New segments are emerging, while others are evolving, and investment patterns need to change in order for investors to adapt and prosper. Nevertheless, it is abundantly clear that real estate investment prospects in the Nordics & Baltics remain remarkably strong. If you are looking to get in on the fun, Newsec is the natural choice of partner in the Nordics & Baltics. We have a strong market presence and local knowledge in each of the countries – and even as a we see a lot of trends fast forward, Newsec is staying ahead of the game, and pressing play, rather than pause.
Ulrika Lindmark ulrika.lindmark@newsec.se Adam Tyrcha, PhD adam.tyrcha@newsec.se
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● THE SWEDISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE SWEDISH PROPERTY MARKET DESPITE COVID-19 – NEW RECORDS ON THE SWEDISH TRANSACTION MARKET to leave the key interest rate at 0% for the foreseeable future, despite inflation in 2020 likely being close to zero. A strong recovery is expected for the Swedish economy in 2021, with a growth rate of 3.5%, though the strength of the recovery will indirectly depend on epidemiological considerations in Sweden and abroad. Despite the economic outlook, the Swedish real estate market has remained very robust in 2020. The transaction volume in the first six months of 2020 ended up at SEK 81 billion – in line with the historical average, and just SEK 5 billion off the half-year volume seen in 2019, which ended up being the strongest year on record. This was partly driven by the strongest Q1 to date, with a volume of SEK 43 billion, but the Q2 volume
of SEK 38 billion was just 20% off the historically strong Q2 seen in 2019, and stronger than Q2 in e.g. 2018. A number of major transactions have been initiated and completed since covid-19 hit, and international interest in the Swedish real estate market remains considerable. As a result, despite covid-19, a strong transaction volume of around SEK 170 billion is expected in 2020, which will make 2020 the third strongest transaction year of all time – with further highs set to be reached in the years to come.
Contact: Alexandra Lövgren alexandra.lovgren@newsec.se Adam Tyrcha, PhD adam.tyrcha@newsec.se
Photo: Shutterstock
2020 has been far from a normal year, with the covid-19 virus having clear impacts on the Swedish economy. Sweden has not had as severe a lockdown as most other countries, and a result has been that the unemployment rate has risen by under two percentage units to 8.9% – a relatively low increase in global terms. Growth rates from March onwards have also not been as poor as in several other countries, and the expected GDP growth rate in 2020 is around -5%, one of the least negative growth rates in the EU. Still, Sweden will not reap as many benefits of its lack of lockdown as it may seem at first glance, owing to the considerable export dependency of the country. The Swedish Riksbank has unofficially abandoned its inflation goal of 2.0%, at least for the time being, and has stated that they intend
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NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE SWEDISH PROPERTY MARKET ●
»The Swedish real estate market has remained very robust in 2020. The transaction volume in the first six months of 2020 ended up at SEK 81 billion – in line with the historical average«
Interesting trends on the Swedish property market in 2020:
A STRONG REBOUND ON THE TRANSACTION MARKET BODES WELL FOR SWEDISH PROPERTY Following some hesitation among investors in April and May, June 2020 saw a transaction volume of SEK 24 billion achieved on the Swedish transaction market. This volume is in line with June 2019, and much stronger than June 2018 and most years previous. July and August tend to have fluctuating transaction volumes in Sweden, but have also looked in line with the historical average in 2020. This strong rebound has helped to solidify the robust position of real estate as an investment class in Sweden and indicates that liquidity and investor interest in real estate remains strong.
FOREIGN INVESTMENT REACHES NEW HIGHS In H1 2020, foreign investors have accounted for 35% of the total transaction volume. This is the strongest H1 for foreign investors since before the financial crisis of 2008. Foreign investors on the Swedish market thus far in 2020 have heralded from a wide range of countries, but the year has seen particularly strong growth in inter-Nordic investment, i.e. investors from Norway, Finland and Denmark. Indeed, investors from these countries have accounted for close to 75% of total foreign investment volume in 2020, which could be a result of Nordic investors choosing to invest in markets they are well-acquainted with, when the going gets tough. Nevertheless,
SMALLER DEAL SIZE
GDP GROWTH
-5,0% GDP growth expected in 2020
SEK 170 BILLION
Total investment volume of SEK 170 billion expected in 2020
substantial interest in the Swedish market has also been shown by e.g. American and German investors in 2020, and foreign interest in general looks set to remain high throughout 2020.
RESIDENTIAL, PUBLIC PROPERTIES AND LOGISTICS REIGN SUPREME The most attractive property segments in 2020 thus far have been residential, public properties and logistics. Together, these segments have accounted for around 50% of the total transaction volume, with investor demand exceeding supply of properties. For public properties in particular, demand has surged, with yields dropping substantially across the country. Residential and logistics, meanwhile, have seen yields remain relatively steady, despite the general trend of rising yields across other segments. Interest in public properties, residential and logistics is likely to remain strong throughout 2020.
Though the first six months of 2020 saw 18 transactions completed for over 1 billion SEK, just 7 of these occurred in Q2, which is a little below the historical average. Instead, more deals have occurred with a value between SEK 100 million and SEK 1 billion, reflective of the segments that have been popular for investors to purchase in 2020. Indeed, the average deal size in Q2 was SEK 367 million, while in 2020 YTD it has been SEK 470 million. This is lower than the 2019 average deal size of SEK 507 million, and if the trend holds, will mean that 2020 will be the first time that the average deal size decreases since 2017.
INVESTORS LOOK BEYOND THE BIG CITIES As new segments have gained in popularity, so too have new investment locations around the country. The “rest of Sweden” has accounted for 22% of total transaction volume thus far in 2020, which constitutes a record high for the location. Meanwhile, “other major cities” has also had a strong showing at 24%, meaning that together, these two locations account for almost 50% of the total transaction volume. This is largely a result of many public properties, residential properties and logistics properties being located in less traditional core areas. As these segments continue to rise in popularity, it is likely that investment activity will continue to rise outside of the three major Swedish cities.
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● THE NORWEGIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE NORWEGIAN PROPERTY MARKET
Photo: Shutterstock
AND SO CAME THE BLACK SWAN
As years have gone by and markets have steadily reached new highs, many have asked themselves »how long can this last« and »what will the next black swan event be?«? These kinds of questions are difficult to answer until it is too late, but in the first half of 2020 the black swan arrived – in the form of covid-19. The Norwegian economy has fared well in the wake of covid-19, and the economy is expected to decline by 4.6% in 2020, which is among the lowest rates of decline in Europe. Norway’s unemployment rate has risen to slightly under 5% in the wake of covid-19, from a pre-covid level of around 2.3%, which is also a fairly minor increase. Norway continues to outperform the European
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average in terms of its macroeconomic stability. The outlook for Norwegian real estate remains strong in 2020. Real estate players with properties that have solvent tenants, long contracts and core locations will be the ones that perform best during this period. The long horizon for investment in commercial real estate is now proving to be a strength, where players can wait with making decisions until the market returns to normal in the long-run. Prospects are worse for those who have to sell in today's market. Many players now expect a discount because of the current uncertain situation, creating a vacuum where buyers and sellers are
some distance apart.This will result in fewer transactions in 2020 than in the last 5–6 years, but Newsec believes that activity will pick up somewhat throughout the second half of the year. H1 2019 saw a volume of NOK 43.3 billion, which can be compared to NOK 36.6 billion this year. For the year as a whole, a volume of around NOK 70 billion is expected, a little lower than the historical average.
