NEWSEC PROPERTY OUTLOOK SPRING 2022
NEWSEC PROPERTY OUTLOOK
INNOVATE TO STAY RELEVANT As a property owner it’s important to keep up with developments and the ongoing mega trends in society as they will impact the usage and need of your property over time. The retail industry is at the intersection of many societal trends and changes. Digitalization, sustainability and the sharing economy, just to name a few examples, are reshaping what it takes to succeed as a retail business, and consequently retail properties will need to transform to stay relevant and remain an attractive alternative. Last time we covered retail in this report was about two and a half years ago and then I expressed my concerns about many burying their heads in the sand rather than taking the appropriate actions to ensure their retail properties would stay relevant. I’m pleased to see that retail is becoming more innovative in the Nordics and Baltics, although there is still some way to go in terms of providing exciting experiences. From an investment perspective, retail may provide interesting opportunities now as yields have come up compared to most other real estate asset-classes on the Nordic and Baltic property markets. Bear in mind that creating value in physical retail requires extensive knowledge, an innovative approach and active management.
At the core of a dynamic retail experience is a great collaboration between the property owner and the retailers to generate new innovative solutions that embrace our behavioral and societal changes, rather than being stuck in old ways of thinking and doing. And take it from me when I say that Newsec knows retail – we are very proud to have 6.2 million retail square meters under management across the Nordics and Baltics. That is more than a hundred different shopping centers, many of them award-winning. In this edition of Newsec Property Outlook, we take a closer look at retail with a particular focus on the challenges and opportunities facing physical retail. We highlight the current trends, what the shopping centre of the future will look like and what elements physical retail needs to perform well. With that I wish you an interesting read!
Max Barclay, Head of Newsec Advisory
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CONTENTS From pandemic storm to inflationary headwinds ........................................... 7 The Wolf of Mall Street – An analysis of the physical retail market ................................................................................................................................ 12 The Swedish Property Market ..................................................................................... 18 The Norwegian Property Market ............................................................................. 20 The Danish Property Market ........................................................................................ 22 The Finnish Property Market ....................................................................................... 24 The Estonian Property Market ................................................................................... 26 The Lithuanian Property Market .............................................................................. 28 The Latvian Property Market ...................................................................................... 30 European Property Markets ........................................................................................ 32 Macroeconomic data........................................................................................................... 34 Property data ........................................................................................................................... 37 Definitions ..................................................................................................................................... 41 The Newsec Property Outlook Team .................................................................... 42 The Full Service Property House .............................................................................. 44 Newsec’s market reports ............................................................................................... 45 Contact information ............................................................................................................ 46
Copyright Newsec © 2022 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: Shutterstock
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FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS ●
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NEWSEC PROPERTY OUTLOOK • SPRING 2022
FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS Klas Eklund, Senior Economist, Mannheimer Swartling
After two years of wild swings, in 2022 the global economy was supposed to return to normalcy. However, we now face a new uncertainty: the return of inflation. Will price increases fall back or will they prove to be more persistent? The answer decides central bank actions and how much interest rates will climb. A gradual move in step with somewhat higher inflation is not problematic; it can be seen as a much-needed normalization, still from an historically low level. But a more abrupt move would cause turbulence in financial markets – and in the property sector. My view is that rates will indeed climb and create headwinds. Still, real rates will continue to stay low, since long term factors like global savings and demography will stay in place . From a fundamental perspective, property still looks like a good long-term investment, although not as spectacular as during recent years. But market uncertainty and turbulence are likely on the path to a new equilibrium.
from the pandemic with rather small economic injuries and with strong property sectors. The stage is set for a year of good growth as economies open up. Also the Baltics are now recovering quickly. But also in the Nordic/Baltic region inflation and interest rates will constitute headwinds before a new equilibrium is reached.
In the Nordic region, economies are strong. All Nordic countries emerged
Despite Delta and Omicron the economic recovery was strong in 2021.
A strong recovery
China led the way with 8 per cent GDP growth, US growth was not far behind with 6 per cent. Even the stodgy Eurozone grew by 5 per cent. The main reasons were rebounds after the horrible year 2020, and the roll-out of vaccine. Trade met disturbances as supply chains were hurt by lockdowns and lack of shipping containers. In certain sectors, e.g semiconductors, shortages caused ripple effects along several industries. Nonetheless, world trade
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● FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS NEWSEC PROPERTY OUTLOOK • SPRING 2022
»In all regions, inflation has returned with a vengeance«
did rebound strongly, and the global economy showed resilience. The main problems have instead come from energy supply and energy prices. A perfect storm emerged with simultaneously rising prices for oil, gas and electricity. This pushed up consumer prices in all countries and real income took an unexpected hit.
Inflation is back! In all regions, inflation has returned with a vengeance. In the US, it is over 7 per cent, in the Eurozone around 6, in the Nordic countries 4–6 per cent and in the Baltics even higher. These are the highest inflation numbers for decades. Supply disturbances have been a driving force. We have also seen strong increases of energy prices across the board. Energy price increases have been particularly strong in the Euro zone. Most central banks initially claimed that the inflation uptick is
temporary and will fade as energy prices first stabilise and then fall, while supply disruptions after the pandemic gradually heal. But the situation has become more troublesome. In the UK, labour market disturbances have been exacerbated by Brexit. In the US a strong demand impulse was injected by the generous fiscal stimulus last year, contributing to a shrinking of labour supply as many workers left the labour force. At the same time the Fed sent out signals that the central bank would welcome inflation above target and a “red-hot” labour market. As labour supply fell and inflation rapidly rose, they got what they asked for and then some. Cost pressures now are pushing up wage compensation claims, and inflation expectations are
Photo: iStock
In the autumn edition of Newsec Property Outlook I wrote that most of the uptick in prices was caused by transitory factors and that inflation would fall back in 2022. However, I also added that the major risk to this benign picture was the risk that inflation would stay elevated for a longer time, and that central banks would react by hiking key rates more rapidly, with the ensuing risk that markets – including property – would be rocked.
I now must admit that what I saw as the main risk scenario has become the main scenario. Inflation has spiked, central banks are being forced to react and the future has become more uncertain again.
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NEWSEC PROPERTY OUTLOOK • SPRING 2022
FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS ●
»Commercial property generally is in a more benign situation, as real yields are more important than nominal ones – and real yields will stay historically low as both nominal yields and inflation rise«
rising. As a result the Fed by year-end scrapped all talk about inflation being “transitory” and in a swift U-turn returned to traditional inflation-bashing rhetoric. Both the Fed and the Bank of England (BoE) have now set out on paths with quantitative tightening (selling securities) and rate hikes. The ECB has sent out signals that it, also, is about to embark on a more rapid pace of tightening, tapering its asset portfolio and then hiking the refi rate, maybe already this year.
Market nervousness This has troubled financial markets during the start of of 2022. Bond yields have risen and stock markets wobbled as investors try to adapt to a new reality, with higher inflation and higher rates. Valuations have to be re-calibrated. This process will take some time, simply because it will take time before we know the trajectory of inflation and central bank reactions. What is clear is that the inflation peaks of this winter automatically will pull up inflation numbers also for the whole year of 2022 because of base effects. Furthermore: the longer inflation stays elevated, the higher the risk of contagion to other sectors, such as food and wage costs. High inflation means real wages suffer and consequently compensation wage claims may rise, not only in the US but also in continental Europe and the Nordics.
Central banks are turning hawkish Consequently, more central banks will switch to tightening mode. From a
fundamental point of view, this should not really be much of a problem. For too many a year our countries have lived in fear of deflation, with historically low interest rates, both real and nominal – causing asset markets to rise to unprecedented heights. As both inflation and interest rates rise, this may be regarded as a start of normalisation back to an economy on a more sounder footing. But markets rarely adjust gradually. More often, they react in spats and jerks, driven by fear and greed. So market rates jump – often too much – and force monetary tightening to move ahead faster than was priced in at the beginning of this year. This is happening now in several countries. Consequently, there will be continued volatility and financial headwinds before markets settle down in a new equilibrium. Longer term, the main forecast is still that inflation gradually falls back – albeit from a higher level and more slowly than would be optimal. The new equilibrium will be characterized by low real rates. The global forces which have pushed neutral real rates to historical lows are still in force, not least ageing populations and high savings rates. What we see today is therefore probably not the start of a new 1970:s period of stagflation with high inflation and high rates. But even so, we may be in for a period of adjustment, which may become painful to some investors.
Property markets In this situation, also property markets will meet headwinds in the short term. But they will be weaker than for
stock markets. Margin calls and derivatives do not play the same destabilizing roles as for stocks. For housing, rising mortgage yields probably will hurt some households who cannot compensate increasing nominal costs with increasing income. But this change is starting from a very low trough and most households will not feel the pinch that strongly. Longer term, the neutral real rate is more important than short-term nominal fluctuations. Commercial property generally is in a more benign situation, as real yields are more important than nominal ones – and real yields will stay historically low as both nominal yields and inflation rise. Liquidity will continue to be strong and the volume of transactions are likely to stay elevated, but perhaps not breaking new all-time highs. Different segments of the property markets will face very different conditions. Retail is squeezed, and the pandemic has speeded up the transition to e-commerce. Logistics, on the other hand, is gaining from the same transition. The office market is subject to divergent forces, where some employers will want to downsize, while others need to upscale their premises. Rental will stay more stable as the revenue flows change only gradually.
The Nordics The Nordic region’s economic performance during the pandemic was outstanding. After the initial dip in 2020, all the Nordic countries have outperformed the Eurozone and the UK – an interesting and unexpected common result, since health strategies and stringency measures varied
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● FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS NEWSEC PROPERTY OUTLOOK • SPRING 2022
»Fundamentals speak in favour of a gradual cooling of a hot property market«
between countries (where a high death toll stood out in Sweden). GDP surpassed the pre-pandemic level early in the year, government finances have been robust and labour markets are strong.
from 10 per cent to just 2 per cent, and high oil prices assure a massive inflow of purchasing power. As result, the scramble for labour is intense, and labour unions are pushing for wage increases.
