The conflict in Ukraine has caused some international real estate investors to hesitate about investing in the Nordic and Baltic countries, according to the investment head of Newsec.
Max Barclay, Newsec head of advisory and investment, said the situation in Ukraine was horrible and it was too early to draw conclusions about what will happen. But in terms of real estate investing in the region where Newsec is based, a difference is appearing between European capital which is already active there, and capital from further away.
‘The further away you are from a specific market, the easier it is to say: “let’s wait and see how this market will be affected”’, he said. ‘Our view is that the international capital that is coming from far away is a bit hesitant.
‘The European capital that is already here in the Nordics is still active...These investors will still invest in the Nordics - they understand the risk-reward side. Opportunistic North American capital will continue to invest because it is opportunistic in situations like this. But the more institutional or core kind of capital is in wait and see mode right now.’
In the firm’s latest Newsec Property Outlook, it says the disruption caused by military action will cause bigger rises in commodity and energy prices globally and a setback in production and income due to trade restrictions. Barclay said Finland and the Baltic states are at risk of stagflation, with higher inflation calling for tighter monetary policy but lower growth requiring support.
Inflation in the Nordic countries is 4%-6% and in the Baltics it is even higher (the Eurozone average is 6%).
Barclay said the situation is not unfavourable to property. ‘The short perspective is that we will see a decline in growth globally, and that leads to the conclusion that we will continue to have low interest rates. Alternative investments - stocks and bonds - will continue to be very volatile and low yielding and real estate and infrastructure will be an interesting investment and continue to be popular.’
Opportunities in retail
In the report, Newsec predicts that higher yielding real estate that has been out of fashion for the last few years will attract more interest. The report focuses on retail and looks in detail at turnover and footfall in Nordic shopping centres and retail parks now, compared to pre-pandemic levels.
Barclay said: ‘Retail businesses have actually come back from the pandemic quite well. We want to give an alternative view because we see the segment is actually growing very well. And it’s going better in the Nordics than in some other parts of Europe - landlords' work has come further, especially in Sweden, repositioning retail, having larger amounts of food and beverage, and other parts that complement retail. So they are doing better than people think.
‘We expect to see an increased percentage of the total market in the retail sector. It has recovered and there are a lot of opportunities.
‘Investing is always about risk-return. Some logistics yields are now even lower than prime office yields, and, while it depends on what kind of money you have, there is a chase for returns. We think segments that have not been so popular for the last couple of years offer opportunities.’
He added that people were ‘putting retail in its perspective. They don’t want to live in places that are only residential; they don’t want to shop in places that are only shops. They want a safe environment that feels modern and meets all needs, a mixed environment.’
That synergy is exactly what many investors are looking at or trying to create.