Contact: Øyvind Johan Dahl ojd@newsec.no
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE NORWEGIAN PROPERTY MARKET ●
»There will be fewer transactions in 2020 than in the last 5–6 years, but Newsec believes that activity will pick up somewhat throughout the second half of the year«
Interesting trends on the Norwegian property market in 2020:
NEW COMMERCIAL PREMISES ARE COMING TO THE MARKET A substantial amount of office and commercial space will be completed this year and next year. Several of these projects have already been leased in full or in part. Some projects may struggle to fill the last premises, as vacancy rates have generally begun to rise as a result of the covid-19 crisis. However, the projects located in the city centre, at public transport hubs and areas with distinct clusters will continue to perform best. Projects that have already been initiated will not be halted, but projects that are in the planning phase will likely remain in that phase for some time, until tenants are secured, with construction on a speculative basis being more limited than previously. With covid-19 and changing usage patterns, there is much to suggest that 2022 will be a calmer year in terms of construction completions and project starts. This in turn could take the sting out of the increasing office vacancy in the long-run.
MODEST FALL IN OFFICE RENTS EXPECTED During the financial crisis, office rents fell by around 25%, which will not be repeated. The financial crisis coincided with relatively high vacancy rates and several large contract expirations in the Oslo CBD, which contributed to exacerbating the decline in rental prices. The average rental price in Oslo fell by 4% in the second quarter of this year to NOK 2,340 per sqm, while the 15% most expensive contracts
MARKET PLAYERS ARE HESITATING
GDP GROWTH
-4.6% GDP growth expected in 2020
NOK 70 BILLION
Total investment volume of NOK 70 billion expected in 2020
saw a decrease of 2.3% to NOK 3,810 per sqm.
INCREASES IN VACANCY RATES As of the second quarter of 2020, Newsec has registered a vacancy rate of 6.6% for offices in Oslo in total and 5.2% in the Oslo CBD, an increase of 0.8 and 0.7 percentage points respectively. The largest changes in vacancy can be seen in Bryn-Helsfyr and Oslo East, where vacancy increased by approximately 3.1 percentage points from the previous quarter to 13.7% and 13.5% respectively. This is not an unusually high vacancy rate in these two areas, both of which are undergoing major transformations with several projects, but it is the largest change we have registered so far for these areas in one quarter. In other cities in Norway, vacancy rates have also generally increased, but by less than 1%. Newsec believes in increased vacancy going forward in line with lower demand for office space, driven by cautious tenants and lower employment.
Newsec has noted that many tenants have put decisions on hold, with foreign players being particularly hesitant. Some property owners have been very skilled and renegotiated ongoing contracts with discounts in exchange for longer contracts at higher levels. In general, tenants in offices are perceived as solvent, but for players in some industries, we will probably see a number of bankruptcies and layoffs, as was the case during the previous crisis. Hence, awareness of the type of tenant and degree of influence will be important to assess going forward.
THE HOME OFFICE – HERE TO STAY? The home office is probably here to stay – it has become increasingly accepted, has been proven to work and people have become more accustomed to it. How widespread it will be in the long run is uncertain, as it is too early to say to what extent it will affect the use and need for office space. The office will still be an important arena for the exchange of experiences and ideas and interaction between employees is absolutely crucial for innovation. Most people have a desire to return to everyday life, but with the continued uncertainty surrounding covid-19, many will wait and stick to their routines from before the summer. Especially companies with many employees who make use of public transport will maintain the home office, until the spread of the infection is more limited.
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● THE DANISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE DANISH PROPERTY MARKET CONTINUED STABILITY FOR DANISH PROPERTY terms, and GDP is expected to drop by just under 4% in 2020, one of the lowest decreases in Europe. As such, the Danish economy has proven to be highly resilient to the macroeconomic impacts of the virus. The Danish property market experienced a somewhat slow start to 2020, but quickly saw market activity pick up, which can also be deduced from the transaction volume. The transaction volume in the first half of 2020 was DKK 20.8 billion, which is only a little lower than 2019. This is primarily a product of Q2 2020, which was a
little slower than last year. The virus did not have any effects on Q1, with a number of very large deals being completed, including Galleri K, which was sold for DKK 1.5 billion. The real estate market is expected to experience a strong rebound in Q3 and Q4, with a total annual transaction volume of approximately DKK 50–60 billion this year, in line with last year. Contact: Morten Jensen morten.jensen@newsec.dk Daniel Nielsen daniel.nielsen@newsec.dk
Photo: Shutterstock
The Danish macroeconomy has suffered in 2020 as a result of the covid-19 virus, though not as much as many other countries. Denmark was among the first European countries to institute a lockdown, which included closing of schools and working from home. After roughly one month of lockdown, measures begun to ease, which has led to Denmark having relatively limited covid-19 restrictions today, compared to many other European countries. The unemployment rate has risen around two percentage points, to around 7%, which is a relatively limited increase in global
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NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE DANISH PROPERTY MARKET ●
»The transaction volume in the first half of 2020 was DKK 20.8 billion, which is only a little lower than 2019«
Interesting trends on the Danish property market in 2020:
PUBLIC PROPERTIES – RISING STAR? Public properties have traditionally been a very small market in Denmark, with few transactions being observed. However, ever since SBB entered the market, an increasing amount of public property transactions have been carried out. Purchases of portfolios as well as individual properties have been completed, with prices ranging from a few million DKK to hundreds of millions. Further, given that the elderly burden is growing rapidly, many developers have been taking initiative and beginning to construct elderly care home facilities, mainly in Copenhagen. The company Scandinavian Property Development has been particularly active in this regard. Over the next couple of years, Newsec expects to see several transactions concerning public properties all over Denmark, and a general increase in activity within the segment is also to be expected.
INTEREST IN LOGISTICS PICKS UP Over the last couple of years, a huge increase in interest for logistics facilities has been observed, with several multinational investors viewing the Danish logistics market as very attractive. This is largely a result of increasing rental levels. These have been increasing steadily over the last three years, which has also served to explain some of the demand that Newsec observes for the segment. In Copenhagen, rental levels for prime logistics have risen from around DKK 525 per sqm in 2015, to DKK 675 today. Similar increases have been seen in
GDP GROWTH
-3.8% GDP growth expected in 2020
billion shows that interest for retail also remains substantial. In short, all segments in Denmark continue to attract investor interest.
THE NEW HOUSING REGULATION LAW, §5.2.