One reason may be that the Nordics are not as dependent on tourism as Southern Europe. Another can be that health care is universal and of high quality, and that vaccine was rolled out swiftly. Now that economies are opening up again, recovery in the service sector will support a year of good growth, albeit not as spectacular as in 2021. Growth rates will be above potential, but gradually taper off during the course of the year.
These factors speak in favour of higher house prices, but tightening from the central bank aims to stifle such increases. Despite strong macro fundamentals, the housing market will therefore cool during 2022.
The challenge of inflation and the risk of over-heating labour markets is common for all countries in the region. But it will be met differently, not least because of different currency regimes and monetary policy strategies. Norway As usual, Norway leads the way towards higher inflation and higher rates. This is what we would expect, since Norway traditionally shows higher price pressures from her large off-shore sector and, consequently, tighter monetary policy. Norges Bank is both formally and practically independent from ECB and is now using that independence to push up its key rate faster than her neighbours. A shift of governor by year-end is not expected to change monetary strategy. Hiking has already started and will continue throughout this year and next. One reason is the risk of over-heating, both of labour and property. Unemployment has fallen
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Denmark Also the Danish labour market is tight, on the verge of over-heating. Unemployment is only 3 per cent. Recruiting people with the right skills is increasingly difficult. As resource utilization is strained, strong real growth and bottle-necks in the labour market tend to push up both wages and the general price level. Construction has been strong with a rapid increase of housing starts. As the economy opens up after restrictions, Denmark will show good growth and inflation will stay above the target. The Danish krone is, however, pegged to the euro, which means that the central bank – contrary to the Norwegian – will not run away on its own but will shadow the ECB. Only minor deviations of key rates are possible, to ensure currency stability. Sweden The Swedish export sector has performed well during the pandemic. As the economy now opens up, services will bounce back and help propel both employment and income growth. Private consumption will be boosted as the high household savings ratio probably will fall somewhat.
The Swedish labour market is different from the other Nordics in the sense that it is clearly divided. A large portion of the labour force has difficulties being integrated into the regular labour market, and almost half of the unemployed are structurally, long-term unemployed. On the other hand, the regular labour market is over-heating and vacancies are reaching record numbers. Demands for higher wages in manufacturing are starting to emerge as a result of over-heating and as compensation for high inflation cutting into real wages. Inflation is high, but the Riksbank claims it is temporary, driven by energy prices which will fall back. The bank has vowed to keep the repo rate at zero for two more years. Markets, however, expect that the bank will have to change course and tighten earlier. Soft monetary policy will support the property sector a while yet, but over the year as a whole headwinds from inflation and future rate increases will make the property sector somewhat cooler than last year. Finland Also Finland is in the midst of an upswing, driven by manufacturing and construction. Parts of the service sector are lagging, but are expected to catch up as the economy opens up again. Here, the scope for growth is high, as the room for pick-up in services is large. The upturn of the economy has brought the same side-effects as in the other Nordic countries: inflation and labour shortages. The housing market has been thriving, in particular larger houses and apartments have gained from pandemic-induced demand.
NEWSEC PROPERTY OUTLOOK • SPRING 2022
FROM PANDEMIC STORM TO INFLATIONARY HEADWINDS ●
As Finland is a member of the Eurozone, monetary policy is set by the ECB. The ECB will start its tightening process earlier than previously said, next year for sure, possibly even this year. The housing market will cool somewhat.
The Baltic region was hit by a severe wave of the Covid Delta virus. Nonetheless, economic recovery has been swift, in particular in Estonia. Inflation has risen sharply, and by the beginning of this year was close to the 10 per cent mark in all three countries. The reasons were the same as in their Nordic neighbours, i.e primarily rising energy costs. Wages have followed suit, driven by compensation claims and bottlenecks in the labour markets. Monetary policy is set by the ECB, meaning a tightening could start this year. The Baltic countries should also be noted for the geopolitical risks. With Russia massing troops along the Ukraine border and hurling threats against NATO, the Baltic states – all three of which are NATO members – have been caught in the crossfire. The economic effects will be negative, due to more expensive gas imports and sanctions imposed by the US. At
Photo: iStock
The Baltics
this stage, however, it is impossible to quantify the outfall since the geopolitical and military outfalls are unknown.
Conclusion The Nordic and Baltic countries have weathered the pandemic storm better than feared. This holds also for property markets, who have boomed. Looking ahead, the challenges will be to weather the inflationary storm. Inflation will fall back gradually, but probably more slowly and from a higher level than central banks have expected. In all countries the central banks will gradually tighten monetary policy,
What if? Just as this report is sent to the printer for hard copies, Russian troops are massed at the Ukrainian border and preparations are made for an invasion. The analysis in this chapter, however, does not include any serious effects of a hot war. But military action will cause severe disruptions in Europe. For one, commodities prices will rise further. Oil, gas and grain prices will move up. The result will be higher prices on electricity and food in most of Europe. At the same time, trade restrictions will cause a setback of production and income in several countries, not least Finland and the Baltic states. This puts economic policy in a difficult situation, where stagflationary forces pull policy in
most rapidly in Norway. In the other countries monetary policy will be set by the ECB, or in the case of Denmark and Sweden by central banks who normally follow the ECB closely. The Swedish Riksbank will be the laggard. This means that tightening will be gradual, not in itself causing havoc. Fundamentals speak in favour of a gradual cooling of a hot property market. Commercial property is not as vulnerable as the housing market, since real rates will still be negative for some time yet. In general, the Nordic property market also will be supported by capital inflows from other countries and non-Nordic investors.
different directions. Higher inflation calls for tighter policy, but blows to production and income calls for support. The path chosen will depend on the severity and length of the war. Stock markets will fall, most dramatically in Russia and Ukraine. Property markets will be less affected since the investment horizon is longer and they are more dependent on real rates. Cyber attacks may wreak havoc in important sectors, sanctions such as blocking Russian banks from the international payments system would hurt not only Russia but also her trading partners. At this stage, however, it is not possible to formulate any quantitative assessments of these shocks.
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● THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE WOLF OF MALL STREET AN ANALYSIS OF THE PHYSICAL RETAIL MARKET
All around the world, retail has been hit hard by the covid-19 crisis. Many shops have been closed, a wide range of restrictions have been enforced, and the physical shopping experience has in general looked very different to before the pandemic. However, even pre-pandemic, retail was struggling in many ways, with the growth of e-commerce posing a substantial challenge for physical retail. This growth has been accelerated by the pandemic, and led many to the conclusion that the end is approaching for physical retail. Newsec, however, does not believe that this is the case – at least not in the Nordics & Baltics. In this edition of the Newsec Property Outlook, Newsec analyzes the outlook for physical retail – and concludes that physical retail in the Nordics is in many ways thriving, vastly outperforming much of the rest of Europe and the world.
Some retail has attracted investors – the rest has been panned There is no question that retail has struggled on the investment market in the past few years. In 2015, the segment accounted for 24% of the total transaction volume in the Nordics & Baltics, and thus was second to the office segment in terms of transaction volume in the region. Post-pandemic, the segment has instead accounted for just 10% of the total transaction volume – and in some countries, like Sweden, the share taken has been even lower, at only 7%. Of the retail that has been purchased by investors in the Nordics & Baltics in 2021 and
thus far in 2022, over 50% has been within the big box and grocery store segments. Graph (1) shows that the big box segment has been the one type of retail in the Nordics that has experienced strong yield compression in the past few years, with yields now being akin to or slightly below the yields for prime shopping centres. In some prime Nordic markets, yields for big box are now approaching 4.50%. At the same time, yields for high street retail and shopping centres have risen dramatically since 2019 – with yields for prime high street properties now at around 4%, while yields for prime shopping centres are in many cases above 5%. A number of retail sub-
1. Nordic Prime Retail Yields 6 5
Shopping Centre: A group of shops built together, usually under one roof. Big box: A retail store that occupies a large amount of physical space, often in a retail park. Usually located out of town.
Sub-segments: City mall: A shopping centre located in the inner city. District centre: A medium-sized shopping centre usually located in a suburban area, but of such scale that it serves more than just the local area.
Regional centre: A large shopping centre located in a suburban area, providing experience-based retail and attracting large amounts of residents from all over the city.
4 3 2 1 2013
2014
2015
Nordics High Street
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High Street: A shop located on the main street of a town or city.
Neighbourhood centre: A smaller shopping centre catering primarily to local residents.
Per cent
0
Primary types of retail:
2016
2017
2018
2019
Nordics Shopping Centre
2020
2021 2022E 2023E
Nordics Big Box
Retail park: An external retail area, often comprising a large number of big box properties.
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET ●
»Most retail, beyond big box and grocery store properties, has been almost universally panned on the transaction market, with the few sales that have occurred having completed at generally high yield levels«
segments could be added here, such as district centres, city malls, or regional centres, where yields have generally also risen sharply since 2019. In short, investors have generally flocked to big box and grocery store properties, and shied away from most other forms
of retail. One of the few exceptions are so-called neighbourhood centres, which have in many ways benefitted from an increased propensity to work from home as a result of the pandemic – these, too, have attracted some investor interest. This is partly owing
to investors often seeing potential for creation of residential building rights in connection to such properties. Most other retail, however, has been almost universally panned, with the few sales that have occurred having completed at generally high yield levels.
