NORDICS - Pension funds have an irrational attachment to office real estate when they should be looking to outperforming retail, according to fund manager Cordea Savills.

"Many pension funds and other institutional investors tend to have significant positions towards office, even when it underperforms," said Andrew Allen, head of research and strategy. "Not that many have high weightings in retail, even though it has outperformed."

This is despite the belief macro factors are driving burgeoning investor appetite for Nordic retail, according to Allen.

"The Nordics have a long way to go," he said, pointing to strong growth compared with mature markets, robust infrastructure and education, and commodity wealth in markets such as Norway.

Moreover, he said, strong Nordic environmental lobbies tend to hinder planning, in contrast to relatively flexible planning regimes that have contributed to oversupply in Central and Eastern European markets.

His comments coincided with the launch of a Nordic retail fund with a maximum 20% allocation to Baltic markets. The fund, which has a target size of €500m and a 10% forecast return, will secure on- and off-market deals in shopping centres and warehousing.

"Shopping centre stocks are high but the market isn't oversupplied because Sweden has no significant high-street retail," said Allen. "In any case, the stocks there are not of the most modern design." He forecast an investment trajectory similar to that for the Baltics, with overseas retailers following the most internationally dynamic ones, such as Zara and Benetton, into the market.

Allen pointed out the small size of the Baltic markets has effectively kept them off European investors' radar.

"People have overlooked them," he said. "Even if consumer spending halves, you're looking at 4—5%, which is higher than the EU average."

The Swedish central bank in June warned of property price volatility caused by institutional investors ploughing cash into Nordic real estate. Despite the positive impact of risk spread among different types of investor and an increase in liquidity, deputy governor Lars Nyberg said investor interest in the Swedish property market could import negative developments in the international market could more easily into the Swedish market and increase volatility.

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