Anders Nordvall, the new CEO of Cushman & Wakefield in Sweden, is banking on a shift into regional cities to provide the best investment opportunities in the market next year.
Anders Nordvall, the new CEO of Cushman & Wakefield in Sweden, is banking on a shift into regional cities to provide the best investment opportunities in the market next year.
‘The best investment opportunities are to be found in the secondary markets, such as regional cities and suburban locations in the biggest cities,’ he told PropertyEU in an exclusive interview.
‘I think secondary properties, tier-two retail and offices will offer the best opportunities as we move into 2015,' added Nordvall, who joined C&W from Catella earlier this month.
The push into regional cities might be new in Sweden but it is feeding into a growing trend across Europe to seek out higher yielding investment opportunities outside gateway cities. ‘We have noticed this year that investors are now more willing to go up the risk curve and to take on more risk. That includes investing in secondary assets/locations, driven by low interest rates and improved financing,’ he said.
The attraction of regional cities is clear: offices in such cities can generate net yields starting at 6%, compared to between 4.25% and 4.5% in Stockholm, according to C&W. Regional shopping centres can also generate yields of about 6%, compared to 5% in Stockholm.
However, increased competition coupled with the lack of supply is also likely to encourage investors to develop properties going forward, according to Nordvall. ‘Next year, I think the trend will be for investors, including international ones, to acquire development projects in various stages, due to the strength of the competition.’
Cheaper financing has also helped to boost transaction volumes in Sweden so far this year. Some €14.5 bn of deals across all commercial real estate classes were recorded for 2014, up around 40% on 2013. Of the total, residential accounted for 33%, followed by offices (24%), industrial and logistics (22%), retail (10%) and other (11%).
‘As such, we have had more than €1 bn of deals per month in Sweden over the past 18 months, which is very encouraging. This is also helped by very low interest rates,’ Nordvall said. (The Riksbank cut the lending rate to 0.0% in October, ed.) Subsequently, loan margins have come down quite a lot this year – up to 50 bps - and signals are that LTVs are edging up to above 70% in some cases, he noted.
Nordic investors are among the biggest investors in Sweden. International funds, including German funds, are also quite active, although they have found it harder to close deals recently due to increased competition. Domestic investors still account for around 80% of all real estate deals in Sweden, according to C&W.
Logistics has been the fastest-growing asset class in Sweden this year with deal volume up 135% at €3.3 bn, compared to just €1.4 bn last year, according to C&W. ‘The growth is partly due to the fact that Sweden had been lagging in the logistics space but it also reflects increased interest in logistics as an asset class,’ Nordvall said. Prime yields are around 6%, rising to 8% for secondary assets.
There have been some large logistics deals this year. In early December, Cordea Savills launched its Nordic Logistics Fund with the acquisition of a portfolio of 10 properties from Norwegian investor and fund manager NRP for around €300 mln. The properties are located in Sweden, Norway, Denmark and Finland. The portfolio includes DHL’s Gothenburg terminal. NRP will work with Cordea Savills in managing the fund. Wilfast Förvaltning and Aker Eiendomsdrift will continue as property managers.
Also in December, a consortium led by Norwegian finance house Pareto Securities acquired a property in Västerås in Sweden from listed logistics specialist Tribona for SEK1.1 bn (€115 mln). The property comprises 104,000 m2 and is let to Sweden’s biggest food retail chain ICA.