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● THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
»Despite yields being higher and retail performance being stronger than in continental Europe, some international investors, marred by the more dire outlook for retail in their home countries, may fail to see opportunities in the Nordics & Baltics« Is retail actually struggling? The fact that investors have shied away from many forms of retail almost entirely could suggest that those forms of retail are struggling. However, Newsec has found that this is not necessarily the case. Using a large sample of turnover data from a wide range of different kinds of physical retail establishments, Newsec finds that retail turnover in the Nordics & Baltics has, in many cases, recovered from the pandemic – and is even growing when compared to 2019. Graph (2) highlights this. The graph shows, perhaps expectedly, that neighbourhood centres and retail parks have both displayed growth in 2020 and 2021 turnover, when compared to 2019. However, interestingly, the graph also shows that regional centres struggled in 2020, but have fully recovered and saw their turnover grow by a formidable 5% in 2021 when compared to 2019. Furthermore, though district centres did not quite grow, their turnover in 2021 was more or less similar to 2019. It is thus only city malls which continue to post turnover figures substantially below those seen 2019 – likely owing to less people working from the office now than pre-pandemic. Though there have been some indications of growing investor interest for both regional and district centres, with a few noteworthy transactions in 2021 and 2022 (e.g. Alecta’s purchase of Solna Centrum in Sweden, or the Aurora portfolio in Norway), Newsec expects more such transactions will occur. These centres should trade at relatively low yield levels, since these retail sub-segments are not struggling as much as perhaps was expected. Despite yields being higher and retail performance being stronger than in continental Europe, some
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2. Post-pandemic turnover compared to pre-pandemic turnover – retail types* Per cent
20 10 0 -10 -20 -30 -40
Regional centre
City mall
District centre
Neighbourhoodcentre
Retail park
2021 turnover compared to 2019 March–December 2020 turnover compared to March–December 2019 *disregards periods in certain countries where retail was forcibly closed
3. Post-pandemic footfall compared to pre-pandemic footfall* Per cent
20 10 0 -10 -20 -30 -40 -50
Regional centre
City mall
District centre
Neighbourhoodcentre
Retail park
2021 turnover compared to 2019 March–December 2020 turnover compared to March–December 2019 *disregards periods in certain countries where retail was forcibly closed
international investors, marred by the more dire outlook for retail in their home countries, may fail to see these opportunities in the Nordics & Baltics for some time still – creating openings for other players.
Looking at footfall, the above trends are essentially mirrored. Graph (3) shows that footfall for regional and neighbourhood centres is up in 2021 compared to 2019, and for district centres it is only slightly down. City malls
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET ●
»Remarkarbly, almost all forms of retail tenants have seen turnover increase compared to 2019 in 2021«
lag a little further behind, but still perform substantially better in 2021 than 2020, indicating that recovery has begun. Footfall on the high street in the Nordics in 2021 is down an average of 29% - with the European average being closer to down 40%, and individual countries such as the Netherlands being down as much as 55%. Here, too, we see the Nordics outperforming much of the rest of Europe, proving that interest for physical retail in the region remains strong.
What elements does physical retail need to perform well? Though many forms of retail are high-performing, some still manage to stand out from the crowd, and have improved their turnover and footfall even more than others. This naturally begs the question – what tenants does
a shopping centre need to include, in order to maximize performance and withstand the growth of e-commerce?
fact that essentially all Nordic & Baltic shopping centres contain grocery & pharmaceutical elements, while many in the UK & the rest of Europe do not, is one of the key strengths of Nordic & Baltic retail. This is thus also one of the primary reasons that physical retail is in many ways already “back to normal” in the region.
Part of the answer to this question is likely to be in the data. Graph (4) shows which types of retail tenants have been performing best post-pandemic, in the strongest performing shopping centers. Remarkably, almost all forms of retail tenants have seen turnover increase compared to 2019 in 2021, with only books and other retail continuing to decline. Only two forms of retail perform worse in 2021 than in 2020 – pharmaceuticals, and groceries (which both saw abnormally strong growth in 2020). Nevertheless, these still continue to experience strong growth, and their ability to withstand the impacts of a pandemic make them a strong staple to build a shopping centre upon. Indeed, the
While groceries & pharmaceuticals ensure footfall through thick and thin, other forms of tenants also need to be present in a shopping centre to ensure its success. In 2021, the strongest performing tenants have been restaurants & cafés, opticians, toys, jewelry, home furnishing & furniture, other service & alcohol. In essence, this encapsulates the spirit of a successful shopping centre – providing a wide range of shops & activities for different demographics.
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4. Post-pandemic turnover compared to pre-pandemic turnover – retail tenants* Per cent
30 20 10 0 -10 -20
Construction
Toys
Alcohol
Sports & outdoor
Books
Shoes
Optician
Jewelry
Electronics
Restaurant & café
Groceries
Pharmaceutical
Other service
Other retail
Clothing
-40
Home furnishing & furniture
-30
2021 turnover compared to 2019 March–December 2020 turnover compared to March–December 2019
*disregards periods in certain countries where retail was forcibly closed
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● THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
»The next “flight shame” could very well be “e-commerce shame”«
What will the shopping centre of the future look like? Still, the threat from the long-term growth of e-commerce remains. E-commerce today accounts for roughly 13% of the total retail market in the Nordics & Baltics, but with growth averaging 20% per year in the past few years, could even account for as much as 30% by 2030. Though maturity for certain forms of e-commerce remain low (with e.g. groceries having a market share of just a few percent), strong growth is being seen across all sub-segments, even those that are less mature. For physical retailers, the key to withstanding the long-term threat from e-commerce is creating an attractive, mixed-use place that provides more than just retail to its customers. Industry professionals have long spoken about the importance of place-making, as well as providing an experience. Though retail is becoming more innovative in the Nordics, Newsec continues to think that retailers in the Nordics & Baltics still have some ways to go in terms of providing exciting experiences to customers. Padel courts, cinemas and restaurants may be one piece of the puzzle, but providing more unique experiences which people are happy to go out of their way for is also key. Strong additions could include ice-skating rinks, indoor downhill or cross-country skiing, swimming pools, darts, escape rooms, botanical gardens, axe throwing, experiences catering to children and much more. Retailers would be well-served to look abroad to other more mature retail markets in this regard. This, coupled with the provision of strong community service elements and building a community – elements which are already present in many Nordic &
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Baltic shopping centres – is likely to continue to be essential. Retail needs to be fun and/or convenient to survive. Beyond this, one of the most important trends in the retail space is the increased focus on ESG and sustainability, which in many ways is becoming ever more omnipresent in modern society. An increased number of retail tenants catering to this, in the form of e.g. second-hand shops, charity shops, and “re-use” shops, is an inevitability. However, Newsec also
expects that the conflict between two strong trends in the Nordics & Baltics – namely the expectation of next-day delivery when online shopping, as well as growing environmental awareness – is likely to become highlighted further in the societal discourse. Next-day delivery is generally not the most sustainable, with issues posed by both frequent customer returns and oversized packages, increasing customer environmental footprints. As a result, the next “flight shame” could very well be “e-commerce shame,”
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE WOLF OF MALL STREET – AN ANALYSIS OF THE PHYSICAL RETAIL MARKET ●
»It is important to capture every part of the customer's journey from idea to purchase of a product, and make it easy for them to shop in the ways they want«
Photo: Dreamstime
An increased focus on catering to and capitalizing on shoppers who “come to try, not to buy,” is essential as part of this. It is important to capture every part of the customer’s journey from idea to purchase of a product, and make it easy for them to shop in the ways they want. This could entail the creation of more showrooms, smaller scale retail shops, and more. Consumers are increasingly valuing high-end, exclusive shopping experiences, which could also entail the provision of more targeted concept malls. On the other end of the spectrum, discount stores are also thriving. By listening to both prospective and current customers and finding the right fit for each individual retail location, Newsec thinks that most retail can succeed, and sees great development and potential for almost all retail sub-segments.
which creates opportunities and challenges for physical and e-commerce retailers. Though physical retailers could be tempted to capitalize on the misfortune of e-commerce operators, the best course of action is likely to be collaboration rather than conflict. For one, shopping centres could look to increase provision of physical places of delivery, as well as expedited return, of packages. In general, physical retailers could also look to promote and complement e-commerce rather than shy away
from it, and provide attractive experiences for physical shoppers where they can e.g. both order products from a wide range of online retailers, and later collect these. Other trends that are likely to con tinue to build include the importance of evolving content in a shopping centre. More pop-up shops, as well as an increased digital presence, is essential to both attract shoppers to physical retail and provide interesting experiences for them while there.
For struggling retail owners seeing other retailers thriving, it remains important not to overreact. Adapting the contents or use classes of parts of a retail property, in order to play to its strengths, should not be a cause of major alarm. Rather, this should be seen as an opportunity to rise above the competition, while also creating value. If you need help maximizing potential out of your retail property, or are wondering where the opportunities in the market lie, do not hesitate to reach out to Newsec, the full service property house in the Nordics. Newsec has got all of your asset management and advisory needs covered – for the retail market, and beyond.
Adam Tyrcha, PhD adam.tyrcha@newsec.se Ulrika Lindmark ulrika.lindmark@newsec.se
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● THE SWEDISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE SWEDISH PROPERTY MARKET
Photo: Shutterstock
2021 SHATTERED ALL RECORDS – CAN 2022 KEEP UP THE MOMENTUM?
2021 proved to be yet another interesting year for the Swedish economy. The year was mostly marked by recovery, though some resurgence of the covid-19 virus, in both the delta and omicron variants, resulted in periodic sharpening of restrictions, impacting recovery to some degree. Economic growth, however, remained strong throughout the year, and ended up at 4.7 per cent for the year as a whole – one of the strongest growth rates among the economies that performed well in 2020. Unemployment fell to 7.5 per cent in 2021 – high in a European context, but low when factoring in the very high employment rate that Sweden also boasts. Inflation picked up towards the end of the year, and ended up at slightly above 2% in 2021
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– relatively low in a global context. The Swedish Riksbank is expected to leave the key interest rate at 0 per cent for the foreseeable future. The Riksbank has stated that the rate is set to remain unchanged until 2024, though an increase in 2023 would not be entirely surprising according to some industry forecasters. All in all, the Swedish economy continues to perform very well, and the country has navigated the covid-19 crisis well, economically speaking. Few things are stronger than the Swedish economy, but one is the Swedish real estate market – which has performed incredibly well in 2021 and thus far in 2022. The full-year transaction volume in 2021 ended up
at an enormous SEK 400 billion – almost double the previous transaction volume record, which was SEK 218 billion, set in 2019. This means that Sweden was the third strongest transaction market in Europe in 2021 – stronger than France, and not too far behind Germany and the United Kingdom. Though 2022 will have a tough time matching up to the record volumes seen in 2021, the year has come off to a strong start and is expected to post a very strong transaction volume, too – likely among the strongest of all time.
