Newsec Property Outlook, spring 2020

NEWSEC PROPERTY OUTLOOK SPRING 2020

NEWSEC PROPERTY OUTLOOK

INCREASED ALLOCATION TO REAL ESTATE INVESTMENTS The property market in Northern Europe has seen a sharp increase in both capacity and activity in recent years and is now one of the most liquid and active markets, not only in Europe but the entire world. Over the last ten years the transaction volume has doubled from EUR 20 billion to 40, where it has been stable for a few years now. In this edition of the Newsec Property Outlook, we leverage our substantial expertise and experience to map out the future of the Northern European real estate market.

Let me just emphasize that no one is better positioned than Newsec to do so. As the largest real estate player in Northern Europe we have access to an unparalleled amount of data. And yes, I may be biased, so I’ll let the numbers speak for themselves. Newsec has EUR 60 billion under management and annually signs lease agreements of 1 million square meters, manages transactions of EUR 5 billion and carries out real estate valuations of underlying property worth EUR 175 billion.

in popularity among all kinds of investors. For instance, we have observed a noticeable increase in the percentage of capital allocation towards real estate compared to other investments amongst the largest public and private pension funds that invest in the Nordics and Baltics.

We see a continued favourable climate for real estate investments and believe the increased capital allocation will persist in this low-interest environment where there’s not many alternatives available in the hunt for return on investment. I believe it is important to have different types of investors in the market as they bring different perspectives and that makes for a good dynamic. Both the short-term and long-term perspective is equally important in urban development. Regardless of the horizon I believe the market flourishes through committed and engaged investors, that understand the importance of active property asset management.

With that I wish you an interesting read!

Over the 30 or so years that I have been working in the real estate industry we have seen much more international capital flowing into the Nordic and Baltic region. Last year international investors accounted for 31 per cent of the total transaction volume in Northern Europe. Real estate, traditionally described as an alternative investment class, has seen a steady increase

Max Barclay, Head of Newsec Advisory

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CONTENTS Property markets for ever?......................................................................................... 7 Back to the Future: What’s Next for Real Estate?...................................... 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 real estate prospects ............................................................................ 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: Getty Images

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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.

NEWSEC PROPERTY OUTLOOK • SPRING 2020

PROPERTY MARKETS FOR EVER? ●

PROPERTY MARKETS FOR EVER? Klas Eklund, Senior Economist, Mannheimer Swartling

A year ago, the global outlook was bleak. All regions were slowing down and geopolitical uncertainty was on the rise.

But central banks saved the day. New monetary expansion put a cushion under most economies, and over the past few months, signs of a trough and possible upturn have been visible. Property markets have continued to climb, in the Nordic countries as well as worldwide. Yet there are uncertainties: Is there a risk of new bubbles? And what will the effects of the Corona virus be? However, rates remaining low for long will constitute a strong force which will continue to support property markets.

Global economy bottoming out In the autumn of 2019 and the beginning of 2020, most economic forecasters lowered their global growth forecasts for 2020. But none projected an outright recession. The consensus has rather been that the global economy would gradually start to pick up by the end of 2020, albeit slowly.

One important reason is the renewed strong expansionary policy from big central banks.

In 2019, first the Federal Reserve and then a number of other central banks cut their key rates and increased the size of their liquidity injections. The ECB even launched an open-ended new phase of quantitative easing – the liquidity injections were to continue as long as needed. Given that the ECB’s own inflation forecast says inflation will remain below target for another two years at least, that means aggressive easing for the foreseeable

future. As a result, market rates fell to record-low levels. After recession fears receded, they rose slightly but remain historically low.

In the US, GDP growth has gradually slowed to around 2 per cent. Not bad, after the longest expansion in American history. Unemployment is now the lowest for over half a century.

But it must be conceded that the expansion has been supported not only

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● PROPERTY MARKETS FOR EVER? NEWSEC PROPERTY OUTLOOK • SPRING 2020

»The consensus has been that the global economy will gradually start to pick up by the end of 2020, albeit slowly«

by monetary policy, but also by a very loose fiscal stance, resulting in a large government debt.

The Eurozone is stagnating, with German manufacturing in recession.

The automotive industry is struggling with the effects of the trade war and new environmental regulations. Japan is suffering from zero growth, with zero rates and booming debt. Inflation has been low in most places, although China has experienced temporary bouts of pork price hikes.

Risks That was the situation in January, when the Corona virus struck. So far, the virus has been mainly confined to China, but it is still too early to put specific numbers to the economic effects. What is clear, though, is that Chinese growth during H1 2020 will take a hit. The quarterly numbers will probably look abysmal. Since China is the shop-floor of the world as well as the largest consumer market, global supply chains will be negatively affected. Several neighbor countries will also suffer, but direct effects on Europe and the US will be small.

Production may rebound during H2, unless virus contagion will continue to spread outside China. But at the time of writing, it is impossible to quantify such effects.

Other geopolitical risks are, of course, also present. The first step in the Brexit process has been taken, and in that sense, uncertainty has diminished.

However, the negotiations over the future trade agreement are likely to be messy. There are obvious conflicts between the UK position on the one hand, and the EU’s unwillingness to allow the UK to cherry-pick. The UK also wants a special relation with the

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US, but American and European regulations and standards differ, which may cause problems. The American presidential election may cause even stronger polarization with accusations of a rigged outcome. Should President Trump be elected for a second term, we may well see a further dismantling of the global governance system.

The trade war may seem as though it has been put on hold, courtesy of the “First phase” agreement between the US and China. However, from an economic point of view the deal is a disaster. Bilateral talks are disrupting the multilateral global trade system; China will not be able to reach the import targets without blows to other exporters; and the impasse in the tariff war is less important than the strong escalation of the technological rivalry over 5G standards and the development of AI. A “decoupling” of standards is taking place, breaking up global supply chains and putting pressure on European companies to pick sides. As a result, productivity will suffer.

Low inflation, low rates – and booming real estate Unemployment has fallen in most Western countries. However, wages and inflation have not responded.

The old inverted relation between unemployment and inflation – the Phillips curve – has turned flat. This could be because of a number of structural supply shocks – globalization, digitalization, weakening unions – which have made inflation permanently low; or it could be that these shocks are temporary, and that further demand stimulus actually would revive inflation. Here, the jury is still out. But most, if not all, forecasters now believe that low inflation will

persist, at least for the foreseeable future.

Financial markets obviously are believers. Bond yields, both real and nominal, are historically low. As a result, the past year has been good to stocks and real estate. With stock market valuations starting to look stretched, asset managers have loaded up on property, and real estate is now the world economy’s biggest asset class. Property prices have picked up again.

This is what we should expect in a low-inflation, low-rate environment.

And most strategists have interpreted recent moves from central bankers as though monetary policy will remain expansionary for a long time. Should any recessionary threats arise, e.g from the Corona virus, they expect key rates to be lowered even more.

That could indeed happen. But low or negative interest rates are not very effective as a weapon against supply side shocks. The main tool used for stabilisation thus remains fiscal policy.

Here, the US and Japan have been pushing the envelope; and as long as rates are low, rising government debt does not seem to be a problem. The Eurozone – in particular, Germany – is, however, much more hesitant to really use fiscal stimulus. Europe will continue to be parsimonious.

After so many years of record-low rates and booming markets, a word of caution from the grumpy economist is in order. Markets are hooked on cheap money. The hunt for yield in an environment of low returns may once again cause asset bubbles. At the same time, central banks are gradually moving from strict inflation-targeting

NEWSEC PROPERTY OUTLOOK • SPRING 2020

PROPERTY MARKETS FOR EVER? ●

Photo: Shutterstock

»Unemployment has fallen in most Western countries.

However, wages and inflation have not responded.

The old inverted relation between unemployment and inflation – the Phillips curve – has turned flat«

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● PROPERTY MARKETS FOR EVER? NEWSEC PROPERTY OUTLOOK • SPRING 2020

»A word of caution from the grumpy economist is in order. Markets are hooked on cheap money.

The hunt for yield in an environment of low returns may once again cause asset bubbles«

to a broader interpretation of their goals. So, even if the risk of tighter monetary policy and bursting bubbles is low, it certainly is not zero.

