Growing appetite for the Nordic real estate market has led to an increase in foreign investments from the US and Europe, but the most interesting developments are in cross-border transactions within the region, delegates heard at the PropertyEU Nordic Investment Briefing, which was held in London on Friday.
‘The thing that stands out is the inflow of Swedish capital into Finland,’ said Arvid Lindqvist, head of research at Catella. ‘We have seen many Swedish institutions and listed property companies doing large deals and dominating the market in Finland.’
Of the top 20 buyers in Finland, six are Swedish companies like Niam, Redito AB, Ratos AB, AMF and AB Sagax, but German and US investors are also active. The reasons are that Sweden, where the market has long been dominated by domestic companies, is becoming expensive and may be reaching the end of the cycle and starting to turn.
Finland, on the other hand, ‘will probably jump the cycle altogether’, Lindqvist said. ‘We will see compressing spreads due to years of low interest rates and the need that institutions have to invest. Yields are still attractive in Finland, pulling in German and Swedish companies.’
One of the attractions of Finland is the way it has bounced back from the downturn and has been able to weather the negative impact of the Russian crisis, turning to other countries like Germany for investments, exports and tourism. ‘Finland has proved how resilient it can be, and this has led to an increased interest in the Finnish market and more capital moving there from abroad,’ said Andrew Smith, partner at Catella.
‘At the moment we believe very strongly in Finland and are focusing on it, as it is where we see the most opportunities along with Sweden,’ said Julia Mejegard, senior investment professional at Areim.
As foreign investors move into Finland, at the same time Finnish companies and pension funds are either selling or at any rate not increasing their investments in the domestic market but looking elsewhere, said Ville Raitio, co-head of direct property, Nordic region, at Aberdeen Asset Management: ‘They are looking at other markets, not for higher returns but simply to diversify.’
Until recently Finnish pension funds had 95% of their portfolios in Finland, but now they are looking at investing their considerable capital elsewhere. ‘This move does not reflect a lack of belief in their own market, but simply the need to diversify and expand their investment horizons,’ said Rikke Lykke, managing director, Patrizia Nordics.
The need to diversify and the search for opportunities are creating a very dynamic market in the region, as foreign investors look for opportunities in the four Nordic countries while local companies invest in neighbouring countries or further afield.
According to Mejegard ‘the increase in cross-border transactions within the Nordics has been the defining characteristic of the last few years and it is definitely continuing.’
