The common perception among real estate investors is that the Nordic countries are expensive, but opportunities abound for those who know the markets well.
The common perception among real estate investors is that the Nordic countries are expensive, but opportunities abound for those who know the markets well.
A panel of leading experts at PropertyEU's Nordics Investment Briefing which was held in London on Thursday agreed that the main barrier to investing is not price but competition, as local and foreign funds vie for the same deals.
‘The Nordics are not expensive, if you take into account that we are talking about triple-A countries and a relatively low-risk environment,’ said James Raynor, chief executive of Grosvenor Fund Management.
‘Some locations in the Nordics are incredibly cheap, it is a matter of knowing where to look,’ said Anders Palmgren, director and head of investor relations at Genesta. Pricing is also less of an issue as it possible to borrow money very cheaply, panellists agreed.
The environment is very competitive, as local capital-rich funds are on the lookout for investments. 'There are some very strong local pension funds and their cost of capital has been difficult to beat, so the companies they back tend to do all the buying. There is a huge amount of capital looking for opportunities,’ said Andrew Smith, managing director of Catella.
All the domestic funds have been increasing their allocation to real estate and several have also ventured outside their home markets, seeking new strategies and buying in London or Paris or even investing in real estate funds targeted at Asia or the US, Smith said.
Sweden is particularly competitive as it attracts more people and more interest, and funds here are keen to expand but not to sell. ‘In Finland, on the contrary, local funds are rebalancing their portfolios and downsizing their domestic allocation, so from a foreign investor’s perspective it is easier to find investments there,’ said Palmgren.
The presence of strong local funds can also be a positive, as demand and liquidity are such that it is always easy to exit the market. ‘The fact that it is mainly domestic funds investing in these countries is good, because there is always a liquid market to sell into if you need to sell, and it also provides stability,’ said Raynor. ‘Compare and contrast that with Spain, which has gone from uninvestable to expensive in a very short space of time.’
It is no longer just pension funds and institutional investors, but also private investors who are looking for exposure to real estate in the Nordics. This is not surprising, given the low interest rates and government bond yields, said Marcelo Cajias, senior manager of research at Patrizia Immobilien: ‘There are not many ways to generate returns of 4% or more, no cash-generating alternatives to real estate.’
The surge in listings of real estate companies has been a clear indication of this growing interest. One example was the listing of NP3 Fastigheter, a Swedish real estate company with a focus on smaller cities: too small a prize for most foreign investors, said Smith, but a quotation that attracted massive interest from local pension funds as well as private investors, to the point that it was six times oversubscribed.
Size is an issue for many foreign investors, Raynor said: ‘Deploying resources to transact does not make sense if you cannot get the scale and assemble a good portfolio.’ One of the reasons that make Sweden attractive as an investment destination is that people, wealth and investments are not confined to the capital city. Strong manufacturing hubs and universities are dotted around the country. According to Raynor, ‘Sweden has pockets of wealth all around and dynamic growth in the regions outside the capital, so there are a lot of things to be done outside Stockholm.’