The Nordics are doing rather well …

As usual, Norway is the best-performing economy in the Nordic region.

Petroleum investment is pushing total GDP (including the oil and gas sector) towards a growth rate of above 3 per cent this year. The mainland economy, however, is slowing, and growth in

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2020 will remain around 2 per cent.

Expectations are for investments in the petroleum sector to gradually soften, which will also have repercussions for the mainland. Thus, both these GDP measures will slow down over the course of this year and 2021.

Unemployment is low, and disposable income has grown. Nonetheless, households have remained cautious, and the savings ratio has risen. A strong domestic economy plus rising

imported inflation (because of a weak currency) has made Norwegian inflation the highest in the Nordic region; it remains slightly above target.

This caused Norges Bank to hike its key rate last year – it is now clearly the highest among the neighboring countries. Mortgage rates rose. Still, home prices increased, while the rental market also benefited from the sound macro fundamentals. Demand for property is strong. The benign macro situation will persist this year,

NEWSEC PROPERTY OUTLOOK • SPRING 2020

PROPERTY MARKETS FOR EVER? ●

»Even though the Nordic countries differ in several respects, the area as a whole is performing decently, and property markets will be strong in all countries for the remainder of 2020«

resulting in another good year for property.

prices while holding back the transaction volume.

The Danish economy also looks fundamentally sound. GDP growth is hovering around 2 per cent, slowing gently. Inflation is low, and because of the fixed-currency regime, the Danish central bank is carrying out an ultra-loose monetary policy with negative rates. Danish banks are actually charging negative interest rates on large household deposits. Employment growth has been fairly strong, but inflation remains far below target.

… but Sweden’s macro performance is worst in class Economically, Sweden is the worst performer in the Nordic area. In 2019, growth slowed to a paltry 1,1 percent (meaning just about zero growth per capita). The trough of the downturn is expected this year, which means that the annual growth rate will be as low as last year, not visibly moving up until 2021.

In this situation of easy money, mortgage rates fell last year. That also freed up liquidity for consumers, who could refinance into cheaper loans.

The combination of low rates and strong liquidity is supporting the property market. Consequently, strong transaction volumes are expected to persist.

Finland is a member of the Eurozone and largely follows the economic trends in the monetary union, Germany being its most important trading partner. Economic growth is around 1.5 per cent, gradually slowing down.

Manufacturing is gloomy, and investments are weak. Unemployment is high compared to Norway and Denmark, and sentiment among households has deteriorated. A government crisis at the end of 2019 was resolved, and the new government will probably re-establish political stability.

Inflation is below target, and since Finland is part of the EMU, the ECB’s loose monetary policy will also remain in place and affect the Finnish market.

Low rates support the property markets. Lack of supply is pushing up

Swedish manufacturing and exports have been negatively affected by the European slowdown. Sentiment indicators point to continued weakness in industry, while domestic sectors such as retail and construction show signs of stabilisation. Construction is particularly important, since it has large “multiplier effects” on the rest of the economy. Household consumption weakened in 2019 but is expected to gradually recover as disposable income rises.

The labour market has cooled. Un­ employment is rising. At 7 per cent, it is the highest among the Nordic countries, and actually one of the highest in Europe – somewhat surprising, given Sweden’s traditionally strong showing in this area, and the government’s pledge that Sweden this year would have Europe’s lowest unemployment rate. One reason is poor integration of new immigrants.

but the market interpretation was that the side effects of negative rates were getting worse. Consequently, the Riksbank does not want to move back into negative territory. This means that now that the zero rate has been reintroduced, it will probably remain in place for the remainder of this year, and probably also most of 2021.

In this environment, the property market is thriving. Construction is recovering. House prices have recovered what they lost two years ago. Transaction volumes have risen sharply. Lack of supply will continue to hold up prices. The coalition government has stated it wants to loosen rent control, but political tensions and waning popular support makes this unlikely.

All in all, even though the Nordic countries differ in several respects, the area as a whole is performing decently, and property markets will be strong in all countries for the remainder of 2020.

Inflation is clearly below the Riksbank target of 2 per cent and is likely to remain there. Even so, the central bank is not expected to cut its repo rate. After five years of negative rates, it hiked to zero by year-end. The reasons given were somewhat vague,

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● BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? NEWSEC PROPERTY OUTLOOK • SPRING 2020

BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? Real estate in the Nordics and Baltics has been booming, with record volumes being achieved in Sweden, as well as in the Nordics as a whole. In the past five years, transaction volumes of over EUR 40 billion have been achieved every year in the Nordics, and the average total return for real estate across the regions has been above 10 per cent in each of these years. At the same time, macroeconomic indications are weakening, and appear to indicate that things will get worse before they get better. Should we be worried about the future of real estate? In this edition of the Newsec Property Outlook, Newsec makes use of our substantial expertise and experience of the real estate industry to map out the future for Nordic and Baltic property markets.

The macroeconomy looks uncertain 2020 has so far been marked by cautiously rising stock markets, and mostly stagnant interest rates, with signals from central banks worldwide indicating further increases in the key interest rates are highly unlikely.

Global trade growth has decelerated and there is international uncertainty regarding the state of the global economy. The spread of the coronavirus, as well as the prospect of intensified trade and military conflicts between major countries remain a worry, and political uncertainty resulting from the Brexit negotiations persists.

Europe has been affected by the uncertainty, with Germany in particular displaying signs of struggle. In growth terms, fears of a downturn – or at the very least, a slowdown – have become more expressed worldwide. Though

the Nordic and Baltic economies are generally resilient, they are also highly dependent on the global economy, making many worried about the future – not least on the property market.

Indeed, macroeconomic indications are often widely cited in many property contexts, with a particular focus on GDP growth rates – which lately, have not been looking too positive in the Nordics. In Sweden, GDP growth for 2019 was 1.2 per cent, the weakest growth rate since 2012 – and 2020 is expected to be an even weaker year.

The remaining Nordic countries are expected to grow at slightly higher rates, but still below 2 per cent, while the Baltics will see growth rates above 3 per cent, slightly lower than previous years. But the gradually turning economy is setting off alarm bells among

some investors. Should we be worried about the impact that a weakening macroeconomy could have on real estate in the Nordics?

Newsec does not believe that a turning macroeconomy has to be detrimental for property. Graph (1) shows the relationship between transaction volume and GDP growth in the Nordics and Baltics. As can be seen in the figure, with the exception of 2009, the relationship has been relatively weak historically, with clear peaks in transaction volume where GDP growth was relatively low, and vice versa. Higher GDP growth rates do not necessarily appear to correspond to a higher transaction volume.

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1. Transaction Volume and GDP Growth in the Nordics & Baltics 60000 MEUR

6 Per cent

50,000

4

40,000

2

30,000

0

20,000

-2

10,000

-4

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

■ Transaction Volume, millions of EUR, transactions over 4 MEUR (left axis)

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2011

2012 2013 2014 2015 2016

2017 2018 2019

GDP growth, per cent (right axis)

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NEWSEC PROPERTY OUTLOOK • SPRING 2020

BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? ●

»Newsec does not believe that a turning macroeconomy has to be detrimental for property«

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● BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? NEWSEC PROPERTY OUTLOOK • SPRING 2020

» Newsec does not believe that a turning macroeconomy has to be detrimental for property«

Nordic and Baltic Predictions If GDP growth alone is a relatively poor predictor of transaction volumes and the attractiveness of real estate, then what is a strong predictor?

Newsec has conducted extensive historical analysis from 1990 to 2020, analysing the relationships between real estate markets and over thirty other factors, pertaining to the macroeconomy and beyond. By selecting a number of these factors and conducting econometric analysis based on economic forecasts, Newsec can go back to the future and make mathematical predictions based on past historical relationships regarding the future of the transaction market in the Nordics. The model predicts past transaction volumes with 93 per cent accuracy.

In graph (2), a scenario is presented showing the model’s predictions for Nordic transaction volume. The model predicts stable transaction volumes of between EUR 40 and EUR 45 billion over the next five years. However,

using a model to predict the past is relatively easy – but predicting the future tends to be more complex. As a result, by making use of the wide range of experience and expertise available within Newsec, Newsec has adjusted the model’s predictions to more accurately reflect what is likely to transpire in the future. This adjusted model is shown in graph (3).

Newsec forecasts that transaction volumes in the Nordics are likely to vary from year-to-year, though still remain above EUR 40 billion each year.

In 2020, Newsec forecasts a Nordic transaction volume of around EUR 45 billion. However, in 2021, Newsec expects a new record transaction volume of EUR 50 billion – which will be the strongest volume in the next 5-year period. This will be driven by the strong volume that is expected in Sweden, of around EUR 21.5 billion (SEK 225 billion). The record volume is likely to be achieved owing to the persistent low interest rate climate, the increasing amount of capital look-

ing to property to secure high returns, and the likelihood of a number of major M&A transactions.

When breaking the Nordic volume in 2020 and 2021 down by country, the other countries will not have quite as record-breaking years as Sweden, but will still produce strong volumes. In Norway, volumes of between EUR 9 and EUR 10 billion are forecast, falling short of the record volume seen in

List of factors selected

by Newsec to consider in mathematical analysis GDP growth (per cent), population growth, unemploy­ ment rate, building costs, government bond yields, public debt, gross investments and exchange rates. Values and forecasts based on data from Newsec, national statistical databases and public institutions.

2. Mathematical Model Prediction – Nordics & Baltics MEUR 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010

■ Sweden

14

■ Norway

■ Denmark

2011

■ Finland

2012

2013

■ Baltics

2014

2015

2016

2017

2018

2019 2020E 2021E 2022E 2023E 2024E

NEWSEC PROPERTY OUTLOOK • SPRING 2020

BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? ●

» In 2021, Newsec expects a new record transaction volume of EUR 50 billion in the Nordics – which will be the strongest volume in the next 5-year period«

volumes. Finland will produce a volume of EUR 6 billion in both years, in line with the historical average, while the Baltics will outperform the historical average slightly, with volumes of around EUR 1 billion.

2015, but with strong potential to constitute the second strongest year to date for the market. In Denmark, a volume of around EUR 9 billion is expected (DKK 70 billion) in both years, below record levels, but still strong

Nordic market analysis In sum, the other Nordic markets are not likely to be as strong as the Swedish market in 2020 and 2021.

One primary reason is the relative lack of listed property companies, leading to less M&A transactions in the other Nordic countries. Further reasons are more country-specific. In Norway, bonds tend to yield a little higher than in Sweden owing in part to the higher key interest rate, meaning that the opportunity cost of not investing into real estate is not as high. The Finnish economy struggled a little more than its Nordic counterparts over the past decade, which means that investors are a little more hesitant than in other Nordic countries, now that the macroeconomy is starting to waver.

Liquidity is also lacking, with supply insufficient to meet demand for property. In Denmark, too, investor sentiment has been less positive than in Sweden, while weak Nordic currencies have attracted some capital that may otherwise have been invested into Denmark. As investors become more

3. Newsec’s Adjusted Prediction – Nordics & Baltics Volume MEUR 50,000 40,000 30,000 20,000 10,000 0

2005 2006 2007 2008 2009 2010

■ Sweden

■ Norway

■ Denmark

2011

■ Finland

2012

2013

2014

2015

2016

2017

2018

2019 2020E 2021E 2022E 2023E 2024E

■ Baltics

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● BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? NEWSEC PROPERTY OUTLOOK • AUTUMN 2019

acclimatized to the falling yield levels and the low interest rate, investment is likely to increase. In the Baltics, investor sentiments remain strong, and the transaction market reflects this.

New record volumes are expected in Lithuania, Latvia and Estonia, owing to the relatively higher returns that properties in the region can afford.

Looking further to the future, years 2022 and onwards in Sweden are likely to be more in line with the historical average. This is owing to the expected recovery of the macroeconomy, which will make alternative investments more attractive when compared to today. The Norwegian market will also not reach record levels, but

volumes are expected to be stronger than those seen over the past few years, indicating an outperformance of the historical average. In Finland, transaction volumes will continue to remain roughly on the long-term equilibrium level. In Denmark, transaction volumes will exceed the historical average slightly, but much like in

4. Nordic & Baltic Total Return on Property Per cent 16 12 8 4 0 -4 2005 2006 2007 2008 2009

16

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020E 2021E 2022E 2023E 2024E

NEWSEC PROPERTY OUTLOOK • AUTUMN 2019

BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE? ●

» There has been an increase of almost 100 per cent in investment allocation to real estate over the past 15 years, with an increase from an average of 5.8 per cent in 2005 to 10.9 per cent in 2019«

Sweden will be slightly weaker than 2020 and 2021.

5. Average allocation of investments towards property in the Nordics & Baltics Per cent

All in all, Newsec predicts both healthy transaction volumes and a healthy property market. This is displayed in graph (4). Average total returns, although not as strong as in record years (largely dragged down by retail real estate), are set to remain formidable going forward. Though the returns look a little weak compared to the historical average, they are still generally stronger than those on stock, bond, and other alternative markets. Hence, interest in the property market will remain strong.

Investment allocation to real estate is on the rise What does all of this mean? Property is becoming a more popular investment class. In fact, it has been rising steadily in popularity among all kinds of investors. This is evidenced in pension funds’ capital allocation.

Since 2005, we have seen a marked increase in the percentage of capital allocation toward property compared to other investments.

The graph (5) constitutes a comprehensive analysis of capital allocation trends among the thirty largest public and private pension funds that invest into real estate in the Nordics and Baltics. The trend is clear – there has been an increase of almost 100 per cent in investment allocation to real estate over the past 15 years, with an increase from an average of 5.8 per cent in 2005 to 10.9 per cent in 2019.

The largest increase has been noted among Baltic actors (from very low levels), with an increase of around 880 per cent (Estonia being most popular), followed by Swedish actors with an increase of around 165 per cent,

12 10 8 6 4 2 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E

* At the time of writing, not all actors have released their annual reports for 2019, meaning the 2019 figure is subject to change.

Norwegian actors at 70 per cent, Danish actors at 55 per cent, and Finnish actors at 20 per cent. While investors in individual countries differ in their preferences (the laws & regulations that they must abide by also differ), and the results are influenced to varying degrees by the relative increase in property value over time, the overall trend is clear. Investor appetite for real estate has risen over time – and Newsec forecasts that this will continue for the foreseeable future.

The future outlook Newsec’s analysis indicates that investors should not let themselves be swayed by individual macroeconomic factors when making investment decisions. Instead, they should base their decisions on the overall merits and demerits of investing in the property market. Property remains the high-yielding, low risk investment of choice for investors, and Newsec forecasts a strong transaction volume of EUR 45 billion for 2020 in the Nordics, and a record transaction

volume of EUR 50 billion in 2021, despite a somewhat shakier macro­ economy.

There is a lot of potential for investors looking to invest into property in the Nordics and Baltics. Are you interested in more in-depth analysis of this kind, or do you need help in finding the right asset or market to invest into?

Newsec is the leading commercial real estate advisor and first port of call for investors in the Nordics.

Ulrika Lindmark ulrika.lindmark@newsec.se Adam Tyrcha, PhD adam.tyrcha@newsec.se

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● THE SWEDISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE SWEDISH PROPERTY MARKET THE STRONGEST TRANSACTION YEAR OF ALL-TIME – BY FAR Though the Swedish economy may be struggling a little, the Swedish real estate market is most certainly not.

2019 saw a record transaction volume of SEK 218 billion – the strongest year of all-time, by far. The previous record year, 2016, had seen a transaction volume of SEK 201 billion, which was eclipsed by almost 10 per cent. As in previous years, average deal sizes continued to rise, with the average deal now being close to SEK 500 million. A number of major M&A transactions as well as major portfolio purchases resulted in a record 42 deals over SEK 1 billion, which drove the rise in the size of the average deal.

However, despite this rise, the number of deals over SEK 40 million also rose when compared to 2018, from 433 to 448. Both international and domestic

interest in real estate appears to be at a post-crisis high, as the property market continues to be the high-yielding, low risk choice for all kinds of investors. In 2020, a strong transaction volume of around SEK 200 billion is expected, while in 2021, the market is expected to reach new record highs.

