As far as the economy is concerned, the year has been eventful so far. The war in Ukraine, the threat of recession, accelerating inflation and rising interest rates have set investors to adopt a wait-and-see attitude in the real estate market. The Finnish real estate market is facing challenges that are especially related to the slowdown in economic growth and higher financing costs.
There was considerable momentum in the first half of the year. H1's impressive transaction volume of 4.3 billion euros is the strongest first half in history. During the third quarter, the overall pace is slightly slower than normal.
Real estate transactions are slowing down
The volume of real estate transactions in the third quarter was 1.4 billion euros. Residential portfolios have been the most traded segment in the third quarter of 2022 (38%). Logistics properties were second with 18 percent of the total volume.
The transaction volume of the third quarter is approximately 6 percent below the third quarter average since 2015. The volume has decreased by more than 30 percent from the last quarter, and by more than 20 percent from the corresponding time of the previous year.
The decreasing volume is primarily due to the decrease in the number of transactions. This year, the size of transactions has been larger than average, and large deals were also made in the third quarter.
"The number of transactions has decreased slightly. There is no significant decrease in the amount yet. It's more about what the current situation predicts, and what we can expect from the end of the year", says Valtteri Vuorio, Head of Research.
With the normalization of the European Central Bank's monetary policy, margins have increased and the availability of financing has weakened. The market is still pricing in the tightening of interest rates. In the third quarter, signs began to appear that the gap between the price views of buyers and sellers has grown in the current market environment.
"This is a gray period in terms of activity, when views are adjusted and anticipation of the economic environment is expected, for example in terms of interest rates. This slows down investment activity in the rest of the year", Vuorio continues.
Yields on the rise
As the financing costs rise, the result is a correction of real estate market prices in Finland, as elsewhere in Europe. Investors adapt their strategies to the conditions of the economic environment, and real estate pricing adapts in all segments. Real estate investors are also more selective.
"Investors focus more closely on implementing their own strategy. Back in the spring, we might have seen broader target selection, because the competition was tough and there weren't enough good targets for everyone”, says Esa Pentikäinen, Head of Commercial Brokerage.
Based on the currently known real estate transactions, the yield requirements have not changed yet. But if the yield is below the financing costs, there is a correction in real estate pricing. According to Newsec's view, yield requirements will increase in all segments. This has also been seen in the transactions market.
"Many processes are underway, but the number of offers is falling. Some investors expect price corrections, and some have challenges with arranging financing. On the other hand, this opens up opportunities in the game – during the rest of the year, an active player gets good targets with less competition. There will be deals made at the end of the year", Pentikäinen continues.
The year-end volume rising to third largest ever
Typically, the fourth quarter is active in terms of real estate transactions. Activity at the end of the year is largely determined by whether the views of buyers and sellers begin to meet. Newsec expects that the investors' waiting attitude, which started in the third quarter, will continue in the fourth quarter.
Driven by a strong start to the year, however, the transaction volume for the whole year may however become the third largest ever. This means that during the fourth quarter the real estate transactions should set for around 1.4 billion. Newsec expects activity to be at least at this level in the last quarter of 2022.
Newsec’s Market Reports give further insights
More information of the investor and tenant markets, and the market overviews of the different segments can be acquired through Newsec’s Market Reports. The reports contain information and insights at the submarket level, among other things, about the building stock, rent levels, vacancy rates, market yields and the latest transactions and completed projects. You can also get more information by contacting our experts.
Head of Research
+358 40 705 3093
Head of Commercial Brokerage
+358 50 300 6567