DKK 50–60 BILLION
Total investment volume of DKK 50–60 billion expected in 2020
Aarhus, Odense and the Triangle Area. At the same time, yields have also fallen from around 6.75% in 2015, to closer to 5.50% in Copenhagen, with similar falls being noted in Aarhus and the Triangle Area in particular. The strongest jump in interest for logistics properties occurred around 2017.
MOVEMENTS IN THE SEGMENTS Thus far this year, residential has accounted for the largest share of transaction volume in Denmark, at 32%. In Q2, the segment accounted for 43% of transaction volume. Residential is traditionally the most purchased segment on the Danish transaction market and has maintained its strong foothold on the market in 2020. The second strongest segment on the Danish transaction market continues to be offices, accounting for 24% of total transaction volume in 2020. Meanwhile, interest for logistics also remains strong, with e.g. a major purchase of a portfolio by Blackstone for DKK 1.6 billion occurring during the lockdown, while the aforementioned sale of Galleri K for DKK 1.5
The amendments to Section 5.2 of the Housing Regulations Act, which have been under negotiation for a long time, have now been agreed upon and came into force on the 1st of July 2020, which entails changes to the rules regarding tenancy in renovated properties. The rules apply directly to the municipalities that have decided to introduce the Housing Regulations Act, and thus affect housing rents in major cities in Denmark. However, substantial debate remains concerning the agreement, which is why it is yet to be seen whether the agreement will remain as it is now or be amended. Regardless, the agreement is expected to have major impacts on the real estate market, making it more difficult to increase rents upon acquisition and renovation of property. The precise impact is difficult to calculate and depends on the desire to invest in the real estate market, but a fall in investment volume of 25–35% for older private rental property is not unrealistic. This is largely because investors will no longer be willing to pay the same high price for properties as before the housing agreement, as the upside potential will be more limited. What effect this will have on the rest of the real estate market, including in relation to commercial leases, remains very uncertain.
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● THE FINNISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE FINNISH PROPERTY MARKET
Photo: Shutterstock
NO RECORDS BROKEN – BUT THE TRANSACTION MARKET REMAINS SOLID
The Finnish economy continues to perform relatively well during these strange times. The decline in GDP growth in Q2 was surprisingly limited, at just -4.9% compared to the year before, with growth in June rising by 0.9% when compared to May. Unemployment in the country has also only risen by around 2%, to 7.9%. These figures are substantially stronger than most other European economies. Finland’s economy has also been supported by the country managing to avoid many of the negative consequences of covid-19. The country has been least impacted by the virus of
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the Nordic countries, perhaps partly thanks to a strict, early lockdown policy, which has since eased substantially. Nevertheless, the forecasts for the end of the year remain quite negative, with GDP growth of around -5.5% expected in 2020. The Finnish real estate market saw a record quarter in Q1, with a transaction volume of EUR 2.6 billion, but a very weak Q2, at just EUR 0.6 billion, which constituted a record low in the past five years. Investment volume is expected to pick up in Q3 and Q4, as both low interest rates and volatile
stock markets are expected to drive volumes. Investors are increasingly looking to target Finland, with particularly high demand for prime properties with solid tenants, long leases and almost fully let spaces. All in all, expectations of a strong end to the year abound, with an expected total transaction volume of between EUR 5 and 6 billion in 2020, in line with the historical average.
Contact: Olli-Pekka Mustonen olli-pekka.mustonen@newsec.fi
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE FINNISH PROPERTY MARKET ●
»Investors are increasingly looking to target Finland, with particularly high demand for prime properties with solid tenants, long leases and almost fully let spaces«
Interesting trends on the Finnish investment market in 2020:
THE TRANSACTION MARKET STAYS RELATIVELY ACTIVE The residential sector, office sector and the other properties segment have together accounted for around 75% of the transaction volume in 2020, with offices being the strongest performer at 37%. The third quarter is expected to see a further pickup in transaction volume, with investments into these segments, coupled with industrial and public properties, accounting for large shares of the total volume.
GDP GROWTH
-5.5% GDP growth expected in 2020
EUR 5–6 BILLION
Total investment volume of EUR 5–6 billion expected in 2020
THE OFFICE SECTOR IS CHANGING AS NEW WAYS OF WORKING BECOME A REALITY The cultural change in the ways in which we work has crashed onto the Finnish market, with mandated working from home for many non-essential workers. As a result, larger companies are now facing a change in their working solutions and environments. From the perspective of tenants, the immediate effects are the same as in most other countries; remote working, footfall in retail declining and e-commerce creating spikes in demand. The long-term effects for property markets remain to be seen.
ALREADY OVERSUPPLIED RETAIL WILL NEED TO ADAPT The large stock of retail that came to the market at almost precisely the same time needs to change, in step with consumer spending behaviour changing. The most
polarization between prime and secondary property effectively widening substantially. Secondary or opportunistic properties that rely on business plans of letting vacant premises are more difficult to price accurately, because of the underlying economic factors on the tenant market. The financing for these properties is much harder, as financial institutes are now very selective when it comes to financing these investments. Expectations are that yield rises will have been substantially higher across these types of property than prime property, once the dust settles.
FOREIGN INVESTMENT REMAINS STRONG
PRIME RETAIL YIELDS
in the Helsinki Metropolitan Area rise to 4.20%
affected sectors in the crisis are retail and hotels, and these sectors will need to go through a lot of adaptation in the coming years. Prime retail yields have risen by at least 20 points across most markets, and are now at 4.20% in the HMA CBD.
SECONDARY PROPERTY SUFFERS The impact of covid-19 on yields is not entirely clear yet, as demand is now focused on prime properties. Meanwhile, worse quality property, with a different risk profile, is not as demanded by investors, with the
The Finnish market has grown accustomed to foreign investors accounting for close to, or over 50% of the total transaction volume. Thus far, 2020 has been no different, with foreign investors accounting for 58% of transaction volume. Though the share taken by this group declined a little in Q2, to 43%, foreign interest in the Finnish market generally remains substantial, and is expected to help drive strong transaction volumes in Q3 and Q4. However, there is some downside risk to this, as long-term entry restrictions could limit the ability of some foreign investors to do business in Finland.
25
● THE ESTONIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE ESTONIAN PROPERTY MARKET
ESTONIA REMAINS ATTRACTIVE TO INVESTORS EVEN IN TIMES OF UNCERTAINTY Much like the rest of the world, growth forecasts in Estonia have been cut as a result of the covid-19 pandemic. The latest economic forecast from BNP Paribas predicts that in 2020, GDP in Estonia will contract by 4.4%, under
the assumption that no new covid-19 restrictions are put in place. The central bank’s official forecast predicts that the economy of the country will not return to pre-crisis levels of GDP until mid-2022. Next year, expected
Estonian economic growth is forecast to be 6%, as the economy recovers from the lowest point of the crisis. Both the Estonian and the global economy were already cooling down ahead of the crisis, which is why a quicker recovery is not expected. The commercial real estate market, however, remains very strong in Estonia. Total office supply increased by 21,300 sqm, or almost 3%, up to 827,300 sqm in 2019. Further modern office space is under development, although vacancy rates are slowly increasing. At least 100,000 sqm of new supply may arrive in the coming two years. Prime office yields feel pressure from the market uncertainty and remain compressed at 6.1%, while retail and industrial yields are at 6.9% and 7.6% respectively. The first half of the year saw a transaction volume of nearly EUR 200 million, including two record-breaking transactions on the Tallinn market, one of which is the largest investment transaction in the market’s history. In H1, more than 55% of the total Baltics volume was transacted in Estonia, and investment volume is expected to triple in 2020 when compared to 2019, reaching EUR 260 million. The office segment in Tallinn remains the largest and most balanced among the Baltic capitals.