Contact: Alexandra Lövgren alexandra.lovgren@newsec.se Adam Tyrcha, PhD adam.tyrcha@newsec.se

Photo: Serneke

2019 was a relatively weak year for the Swedish economy, with a GDP growth rate of around 1.2 per cent. Despite a slowdown in the economy, the Swedish Riksbank deemed that Sweden was close enough to reaching the inflation goal of 2.0 per cent to warrant an increase in the key interest rate, which resulted in this being increased from -0.25 per cent to 0 per cent just before Christmas. This means that Sweden now does not have a negative key interest rate for the first time since 2015. The SEK strengthened a little as a result, but remains a weakly performing currency. Going into 2020, GDP growth of 0.9 per cent is expected. Further, the economy is expected to continue to grow at a low, but stable rate in the coming years and a recession is deemed highly unlikely.

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NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE SWEDISH PROPERTY MARKET ●

» 2019 saw a record transaction volume of SEK 218 billion – the strongest year of all-time«

Interesting trends on the Swedish property market in 2019 and 2020:

RESIDENTIAL RETAINS ITS CROWN

RETAIL SLUMPS

The residential segment remained the most popular segment for the third year running in 2019, accounting for a 32 per cent share of transaction volume. The strength of residential was primarily driven

by Vonovia’s purchase of 61.19 per cent of the shares in residential giant Hembla for SEK 32.7 billion, the largest transaction of the year.

Amasten’s purchase of Urbano for SEK 3 billion, as well as a number of portfolio purchases also contributed to the strength of residential.

Nevertheless, the office segment was also strong in 2019, retaining its second place at 24 per cent of transaction volume, the strongest share taken by offices since 2016.

The strength of offices was not driven by any individual transaction, but rather a number of major purchases, with 17 office purchases over SEK 1 billion in 2019.

Though retail is far from a fullblown crisis, interest in the segment has weakened. Retail accounted for just 6 per cent of the total transaction volume in 2019 – the lowest level since 2003.

Nevertheless, prime retail rents have continued to rise, and it is primarily the poor retail – in worse locations, with limited catchment areas and with lower adaptability to other uses – that is struggling.

Strong shopping centres and outof-town retail remain attractive, and should properties of this kind be put up for sale, they are likely to attract considerable interest.

Furthermore, the strength of logistics is in many ways driven by the strong growth of e-commerce, meaning the retail segment is likely to remain integral to society, and thus also real estate, in the future.

PUBLIC PROPERTIES JUMP INTO THIRD PLACE The public properties segment experienced its strongest year of all time in 2019, accounting for over 18 per cent of transaction volume. The segment’s strength was primarily driven by SBB’s purchase of Hemfosa (with SEK 39.8 billion in assets, of which SEK 27.4 are in Sweden). However, there were 64 transactions over SEK 40 million involving public properties in 2019, indicating the segment’s wide popularity. Logistics, meanwhile, dropped into fourth place, but still produced one of its strongest volumes of all time at SEK

SEK 218 BILLION

2019 transaction volume

166,000 SQM

Office stock expected to be added to the Stockholm market in 2020

THE RETAIL SEGMENT

dropped to just 6 per cent of transaction volume in 2019

33 billion, taking 15 per cent of trans­action volume. It is likely that logistics will continue to rise in popularity over time.

FOREIGN INVESTMENT AT A POST-CRISIS PEAK

Accounting for 30 per cent of transaction volume in 2019, foreign investment reached the highest levels seen since 2007. Foreign investors of various origins remain highly interested in the Swedish property market, with multiple purchases for over SEK 1 billion being made by American, British, German and Korean purchasers, while Nordic investors also remained active.

OFFICE CONSTRUCTION IS AT RECORD LEVELS – WITH MORE TO COME 2019 saw approximately 154,000 sq m being added to the Stockholm office stock, which is the largest amount of new stock since 2003. In 2020, even more stock is expected to be added, at 166,000 sqm, and the years that follow are expected to be as strong or even stronger. In Gothenburg, too, the office sector is booming, and large amounts of new stock are expected to be completed in the coming years, coinciding with the city’s quadricentennial jubilee. Despite this, net take-up remains strong across Sweden, and office vacancy rates are low.

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● THE NORWEGIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE NORWEGIAN PROPERTY MARKET

Photo: Shutterstock

ANOTHER STRONG TRANSACTION YEAR IN NORWAY

The Norwegian economy continues to grow at a steady pace, with a GDP growth rate of around 2 per cent in 2019. Unemployment and employment figures are strong, core inflation is keeping pace, and following interest rate hikes in March, June and September 2019, the prospect of further interest rate increases is limited. Though signs of volatility on the oil market could impact Norwegian growth, all in all, the Norwegian economy is expected to grow at a stronger rate than the other Nordic countries in the coming years. Newsec also believes that the turmoil that has characterized the stock market in recent times will persist and the long stable cash flows offered by the real estate market will tempt more investors. There is a lot of capital, there is a lot of equity, and the banks are willing to lend, which bodes well for the real estate market.

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2019 was yet another good year for Norwegian commercial property. In total, commercial real estate was sold for NOK 100 billion, spread across 286 transactions. The rental market has and will continue to benefit from a strong economy in 2020. Newsec believes that office vacancies will continue to fall in Oslo and remain stable in the other major cities. Rental levels will continue to rise, especially in Oslo and centrally in Trondheim. However, recently, rental growth projections have fallen somewhat, and Newsec expects a lower growth rate over time, in line with the weaker economic outlook for 2021 and 2022. Nevertheless, strong fundamentals and a strong demand for real estate lead Newsec to believe that the transaction volume will be in line with 2019, with an expected volume of NOK 100 billion in 2020.

In addition to developments in terms of yields and rents, Newsec is seeing a substantial trend shift across all segments. History can no longer be used to predict the future. One must think both innovatively and differently, because user needs are changing across the office, retail, logistics and hotel markets. The changes that occur over the next 10 years will probably be greater than those seen over the past 100 years.

Contact:

Øyvind Johan Dahl, ojd@newsec.no

NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE NORWEGIAN PROPERTY MARKET ●

» There is a lot of capital, there is a lot of equity, and the banks are willing to lend, which bodes well for the real estate market«

Interesting trends on the Norwegian property market in 2019 and 2020:

SYNDICATES ACCOUNTED FOR 31 PER CENT OF TRANSACTION VOLUME IN 2019 Considering that the new Alternative Investment Fund Act was not adopted until Q3 2019, after which considerable time had to be spent on adapting to new regulations, syndicates accounting for 31 per cent of transaction volume constitutes3,75% a very strong result. Syndicates purchased properties for three times as much as they sold for, with primarily offices and logistics being traded. Furthermore, it is interesting to note that life insurance companies have shifted firmly over to the buy-side once again. In 2019, they bought offices and logistics while selling off retail.

FOREIGNERS ARE NET SELLERS Unlike syndicates and life insurance companies, foreigners in general were net sellers in 2019.

Foreign investment peaked in 2014 and pushed yields downwards in central areas for the first few years.

How­ever, 2018 was the first year in which foreigners were net sellers, which has intensified in 2019.

Norway has simply become too expensive when considering the hedging costs foreign investors must pay.

well-informed investors will find opportunities in overlooked areas.

NOK 100 BILLION

2019 transaction volume

31%

SYNDICATES

accounted for 31 per cent of transaction volume in 2019

OFFICE PRIME YIELDS

MIXED DEMAND ACROSS THE COUNTRY In Oslo and Bergen, newer buildings in proximity to major roads and railways are in high demand. In Oslo, we see this demand pushing prices up west. In Stavanger, construction is strengthening as oil prices surge, but improved absorption of existing land means that particularly strong impacts have not been seen yet.