Contact: Adam Tyrcha, PhD adam.tyrcha@newsec.se
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE SWEDISH PROPERTY MARKET ●
»The full-year transaction volume in 2021 ended up at an enormous SEK 400 billion – almost double the previous transaction volume record«
Interesting trends on the Swedish property market in 2021 and 2022
RECORD-SHATTERING VOLUMES ON THE MARKET Every quarter in 2021 saw the strongest transaction volume of all time for that respective quarter – meaning that Q1 was the strongest Q1 of all time (SEK 52.1 billion), Q2 was the strongest Q2 of all time (SEK 108.2 billion), Q3 was the strongest Q3 of all time (SEK 85.7 billion), and Q4 was the strongest Q4 of all time (SEK 153.5 billion). The Q4 volume alone was stronger than the full-year transaction volume in 2018. The November transaction volume – SEK 76.3 billion – was the strongest transaction volume in any single month of all-time, and was not far off the full-year transaction volume seen in 2013. The strong volumes seen thus far in January and February 2022 indicate that the record volume for a Q1 of SEK 49.1 billion may be eclipsed in 2022.
M&A DEALS DROVE VOLUME – BUT A RECORD NUMBER OF TRANSACTIONS, TOO The record transaction volume was driven by a large number of different types of transactions. M&A deals ended up accounting for 39 per cent of the total transaction volume – the highest ever share taken by these. 25 M&A deals occurred throughout the year, with large deals including Corem’s acquisition of Klövern, Castellum’s acquisition of Kungs leden and Samhällsbyggnadsbolaget’s acquisition of Amasten. The year also saw a record number of property transactions as a whole, however, with 799 completed deals – of which 63 were above SEK 1 billion.
SEK 400 BILLION
Total investment volume in 2021
SEK 350 BILLION
Total investment volume expected in 2022
+3.75%
GDP growth expected in 2022
STOCKHOLM STRIKES BACK The Swedish capital city accounted for 47% of total transaction volume in 2021. This was the strongest share taken by Stockholm since 2009 – the city normally accounts for closer to 40% of the total transaction volume. Strong activity in Stockholm was primarily driven by some of the above-mentioned M&A transactions, as well as the sale of the Akelius portfolio to Heimstaden, and Heimstaden’s subsequent resale of the portfolio to a Heimstaden joint venture with Allianz.
ALL-TIME HIGH ACROSS MANY SEGMENTS The residential segment accounted for 35% of the total transaction volume in 2021 – the highest share ever taken by the segment. Volume within the residential segment amounted
to as much as SEK 138 billion – double the previous record volume. The second strongest segment was the office segment, at 22% of the total transaction volume, achieving a record transaction volume of SEK 83 billion. The office volume was driven by M&A transactions, as well as a few strong single property and portfolio deals. An astonishing 14 segments and sub-segments achieved record-high volumes in 2021, and it is much easier to list the segments and sub-segments that did not do so (these include hotels, retail, and the shopping centre subsegment), than those that did.
FOREIGN INVESTORS FALL BACK SOMEWHAT – BUT ARE LOVING LOGISTICS Foreign investors accounted for just 17% of the total transaction volume in 2021 – the lowest share taken by foreign investors since 2013. In the past few years, the average share taken by foreign investors has been between 25 and 30%. Nevertheless, in terms of the actual volume purchased by foreign investors, this amounted to SEK 65.0 billion – the strongest such volume since 2007. A lower share of the total transaction volume being taken by foreign investors is largely a result of the lack of foreign involvement in most major M&A deals throughout the year. Foreign investors have shown a particular interest in industrial properties – accounting for over 40% of the volume within the industrial segment, and close to 70% of the volume within the logistics sub-segment.
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● THE NORWEGIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE NORWEGIAN PROPERTY MARKET THE RETURN OF INTERNATIONAL INVESTORS SPARKS RECORD HIGH VOLUMES Economic activity is expected to continue to increase in 2022, primarily driven by industries which were severally hit by restrictions in 2020 and 2021. GDP is expected to grow by 3.5% for the full year of 2022. Lack of qualified workers and supply chain issues might affect this growth. Norway is another Nordic country which noted a record year for the real estate market. In total 420 transactions were noted amounting to NOK 167 billion – making this a year for the history books. The last quarter alone amounted to NOK 76 billion which can be put in relation to e.g. 2013 when the total transaction volume for the entire year amounted to NOK 40 billion. Apart from being characterized by record high volumes, several M&A deals and large portfolio transactions could be observed on the market – amount-
ing to a total of 34 transactions above one billion NOK. International investors have also returned to the Norwegian real estate market after showing a limited presence in 2020. International investors amounted to 18% of the total transaction volume, where Swedish buyers were the dominant international buyer contributing to half of that volume. With a strong financing market and a favorable macroeconomic climate, Newsec expects the real estate market to continue to prosper in 2022 although the full year volume is forecast to be lower than in 2021 due to less M&A activity.
Contact: Øyvind Johan Dahl ojd@newsec.no
Photo: Shutterstock
The Norwegian economy has continued to grow and activity sharply increased while unemployment continued to fall in the second half of the year. Society is on its way to fully reopening and there is an optimism on the market. High energy prices have however caused inflation to surge. Excluding energy prices and taxes the inflation is roughly around the inflation target of 2%. Salary increases and larger price growth in imported goods is likely to push underlying inflation higher. Due to the high inflation the Norwegian central bank raised rates at the end of 2021 from 0.25 to 0.50%. The Norwegian central bank thus became the first central bank in the Nordics to raise interest rates. An additional three hikes are expected in 2022. As a result of the increase in interest rates, 5 and 10 year SWAPs are now at pre-pandemic levels.
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NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE NORWEGIAN PROPERTY MARKET ●
»In total 420 transactions were noted amounting to NOK 167 billion – making this a year for the history books«
Interesting trends on the Norwegian property market in 2021 and 2022
LOGISTICS PERFORMS WELL – FAR FROM SURPRISING Logistics continue to be the second largest segment on the Norwegian transaction market. Never before has the share been as large as in 2021 and the segment amounted to 23% of the total transaction volume. The share is only expected to increase, and logistics is on track to amount to a quarter of the total transaction volume. As the demand for logistics hubs spikes and the segment makes its mark on the transaction market, the price is bound to follow suit and since the beginning of the pandemic the yield for prime assets have decreased by 75 basis points. Even more remarkable is that normal assets have seen a decrease of 100 basis points since the beginning of the pandemic. Logistics has thus noted a larger yield compression than offices, with a 40% decrease compared to a 35% decrease for offices since 2014.
THE RETURN OF THE NEW OFFICE The rental market has bounced back from the slow pace which had been observed since the beginning of the pandemic. Although rental levels have remained roughly unchanged, search processes have been substantially longer than prior to the pandemic, but are now back at pre-pandemic levels. An increase in demand for modern premises of high standard near public transportation hubs has been noted as well as flexibility in rental contracts. Especially the flexibility to in-
NOK 167 BILLION
Total investment volume in 2021
NOK 150 BILLION
Total investment volume expected in 2022
sale of Oslo Areal, the ABP portfolio, Samhällsbyggnadsbolaget’s acquisition of Trygge Barnehager and their acquisition of Solon Eiendom. Even the much-questioned retail segment was part of the action through the Aurora portfolio. The year was truly the year of M&A transactions on the real estate market and in the last quarter more deals with a value above NOK one billion were noted than in the full year of 2020. Less M&A activity is expected in 2022.
RETAIL AND HOTELS ARE BACK IN BUSINESS
+3.4%
GDP growth expected in 2022
crease or decrease space as required has become an important part when choosing premises. On the investment market, yield compression within the Oslo CBD is flattening and has probably reached bottom levels for now. Areas surrounding the CBD are instead expected to increase in popularity on the market and the gap between these areas and the CBD is expected to tighten.
THE YEAR OF M&A DEALS As the global M&A market reaches record levels, so does the M&A share of the real estate transaction volume in Norway. Several large deals have been noted such as the
Both hotels and retail have done a comeback throughout the year, making 2021 perhaps the end of the downfall which begun just a year prior. The two hotels Zander K in Bergen and Quality River Station in Drammen which were pulled from the market at the beginning of the pandemic were put back on the market in 2021. The two hotels were both sold during the year, at competitive market levels. For the retail segment the most notable transactions in 2021 were the Aurora portfolio and the Jærhagen Shopping center, both of which went for over or around one billion NOK. Newsec expects the comeback to continue in 2022, with increased activity within both segments, with large portfolio premia being observed and sales at pre pandemic levels.
