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The Swedish Property Market
THE SWEDISH PROPERTY MARKET DESPITE COVID-19 – NEW RECORDS ON THE SWEDISH TRANSACTION MARKET
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 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
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,
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.
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.
SMALLER DEAL SIZE
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.