However, rental levels in central Stavanger are on the rise. Prime yields remain at 3.75 per cent for the most attractive office properties in Oslo, which means that investors are looking for higher returns in secondary cities such as Bergen, Trondheim, Stavanger and Tromsø.

remain at 3.75%

NOMINAL VALUES FOR OFFICES IN OSLO CBD HAVE DOUBLED SINCE 2013 The value increase in commercial real estate has been formidable over the last 6–7 years, with an acceleration in both yield compression and rental growth. Looking at developments in rents over the last few years in Oslo, the CBD has performed the strongest, with nominal values for offices doubling since 2013. Many other central areas have also seen strong growth. However,

THE SEARCH FOR RETURNS CONTINUES Expectations of increased rental levels also mean that more properties are shifting hands in search of increased returns when renegotiating contracts. Newsec has also noted a continued willingness to buy housing, although house prices generally appear to be stabilizing.

Areas outside of Oslo with strong population growth are seeing particularly high demand, as these are now more stable than the Oslo market.

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● THE DANISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE DANISH PROPERTY MARKET THE TRANSACTION MARKET REMAINS HEALTHY

The Danish real estate market in general came off to a slow start in 2019, which turned into a sprint with many large transactions in the fourth quarter. Interest rates did not rise as was initially forecast, and the low interest climate is now instead expected to persist over the coming years. This, together with plenty of liquidity in the market, catalyzed the transaction volume in the second half of 2019. The last quarter saw a strong volume of around DKK 21 billion, with the total volume exceeding DKK 55 billon. Despite DKK 55 billion being a decrease compared to 2018’s level of DKK 74 billion, the level is still high and the hesitation at the beginning of the year can be seen as a sign of a healthy market, where investors critically question the risk-inducing elements.

In a market characterized by a high degree of capital allocation towards real estate investment, all else being equal, the volume of transactions is

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Photo: Shutterstock

2019 was a reasonably strong year for the Danish economy, with a growth rate of around 2.0 per cent. In September, the key deposit rate was lowered by ten basis points to -0.75 per cent, following a move by the European Central Bank to lower rates. Despite this, Danish fundamentals remain strong, although the currency peg to the euro has become increasingly difficult to maintain. 2019 was also a year in which a lot of political debate related to the residential property market occurred. The debate was mainly related to the rental level in Copenhagen and the different factors impacting this, such as the renovation option in paragraph 5.2 of the Rental Regulation Act. This has impacted the real estate market, causing a drop in the transaction volume of the older stock equal to around 70 per cent.

expected to be high. The challenge, however, is that sellers have limited alternative investment opportunities, which inflates seller expectations and causes yield compression on the market. Nevertheless, a strong transac-

tion volume of around DKK 65 billion is expected in 2020.

Contact: Niels Juul Belling niels.belling@newsec.dk

NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE DANISH PROPERTY MARKET ●

» Sellers have limited alternative investment opportunities, which inflates seller expectations and causes yield compression on the market«

Interesting trends on the Danish property market in 2019 and 2020:

SWEDISH INVESTORS ARE PARTICULARLY INTERESTED IN DENMARK Foreign investors accounted for approximately 50 per cent of the transaction volume in 2019.

Swedish investors accounted for almost half of this, equating to around 25 per cent of total volume.

The foreign investors who allocated most money toward Danish properties are KLP, Niam, CapMan, Folksam and Klövern. 92 per cent of the transactions involving foreign investors occurred in the Greater Copenhagen area.

RETAIL PROPERTIES FACE CHALLENGES The retail market is facing significant challenges. This can be seen in an increasing vacancy rate, going from 5.38 per cent in 2018 to 6.31 per cent in 2019 on the national level. The transaction volume dropped from DKK 8.6 billion to approximately DKK 5.0 billion, which is a decrease of 42 per cent.

In 2018, retail properties accounted for 11 per cent of the transaction volume, which dropped to 9 per cent in 2019. The decreasing demand from investors can be explained by low yield levels, especially in light of the structural development of the sector, where e-commerce is increasingly winning market share.

This has increased the uncertainty in relation to the market rent and

OFFICES ARE HIGHLY DEMANDED

BY INVESTORS

DKK 55 BILLION

2019 transaction volume

25%

SWEDISH INVESTORS

accounted for around 25 per cent of transaction volume

The office market accounted for approximately 29 per cent of the transaction volume in 2019, corresponding to DKK 16 billion. In 2018 the office market accounted for a market share corresponding to 24 per cent. Office properties have become more demanded by 78 per cent of the traded 55 %investors. office volume is in the Copenhagen area, and 13 per cent in Greater Copenhagen, which clearly underlines that the office transaction market is largely concentrated to the capital city region. The office buildings being traded often have long leases and are in prime locations. Yields as low as 3.5 per cent have been observed.

LONG LEASES ARE BECOMING MORE IMPORTANT

THE OFFICE MARKET

accounted for around 29 per cent of transaction volume

vacancy risk. This is expected to lead to higher yield requirements, which can already be observed on the market.

There is growing interest in office properties with long leases and a strong tenant. This indicates that investors are increasingly focusing on the lease contract that is acquired, rather than necessarily focusing on the physical asset. The same can be seen in the industrial and logistics market where we increasingly see sale & leaseback transactions with triple-net leases, where the risk to the investor during the contract period is limited.

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● THE FINNISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE FINNISH PROPERTY MARKET NO RECORDS BROKEN – BUT THE TRANSACTION MARKET REMAINS SOLID concerning the handling of a postal strike. The new cabinet has come off to a strong start and political stability is expected until the next election in 2023.

The Finnish real estate market saw a volume of EUR 6.3 billion in 2019, which is weaker than the EUR 9.2 billion volume seen in 2018. Due to the higher yields and a more stable operational environment compared to other investment products, the property market remains an appealing investment sector. However, supply is not keeping up with demand. Low interest rates are encouraging investors to further increase the share of property investments in relation to other asset

classes in their portfolios, which is pushing certain kind of investors to buy rather than sell. The disparity between supply and demand is pushing the transaction volume down from record highs, towards the long-term average. Newsec does not expect the billion-euro platform transactions that boosted volumes in previous years to occur on the same scale going forward, meaning a volume of around EUR 6 billion can be expected in 2020.

Contact: Olli-Pekka Mustonen olli-pekka.mustonen@newsec.fi

Photo: Shutterstock

2019 saw the Finnish economy grow by 1.6 per cent, which is a growth rate that is a little weaker than in previous years, but still relatively solid. The forecast for the Finnish economy remains relatively strong, though growth rates will drop to the 1 per cent level in the coming years. Finland attracted the interest of the global media in December as the former prime minister, Antti Rinne, resigned, paving the way for Sanna Marin, who at 34-years old is now the youngest serving prime minister in the world.

The resignation came as a result of a political crisis in the coalition government, with the Centre Party temporarily withdrawing its support for the government due to controversies

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NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE FINNISH PROPERTY MARKET ●

»The disparity between supply and demand is pushing the transaction volume down from record highs, towards the long-term average«

Interesting trends on the Finnish property market in 2019 and 2020:

RECORD HIGH RENTS FOR OFFICES

DEMAND FOR LOGISTICS PROPERTIES

Demand for office premises is strong in Helsinki city centre and rental levels for good premises, which are already at a record high, are expected to increase even further. Occupancy in good offices in the city centre is relatively high, and supply is scant among modern office premises. The rate of production of new offices in other significant office submarkets, such as Kalasatama and Pasila, is not sufficient to have an impact on the city centre's position and rent level.

Anyone wanting an office in the prime location of the capital must be willing to pay for it.

There is strong demand for small and medium-sized premises in the logistics occupier market. However, investors lack the courage to build multi-tenant properties, and there is little speculative construction. At the same time, third-party logistics operators in particular cannot commit to long leases because of their clients, causing lease periods to shorten considerably. Major logistics players can, however, also sign longer leases because they have already established their position in the market. The logistics prime yield has dropped in Finland, almost reaching the level of the rest of the Nordic countries, which is close to 5 per cent.

A CHANGING ROLE FOR OFFICES The criteria used by tenants when selecting office premises have changed. Offices are more often seen as a recruitment tool, with companies competing for the best and most talented employees.

Intelligent work environments, or ‘smart offices’, and healthy indoor environment certificates are much talked about but are not yet visible in the market. Coworking solutions are still seeking their place in Finland. Coworking properties are currently located near city centres, but users are also interested in spaces located in residential areas outside the centre. Some shopping centres outside city centres already offer or will offer coworking spaces.