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● THE DANISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE DANISH PROPERTY MARKET The Danish economy continues to expand. In Q4 2021, GDP was 3% above the pre-pandemic level and it is estimated to have grown by 3.9% in 2021. The economy is expected to grow by 2.8% in 2022. So far, businesses have, in general, made it through the pandemic relatively well and business confidence remains positive in most industries. Private consumption has increased substantially since the reopening of society in the spring of 2021 and is expected to grow rapidly in 2022 as well. Danish households have resumed their consumption to the usual extent at the end of 2021. Incomes and wages are expected to continue to grow, and households are likely to reduce the propensity to save in coming years. The composition of consumption is still distorted, with goods making up a larger share than normal and services making up a smaller share. In its latest forecast, the Ministry of Finance expects consumption to gradually approach its “normal” composition from before the COVID-19 crisis. Employment skyrocketed throughout 2021 to new record levels. From January to November the number of employees increased by 154,000. This is significantly more than previously expected. Employment has risen in most industries. Unemployment has dropped to 2.5% and there is a widespread shortage of labor. The labour market is reflecting a booming economy with increasing pressure on the economy's available resources. Inflation accelerated to more than 3% in Q4 2021, mainly due to the sharply rising energy prices. Consumer prices rose by 1.9% on an annual basis in 2021. Inflation is expected to climb to 2.2% in 2022 despite forecast
22
Photo: iStock
THE PROPERTY MARKET RIDES THE WAVE OF A FLOURISHING ECONOMY
declining energy prices. This is due to the increasing utilisation of capacity in the economy. Rising inflation is affecting interest rates. The 10-year Danish government bond yield has risen from -0.5% at the beginning of 2021 to -0.2% at the beginning of 2022. However, there were significant fluctuations with interest rates tending to fall with new outbreaks of COVID-19 and surges in infection rates. Nevertheless, interest rates are still low and the Ministry of Finance forecasts this to continue in 2022. Based on market expectations, the average yield on a 10-year government bond in 2022 is expected to stay negative at around -0.1%. Thus, real interest rates will remain very low. The property transaction volume reached a record level of DKK 98 billion in 2021 - up by 37% compared to 2020. The growth was mainly driven by strong demand for residential properties. Investment in residential assets reached DKK 53 billion making it, by far, the most transacted property
type. Investment in industrial and logistic properties also contributed significantly to investment growth, almost doubled from DKK 6.6 billion in 2020 to DKK 12.4 billion in 2021 – also a record high. Investment was to a great extend driven by foreign investors. Overall, they represented 60% of the transaction volume. Foreign buyers were especially targeting industrial & logistic assets (74% share) and residential properties (63% share). The outlook for 2022 is continued strong investment activity. Momentum from 2021 has continued into 2022 with a number of large transactions in January and a favorable macroeconomic environment going forward with high economic growth, low (albeit moderately rising) interest rates, ample access to capital and positive attention from foreign investors.
Contact: Robin Rich robin.rich @newsec.dk
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE DANISH PROPERTY MARKET ●
»The property transaction volume reached a record level of DKK 98 billion in 2021 – up by 37% compared to 2020«
Interesting trends on the Danish property market in 2021 and 2022
WILL 2022 MARK THE RETURN OF RETAIL? Retail properties have been in low demand by investors in recent years, but the downward trend may be turning. Transaction volume soared by 38% from 2020 to 2021 – mainly due to a number of large deals involving shopping centres – such as BIG Shopping Center in Herlev and Kronen in Vanløse – and supermarket portfolios. The weak market has seen yields soften since 2019, but there are signs that this trend is bottoming-out. Investors may find retail yields increasingly attractive compared to other asset types where yields have compressed steadily and are now relatively expensive compared to retail.
DIVESTMENT BY FOREIGN OWNERS MAY INCREASE OFFICE INVESTMENT ACTIVITY Office properties accounted for an atypically low share of the transaction market in 2021. Lack of product is restraining investment activity. In 2021, however, foreign property owners increased their divestment activity significantly representing 42% of the office transaction volume compared to 29% in 2020. Looking into 2022 office investment may experience a comeback driven by more potential sellers – Danish as well as foreign.
DKK 98 BILLION
Total investment volume in 2021
DKK 85–90 BILLION
Total investment volume expected in 2022
leases, where the yield in the Copenhagen area fell by 75–125 basis points. Prime logistics yields fell below 5% in 2021 and is currently at around 4.25%. Looking into 2022 yields may compress further as many foreign investors continue to show interest in this segment because yield levels in Denmark are still relatively high compared to neighboring countries. Foreign investors accounted for 70% of the transaction volume in this segment in 2021.
RESIDENTIAL PROPERTIES REMAIN ON TOP
+ 2.8%
GDP growth expected in 2022
WILL FOREIGN INVESTORS DRIVE LOGISTICS YIELD COMPRESSION IN 2022?
It will not come as a huge surprise if the residential segment does come in on top as the most sought-after asset class in 2022. Strong demand prompted by demography and income growth combined with low interest rates and rapid expansion of new residential stock provides opportunities for long term investors.
Transactions in industrial and logistics properties almost doubled in 2021 compared to 2020. The massive interest resulted in a sharp yield compression. The development was most distinct for modern, well-located warehouse and logistics properties with long
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● THE FINNISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE FINNISH PROPERTY MARKET
2021 – A YEAR OF UPS AND DOWNS BUT A PROMISING FORECAST GOING INTO 2022 The Finnish economy has, much like the rest of the world, been affected by covid-19 in 2021. Despite hitting the intended 80% vaccination rate in the last quarter of the year, Finland has had strict restrictions in both society as well as for foreigners entering the country. The year of 2021 started slow, but the economy made quite a comeback in the last quarter where the unemployment rate dropped to the lowest it has been since before the pandemic. Economic sentiment hit all-time highs both in October and November and the inflation rate was at 3.7% in November, the highest it has been for over 10 years. Thus, hopes are high that Finland will maintain and also increase its economic growth in 2022.
The Nordic real estate markets saw exceptional activity in 2021, especially those in Sweden, Norway and Denmark, with new record-breaking transaction volumes. The 2021 Finnish
transaction volume was not a record volume, but the strongest since 2018. Since the Finnish market often follows the Nordic market with a slight delay, liquidity is expected to remain strong in 2022. Many indicators show that the increased activity of the second half of 2021 will continue, and with increased cross-border flows and active international investors in residential, office, logistics and public property segments, it is possible that record Finnish transaction volumes could be forthcoming in 2022.
Contact: Valtteri Vuorio valtteri.vuorio@newsec.fi
Photo: Shutterstock
The Finnish real estate market had a very different year in 2021 compared
to 2020. After the U-curve of 2020 in the real estate investment market (Q2-Q3 2020), activity intensified towards the end of the year. In 2021 on the other hand, the first quarter was quiet, followed by a booming spring and summer. In the last quarter of 2021, trading volume was EUR 2.42 billion. In the light of history, this is a high number, as the average quarterly trading volume in 2015-2021 has been EUR 1.8 billion. Consequently, market liquidity remains strong, with an active end of the year carrying momentum into early 2022. Finland's transaction volume in total was approximately EUR 7 billion in 2021.
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NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE FINNISH PROPERTY MARKET ●
»Market liquidity remains strong, with an active end of the year carrying momentum into early 2022«
Interesting trends on the Finnish property market in 2021 and 2022
FOREIGN INVESTORS CONTINUE TO DRIVE THE FINNISH REAL ESTATE MARKET Foreign investors accounted for 56 % of the total transaction volume. Swedish investors in particular have continued to take an active part in the Finnish property market. 51% of the total transaction volume was transacted in the Helsinki Metropolitan Area.
THE RESIDENTIAL SEGMENT TAKES FIRST PLACE WITH SWEDISH INVESTOR HEIMSTADEN BOSTAD AB ENTERING THE MARKET The residential segment was the largest segment with a transaction volume of EUR 2.6 billion and 55 % of the transactions consisted of new residential stock. The interest of international investors in residential properties continued to be strong. The Swedish investor Heimstaden Bostad AB entered the market as a new investor, acquiring apartments in Helsinki and Kuopio, among others. In addition, interest among international investors in residential projects under development has been very strong.
INVESTORS BROADENING THEIR VIEW – LARGE OFFICE TRANSACTIONS OUTSIDE HELSINKI The office segment share remained stable and was approximately 30 % of the total transaction volume, which is perfectly in line with the five previous years. The most significant office transactions of Q4 included the sale of the HQ of Metsä Group & Mela in Espoo to
A CONTINUED COOLER INTEREST IN THE RETAIL SEGMENT – GROCERIES SAVING THE DAY
EUR 7.0 BILLION Transaction volume in 2021
EUR 8.0–8.5 BILLION Transaction volume expected in 2022
+2.8%
GDP growth expected in 2022
NREP for EUR 90 million, as well as the Fredriksberg D office building in Helsinki developed by NCC and sold to Aberdeen Property Nordic Fund for EUR 75 million. The largest office transaction of Q4 occurred in Oulu where LCN Capital Partners entered a “forward funding” agreement with Nokia for the construction and lease of new facilities to Nokia. The year 2021 has seen an increasing office investment demand outside the Helsinki Metro politan area in prime assets, and it is notable that reasonably large office transactions have been completed outside the Helsinki region.
The transaction volume of retail properties continued to reduce to approximately EUR 650 million in 2021 and accounted for only about 9 % of the total volume. In 20152018, the share of retail properties was on average 28% and in 20192020 it averaged about 15%. Thus, the trend is clearly declining. Recently, grocery-driven local service centers near populated areas and transport hubs, individual grocery stores and their portfolios, as well as high-quality big-boxes have become popular. Grocery store properties accounted for a big part of the retail property segment, where for example Cibus Nordic Real Estate and domestic funds were active.
DECLINING YIELDS AFTER ALL TIME HIGH VOLUMES WITHIN THE LOGISTIC SEGMENT Logistics properties saw a turnover of approximately EUR 900 million – as much as in the previous two years combined. This activity has also been reflected in a sharp decline in prime yield for logistics properties. In the Helsinki Metropolitan area, the lowest yields have fallen below 4 %. In 2021, the total transaction volume in logistics properties rose to the third largest, after residential and offices. Further increases within this segment are expected and international investors are expected to remain active.
