Residential deals executed by overseas investors in the Nordic region have risen a record 66% year-on-year, representing a fundamental shift in investor tastes, according to new research from Catella.
Despite a slight fall in transactions from international sources, the residential boom means that the asset class becomes the second most popular type for the region, after the office sector.
Overall transaction volumes were up 2% for 2018 across the region, compared to 2017, reaching €44.3 bn.
Regional differences
Sweden reached the highest transaction volume of all Nordic countries with a total of €14.86 bn, while Norway registered the highest growth rate, at 25% compared to 2017, and was the region's second strongest market at €10.63 bn of deals.
Although Finland registered a slightly decline, its deal flow of €8.90 bn was still the second highest of all time.
The share of international investors decreased by 25% compared to 2017, mainly due to the reticence of US and Asian investors, Catella said, but their focus on residential properties proved a game changer.
Retail properties remain the region's third most popular asset class.
Stockholm is the most expensive office and residential location among the Nordic cities, with prime net yields of 3.50 and 1.50%, respectively. Highest prime yields can be found in Turku at 6.75%, both in the office and retail sector.
Diversification on the cards
The potential to diversify across the Nordic region remains high due to a significant yield gap, the research found, with a difference of 525 basis points between the office, retail and residential sectors in each country.
'Over the course of the year, we expect roughly stable or slightly increasing office rents in almost all North European markets,' said Dr. Thomas Beyerle, head of group research at Catella.
The current regional leader, with a prime rent of €59.10 per m2, is Stockholm, while the lowest recorded office value is found in the city of Odense in Denmark (€12.50 per m2).
'Because of continuously high demand for office space and a lagging development pipeline, a slight decrease of vacancy rates can be expected in most cities,' Beyerle concluded.