MAJOR REGIONAL DIFFERENCES IN THE RETAIL PROPERTY SECTOR The competition between retail properties for attracting tenants

EUR 6.3 BILLION 2019 transaction volume

THE LOGISTICS PRIME YIELD has dropped to close to 5 per cent

GDP GROWTH

1.6 per cent in 2019

intensified further in the Helsinki Metropolitan Area when the Mall of Tripla opened in Pasila in October 2019. The growing competition and the omni-channel retail have increased pressures to lower rents in the Helsinki Metropolitan Area.

Investors are very selective when it comes to shopping centres, and shopping centre management necessitates a very active approach.

There are considerable variations within the sector, however; grocery retail properties remain an attractive investment, whereas investment demand is weaker for shopping centres that are more challenging in terms of location or the services on offer.

ALTERNATIVE AREAS ATTRACT TENANTS Areas outside the Helsinki city centre with improved or developing public transport infrastructure are attracting investors because yields are higher there compared to city centre properties. The office submarkets in Keilaniemi and Leppävaara, for example, were very active last year. In addition to the Helsinki Metropolitan Area, property investors are interested in university cities. This applies to both domestic investors and a growing number of international investors. The meagre supply of good properties is a hindrance in these areas. Transaction volumes in university cities are expected to decrease due to the small number of large-scale portfolio transactions and the scarcity of high-quality individual properties.

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● THE ESTONIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE ESTONIAN PROPERTY MARKET SOLID ECONOMIC GROWTH WILL SUPPORT INVESTMENT The Estonian economy continues to grow and the country remains one of the most rapidly developing in the European Union. In 2019, Estonia’s GDP grew the most among the Baltic countries, at around 4.1 per cent. Con-

sumption is forecast to grow further, influenced by rising employment and wage growth of nearly 8 per cent.

The information and communication technologies sector has long been the biggest driver of the country’s

economic growth. Newsec believes Tallinn will manage to maintain its strong position, though its neighbouring country competitors Latvia and Lithuania are inching closer owing to widespread technology innovations.

The real estate investment market in Estonia underwent a slowdown in 2019, with the total amount invested failing to reach EUR 100 million, though demand for attractive assets persisted on the market. Prime office yields compressed to 6.0 per cent, retail and industrial yields to 6.5 per cent and 7.5 per cent respectively. The office segment in Tallinn is still the largest and most balanced among the Baltic capitals. As supply in the market is growing more slowly and the level of vacancies remains stable, both developers and tenants are preparing for a new intense round of expansion. Once the A class office buildings that are underway are completed, local developers will give more attention to the development of B class office projects, expanding the office complexes and multifunctional properties that are already successfully operating and in demand in the centre of the city.

Photo: Shutterstock

Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

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NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE ESTONIAN PROPERTY MARKET ●

» This year, Estonia is on track to significantly outdo its performance in the last several years as total investment transactions may triple compared to 2019«

Interesting trends on the Estonian investment property market in 2019 and 2020:

A LARGE SUPPLY OF INVESTMENT REAL ESTATE For the size of its investment real estate market, Estonia really has a lot of properties that could be of interest to investors. There are many motivated sellers with assets to sell – portfolios of properties, individual assets, and especially retail properties. With the supply of modern office space constantly growing, the Estonian market remains attractive both to local investment funds and to international investors seeking new investment opportunities.

EUR 90 MILLION

2019 transaction volume

PRIME OFFICE YIELDS

compressed to 6.0 per cent

GROWTH IN TOURISM BODES WELL FOR PROPERTY

AML IS INFLUENCING REAL ESTATE OWNERS New anti-money laundering regulatory changes are impacting the real estate market too. Investors with substantial capital of doubtful origin, from Eastern bloc countries for example, are being forced to sell properties they hold for a variety of reasons.

TENSION REIGNS ON THE RETAIL MARKET Tallinn’s new 55,000 sqm T1 shopping centre survived its first full year of operations. The project’s developers offered leisure innovations for the city’s residents and guests, but also ran into considerable customer-flow challenges. Assuming future completion of the planned

in the last several years as total investment transactions may triple compared to 2019. The fact that most Baltic funds historically began operations in Estonia means that, as the first funds’ operations near an end, their managers will become active sellers. Newsec also notes more motivated candidates, especially the opportunistic foreign fund managers who entered the region 3–5 years ago, who could seize the opportunity to sell their assets.

GDP GROWTH

of 4.1 per cent in 2019

Rail Baltica station terminal beside the shopping centre, successful operation of T1 still seems realistic.

The main question is whether the parties involved in the project will have enough “financial patience” to wait and see whether Rail Baltica’s implementation bears enough real fruit.

INVESTMENT VOLUME IS FORECAST TO BE THREE TIMES BIGGER IN 2020 This year, Estonia is on track to significantly outdo its performance

In 2019, 3.8 million tourists stayed in Estonian accommodation establishments, 2.3 million of which were foreign tourists. Both the number of foreign tourists as well as their nights spent increased by 5% compared to 2018. The growth in foreign tourism has been fueled by the expansion of local airlines Air Baltic and Nordica, as well as increased competition from foreign airlines. Tallinn remains the most popular destination, but increased diversification is occurring, with e.g.

Swedish airline BRA establishing direct flights from Stockholm to the island of Saaremaa. The hotel market continues to grow as a result of the rising international tourist arrivals, increasing both domestic and foreign investor interest in Estonia.

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● THE LITHUANIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE LITHUANIAN PROPERTY MARKET

Photo: Shutterstock

ALL EXPECTATIONS EXCEEDED AS RECORDS ARE SET ON THE PROPERTY MARKET

Economic growth in Lithuania in 2019 surpassed even the most optimistic forecasts. GDP last year grew 3.9 per cent, marking a third straight year of similar strength. The country is well placed to show further vigour. For the first time in almost three decades, Lithuania’s population increased, not only in the capital of Vilnius but also in the other big cities. The main factors behind the change are Lithuanian citizens returning from abroad, as well as immigrants from Ukraine and Belarus.

Unemployment in Lithuania increased slightly in 2019, but the growing labour force offers a favourable environment for the foreign service providers and manufacturers that are rapidly setting up and expanding in the country.

2019 was a record-breaking year for Lithuania’s transaction market. The

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country’s investment volume reached an all-time high of over EUR 435 million, and accounted for nearly 60 per cent of the total Baltic market. In 2020, investors, aiming to direct investments to properties that generate cash flows, will quite aggressively seek to acquire properties that offer a good ratio of quality to value. Newsec no longer expects marked compression of yields, which will stay just below 6 per cent in the prime office segment.

There remains a big chance, though, that the 5 per cent yield level will be tested in the central business district.

Yield compression has reached 6.5 per cent in the retail segment and 7.5 per cent in the industrial segment.

After record activity last year, when new lease agreements were signed for approximately 115,000 sqm, demand will remain strong in the Vilnius office

market in 2020 as well. Over the next two years tenants will be offered some 300,000 sqm of new office space.

Pre-lease agreements will be the driver of projects now in development, with all office developers set to actively compete for several large tenants.

Once those leasing transactions are completed in the market, the annual average will reach the level of the last 5 years, which was 70,000 – 80,000 sqm. Lack of space will be greatest in class A properties, especially in the central business district, with vacancies of less than 3 per cent.

Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE LITHUANIAN PROPERTY MARKET ●

» 2019 was a record-breaking year for Lithuania’s transaction market. The country’s investment volume reached an all-time high of over EUR 435 million, and accounted for nearly 60 per cent of the total Baltic market«

Interesting trends on the Lithuanian investment property market in 2019 and 2020:

NEW INVESTMENT PROPERTIES MEET THE HIGHEST STANDARDS Vilnius very clearly stands out as the region’s city with the most institutional investor capital and where new generation office buildings are meeting the requirements placed on them. International investors currently see more opportunities in Vilnius than in Tallinn or Riga.

The Vilnius office market has wellestablished leasing practices and a developed central business district, and the office projects that are being carried out meet the highest Western European standards.

TWO RECORD SIZE INVESTMENT TRANSACTIONS IN THE OFFICE SEGMENT In late 2019, German property manager Deka Immobilien purchased the Quadrum business center in Vilnius, with 44,000 sqm of leasable space, from the Norwegian-owned Schage group for EUR 156.1 million. This was the biggest business-centre acquisition in the history of the Baltic countries and again drew international investors’ attention to the Baltic capitals. In early 2019, Eastnine acquired the three buildings of the S7 office complex, with 42,500 sqm of leasable space, from Galio Group for EUR 128.3 million. These transactions mark a key stage in the development of the Baltic commercial real estate market, particularly in light of their size. They show increased investor trust and market liquidity, a result of international and local investors’ considerable need for especially high-quality projects.

Akropolis could fundamentally alter the Vilnius Akropolis concept.

EUR 435 MILLION

2019 transaction volume

GDP GROWTH

of 3.9 per cent in 2019

300,000 SQM

of new office space coming to the Vilnius office market over the coming two years

THE RETAIL MARKET IN THE CAPITAL HAS MATURED FOR NEW AND PARTICULARLY LARGE PROJECTS Last year in Vilnius, construction began on the Vilnius Outlet shopping centre (~60,000 sqm in total) and plans for a second Akropolis Vingis shopping and leisure centre (~120,000 sqm in total) started moving in earnest. These projects will essentially redraw Vilnius’s shopping-centre map and spur the development of adjacent territories. Newsec believes that the second Akropolis and the development of a national stadium and multifunctional sport complex beside the first

LOCAL INVESTORS CANNOT COMPETE WITH INTERNATIONAL INVESTORS Acquisitions of small commercial properties are getting harder and harder to carry out due to sellers’ high price expectations and stricter financing conditions.

Recent policy changes enacted by the central bank and commercial banks have continued to weaken small investors’ ability to acquire commercial properties. This mainly impacts local market players, who are finding it nearly impossible to acquire properties at a yield of less than 6 per cent. The Baltic region’s investors are being forced to bide their time or turn their investments to relatively niche properties such as logistics projects, hotels and development projects.

NORDIC APPETITE FOR VILNIUS Demand for Vilnius office space will continue to grow among companies operating in the Nordics and seeking to move some of their functions and activities to Lithuania. Newsec has calculated that service centres currently occupy 150,000 sqm, or 20 per cent of the modern office space in Vilnius. With the number of fintech companies and employees in Vilnius rapidly increasing, their demand for office space will also grow. Those companies are relocating from smaller offices and co-working spaces to expanded offices in the city centre and the old town.

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● THE LATVIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE LATVIAN PROPERTY MARKET LATVIA IS ENTERING A NEW PHASE OF MARKET EXPANSION resilience, ability to adapt goods and services to new markets and tenacity working in difficult conditions that they have acquired provide an advantage relative to competitors.

The real estate investment market in Latvia performed similarly to 2018 in 2019, with a total invested amount of just over EUR 230 million. Prime office yields compressed to 6.2 per cent, while retail and industrial yields fell to 6.75 per cent and 7.75 per cent respectively. The Riga real estate market is seeing changes it has not seen in at least the last decade, a time when new office projects have been rare and the new office space market

has stagnated. Newsec is finally noting a supply of new office space, though new premises are dominated by class B projects in class B locations.

Future supply of quality class A space that could liven up the leasing market is still awaited. There is no clearly delineated central business district in the Riga office market, so planned new projects (like those by Lords LB and Galio Group) are sure to position themselves as alternative CBDs with their attractive business locations.

Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt

Photo: Shutterstock

Latvia’s economy displayed slower growth in 2019, as was expected.

Annual GDP grew about 2.5 per cent, with forecasts for this year offering hope of faster expansion. The biggest driver of economic growth is domestic consumption, which is what ensures the greatest stability. Employment is rising and the unemployment level should fall below 6 per cent. The situation on the labour market is positively influencing wage growth. Latvia has been among the first in the Baltics to start feeling the negative impact of falling external demand and thus also reduced foreign trade volumes.

However, many companies view such challenges as opportunities. The

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NEWSEC PROPERTY OUTLOOK • SPRING 2020

THE LATVIAN PROPERTY MARKET ●

» In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings in Riga from the Baltic RE Group.

This 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«

Interesting trends on the Latvian investment property market in 2019 and 2020:

MAJOR INVESTOR SHIFT ON THE LATVIAN INVESTMENT MARKET Since US-based Blackstone, the world’s biggest investment fund manager, entered Latvia in 2015, the country had not seen any significant new investors. In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings in Riga from the Baltic RE Group. That market entry by a Western European investor of such calibre is the first sign of trust in the country and the first investment of its size on the Latvian office market in several years.

This can be compared to German investment fund Deka Immobilien's return to the Baltics, with their acquisition of a prime office project in the central business district of Vilnius.

EXPERIENCED BALTIC PROPERTY DEVELOPERS ARE PREPARING FOR NEW PROJECTS IN LATVIA

EUR 230 MILLION

2019 transaction volume

GDP GROWTH of 2.5 per cent

RIGA HAS NOTABLE POTENTIAL TO BECOME THE BALTIC REGION’S CAPITAL

OFFICE PROJECTS

consisting of more than 235,000 sqm are in the planning stage

RIGA AKROPOLE CONTINUES TO MAKE WAVES On the retail market, the main player on whom everyone’s eyes are fixed is the new Riga Akropole.

The shopping and leisure centre will mark its first anniversary in April 2020. The long-planned project has clearly made serious waves in Riga’s retail market, as preparations for the new player’s arrival began before its launch and competitors are still working on adapting to the new situation.

Besides the often mentioned expansions and upgrades at the longstanding Alfa, Origo and Riga Plaza shopping centres, the Ozols

Over the last 2 years, at least 3 or 4 major office development projects have been initiated by developers that have experience on the market and are serious about undertaking new projects. Projects consisting of more than 235,000 sqm are already in the planning stage.

These steps suggest the market can expect new foreign investors, who could be attracted as early as the construction stage.

shopping centre (formerly Atrium Azur) has been heavily overhauled, Domina Shopping and Spice are still being renovated and enlarged, and the older part of Origo is being closed entirely for reconstruction.

The opening of new shopping centres with formats not yet seen on the market is awaited: 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 set to ascend to a new level and form a supply of quality investment projects.

Newsec believes it is essential for the city of Riga, at a strategic level, to clarify the location of its central business district, focusing business and municipal efforts and investments in order to take advantage of the favourable market conditions, the scale of which Riga has not seen in the past 10 years.

Developers in Riga should look to seize this opportunity and make use of the fact that the foreign developer and investor community has turned its attention to all of the Baltic capitals.

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● EUROPEAN PROPERTY MARKETS NEWSEC PROPERTY OUTLOOK • AUTUMN 2019

EUROPEAN PROPERTY MARKETS

ELONGATED EUROPEAN REAL ESTATE CYCLE 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 potential 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.

The European economy remained on the brink of a recession throughout last year. Towards the end of the year we saw tentative signs of stabilisation with the latest quarter GDP growth coming in better than expected. Final year figures are likely to show the economy slowing more than expected overall in 2019, to a real GDP growth of only +1.1 per cent, compared to +1.9 per cent in 2018. To everyone’s surprise Germany avoided a recession, although this does not mean the country is completely out of the woods.

Looking ahead, growth across Europe is not expected to gain much traction through 2020. Employment growth is expected to remain at a similar pace while unemployment rates are expected to remain low. Our central scenario is that the European growth will be slow but positive, with a sub-par forecast of 0.8 per cent growth in 2020.

We also expect European nations will consider introducing growth-enhancing fiscal measures this year to move out of this low growth trap.

The sub-par forecast for economic growth and inflation will place downward pressure on the government bond yield outlook. The total amount of negative yielding debt peaked in the summer of 2019 at $17 trillion. A number of factors will continue to push government bond yields lower. Unless something drastically changes, underlying structural factors suggest bond yields will remain lower for longer.

Real estate as an asset is typically the main beneficiary of low bond yields. The spread between bond and

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property yields will remain favourable.

European government bond yields continue to trend lower. This has been and will be supportive for real estate pricing. The European real estate market is also at a mature stage of the cycle. Our forecasts therefore indicate this stage of the cycle will be elongated. We have revised our view positively with yields across most European markets expected to decrease further this year for both logistics and offices.

The retail sector depicts a much more mixed picture.

It is important to note that investment volumes in certain markets are limited due to the lack of good quality prime assets, as well as other country specific factors. This was the case for the UK, where a lack of good quality prime assets available to the market has held back investment, coupled with caution from investors (overseas especially) about the direction of the UK economy with Brexit. No doubt the uncertainty and the stage of the cycle also means sellers are reluctant to bring their assets to the market and are waiting for the right moment.

Overall average total returns for the markets we cover will reach 9.2 per cent this year, largely driven by both income (+4.3 per cent) and capital growth (+4.9 per cent).

Core versus secondary markets Last year, across a number of European countries, investors became frustrated by the lack of prime assets available in core locations. As a result, investors widened their risk profile by

looking further afield into secondary assets, or outside the typical CBD areas. Regions such as the ‘Non-Capital’ Cities therefore came onto investor radars. In the case of the UK, 39 per cent of total investment volumes were allocated to property outside of London in 2019. A similar pattern was seen in France where investment outside the capital reached approximately 30 per cent, up from 25 per cent the year before. Areas such as Marseille, Bordeaux and Lille featured highly. Similarly, investors turned to cities outside of Madrid, with Seville, Valencia and Bilbao experiencing great investor interest.

Looking ahead, this year the focus and deployment of investment is likely to be on core locations over secondary.

Cities that remain popular for investors will be the cities that are most supportive of occupiers, specifically those able to attract the talent needed such as London, Paris and Berlin. Having said that, lack of supply remains an issue, whereby investors may in certain cases wait for opportunities in those core locations or consider similar products in regional cities.

Alternative sector no longer an alternative: it is mainstream Demand for alternative assets is likely to increase. Typically, the composition of a property portfolio has consisted of offices, retail and industrial assets, but this is changing.

The alternative sector continues to enjoy remarkable growth year on year.

The alternatives sector is a composite

NEWSEC PROPERTY OUTLOOK • AUTUMN 2019

EUROPEAN PROPERTY MARKETS ●

Photo: Shutterstock

»Last year, across a number of European countries, investors became frustrated by the lack of prime assets available in core locations. As a result, investors widened their risk profile by looking further afield into secondary assets, or outside the typical CBD areas«

of tenant activities including student housing, hotels, build-to-rent, coliving, senior housing and healthcare.

Last year across Europe the sector grew by an impressive 37 per cent – now accounting for 25 per cent of total investment, up from 16 per cent the year before. Looking ahead, demand from investors into the alternative sector is likely to continue,

pushing this sector closer to becoming an established asset class alongside offices, retail and logistics.

The alternative sector has bene­fitted from investors who were not interested in venturing outside of their usual locations, but instead diversified their holdings in their core locations. Of course the attractive yields only solidified their decisions to take the plunge and commit to the sector.

Fundamentals across Europe such as an ageing population and the increasing demand for education mean there is huge potential for growth in this sector. What we are likely to see going forward is investors now venturing out to other core locations, pursuing further investments in the alternative, or the ‘not so alternative’ sector.

33

● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • SPRING 2020

MACROECONOMIC DATA Sweden Interest Rates

Economic Indicators Per cent

Source: Newsec

Per cent

Source: Swedbank, Swedish Central Bank

3

4 3

2

2 1 1 0

0 -1

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

4

3

3

2 2 1 1

0 -1

2012

2013

2014

2015

GDP, Annual Percentage Change

2016

2017

2018

2019

2020E

0

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 3

2 2 1

1 0

0 -1 -2

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 • SPRING 2020

MACROECONOMIC DATA ●

BUY THE COMPLETE FORECAST alexandra.lovgren@newsec.se

Denmark Interest Rates

Economic Indicators Per cent

Source: BNP

Per cent

3

3

2

2

1

1

0

0

-1

2012

2013

2014

2015

GDP, Annual Percentage Change

2016

2017

2018

2019

2020E

-1

2012

2013

2014

2015

Central Bank Interest Rate

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

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

6

3

4

2

2

1

0

0

-2

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

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 • SPRING 2020

MACROECONOMIC DATA Lithuania Interest Rates

Economic Indicators Per cent

Per cent

Source: BNP

6

3

4

2

2

1

0

0

-2

2012

2013

2014

2015

GDP, Annual Percentage Change

2016

2017

2018

2019

-1

2020E

Inflation, Yearly Average

GDP Growth GDP Growth 2020E–2021E Per cent

Source: Swedbank

4

3

2

1 2020E 2021E

0 Sweden

2020E

36

Norway

Finland

2021E

Denmark

Estonia

Latvia

Lithuania

2013

2014

2015

Central Bank Interest Rate

Employment, Annual Percentage Change

Private Consumption, Annual Percentage Change

2012

Source: BNP

2016

2017

EURIBOR 3M

2018

2019 SWAP 5Y

2020E

NEWSEC PROPERTY OUTLOOK • SPRING 2020

PROPERTY DATA ●

PROPERTY DATA

BUY THE COMPLETE FORECAST alexandra.lovgren@newsec.se

Office rents Prime Office Rents (CBD) | Nordic Region

Source: Newsec

Per cent

EUR/m2

10

1,000

8

800

6

600

4

400

2

200

0

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

0

Prime Office Rents (CBD) | Baltic Region

Source: Newsec

Per cent

EUR/m2

3

210

2

140

1

70

0

0

-1

Tallinn

Riga

-70

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

5,5

10

5,0

9

4,5

8

4,0

7

3,5

6

3,0

2012

2013

2014

Stockholm Oslo

2015

2016

Gothenburg Helsinki

2017

2018

2019

5

2020E

Source: Newsec

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

Prime Retail Rents | Baltic Region

Source: Newsec

Per cent

EUR/m2

6

3000

1,5

300

3

2000

1

200

0

1000

0,5

100

-3

Stockholm Gothenburg

Malmö

Oslo

Helsinki

Copenhagen

0

0

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 • SPRING 2020

PROPERTY DATA Retail yields Prime Retail Yields | Nordic Region

Prime Retail Yields | Baltic Region

Per cent

Source: Newsec

Per cent

6

10

5

9

4

8

3

7

2

2012

2013

2014

Stockholm Oslo

2015

2016

2017

Gothenburg Helsinki

2018

2019

2020E

6

Source: Newsec

2012

Malmö Copenhagen

2013

2014

Tallinn

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 East

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

2016

Gothenburg Helsinki - East

2017

2018

Malmö Copenhagen

2019

2020E

7

Source: Newsec

2012

2013

Tallinn

2014

2015 Riga

2016

2017 Vilnius

2018

2019

2020E

NEWSEC PROPERTY OUTLOOK • SPRING 2020

PROPERTY DATA ●

BUY THE COMPLETE FORECAST alexandra.lovgren@newsec.se

Residential Prime Residential Rents | Nordic Region

Source: Newsec

Per cent

EUR/m2

6

600

4

400

2

200

Prime Residential Yields | Nordic Region Per cent

Source: Newsec

5 4 3 2 1

0

Stockholm

Gothenburg

Malmö

Helsinki

Copenhagen

0

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 • SPRING 2020

PROPERTY DATA

BUY THE COMPLETE FORECAST alexandra.lovgren@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

2020E

2012

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 2019 (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 • SPRING 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 2019.

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 • SPRING 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 • SPRING 2020

THE NEWSEC PROPERTY OUTLOOK TEAM ●

Morten Jensen Head of Newsec Advisory Denmark morten.jensen@newsec.dk

Niels Juul Belling Analyst niels.belling@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, Baltics m.kulbokas@newsec.lt

Kristina Živatkauskaitė Senior Analyst k.zivatkauskaite@newsec.lt

Daniel Nielsen Analyst daniel.nielsen@newsec.dk

43

● THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE NEWSEC PROPERTY OUTLOOK • SPRING 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, management 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 • SPRING 2020

NEWSEC’S ANALYSIS PRODUCTS ●

NEWSEC’S MARKET REPORTS

REQUEST ANY REPORT IN ENGLISH alexandra.lovgren@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 • SPRING 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

46

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 • SPRING 2020

EXECUTIVE SUMMARY ●

47

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE