The Nordics will hit €50 bn of investment this year, a record volume, according to regional advisor Newsec.
The region was one of the most resilient in 2020 through the Covid pandemic, with Sweden alone having the fourth highest transaction volume in Europe, of €18 bn. This was behind Germany (€60 bn), the UK (€49 bn) and France (€28 bn), all of which have populations more than six times larger than Sweden’s 10.4 million people.
The entire Nordics saw €44 bn of deals closed, with Norway seeing the second biggest volume in the region, of €10.6 bn.
Denmark’s 2020 volume was €9.3 bn which according to Newsec was ahead of both Italy (€8.8 bn) and Spain (€7.7 bn) and behind the Netherlands (€10.4 bn). Finland’s was €6 bn.
“Early indications for the Nordic market in 2021 is another strong year ahead’, said Max Barclay, head of Newsec Advisory. ‘The year usually starts off with a slower Q1, however based on the transaction volume in the Nordics thus far it will surpass €10bn, which is above the historical average and positions the region on track for our predicted €50bn record volume.
Newsec expects to see SEK 225 bn of deals in Sweden, NOK 120 bn in Norway and strong volumes in the other countries.
Barclay said this level of activity, which is roughly double the average annual quantity of transactions seven or eight years ago, shows how diversified the Nordic market has become in that time, ‘with a strong local presence but also strong Nordic regional interest in all of the neighbouring countries, packed together with strong international interest mainly from continental Europe but also from other parts of the world.
‘The underlying reasons are that as everywhere else you have the low interest rates, but still fairly good growth numbers in the economy. You have growing populations, political stability and one of the most liquid markets in the world, which makes this an interesting place to invest.’
He added: ‘We anticipate that the Swedish market will have an all-time high in 2021 due to the large investment needs and because we see more structural strategic deals that will be made.’ Blackstone’s purchase of a 53-strong, SEK 4.8 bn industrial and logistics portfolio from Castellum, finalised last month, was an example of a large structural deal, Barclay said.
At 37, Sweden has a relatively high number of listed property companies and more that are going public. At the same time Barclay expects consolidation because there are so many other investors also looking for large volume that there will be ‘movement’ within the whole region’s listed companies and the large portfolios.
Off market deals
Many deals are off-market or marketed very selectively ‘because everyone wants to be seen as a net buyer in this market; nobody wants to say that they are decreasing volume. But the volume has to come from somewhere.’
Castellum is a good example: ‘There is a huge interest in logistics buildings and the group wants to focus on the office part of its portfolio. That is the type of deal we will see more of - people want to focus on what they are good at.’ Castellum plans to remain an active owner/developer of prime logistics with a smaller portfolio.
For new opportunities this year, Newsec picks out regional office investment. “In the Nordics, the expected new production of office space 2021-2022 is 1,195,700 m2 in the capital cities and 780 469 m2 in regional cities, despite the latter having approximately double the population of that in the capital cities”, Barclay said.
‘Development has mainly been focused on capital or second cities in the Nordics, with very little development in the regional cities. These cities are strong in Sweden with population growth, and with the new flexible office solutions, accelerated by Covid, I would say that more regional cities will come into play since people might not spend more than 2-4 days per week at headquarters and be willing to travel a bit further.
‘There is room for rental increase and also yield compression in these markets.’
By contrast, office yields have stabilised and rental growth is expected to be sluggish in the biggest cities after a bull run. Rents in Stockholm’s CBD fell slightly last year, by -1.4% according to Newsec. This followed surges of 13.3% in 2016, 9.9% in 2017, 10.7% in 2018 and 6.7% in 2019. ‘People are no longer underwriting rental increases so aggressively; they are more careful about pricing.’
Newsec publishes its latest Property Outlook report on 10 March.