25
● THE ESTONIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE ESTONIAN PROPERTY MARKET
Photo: Magnus Heinmets
ESTONIA’S REAL ESTATE INVESTMENT MARKET CLOSE TO ALL-TIME RECORD VOLUME
In 2021, Estonia maintained the fastest economic growth in the Baltic region, with GDP growing 8.1% from the prior year. Construction, IT, real estate and transport- and warehousing activities contributed the most to the economic growth. However, not all sectors performed at pre-pandemic levels. Accommodation and food services, the hardest hit, remained 15% down versus two years ago, and manufacturing has not yet fully recovered either. The labour market has heated up amid the economic growth. Unemployment in Estonia declined to 6.4% last year and is forecast to drop to 5.4% in 2022. Inflation, driven mainly by increases in energy prices, rose rapidly, averaging 4.5% over the year and reaching 12.2% at year-end. Price rises in Estonia were among
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the fastest in Europe and the Baltics. Consumer prices are projected to continue rising in 2022, about 6% on average, with the pace slowing down in the second half of the year. According to the latest forecasts, the Estonian economy will grow 3.5% in 2022. Real estate investments grew more than 90% in 2021, falling just 9% short of 2015’s record level. Investments in cash-flow generating commercial property totalled nearly EUR 450 million, with an all-time quarterly record of EUR 285 million worth of deals in Q4. The previous record was in Q3 2015, when investments totalled EUR 230 million. Investment transactions in Estonia in 2021 accounted for 30% of the total Baltic investment market. The office segment, which
has recovered and grown by more than 30%, was sharply outperformed in 2021 by the retail and the ware housing- and industrial segments, which garnered 42% and 28% of investments respectively. While there were more acquisitions of retail properties late in the year, activity in the industrial and logistics segments remained strong throughout the region. Newsec forecasts Estonia’s real estate investment market to see some EUR 360 million worth of deals in 2022, about 55% more than the average for the last 5 years.
Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE ESTONIAN PROPERTY MARKET ●
»Investments in commercial property totalled nearly EUR 450 million, with an all-time quarterly record of EUR 285 million worth of deals in Q4«
Interesting trends on the Estonian property market in 2021 and 2022:
THE MARKET FOR INVESTMENT TRANSACTION VOLUME DOUBLES The size of Estonia’s investment transaction market nearly doubled in 2021 while the number of transactions more than quadrupled. The last quarter of the year alone saw 10 investment deals with a sale price of over EUR 5 million. A total of 25 deals were completed in Estonia last year, almost catching up to Lithuania, where 27 deals were done in 2021. The Estonian market mirrored the trends in the Baltics, where 2021 was characterised by investor activity and increasing market liquidity. Significant deals included properties sold by East Capital, Eften Capital and Baltic Horizon investment funds, for which the holding period had ended. The future will bring growth in the supply of professionally managed properties acquired by investment funds, with their value maintained and continuously improved by updating the assets’ concepts and investing in their sustainability.
for 3-4 years, the second half of last year can safely be considered a break- through for the retail segment.
RETAIL PROPERTY DEALS RETURN TO THE MARKET
TALLINN’S NEWEST SHOPPING CENTRE SOLD BY AUCTION
In 2021, the value of retail property transactions was the lowest among the Baltic countries, though the number of transactions was similar. It should be recalled that investment into retail has been viewed with caution in recent years throughout the region and that transactions in this segment are less frequent. As there had been no notable acquisitions in Estonia
After several failed attempts to sell the T1 Mall of Tallinn, the bankruptcy administrator auctioned off the 55,000 sqm multi-storey shopping centre. Lintgen Adjacent Investments, representing the mall's creditors, acquired the project for EUR 55 million. Following the acquisition, there are plans to refurbish the shopping centre and change its concept, invest in its management
EUR 450 MILLION
Total investment volume in 2021
and provide a new direction for development. It is hoped that additional investments of EUR 10 million to upgrade the project will make it possible to restore the shopping centre to viability as early as 2022.
A RECORD YEAR FOR THE INDUSTRIALAND LOGISTICS SEGMENT
EUR 360 MILLION
Total investment volume expected in 2022
+3.7%
GDP growth expected in 2022
About 40% of all industrial real estate investments in the Baltics were made Estonia. This segment has seen a particularly strong demand over the last few years, with deals in 2021 worth a total of approximately EUR 125 million. That equals the same amount invested into Estonia over the previous 5 years combined. This well-developed property segment is likely to remain in demand this year.
THE DEMAND FROM LOCAL-CAPITAL INVESTORS IS GROWING The vast majority of the investors who acquired real estate in Estonia were domestic companies. The Estonian market also stood out for the increased share of investments made by non-traditional professionally managed investment funds. Noteworthy among new investors on the Baltic market is the Finnish investment fund Titanium Baltic Real Estate, which will seek to expand its portfolio of holdings throughout the Baltic region.
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● THE LITHUANIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE LITHUANIAN PROPERTY MARKET INVESTMENT MARKET ACTIVITY IN LITHUANIA RETURNS TO RECORD LEVEL the year, will continue rising and this year could potentially reach around 7.0%. A shrinking supply of labour will continue to put upward pressure on wages, and companies that are expanding rapidly will continue to face challenges in attracting talent. Activity on the Baltic property investment market increased notably in 2021, with transactions reaching a record level. Investment deals in Lithuania amounted to EUR 444 million, an increase of almost 70% from 2020. Activity was high throughout the year, but an especially good last quarter took the total amount of investments for the year into record territory. In fact, as the total is very similar to that in 2019, it is safe to say Lithuania has returned to pre-pan-
demic levels. Growth was mainly driven by deals within the retail and industrial segments, but investments were spread roughly equally across all the traditional commercial property segments. Of special note in 2021 was the emergence of a new segment in the market – demand for commercial residential property for lease projects was met through advance acquisition agreements. A similar level of investment activity is expected in 2022, and Lithuania’s share of investments, which has declined over the last several years, is expected to increase in the Baltic context.
Contact: Kristina Živatkauskaitė k.zivatkauskaite@newsec.lt
Photo: Rehau
The growth of Lithuania's economy in 2021 matched the latest forecasts, with GDP growing by 4.8%. The main contributors were strong exports and industrial production growth of nearly 20%. Rapidly falling unemployment put pressure on the labour market, with job vacancies surging and average wages increasing about 10% throughout the year. Meanwhile, positive trends in consumer confidence and economic sentiment spurred household consumption and boosted the retail sector. IT and logistics remained among the fastest growing sectors, while tourism and accommodation services also showed early signs of recovery. In 2022, the Lithuanian economy is currently forecast to grow by about 3.2%. Inflation, which has risen rapidly and was at 4.6% by the end of
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NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE LITHUANIAN PROPERTY MARKET ●
»Investment deals in Lithuania amounted to EUR 444 million, an increase of almost 70% from 2020«
Interesting trends on the Lithuanian property market in 2021 and 2022:
MORE COMMERCIAL RESIDENTIAL INVESTMENT DEALS SEEN IN THE FUTURE As investors’ demand and competition for projects grows, market players are making increasing efforts and giving attention to segments that are still small and niche in the Baltics. Residential rental projects are attracting more and more interest among investors. The investment funds are available and what is needed now, is to find the right product and project development partners. Residential rental property has a broad promise in Lithuania and the other Baltic countries, with room for the number of investments per year to grow. Compared to other Northern European countries where this segment accounts for about 30% of all investments on the market, the development potential is big.
INDUSTRIAL SEGMENT HAS GROWTH POTENTIAL ON SALE-LEASEBACK BASIS Growing investments to develop new industrial projects in Lithuania have also attracted the attention of real estate investors in recent years. Projects built for the specific needs of manufacturing companies are both long-term investments and attractive investment properties with long-term occupants. Transactions for the sale of built-to-suit projects that are still in the construction phase show the strong demand for industrial property. A surge in the development of industrial property in Lithuania’s
INVESTORS ARE PUTTING SUSTAINABILITY AT THE TOP OF THE AGENDA
EUR 444 MILLION
Total investment volume in 2021
EUR 450 MILLION
Total investment volume expected in 2022
All players in the market are getting seriously into the sustainability game, which is becoming somewhat of a routine. With banks now setting rules for green financing, the investment market is closing the circle, from the ambitions of builders and developers to the needs of tenants and the demands of investors and financiers. Modern project development without sustainability certification is becoming unlikely.
GEOGRAPHICAL DIVERSIFICATION OF INVESTMENTS
+3.2%
GDP growth expected in 2022
outlying regions will also boost investor activity beyond the area of the capital city.
SMALL DEALS DOMINATE DUE TO LACK OF SUPPLY Investment funds operating in the Baltics have plans to invest in target assets, but those plans exceed the supply of such properties. The largest deal of 2021 in Lithuania, with a value of EUR 40 million, ranked only 10th on the list of the largest deals in the Baltics. For larger deals, a supply of new projects needs to increase.
In Lithuania, it is easier to diversify real estate investments geographically. The more developed regions are attracting investor interest in both the commercial and industrial segments and diverting investments is less risky. The purchasing power and labour force in outlying regions are components of business growth and also a factor that boosts investor confidence. In recent years, most new industrial projects have been realized in the regions of Kaunas, Klaipeda, Kedainiai, Naujoji Akmene and Alytus. Future investments will also be seen in the capital of Vilnius and the regions of Kaunas, Kedainiai, Klaipeda and Panevezys.
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● THE LATVIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE LATVIAN PROPERTY MARKET
Photo: ADM Holding
RIGA’S INVESTMENT MARKET IN 2021 WAS ACTIVE AS NEVER BEFORE
At the start of 2021, the Latvian economy continued its 2020 trend of relative sluggishness and unpredictability, with above-average unemployment. But Q2 was more active: a GDP jump of 10.3% from the year before contributed to inflation of 2.7%, while unemployment decreased slightly to 7.9%. In Q3, GDP grew by 5.1% and inflation was 4.2 %, while unemployment fell notably to 7.2%. For Q4, preliminary figures put GDP growth at 3.4% and unemployment at 7.6%. Average inflation for the year was 3.2%. Forecasts for 2022, as updated in December 2021, are slightly less optimistic than before. Overall, however, 2021 was better than initially expected. While some segments remained weaker than in pre-Covid times (hotels,
30
catering), others like logistics, grocery and healthcare improved, spurring economic growth and employment. Rising energy prices gave some sense of uncertainty at the end of the year. Nevertheless, the latest forecasts for 2022 envisage GDP growth of 4.1% with a 6.6% inflation rate and 6.8% unemployment. The office market remained active despite the popularity of working from home, with decreasing vacancy rates and new projects. Some of the large office developments put on hold in 2020 began construction in 2021, making the city of Riga more attractive to international companies. The real estate investment market in Latvia, meanwhile, was in record
territory. Deal value of about EUR 610 million in 2021 was the most ever in Latvia and exceeded the figure for 2020 by 144%. There were 15 significant investment transactions in various sectors in the year, led by retail, with deals for one-fifth of the total value signed in the last quarter. It will be difficult to maintain similar levels of investment in the coming years, though the number of investment transactions may grow further and maintain development momentum.