Photo: Mr Finland
Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt
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NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE ESTONIAN PROPERTY MARKET ●
»The first half of the year saw a volume of nearly EUR 200 million, including two record-breaking transactions on the Tallinn market, one of which is the largest investment transaction in the country’s history«
Interesting trends on the Estonian investment property market in 2020:
RESIDENTIAL PORTFOLIO IN TALLINN FINDS NEW OWNERS At the beginning of 2020, Estonia's capital Tallinn witnessed the largest investment transaction in the country’s history. US private equity firm LCN Capital Partners sold a portfolio of around 1,200 apartments for EUR 144 million to ICG, which is listed in the United Kingdom. The apartments, which are rented on a lease to the Municipality of Tallinn, were purchased by LCN in 2015. They cover 108,000 sqm across nine blocks and were completed in three stages, starting from 2006.
GDP GROWTH
-4.4% GDP growth expected in 2020
RETAIL STRUGGLES
EUR 260 MILLION
Total investment volume of EUR 260 million expected in 2020
THE LARGEST OFFICE INVESTMENT TRANSACTION ON RECORD At the end of May, Swedish-based East Capital acquired the SEB HQ office building from Laurus fund, managed by Partners Group and Northern Horizon. The transaction volume was EUR 45.75 million, with the building having a total leasable area of around 16,000 sqm. The property is the first acquisition by the East Capital Real Estate IV fund, which has set a target of EUR 400-500 million in assets under management.
PENSION FUNDS SLOW DOWN A few years ago, the state eased investment restrictions for pension funds. As a result, investments into Estonia almost doubled. Altogeth-
payments into the second pillar of the pension system until September 2021, primarily as a result of the economic impacts of the covid-19 pandemic. The funds of around EUR 350 million are to be reimbursed in 2023-2024.
100,000 SQM
of office space to come to the Tallinn office market in the next two years
er more than EUR 600 million has been placed in the Estonian economy, accounting for 15% of the total assets of pension funds. Out of the Estonian pension funds, the LHV funds are the most active in terms of investing into Estonia. LHV have been constantly increasing their investments in the Estonian real estate market, and especially into residential real estate. As of July 2020, Estonia stopped state
The retail turnover in the first half-year and especially the second quarter of 2020 in Estonia was affected by the pandemic. Due to the covid-19 virus spreading, shopping centres were closed for almost a two-month period. A significant decrease in footfall and turnover of all shopping centres was seen, but this is expected to be temporary with a gradual recovery having already commenced. The sensitive situation on Tallinn's shopping centre market accelerated the reorganization plans of the T1 Mall owner company. However, these procedures do not in any way affect the day-to-day operations of the shopping centre. Despite uncertainty on the market, Tallinn is expecting a further increase in retail supply. The shopping centre Porto Franco is under development as a part of a mixed use project. Completion is expected in 2021, which will add 32,000 sqm of retail space.
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● THE LITHUANIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE LITHUANIAN PROPERTY MARKET
Photo: Lords LB Asset Management
RESULTS SHATTER PESSIMISTIC ECONOMIC FORECASTS
Lithuania has managed to bring the covid-19 pandemic under control and the first wave, unlike in some other countries around the world, has been halted. Strict lockdown restrictions were implemented early and in June, many measures could be lifted. Amid initial signs of recovery of the country’s economy, Lithuania’s GDP growth forecasts for 2020 were improved. Nevertheless, a GDP contraction of -5.4% in 2020 is still forecast, followed by growth of 5% in 2021. It is projected that, due to the impact of the pandemic, the unemployment rate will rise to 9.5–11.9% this year, and the average inflation rate for the year will be 0.6–0.7%. The Lithuanian economy remains in a strong state, as can be seen from the country having one of the lowest GDP contractions in Europe in Q2 2020, at just -3.8%.
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Despite the circumstances, there has been no slowdown on the Lithuanian real estate market. Developers have continued to complete planned projects and proceeded with new construction. The rental market was also more active than expected in the first half-year. The most notable office lease transactions were signed by Western Union for 15,000 sqm and Telia for 7,000 sqm of office space. These were the biggest office signings in Vilnius and in all the Baltic countries in 2020, constituting active expansion of service centres that are already operating on the market. In terms of transaction volume, this remained quite high in H1 2020. Total investment into Lithuania constituted one third of the total Baltics transaction volume, at just over EUR 115 million. This is only 9% less than the same period in 2019.
The office segment was the most active, accounting for more than 85% of total volume in Lithuania. The total annual volume of investment transactions in the Baltic region, including Lithuania, will decrease in 2020. As most investment transactions tend to be concluded in the second half of the year, the reduced activity may cut down the total amount of investments to a level below EUR 500 million in the Baltic region, and EUR 150 million in Lithuania. Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE LITHUANIAN PROPERTY MARKET ●
»Total investment into Lithuania in H1 2020 constituted one third of the total Baltics transaction volume, at just over EUR 115 million. This is only 9% less than the same period in 2019«
Interesting trends on the Lithuanian investment market in 2020:
TWO LARGE OFFICE INVESTMENT TRANSACTIONS At the beginning of 2020, Lithuanian-based Lords LB asset management company purchased the IBC business centre in Vilnius, with a total area of 22,700 sqm, from INVL Real Estate for EUR 33 million. Meanwhile, following the lifting of the lockdown restrictions, Zenith AM acquired the second phase of the Park Town business centre from the Lithuanian developer Darnu Group. The total investment transaction volume of the two project phases is close to EUR 75 million. The first stage was acquired in 2018 and the second was closed after the construction completion and full occupancy of the project. High-quality prime offices are on investors' wish lists and the sale of Park Town is one of the first post-lockdown transactions on the Baltic real estate investment market.
NEWLY CONSTRUCTED OFFICES AND LOGISTICS CENTRES REMAIN ATTRACTIVE TO INVESTORS As a result of the pandemic, banks are hesitant, and financing volumes have fallen sharply. Therefore, equity investors are in the most favourable position. Typically, such investors buy so-called core or prime products, that is new construction or very good offices that are in the central business districts of the city or in the old towns. The logistics segment is attractive as well, and is considered to be second on the list of most demanded assets.
