Newsec Finland’s Property Outlook spring 2021: Residential, logistics and public properties represent the most active investment categories

3.3.2021

A clear U-curve was visible in the volume of property transactions last year. COVID-19 slowed down the spring and summer but trading was active in the first and final quarter. Investors are particularly interested in defensive investments such as apartments and logistics properties, with user and investor demand increasing at the same rate due to the strong growth of online shopping. A new rising star is public properties – last year, its proportion of all property transactions climbed up to 24 per cent.

Last year, the total value of property transactions completed in Finland was EUR 6.0 billion.  Thanks to strong performance early and late in the year, the total volume almost reached the previous year’s level. The good vibe in trading has persisted through to 2021. There is still a massive amount of capital in search of property investments.

COVID-19 transformed investment strategies

However, the COVID-19 pandemic shifted the focus of real estate investment in Finland and around the world. Investors turned their eyes to the housing segment, which is also supported by the megatrend of urbanisation. There was a process of circulation seen in the market in 2020, with domestic investors taking profits and selling residential portfolios to foreign investors interested in stable returns and easy market entry through acquiring a complete portfolio. This has freed up capital for domestic investors to invest in development projects, such as properties under construction and properties that are still in the planning stages, with local construction companies.

Investor demand for logistics properties remains very strong

“Consequently, the yields for prime logistics properties in the Finnish market have fallen closer to the low levels seen in Europe. Investor and user demand for last mile logistics premises that serve e-commerce deliveries is particularly strong,” says Mikko Tenhola, Managing Director, Newsec Advisory Finland.

One major challenge in property development projects in logistics is the acquisition of plots in the dense urban structure. The development of low-rise logistics properties in the urban structure is unlikely. Therefore, modern last mile logistics premises may be developed through the conversion of existing properties, such as service stations, brick-and-mortar shops or warehouses.

Another clear trend is retail and logistics premises becoming intertwined. Retail locations are no longer seen as just shops where people come to make purchases. Instead, they are increasingly becoming part of a logistics network serving online shopping and restaurant take-away pickups. 

The retail property investment market has become highly divided. Grocery-driven retail properties are performing well and there is strong investor demand for them. Certain retail segments, such as discount stores, hardware stores, interior decoration and sporting goods retail have performed well during the COVID-19 pandemic. Shopping centres, on the other hand, are facing weak investor demand at the moment.

With office properties, investors are selective, and capital flows particularly towards low-risk core office properties.

“In the future, offices need to be attractive places that people want to come to. Also, health-related factors will be highlighted in future choices of business premises, with tenants being increasingly conscious of issues related to the work environment and wanting to ensure the quality of ventilation, for example. There is a growing need for adaptability and flexibility with regard to premises as well as lease agreements,” says Miro Karttunen, Managing Director, Newsec Property Asset Management Finland.

The impacts of the pandemic also froze all investments in hotels last spring. However, in Europe and the Nordic region, hotels have already regained the focus of investors, as investors expect recreational travel to recover faster than business travel and there is also confidence in the megatrend of travel in the long term.

Public properties are a booming investment category

Public properties in Finland and the other Nordic countries are also a very interesting sector for investors. Challenges faced by the public economy are driving municipalities and cities to look for new, creative ways of building public properties and infrastructure, which introduces opportunities for investors. 

There has been substantial growth in the transaction volume for public properties in Finland. Last year, their share of the total property transaction volume in Finland already exceeded 24 per cent, so the rate of growth has been high.

“Long leases, the stability of the sector and the attractive yield levels, almost a percentage point higher compared to e.g. Sweden, have driven demand in the sector to record-high levels. Care properties represented the largest share of this segment. Of all completed public properties transactions in 2020, 60% involved care properties,” says Mikko Tenhola.

As a result, modern care properties in excellent locations are the most sought-after public property investment target in the Nordic countries. Finland’s ageing population structure ensures that there will be continued demand for such properties.

Public properties suit investors that seek stable cash flow. In practice, you could compare them to public sector bonds. In Finland, the investors in this segment are almost exclusively Nordic. Last year, one of the most significant transactions concerned a portfolio of 55 properties acquired by SBB from the eQ Care special investment fund for the purchase price of EUR 222 million.

There is also demand on the European level but entry to the Finnish market is hindered by the fact that new international investors require a sufficiently large portfolio in Finland, and public properties are often fairly small individual properties.

For more information, please contact:

Mikko Tenhola
Managing Director, Newsec Advisory Finland
Telephone +358 (0)40 500 1310
mikko.tenhola@newsec.fi

Miro Karttunen
Managing Director, Newsec Property Asset Management Finland
Telephone +358 (0)40 193 1042
miro.karttunen@newsec.fi