Contact: Inita Nitiša i.nitisa@newsec.lv
NEWSEC PROPERTY OUTLOOK • SPRING 2022
THE LATVIAN PROPERTY MARKET ●
»Deal value of about EUR 610 million in 2021 was the most ever in Latvia and exceeded the figure for 2020 by 144%«
Interesting trends on the Latvian property market in 2021 and 2022
MORE THAN HALF OF INVESTMENT GOES TO RETAIL Of 15 investment deals 7 were in the retail segment and accounted for more than 50% of total deal value. The largest retail transactions were the acquisitions of the Alfa shopping centre by Lithuania’s Akropolis Group, acquisition of the Stockmann shopping centres in Riga and Tallinn in one transaction by Estonia’s Viru Keemia Grupp, and acquisition of the Ozols shopping centre by Titanium Baltic Real Estate. Ozols (formerly Azur) was previously acquired by KS Holding in 2016 and redeveloped over 3 years.
NEW FOREIGN INVESTOR ON THE LATVIAN MARKET A new Finnish investment fund entered Latvia by acquiring the Ozols shopping centre, as noted above. The fund is focused on the Baltic real estate market, diversifying its investments in housing, business, logistics and industrial properties, hotels and commercial and social real estate. It invests mainly in new and contemporary properties.
OFFICE DEVELOPMENTS AND NEW LEASING DEALS Construction commenced on several large office projects in 2021: Preses Nama Kvartals, Verde, Elemental Skanste and New Hanza. In total, there are plans to deliver
NEW PRE-LEASE DEALS FOR SEB
EUR 610 MILLION
Total investment volume in 2021
EUR 380 MILLION
Total investment volume expected in 2022
+4.1%
GDP growth expected in 2022
more than 240,000 sqm of new office space by the end of 2023, mostly Class A. These projects are equal to 32% of current space in the Riga office market, which will provide tenants with a great opportunity to choose from a variety of high-class offices. Still, the market needs to be ready to absorb so much space over a short time period. Intense movement from lower class offices, expansions, and the entrance of new local and foreign businesses will all be needed to avoid oversupply on the market.
SEB Group’s business services centre in Riga has signed an agreement with the real estate developer GALIO Group to move its office to the newly constructed GUSTAVS business centre on Gustava Zemgala Street in the first half of 2023. SEB will occupy around 11,000 sqm, accommodating more than 1,000 employees. In addition, SEB Bank in Latvia has signed a pre-lease office headquarter agreement with Linstow Baltic in the planned office building at Ernesta Birznieka-Upisa 2, in the very centre of Riga. SEB will become the anchor tenant of the new office development. Preparation works have started already, with a planned opening for 2025.
PAN-BALTIC INVESTORS DOMINATE THE MARKET Overall, the real estate investment market last year was driven by pan-Baltic investors. Latvia had the smallest share of capital from non-Baltic investors of all the Baltic countries, at about 15% of total transaction value. Close to 85% of total investment was carried out by professional investors, mainly in large deals. Average deal size of EUR 40 million in 2021 was nearly double the previous year’s amount.
31
● EUROPEAN PROPERTY MARKETS NEWSEC PROPERTY OUTLOOK • SPRING 2022
EUROPEAN PROPERTY MARKETS EUROPEAN REAL ESTATE, BUSINESS AS USUALS A year in Review Investment in European commercial real estate was back in line with pre-COVID levels in 2021, reaching €272.7bn, a 15% increase compared to 2020 levels. Across the asset classes, logistics was the overall winner with investment into logistics up by 51%, reaching an all-time high. Office investment increased by 10% and hotels by 33%, while retail investment did not fair too well over the course of the year (-7%). Country wise, there were significant improvements in investments in the UK, Germany, Sweden and Spain. Investment volumes in France, the Netherlands and Belgium remained below pre-COVID levels. Over the course of the year, yields were fairly stable for prime offices *and even for prime high street retail for most part. No surprise, prime logistic yields continued to compress. Prime rents also surprised, with the prime market not taking much of a hit and instead in some markets prime rents, particularly for offices, climbed higher than before the onset of the pandemic. Take-up began to recover from the second quarter of the year as lockdowns and restrictions eased. Across Europe’s 17 main markets 8.52m sqm was transacted in 2021, which although is below the pre-crisis levels (-8%), has continued to improve across the rest of the year and we expect it to continue on this trend. New phase of the real estate cycle The increased activity into real estate over the course of 2021 points to the fact that we are now entering a new
32
phase of the real estate cycle. In this cycle we can expect to see more of what we have seen during the pandemic, with strong investor interest towards non-traditional asset classes. ESG will play an increasingly important part this year. This is partly a result of the real estate sector alone contributing to approximately 30% of global annual greenhouse gas emissions, with investors and occupiers now beginning to look into making significant changes to address this. Therefore, we will see more focus on futureproofing of assets in the traditional sectors as well as an increased focus on acquiring modern assets, particularly for offices. This is likely to lead to a widening of the gap between the market average and prime. Logistics: No signs of cooling The logistics sector will continue full steam ahead, with no signs of cooling. It had its most successful year in 2021, setting yet another new record for volume of letting transactions over just nine months of the year, increasing by 29% in the six most active markets. The sector continues to benefit from growth in consumer demand, however will soon have to tackle issues on the horizon, one of which is limited supply. Speculative development remains limited. As a result, we anticipate strong rental growth across the sector. It will continue to remain a strong sector of interest. In 2021, €40 billion was invested into European logistics, which is an increase of 59% on the year before. As there is strong competition for any produc,t we are likely to see further yield compression on the back of the compression we have already witnessed during the pandemic.
Retail: the only way is up? The retail sector has had a difficult time over the last few years, particularly badly hit during the pandemic. Over 2021 retail investment in Europe was €24.4bn, down 12% on 2020. All
NEWSEC PROPERTY OUTLOOK • SPRING 2022
EUROPEAN PROPERTY MARKETS ●
Photo: Dreamstime
»The increased activity into real estate over the course of 2021 points to the fact that we are now entering a new phase of the real estate cycle«
countries witnessed a decline in retail investment apart from the UK (+64%) and Ireland (+ 260%). During the course of 2021, investors began showing interest back into
retail. Investors are now seeking opportunities particularly in shopping centres. This year will be a turning point for the sector. We do anticipate retail to stabilise over 2022 as footfall begins to resume to pre-pandemic
levels across high streets. Last year we saw investors favour retail parks and supermarkets across Europe, something we are likely to witness further this year.