GDP GROWTH
-5.4% GDP growth expected in 2020
EUR 150 MILLION
Total investment volume of EUR 150 million expected in 2020
115,000 SQM
of office space to come to the Vilnius office market in 2020
LITHUANIA REMAINS A STABLE INVESTMENT LOCATION Internationally, Lithuania is considered a reliable country. With many countries downgraded in the face of the pandemic, the international credit rating agency Fitch Ratings affirmed Lithuania's A long-term debt rating in January 2020 and kept a stable outlook. Government debt had been relatively stable, until the economic downturn caused by covid-19. Now, it is likely to reach 50% of GDP shortly, and will begin to approach 60%. Nevertheless, Lithuania continues to borrow on
both domestic and foreign markets at the lowest pricing levels in history.
OFFICE CONSTRUCTION AT RECORD LEVELS Upon the completion of all planned 2020 projects, space on the Vilnius office market will increase by 115,000 sqm or 18%, and the vacancy rate may grow to 7-10%. 2020 will be a record year in terms of new supply of office space in a single year – in comparison, over the last five years, an average of 65,000 sqm of new space was completed per year. In any case, increased supply on the office market will create new opportunities for both tenants and investors.
PRECISE IMPACT ON YIELDS REMAINS UNCERTAIN So far, the sales prices of the most attractive segments (logistics and offices) were not significantly affected. Yields have remained just below 6% for the prime office segment, and 7.6% for the industrial segment. However, it is necessary to keep monitoring the end of the 3rd quarter of 2020. This will be the period when postponed mortgage payments or rental discounts granted to businesses in the Baltic states will end. This will show which property owners have been hit hardest by the covid-19 pandemic. At this time, it will also become clear whether the increased sensitivity in the retail segment and fluctuating consumer demand will reflect on prime retail yield growth.
29
● THE LATVIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE LATVIAN PROPERTY MARKET FULL STEAM AHEAD IN LATVIA Based on BNP Paribas' forecasts, Latvia's GDP is expected to fall by 1.4% in 2020, one of the lowest declines in the world. In terms of commercial real estate, the Latvian property development market remains active. New properties across the office and retail segments will create new supply for tenants and potential investors. However, the investment market volume in H1 has been relatively slow. The transaction market saw limited activity in Q2, and the lion’s share of investment in the first half-year was completed at the beginning of 2020, with a total
invested amount of just over EUR 40 million. Among others, EfTEN Capital acquired one office building and two logistics centres in the first quarter. The second half year is expected to be more active, with investment expected into the retail and logistics segments. Total investment volume in 2020 may be half of the previous year’s level, with a volume of around EUR 90 million expected.
Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt
Photo: Capitalica Asset Management
Latvia’s economy showed a smaller decline in 2020 than the EU as a whole. In the first and second quarter of 2020, Latvian GDP fell by 1.5 and 9.6%, respectively. This was the sharpest decrease among the Baltic states. However, the economic downturn has been less severe than anticipated. Unemployment has increased in the whole country and reached 8.6% in the second quarter of 2020. Based on the State Employment Agency's data, unemployment growth stopped and started to decrease in July. The overall economic downturn in 2020 may turn out to be weaker than projected as of mid-2020.
30
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE LATVIAN PROPERTY MARKET ●
»The second half year is expected to be more active, with investment expected into the retail and logistics segments«
Interesting trends on the Latvian investment market in 2020:
INSTITUTIONAL INVESTORS’ TRUST IN THE LATVIAN REAL ESTATE MARKET RETURNS In early 2020, Air Baltic’s HQ, with a total area of 6,560 sqm, was purchased by EfTEN Capital. Meanwhile, in 2019, three largescale business centre transactions were completed for a total amount of EUR 116 million. In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings with a total leasable area of 20,000 sqm in Riga from the Baltic RE Group. That company’s entry onto the market was the first purchase in the Riga office sector by a Western European investor and one of the biggest investments in Latvian commercial property in several years. Other large deals in 2019 included Colonna Capital’s acquisition of Luminor’s HQ with a total area of over 15,000 sqm, and Eastnine’s purchase of the Valdemara Centrs business centre with a leasable area of 8,700 sqm. Interest remains strong and more such deals could be completed in 2020.
NEW PROJECTS ON THE LATVIAN OFFICE MARKET Experienced Baltic property developers are continuing with project development and construction works. A 19% growth in supply is forecast for 2022, with over 142,000 sqm of space being brought to market as at least 7 new office projects are set to be completed one after another. The Riga office market is seeing changes it has not seen in at least the last decade, a time when new
GDP GROWTH
-1.4% GDP growth expected in 2020
EUR 90 MILLION
Total investment volume of EUR 90 million expected in 2020
office projects have been rare and the new office space market has stagnated. Intense development of new projects boosted leasable space by 6% in the first half of this year and by nearly 11% in 2019. The biggest office projects of the first half of 2020 included the Z-Towers and Origo One business centres, offering tenants 25,000 sqm and 11,500 sqm of class A office space, respectively. It is forecast that new projects will be put on pause next year, since the office space that is on offer will need to be absorbed, and initiation of new projects will be on hold until the start of 2022.
RETAIL MARKET DEVELOPMENT IN RIGA REMAINS ACTIVE The new retail part of the Origo shopping centre was opened in the city centre and reconstruction of the old one is scheduled for this autumn. With the opening of the new Origo One business centre and expansion of retail area Linstow, the area is adhering to its mixed urban use development strategy. Two more openings of new shop-
ping centres with formats not yet seen on the market are expected: the Via Jurmala Outlet Village and the Saga family-focused shopping and entertainment centre, which is in development beside the Riga IKEA. Riga’s retail market is continuing to grow, with strong availability of quality investment projects.
YIELD CORRECTIONS TO COME? After years of compression, the prime Riga office yield stands at 6.30%, retail yield at 7.15% and logistics yield at 7.85%. Whether yield corrections will be seen in the market will depend on forthcoming transactions. The office segment remains the least impacted by the covid-19 pandemic, and as the supply of modern office space grows, the market will remain attractive to both local investment funds and international players seeking new opportunities.
SMALL SCALE RETAIL PROPERTIES REMAIN ATTRACTIVE IN TURBULENT TIMES A shopping centre in Liepaja, Latvia was sold by Lords LB to a private investor. The shopping centre has 25 tenants, the largest of which is the retail chain Rimi and the household goods store Jysk, with a total leasable area of approximately 6,300 sqm. The transaction was completed despite covid-19, which serves as proof of high motivation among all parties and the resilience of the sector. A transaction of such a scale in a secondary city underlines the continued liquidity of high-quality, well-located assets.
31
● EUROPEAN PROPERTY MARKETS NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
EUROPEAN PROPERTY MARKETS MIXED FORTUNES
Sukhdeep Dhillon, Senior Economist & Associate Director, BNP Paribas Real Estate
Since 2012, Newsec has been a BNP Paribas Real Estate Alliance Partner, which gives Newsec access to an international network of clients and relevant connections. The alliance allows for both Newsec and BNP Paribas to expand coverage, and help to advise you and drive your real estate strategy internationally. world. Lockdowns and restrictions hit economies, industries and livelihoods hard. As a result, records were broken, all for the wrong reasons. Investment activity grinded almost to a halt.
kets pick up fully in Q4. Nevertheless, 2020 will see a sharp reduction in transaction volumes across Europe. Cross-border transactions have been impacted hugely by restrictions.
With restrictions now eased, and hopefully the worse of covid-19 behind us we do expect activity to regain some momentum in Q3 before mar-
Flight to safety The “flight to safety” became a feature of the previous financial crisis, whereby investors were cautious and
Photo: Shutterstock
Mixed Fortunes Most European markets witnessed solid investment activity in the first quarter of 2020 with some even witnessing higher volumes compared to last year. Total volume of investment in Q1 was €69 billion, 46% higher than Q1 2019. It is safe to say no one truly anticipated the impact covid-19 would have across most parts of the
32
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
EUROPEAN PROPERTY MARKETS ●
»With restrictions now eased, and hopefully the worse of covid-19 behind us we do expect activity to regain some momentum in Q3 before markets pick up fully in Q4«
selective in their choice of assets. But real estate was one of the winners in the aftermath of the financial crisis. Similarly, during this pandemic, with negatively yielding government bonds, commercial real estate will look attractive. However, it is worth bearing in mind that during recessions the perceived risks to commercial real estate also increase. Property yields will move out across markets. Furthermore, the gap between prime and secondary property of the same asset class is likely to widen, particularly for retail, reversing the trend we witnessed pre-covid. Offices in tricky waters For the office sector, immediate outcomes quickly became obvious, as office buildings emptied with many working from home. Only time will tell whether this will prove to be a structurally transformative experience for the market. Another major impact has been on the development pipeline, which was already substantially delayed. We may see future large-scale units delayed further as occupiers begin to weigh up their requirements. Nonetheless, we expect prime rental growth for European offices to range between -2.6% to +1.9% over the 2020–2024 forecast period. The region with the strongest rental growth at the end of the forecast is likely to be the Nordics at 2.7% in 2024. Offices will witness a short-term expansion in prime yields over 2020–2021 before compression resumes towards the forecast end 2023/24. Logistics a clear beneficiary The logistics market is a clear beneficiary from European lockdowns. The consumer led segment is witnessing a
spike in occupational demand brought about by changes in consumption habits during lockdown. For the logistics sector we expect prime yields to cease compression and remain stable, before resuming compression in yields in 2021. All regions are expected to experience further compression post-2021, reflecting post-covid investor demand and the reliance of e-commerce intensifying. Recession to magnify problems for retail Lockdowns meant shops were closed for several months. Retail was already undergoing restructuring. It is not surprising that we anticipate severe downward pressure on retail over the first two years of our forecast period. Our forecasts include prime retail in core cities. This retail segment derives considerable revenue from tourist spending as well as domestic shoppers. Tourist spending almost vanished with the restriction on travel. It may be slow to return as its volume is tied to factors such as air travel safety. At the European level, we anticipate rents falling by -5.8% in 2020 and -2.7% in 2021. The three regions under the most severe pressure in 2020 are CEE (-15%), Benelux (-8.4%) and Southern Europe (-8.1%).
sector for return across the forecast period. The impact of covid-19 on our revised forecasts is most strongly experienced in the retail sector. European retail is likely to post -8% returns in 2020 and we may even see double digit negative returns in a number of regions including France (-21%), CEE (-17%), Southern Europe (-12%), Benelux (-11%) and the UK and Ireland (-10%). Negative returns are likely to reverse over 2021 with all regions creating low, positive returns by 2024. Risks to the forecast Covid-19 represents a different kind of systematic risk which was not factored into the previous forecast round and effectively reversed the transition to micro risks shaping outcomes. The re-emergence of covid-19 in winter is a major downside risk which could potentially damage economies and markets further.
No double digit returns European office prime market returns will average about -2.2% in 2020. What is positive about returns for the office market is that we anticipate a strong recovery, with returns of 6% by 2024. Logistics total returns are anticipated to be more stable at 4.3% in 2020 for Europe as a whole before increasing to 5.6% in 2024. Logistics overall represents the most stable
33
● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
MACROECONOMIC DATA Sweden Interest Rates
Economic Indicators Per cent
Source: Newsec
Per cent
Source: Swedbank, Swedish Central Bank
3
4 2
2
0 1 -2 0
-4 -6
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
2020E
-1
Private Consumption, Annual Percentage Change
2012
2013
2014
2015
Central Bank Interest Rate
Employment, Annual Percentage Change
2016
2017
STIBOR 3M
2018
2019
2020E
STFIX 5Y
Inflation, Yearly Average
Norway Economic Indicators
Interest Rates
Per cent
Source: BNP
4
Per cent
Source: BNP
3
2 2
0 -2
1
-4 0 -6 -8
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
2020E
-1
Private Consumption, Annual Percentage Change
2012
2013
2014
2015
Central Bank Interest Rate
Employment, Annual Percentage Change
2016
2017
NIBOR 3M
2018
2019
2020E
SWAP 5Y
Inflation, Yearly Average
Finland Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
Source: BNP
3
4 2
2
0 1 -2 0
-4 -6
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2019
2020E
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
34
2018
Inflation, Yearly Average
-1
2012
2013
2014
2015
Central Bank Interest Rate
2016
2017
EURIBOR 3M
2018
2019
SWAP 5Y
2020E
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
MACROECONOMIC DATA ●
BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se
Denmark Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
4
3
2
2
0
1
-2
0
-4
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
2020E
-1
2013
2014
2015
Central Bank Interest Rate
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
2012
Source: BNP
2016
2017
CIBOR 3M
2018
2019
2020E
SWAP 5Y
Inflation, Yearly Average
Estonia Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
Source: BNP
3
6 4
2 2 0
1
-2 0 -4 -6
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
2020E
-1
2013
2014
2015
Central Bank Interest Rate
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
2012
2016
2017
EURIBOR 3M
2018
2019
2020E
SWAP 5Y
Inflation, Yearly Average
Latvia Interest Rates
Economic Indicators Per cent
Source: BNP
6
Per cent
Source: BNP
3
4
2
2 1 0 0
-2 -4
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
2020E
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
-1
2012
2013
2014
2015
Central Bank Interest Rate
2016
2017
EURIBOR 3M
2018
2019
2020E
SWAP 5Y
Inflation, Yearly Average
35
● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
MACROECONOMIC DATA Lithuania Interest Rates
Economic Indicators Per cent
Per cent
Source: BNP
Source: BNP
3
6 4
2
2 0
1
-2 -4
0
-6 -8
2012
2013
2014
2015
GDP, Annual Percentage Change
2016
2017
2018
2019
-1
2020E
Private Consumption, Annual Percentage Change
Inflation, Yearly Average
GDP Growth GDP Growth 2020E–2021E Per cent
Source: Newsec, BNP, Swedbank
6 4 2 0 -2 -4
2020E 2021E
-6 Sweden
2020E
36
Norway
Finland
2021E
Denmark
Estonia
Latvia
Lithuania
2012
2013
2014
2015
Central Bank Interest Rate
Employment, Annual Percentage Change
2016
2017
EURIBOR 3M
2018
2019
SWAP 5Y
2020E
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY DATA ●
PROPERTY DATA
BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se
Office rents Prime Office Rents (CBD) | Nordic Region
Source: Newsec
Per cent
EUR/m2
10
1000
8
800
6
600
4
400
2
200
0
0
-2
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
-200
Prime Office Rents (CBD) | Baltic Region
Source: Newsec
Per cent
EUR/m2
4
300
2
200
0
100
-2
Tallinn
Riga
0
Vilnius
Average Annual Rental Growth 2015–2019 (left axis)
Average Annual Rental Growth 2015–2019 (left axis)
Forecast Average Annual Rental Growth 2020E–2022E (left axis)
Forecast Average Annual Rental Growth 2020E–2022E (left axis)
Rent Level 2020E (right axis)
Rent Level 2020E (right axis)
Office yields Prime Office Yields | Baltic Region
Prime Office Yields | Nordic Region Per cent
Source: Newsec
Per cent
Source: Newsec
9
5,5 5,0
8 4,5 7
4,0 3,5
6 3,0 2,5
2012
2013
Stockholm Oslo
2014
2015
2016
Gothenburg Helsinki
2017
2018
2019
2020E
5
2012
2013
Tallinn
Malmö Copenhagen
2014
2015
2016
Riga
2017
2018
2019
2020E
Vilnius
Retail rents Prime Retail Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
6
3000
4 2000
2
Prime Retail Rents | Baltic Region
Source: Newsec
Per cent
EUR/m2
2
500
1
400
0
300
-1
200
-2
100
0 1000
-2 -4 -6
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
0
-3
Tallinn
Riga
Vilnius
Average Annual Rental Growth 2015–2019 (left axis)
Average Annual Rental Growth 2015–2019 (left axis)
Forecast Average Annual Rental Growth 2020E–2022E (left axis)
Forecast Average Annual Rental Growth 2020E–2022E (left axis)
Rent Level 2020E (right axis)
Rent Level 2020E (right axis)
0
37
● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY DATA Retail yields Prime Retail Yields | Nordic Region
Prime Retail Yields | Baltic Region
Per cent
Source: Newsec
6
Per cent
Source: Newsec
10
9 5 8 4 7
3
2012
2013
Stockholm Oslo
2014
2015
2016
Gothenburg Helsinki
2017
2018
2019
6
2020E
Malmö Copenhagen
2012
2013
Tallinn
2014
2015
2016
Riga
2017
2018
2019
2020E
Vilnius
Logistics rents Prime Logistics Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
4
150
3
120
2
90
1
60
0
30
-1
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
0
Prime Logistics Rents | Baltic Region
Source: Newsec
Per cent
EUR/m2
4
80
3
60
2
40
1
20
0
Tallinn
Riga
Vilnius
0
Average Annual Rental Growth 2015–2019 (left axis)
Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis)
Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis)
Logistics yields Prime Logistics Yields | Nordic Region
Prime Logistics Yields | Baltic Region
Per cent
Source: Newsec
Per cent
8
11
7
10
6
9
5
8
4
2012
2013
Stockholm Oslo
38
2014
2015
Gothenburg Helsinki
2016
2017
2018
Malmö Copenhagen
2019
2020E
7
2012 Tallinn
Source: Newsec
2013
2014 Riga
2015
2016
2017
Vilnius
2018
2019
2020E
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY DATA ●
BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se
Residential Prime Residential Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
4
400
3
300
2
200
Prime Residential Yields | Nordic Region Per cent
Source: Newsec
5 4 3 2
100
1
0
Stockholm
Gothenburg
Malmö
Helsinki
Copenhagen
0
1 0
2012
2013
2014
Stockholm Oslo
Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis)
2015
2016
Gothenburg Helsinki
2017
2018
2019
2020E
Malmö Copenhagen
Rent Level 2020E (right axis)
Public Properties Prime Public Properties Rents | NordicRegion
Source: Newsec
Per cent
EUR/m2
6
300
4
200
2
100
Prime Public Properties Yields | Nordic Region Per cent
Source: Newsec
7
6
5
4
0
Stockholm
Gothenburg
Malmö
0
3
Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis)
2012
2013
2014
Stockholm Oslo
2015
2016
Gothenburg Helsinki
2017
2018
2019
2020E
Malmö Copenhagen
Annual transaction volumes Transaction Volumes — Annual | Nordic Region BEUR
Transaction Volumes — Annual | Baltic Region Source: Newsec
MEUR
25
500
20
400
15
300
10
200
5
100
0
2012
2013
Sweden
2014
2015
Norway
2016
2017
Finland
2018
2019 Denmark
2020E
0
Source: Newsec
2012
2013
Estonia
2014
2015 Latvia
2016
2017
2018
2019
2020E
Lithuania
39
● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
PROPERTY DATA
BUY THE COMPLETE FORECAST adam.tyrcha@newsec.se
Transaction Volume Transaction Volumes — Quarterly | Baltic Region
Transaction Volumes — Quarterly | Nordic Region BEUR
Source: Newsec
MEUR
Source: Newsec
250
8
200
6
150 4 100 2
50 0
0 2012
2013
2014
Sweden
2015
2016
Norway
2017
2018
Finland
2019
2012
2020E
2013
Estonia
Denmark
2014
2015
Latvia
2016
2017
2018
2019
2020E
Lithuania
Office stock
Office new construction Office New Construction (Capital Office Market) Thousand m2
Source: Newsec Per cent of stock
200
16
150
12
100
8
50
4
Office Stock Q4 2020 (Capital Office Market) Million m2
Source: Newsec
14 12 10 8 6 4 2
0
Stockholm
Oslo
2019 (left axis)
40
HMA
Copenhagen Tallinn
2020E (left axis)
Riga
Vilnius
2020E (right axis)
0
0
Stockholm
HMA
Oslo
Copenhagen Tallinn
Riga
Vilnius
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
DEFINITIONS ●
DEFINITIONS General
Logistics
Public Properties
• All rents, yields and vacancies are end-of-year values.
•T he forecast is referring to warehouses and logistics premises.
• All forecasts are referring to nominal values.
•T he rents are referring to premises of 5,000-10,000 sqm with a 10 year lease agreement.
• A public property is defined as a property used predominantly for tax-financed operations and specifically adapted for community service. In this document, public properties are limited to schools (pre-schools and primary schools), hospitals, and elderly care homes.
• The rental levels are the most probable prime rent when signing a new lease agreement.
•T he rent is excluding heating and property tax. •T he rent refers to modern, newly built premises with a solid lease contract and tenant A properties.
• The market data refers to public property premises of normal to modern standard with normal space efficiency.
• The forecast is referring to new/refurbished modern and flexible office premises with normal area effectiveness.
Residential
• The market rent refers to the rent excluding supplements.
• The rents are referring to premises of at least 500 sqm.
•D efinitions generally, as well as of new and old housing depend on the country.
• All yield levels are referring to net initial yield. Offices
• The rent is excluding heating and excluding property tax.
•T he forecast is referring to attractive locations with an area of around 80 sqm.
Exchange rates All rents and transaction volumes are calculated using the average exchange rates in 2020.
Retail • The rents are referring to modern retail premises of 70–250 sqm. • The rent is excluding heating and excluding property tax. • The rents refer to prime areas with definitions by each country.
41
● THE NEWSEC PROPERTY OUTLOOK TEAM NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE NEWSEC PROPERTY OUTLOOK TEAM
Max Barclay Head of Newsec Advisory
42
Ulrika Lindmark Head of Valuation & Strategic Analysis ulrika.lindmark@newsec.se
Alexandra Lövgren Head of Strategic Analysis alexandra.lovgren@newsec.se
Adam Tyrcha, PhD Head of Research adam.tyrcha@newsec.se
Øyvind Johan Dahl Head of Research ojd@newsec.no
Karen Cecilie Thunes Senior Analyst karen.cecilie.thunes@newsec.no
Christian Hagen Analyst christian.hagen@newsec.no
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE NEWSEC PROPERTY OUTLOOK TEAM ●
Morten Jensen Head of Newsec Advisory Denmark morten.jensen@newsec.dk
Daniel Nielsen Analyst daniel.nielsen@newsec.dk
Olli-Pekka Mustonen Head of Research olli-pekka.mustonen@newsec.fi
Kauri Melakari Head of Data Science kauri.melakari@newsec.fi
Mindaugas Kulbokas Head of Research & Analysis m.kulbokas@newsec.lt
Kristina Živatkauskaitė Senior Analyst k.zivatkauskaite@newsec.lt
43
● THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec — The Full Service Property House in Northern Europe — is by far the largest specialised commercial property firm in Northern Europe. Newsec manages more properties and carries out more transactions, more lettings and more valuations than any other firm in Northern Europe. Through this great volume, and the knowledge and depth of our various operations, we acquire extensive and detailed knowledge of the real estate market. In turn, we can quickly identify business opportunities that create added value. Our prime market is Northern Europe, but through our alliance membership with BNP Paribas Real Estate, we offer our services on the global market. This makes Newsec Northern Europe’s only full service property house, and provides us with a unique ability to forecast the future. A history of growth Newsec is the result of a unique history of growth, characterised by constant originality of thinking. The first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001.
44
The Group expanded internationally into Finland in 2001, Norway in 2005, the Baltic countries in 2009 and Denmark in 2016. The Norwegian asset and property management companies First Newsec Asset Management and TM Partner were acquired in 2012. In 2013, Newsec acquired Jones Lang LaSalle’s Swedish property management operation. In 2017, Newsec grew with the acquisitions of Norwegian Basale and Danish Datea, further strengthening the position within Property Asset Management. In 2018, Newsec opened a London office to assist international investors interested in the Nordic and Baltic region. Newsec was founded in 1994 and is today a partner-owned company with some 2,000 co-workers, spread
across the seven Nordic and Baltic countries. Newsec has approx. EUR 60 billion under management and annually signs lease agreements of approx. 1 million square meters, transactions of some EUR 5 billion and does real estate valuations with an underlying property value worth almost EUR 175 billion. Thanks to large volumes and local presence combined with in-depth understanding of a range of businesses, Newsec has a unique expertise of the real estate market in northern Europe.
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
NEWSEC’S ANALYSIS PRODUCTS ●
NEWSEC’S MARKET REPORTS
REQUEST ANY REPORT IN ENGLISH adam.tyrcha@newsec.se
Thanks to Newsec’s comprehensive knowledge we are able to offer a number of analyses and segment market reports which provide you with a valuable summary of the property market.
Market Report Residential
Market Report Construction Rights
Market Report Future Growth Markets
Market Report Office
Market Report Logistics
Market Report Projects
Market Report Retail
Market Report Public Properties
Sedis Report
Newsec's Transaction List
Valueguard
Market Report Nordic Market
Access Newsec’s market report portal here: https://www.marknadsrapporter.se/store
45
● CONTACT AND ADDRESSES NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
CONTACT AND ADDRESSES Sweden
Norway
Finland
Lithuania
info@newsec.se
info@newsec.no
info@newsec.fi
info@newsec.lt
Stockholm Stureplan 3 P.O. Box 7795 SE-103 96 Stockholm, Sweden Tel: +46 8 454 40 00
Oslo Filipstad Brygge 1 P.B. 1800 Vika NO-0123 Oslo, Norway Tel: +47 23 00 31 00
Helsinki Mannerheiminaukio 1 A P.O. Box 52 FI-00101 Helsinki, Finland Tel: +358 207 420 400
Vilnius Konstitucijos ave. 21C, Quadrum North, 8th floor LT-08130 Vilnius, Lithuania Tel: +370 5 252 6444
Stockholm Humlegårdsgatan 14 P.O. Box 5365 SE-102 49 Stockholm, Sweden Tel: +46 8 55 80 50 00
Trondheim Beddingen 10 NO-7042 Trondheim Norway
Tampere Aleksanterinkatu 32 B FI-331 00 Tampere, Finland Tel: +358 207 420 400
United Kingdom
Gothenburg Sankt Eriksgatan 5 P.O. Box 11405 SE-404 29 Göteborg, Sweden Tel: +46 31 721 30 00
Denmark
Gothenburg Kungsportsavenyn 33, 5 tr SE-411 36 Göteborg, Sweden Tel: +46 31 733 86 00 Öresund Office Davidshallsgatan 16 SE-211 45 Malmö, Sweden Tel: +46 40 631 13 00
Newsec Advisory in Denmark info@newsec.dk Copenhagen Silkegade 8 1113 Copenhagen Tel: +45 33 14 50 70 Aarhus Skanderborgvej 277, 1. sal, blok 1 8260 Viby J Tel: +45 87 31 50 70 Newsec Property Asset Management in Denmark pam@newsec.dk +45 26 01 02 Lyngby Lyngby Hovedgade 4 2800 Kgs. Lyngby Aarhus Viby Ringvej 2B, #. 8260 Viby J Næstved Ringstedgade 24, 1.tv 4700 Næstved
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Turku Yliopistonkatu 16 C FI-20100 Turku Finland Tel: +358 207 420 400
Estonia info@newsec.ee
Tallinn Roseni av. 7 EE-10111 Tallinn, Estonia Tel: +372 664 5090
Latvia info@newsec.lv
Riga Vilandes av. 1–16 LV -1010 Riga Latvia Tel: +371 6750 84 00
London The Clubhouse 50 Grosvenor Hill W1K 3QT London
NEWSEC PROPERTY OUTLOOK • AUTUMN 2020
EXECUTIVE SUMMARY ●
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THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE