Newsec Property Outlook Finland Spring 2018

IS FINLAND EUROPE'S SAFE HAVEN FOR PROPERTY INVESTMENTS?

9.2.2018

Finnish economy remained strong all through 2017, and this year growth is expected to continue stronger than in the rest of Europe. As a result, the increased activity in the rental market will have a positive effect on cashflows created by properties. As Finland is part of the eurozone, investors do not have to protect themselves against foreign exchange risk like in other Nordic countries.

At the same time, the major European markets are restless due to Brexit and the difficult government negotiations in Germany, for example.

Last year, foreign investors' share of significant transactions exceeding EUR 4 million in Finland was more than 70 percent when it is normally around 30 percent. The total volume of significant property transactions exceeded EUR 10 billion which is approximately 17 percent of all property assets in professional ownership. In our market, liquidity is considered good when it is approximately 10 percent or EUR 6 billion.

We expect liquidity to remain high, and according to our prediction, property transaction volume will exceed EUR 7 billion this year. Last year's figures will be hard to top, however, as there are no major deals on sight such as the delisting of Sponda last year. The buoyant market is supported by the strong demand from international investors as well as moderate interest rates.

Rental market

Office properties

Rents have gone up in Helsinki city centre in particular and to some degree in other prime areas in the metropolitan area, such as Keilaniemi in Espoo and areas along the rail lines, and in station areas in particular. Rents of individual, modern and space-efficient properties have also gone up in micro areas, even though the rest of the area continues to suffer from low occupancy rates. A great example is Pitäjänmäki in Helsinki, where rents in some good properties are on the increase.

Office occupancy rates, however, have mostly gone down throughout the country. In Helsinki and Vantaa, the situation has stabilised, and in Espoo, the occupancy rate has actually gone up approximately five percentage points. Although the majority of market operators believe that occupancy rates will improve further, we predict that the public sector's measures to improve space-efficiency and the increased rate of office construction will not bring vacancy rates down - quite the contrary in fact.

The gap between the demand for different office areas will increase further, with city centres retaining their appeal and properties with good public transport access improving their position. The vacancy rates in Tampere, Turku and Oulu have continued to rise and have already exceeded ten percent. Although the measures to improve space-efficiency have clearly taken effect nationwide, in our view, occupancy rates are likely to rise in these cities because office construction activity is considerably lower compared to the metropolitan area.

Retail properties

Retail properties continue to cluster: it is evident that the attraction of shopping centres intensifies. City centre retail spaces have drawn the short straw as shopping centres lure away both consumers and tenants. Even retail spaces in smaller communities, with the exception of the consumer goods trade, have faced challenges. The bankruptcies of certain companies have had a heavy impact on local occupancy rates and rents. The rents of retail properties in the metropolitan area have remained stable while prime property rents have gone up slightly. However, in the metropolitan area in particular, there is an exceptionally large amount of retail space in the pipeline (nearly 300,000 m2). It remains to be seen what kind of effect the new attractive concepts will have on current locations, although increased purchasing power is believed to compensate for most of this effect.

Logistics properties

The construction of new logistics properties meets the demand. New properties are tailor-made and have good and easy access. The strong growth in online trade can also be seen in logistics property construction and new modern properties are needed to meet the demands of the increased flow of goods.

Apartments

The record-high apartment production activity stabilises the residential rental market, although urbanisation ensures good demand in growth centres. Rise in apartment rents will be moderate, and quality factors will play a strong role in price comparison in this market as well.

Download the Property Outlook here.

Further information:
Juhani Reen, Managing Director,
Newsec Advice Oy
Tel. +358 50 1696
juhani.reen@newsec.fi

Kai Keituri, Executive Chairman,
Newsec Advice Oy
Tel. +358 40 040 0930
kai.keituri@newsec.fi