Newsec’s Finnish property outlook: investors interested in high-quality properties after the initial shock caused by the coronavirus pandemic

30.9.2020

Now that the summer is over, it can be said that the coronavirus pandemic slowed the property investment market down but did not stop it altogether. Preceded by a historically active first quarter, the trading volume during the second quarter of 2020 was the lowest in years.

Finnish and international investors are still interested in the Finnish property market. Properties continue to be an interesting investment target, and steady profits are required for investing capital. However, the atmosphere in the investment market remains rather cautious and it is natural that the profits of certain types of asset classes are subject to downward pressure, since cash flows may involve uncertainties in the future.

The exact impacts of the current market situation on the required property yields are yet to be determined, since only a handful of real estate transactions have been initiated and concluded during the COVID-19 pandemic. Several deals suspended in the spring have continued in the autumn, however. Travel restrictions have tangible effects on international deals if the potential buyers cannot visit the sites as planned.

Investors are looking for a safe haven for investing in residential properties and logistics, and the market for these types of properties is particularly active in the Helsinki metropolitan area. Residential properties and logistics sites fulfil the role of defensive property investment categories in the current market.

This can be seen in the Helsinki city centre property market, where the market for residential and logistics properties, the investment categories currently in the highest demand, is narrow. The majority of real estate transactions in the city centre consist of offices. By the end of September, the total trading volume in the city centre this year is worth less than EUR 150 million, whereas the corresponding figure for the previous calendar year in total was nearly EUR 750 million.

Public properties have also increased their market share in the transaction markets of Finland and other Nordic countries. Their steady net cash flows help overcome crises safely.

Retail premises and hotels are more challenging

Shopping centres were considered to be challenging even before the crisis, and the impact of the restrictive measures on trade is not alleviating the situation. Sales in industries related to daily needs have increased temporarily and tenants are doing rather well in these property categories. The crisis was felt directly and strongly in the sales of durable goods, for example, in the car business, which was severely affected by the coronavirus crisis.

The hotel sector was extremely active before the crisis peaked, but the hotel industry suffered and will suffer severely due to restrictions. At the moment, 30 new hotels are planned or under construction in the Helsinki metropolitan area. If an existing hotel has a turnover-related agreement, the decrease in the rent cash flow will usually not be visible until the following year while the rent is defined on the basis of the previous year's turnover.

Question marks in the office market

The space requirements of office users depend largely on the industry and the structure of turnover. If the current uncertain market situation persists, the demand for space might start to favour cheaper premises. In the long term, migration between different office areas might increase whereas the demand for office properties is primarily focused on the areas where the current commercial premises are.

The popularity of home offices will increase in the future and companies already strive to make the coexistence of remote work and office work as smooth as possible. In addition to their head offices, tenants may also require smaller satellite offices closer to residential areas which will together form the company's office network.

E-commerce competes in terms of speed

The most significant change in the Nordic markets is the launch of the Amazon online store in Sweden. It is likely that Amazon will put pressure on all e-commerce operators, especially in terms of the speed of deliveries. The e-commerce giant will certainly aim for the Nordic markets, which means that the demand for so-called last-mile logistics facilities will also grow in Finland in the near future.

However, most Finnish logistics properties do not serve e-commerce, the growth of which has increased tenants' needs for logistics and small industrial properties and, consequently, their demand for investors. Therefore, a drop in exports also has an impact on the logistics property market.

Download the Newsec autumn 2020 property outlook here.

For more information, please contact:
Mikko Tenhola
Head of Advisory, Newsec in Finland
Tel +358 (0)50 500 1310
mikko.tenhola@newsec.fi

Miro Karttunen
Head of Property Asset Management, Newsec in Finland
Tel +358 40 193 1042
miro.karttunen@newsec.fi