Sweden is well and truly back on the crest of the wave of international capital sweeping into the Nordics after a slight dip in volumes last year.
Interest in the Nordics hasn't waned since last year's stellar performance and looking at the first three months of 2016, Sweden is on the rise again with Q1 investment volume up 39% on Q1 2015 at SEK 35 bn (€3.8 bn), figures by property adviser Savills show. This is 11% higher than the previous first-quarter record in 2007 and an all-time high for a first quarter.
According to data from Pangea Property Partners, the Nordic region saw a 36% increase in year-on-year volumes to €39.4 bn in 2015. Norway and Denmark rode the crest of the wave, seeing volume increases of 109% and 107%. Finland made do with a 'modest' 30% increase, while Sweden was alone in dipping 3% to €15.5 bn.
Venturing deeper into the regions
A closer look at the largest transactions illustrate how investors are willing to venture beyond core assets in the capital cities of the Nordic region to secure strong, income-producing assets. Stockholm-listed property company Castellum, for example, announced the largest real estate transaction in Sweden since 2008 when it agreed to acquire landlord Norrporten for SEK 14 bn (€1.5 bn) in April. Noorporten's SEK 25 bn portfolio comprises a mix of commercial property, not just in Stockholm and the Danish capital Copenhagen, but also smaller yet growing Swedish cities of Gävle, Sundsvall, Östersund, Umeå, Luleå and Växjö. These names are perhaps not very well known outside of Sweden, but they are places Castellum feels it needs to be in.
Partners Group, a global investment manager headquartered in the small Swiss canton of Zug, appears to agree that there is value beyond the core markets in the Nordics, and in February placed a €450 mln bet that it is right. This involved the acquisition of 97 properties in Sweden and Finland, incorporating retail, offices and hotels with a total lettable area of 360,000 m2. The vendor was Sveafastigheter Fund III. Sveafastigheter is the investment arm of Brunswick Real Estate, a Stockholm-based advisory, lending and investment group.
'This was the third deal for us within the space of a few months, because Partners Group has identified the region as a particular focus area due to its strong fundamentals,' according to Brunswick's Erik Bodin. More broadly the bigger trend, Bodin claims, is that secondary cities across the Nordics as well as mixed portfolios deals, which once wouldn’t be considered as prime targets, are becoming more and more competitive from an investment prospective.
Aside from the Partners Group acquisition, another deal that corroborates that trend was Blackstone's purchase of sector-diverse real estate portfolios from a Nordic fund manager for SEK 22 bn in July 2015. Another example was US-based Starwood Capital’s acquisition of two property portfolios in Norway and Sweden in 2014, which was the largest real estate transaction in the Nordics that year at €1.2 bn. These portfolios consisted of varied asset classes, mainly offices and logistics/industrial units, in addition to hotels and retail.
According to Bodin, the common characteristic of all these deals is that the portfolios have extended across multiple locations. 'With the right local partner, investors are willing to take on the challenges of geographically dispersed portfolios in order to get exposure to the Nordics and establish a real estate foothold.'
Changing horizons
To some extent the level of interest is equal to that seen in the mid-2000s when the Nordics last experienced a wave of foreign capital targeting real estate. Yet, there is a significant difference in terms of investment horizons. The first time round the capital tended to be more short-term in nature. Blackstone serves as a prime example: the private equity firm entered the Nordics in 2003 and exited again in 2007.
Opportunistic money has come back into the Nordics in recent years, but so has more long-term, institutional-grade capital hailing from the UK, Germany and Switzerland as well as North American parties with an established presence in London.
Canadian pension investor CPPIB has been one of the North American pioneers in the latest capital wave. Brunswick acted for CPPIB back in 2012 when it teamed up with Helsinki-listed shopping centre investor Citycon to acquire Kista Galleria shopping centre in the Stockholm region for €526 mln. In addition, CPPIB acquired a stake in Citycon, thereby extending its Nordic roots further when in 2015 Citycon took over Norwegian shopping centre landlord Sektor Gruppen for €1.3 bn.
But even Blackstone – often seen as the poster boy for opportunistic investment – doesn't appear to have plans to leave the region any time soon. Last year, Blackstone Real Estate Partners Europe IV fund built up a majority stake in Finnish company Certeum and its €890 mln portfolio of logistics and industrial assets.
The Blackstone example also helps to dispel another misunderstanding about what is happening in the Nordics at the moment: the 'new wave' of capital isn't exactly new. Many investors are not starting to invest – they are coming back after an absence of several years. And in other cases the investment manager may be new to the region, but the personnel leading the Nordics strategy learned about the markets when employed with a previous company back in the mid-2000s.
Cormac Mac Ruairi
Senior Deals Editor