33
● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • SPRING 2022
MACROECONOMIC DATA Sweden Economic Indicators
Interest Rates
Per cent
Source: Newsec
6
Per cent
Source: Swedbank, Swedish Central Bank
3
4 2 2 0
1
-2 0 -4 -6
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
-1
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E Central Bank Interest Rate
STIBOR 3M
STFIX 5Y
Inflation, Yearly Average
Norway Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
Source: BNP
3
4 2 0
2
-2 1
-4 -6 -8
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
0
Central Bank Interest Rate
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E NIBOR 3M
SWAP 5Y
Inflation, Yearly Average
Finland Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
Source: BNP
2
4 3 2
1
1 0 -1
0
-2 -3 -4 -5
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
34
Inflation, Yearly Average
-1
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E Central Bank Interest Rate
EURIBOR 3M
SWAP 5Y
NEWSEC PROPERTY OUTLOOK • SPRING 2022
MACROECONOMIC DATA ●
BUY THE COMPLETE DATA SET adam.tyrcha@newsec.se
Denmark Interest Rates
Economic Indicators Per cent
Source: BNP
Per cent
Source: BNP
2
5 4 3
1
2 1 0
0
-1 -2 -3
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
-1
Private Consumption, Annual Percentage Change
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E Central Bank Interest Rate
Employment, Annual Percentage Change
CIBOR 3M
SWAP 5Y
Inflation, Yearly Average
Estonia Economic Indicators
Interest Rates
Per cent
Source: BNP
10
Per cent
Source: BNP
2
8 6 1
4 2 0
0
-2 -4 -6
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
-1
EURIBOR 3M
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E SWAP 5Y
Inflation, Yearly Average
Latvia Economic Indicators
Interest Rates
Per cent
Source: BNP
6
Per cent
Source: BNP
2
4 2 1
0 -2 -4
0
-6 -8 -10
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
-1
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E EURIBOR 3M
SWAP 5Y
Inflation, Yearly Average
35
● MACROECONOMIC DATA NEWSEC PROPERTY OUTLOOK • SPRING 2022
MACROECONOMIC DATA Lithuania Economic Indicators
Interest Rates
Per cent
Source: BNP
Per cent
6
Source: BNP
2
4 1
2 0
0
-2 -4
-1
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E GDP, Annual Percentage Change
Employment, Annual Percentage Change
Private Consumption, Annual Percentage Change
EURIBOR 3M
Inflation, Yearly Average
GDP Growth GDP Growth 2021–2022E Per cent
Source: Newsec, BNP
9 8 7 6 5 4 3 2 2021
1 0
2022E Sweden
2021
36
Norway
Finland
2022E
Denmark
Estonia
Latvia
Lithuania
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E SWAP 5Y
NEWSEC PROPERTY OUTLOOK • SPRING 2022
PROPERTY DATA ●
PROPERTY DATA
BUY THE COMPLETE DATA SET adam.tyrcha@newsec.se
Office rents Prime Office Rents (CBD) | Nordic Region
Source: Newsec
Per cent
EUR/m2
8
800
6
600
4
400
2
200
0
0
-2
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
-200
Prime Office Rents (CBD) | Baltic Region
Source: Newsec
Per cent
EUR/m2
3
300
2
200
1
100
0
0
-1
Tallinn
Riga
-100
Vilnius
Average Annual Rental Growth 2017–2021 (left axis)
Average Annual Rental Growth 2017–2021 (left axis)
Forecast Average Annual Rental Growth 2022E–2024E (left axis)
Forecast Average Annual Rental Growth 2022E–2024E (left axis)
Rent Level 2022E (right axis)
Rent Level 2022E (right axis)
Office yields Prime Office Yields | Nordic Region
Prime Office Yields | Baltic Region
Per cent
Source: Newsec
5,5
Per cent
Source: Newsec
8
5,0 4,5
7
4,0 3,5
6
3,0 2,5
2014
2015
Stockholm Oslo
2016
2017
2018
Gothenburg Helsinki
2019
2020
2021
2022E
5
Malmö Copenhagen
2014
2015
Tallinn
2016
2017
2018
Riga
2019
2020
2021
2022E
Vilnius
Retail rents Prime Retail Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
3
3000
2 1 0
2000
-1 -2 1000
-3 -4 -5 -6
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
0
Prime Retail Rents | Baltic Region
Source: Newsec
Per cent
EUR/m2
3
600
2
500
1
400
0
300
-1
200
-2
100
-3
Tallinn
Riga
Vilnius
Average Annual Rental Growth 2017–2021 (left axis)
Average Annual Rental Growth 2017–2021 (left axis)
Forecast Average Annual Rental Growth 2022E–2024E (left axis)
Forecast Average Annual Rental Growth 2022E–2024E (left axis)
Rent Level 2022E (right axis)
Rent Level 2022E (right axis)
0
37
● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • SPRING 2022
PROPERTY DATA Retail yields Prime Retail Yields | Nordic Region
Prime Retail Yields | Baltic Region
Per cent
Source: Newsec
Per cent
6
9
5
8
4
7
3
2014
2015
Stockholm Oslo
2016
2017
2018
2019
Gothenburg Helsinki
2020
2021
2022E
6
Malmö Copenhagen
Source: Newsec
2014
2015
Tallinn
2016
2017
2018
Riga
2019
2020
2021
2022E
Vilnius
Logistics rents Prime Logistics Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
6
140
5
120
4
100
3
80
2
60
1
40
0
20
-1
Stockholm Gothenburg
Malmö
Oslo
Helsinki
Copenhagen
0
Prime Logistics Rents | Baltic Region
Source: Newsec
Per cent
EUR/m2
4
80
3
60
2
40
1
20
0
Tallinn
Riga
Vilnius
0
Average Annual Rental Growth 2017–2021 (left axis)
Average Annual Rental Growth 2017–2021 (left axis) Forecast Average Annual Rental Growth 2022E–2024E (left axis) Rent Level 2022E (right axis)
Forecast Average Annual Rental Growth 2022E–2024E (left axis) Rent Level 2022E (right axis)
Logistics yields Prime Logistics Yields | Nordic Region
Prime Logistics Yields | Baltic Region
Per cent
Source: Newsec
8
Per cent
Source: Newsec
10
7
9
6 8 5 7
4 3
2014
2015
Stockholm Oslo
38
2016
2017
Gothenburg Helsinki
2018
2019
2020
Malmö Copenhagen
2021
2022E
6
2014 Tallinn
2015
2016 Riga
2017
2018
2019
Vilnius
2020
2021
2022E
NEWSEC PROPERTY OUTLOOK • SPRING 2022
PROPERTY DATA ●
BUY THE COMPLETE DATA SET adam.tyrcha@newsec.se
Residential Prime Residential Rents | Nordic Region
Source: Newsec
Per cent
EUR/m2
4
400
3
300
2
200
Prime Residential Yields | Nordic Region Per cent
Source: Newsec
5 4 3 2
100
1
0
Stockholm
Gothenburg
Malmö
Helsinki
Copenhagen
0
1 0
2014
2015
2016
Stockholm Oslo
Average Annual Rental Growth 2017–2021 (left axis) Forecast Average Annual Rental Growth 2022E–2024E (left axis)
2017
2018
Gothenburg Helsinki
2019
2020
2021
2022E
Malmö Copenhagen
Rent Level 2022E (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
6
5
4
3
0
Stockholm
Gothenburg
Malmö
0
2
2014
Average Annual Rental Growth 2017–2021 (left axis) Forecast Average Annual Rental Growth 2022E–2024E (left axis) Rent Level 2022E (right axis)
2015
2016
Stockholm Oslo
2017
2018
Gothenburg Helsinki
2019
2020
2021
2022E
Malmö Copenhagen
Annual transaction volumes Transaction Volumes — Annual | Nordic Region
Transaction Volumes — Annual | Baltic Region
BEUR
Source: Newsec
MEUR
Source: Newsec
600
40
500 30 400 300
20
200 10 100 0
2013
2014
Sweden
2015
2016 Norway
2017
2018
2019
Finland
2020
2021 2022E
Denmark
0
2013
2014
Estonia
2015
2016 Latvia
2017
2018
2019
2020
2021 2022E
Lithuania
39
● PROPERTY DATA NEWSEC PROPERTY OUTLOOK • SPRING 2022
PROPERTY DATA
BUY THE COMPLETE DATA SET adam.tyrcha@newsec.se
Transaction Volume Transaction Volumes — Quarterly | Baltic Region
Transaction Volumes — Quarterly | Nordic Region BEUR
Source: Newsec
MEUR
16
350
14
300
12
Source: Newsec
250
10
200
8
150
6
100
4
50
2
0
0 2013
2014
2015
Sweden
2016
2017
Norway
2018
2019
Finland
2020
2013
2021 2022E
2014
2015
Estonia
Denmark
2016
Latvia
2017
2018
2019
2020
2021 2022E
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 2022E (Capital Office Market) Million m2
Source: Newsec
14 12 10 8 6 4 2
0
Stockholm
Oslo
2021 (left axis)
40
HMA
Copenhagen Tallinn
2022E (left axis)
Riga
Vilnius
2022E (right axis)
0
0
Stockholm
Oslo
HMA
Copenhagen Tallinn
Riga
Vilnius
NEWSEC PROPERTY OUTLOOK • SPRING 2022
DEFINITIONS ●
DEFINITIONS General
Logistics
Public Properties
• All rents, yields and vacancies are end-of-year values.
• The forecast is referring to warehouses and logistics premises.
• All forecasts are referring to nominal values.
• The 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.
• The rent is excluding heating and property tax. • The rent refers to modern, newly built premises with a solid lease contract and tenant A properties.
•T he 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
•T he market rent refers to the rent excluding supplements.
• The rents are referring to premises of at least 500 sqm.
• Definitions 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.
• The 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 2021.
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 2022
THE NEWSEC PROPERTY OUTLOOK TEAM
Max Barclay Head of Newsec Advisory
42
Ulrika Lindmark Head of Valuation & Strategic Analysis ulrika.lindmark@newsec.se
Adam Tyrcha, PhD Head of Research adam.tyrcha@newsec.se
Ravi Barot Associate ravi.barot@newsec.se
Øyvind Johan Dahl Head of Research ojd@newsec.no
Karen Cecilie Thunes Senior Analyst karen.cecilie.thunes@newsec.no
Christian Hagen Senior Analyst christian.hagen@newsec.no
NEWSEC PROPERTY OUTLOOK • SPRING 2022
Morten Jensen Head of Newsec Advisory Denmark morten.jensen@newsec.dk
THE NEWSEC PROPERTY OUTLOOK TEAM ●
Robin Rich Head of Research robin.rich @newsec.dk
Valtteri Vuorio Head of Research valtteri.vuorio@newsec.fi
Mindaugas Kulbokas Head of Research & Analysis m.kulbokas@newsec.lt
Kristina Živatkauskaitė Senior Analyst k.zivatkauskaite@newsec.lt
Inita Nitiša Real Estate Economist i.nitisa@newsec.lv
43
● THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE NEWSEC PROPERTY OUTLOOK • SPRING 2022
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 2 400 co-workers spread across
the seven Nordic and Baltic countries. In 2018, Newsec opened a London office to assist international investors interested in the Nordic and Baltic region. Newsec has approx. EUR 68 billion under management and annually signs lease agreements of approx. 1.5 million square meters, manages transactions of some EUR 3 billion and does real estate valuations of underlying property worth almost EUR 265 billion. Thanks to large volumes, 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 2022
NEWSEC’S ANALYSIS PRODUCTS ●
NEWSEC'S DATA DELIVERIES & MARKET REPORTS
REQUEST ANY DATA TO SUIT YOUR NEEDS adam.tyrcha@newsec.se
Thanks to Newsec having one of the most comprehensive data bases for real estate related data in the Nordics we are able to offer tailormade data deliveries and analyses. We also offer 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 For more information about data deliveries and analyses customized to your needs contact: adam.tyrcha@newsec.se
45
● CONTACT AND ADDRESSES NEWSEC PROPERTY OUTLOOK • SPRING 2022
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
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
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
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 Pärnu mnt 12 EE-10146 Tallinn, Estonia Tel: +372 533 05313
Latvia info@newsec.lv
Riga Vesetas iela 7 LV -1013 Riga Latvia Tel: +371 6750 84 00
London The Clubhouse 50 Grosvenor Hill W1K 3QT London
NEWSEC PROPERTY OUTLOOK • SPRING 2022
EXECUTIVE SUMMARY ●
THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE 47
THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE