Yield gap widens in Swedish investment market: Savills

The gap between yields for prime and secondary properties is set to continue to widen in Sweden as investors concentrate on prime product and the availability of debt for secondary assets remains tight, according to research from property adviser Savills.

The most notable gap is currently visible in the retail warehouse and logistics segments where yield spreads have increased to 100 basis points between prime and secondary yields, Savills said. The research indicates that prime office yields for Stockholm and Gothenburg stood at 5% in the first quarter of 2012, with an average yield of 5.25% for offices in Malmo. Prime shopping centres commanded yields of 5.25%, with retail warehouses at 6.25%. The average prime yield for industrial property was 6.75%.

Ulf Nilsson, CEO of Savills Sweden, commented: 'The Swedish investment market continues to be dominated by a risk-averse attitude among low-geared or equity-rich investors, leading to a strong focus on prime properties in all sectors with secure income flows. We believe that prime yields will therefore remain stable ,however, a lack of available debt for secondary stock is expected to lead to further softening on these yields.'

Savills said the overall transaction volume in Sweden for Q1 2012 amounted to SEK 25 bn (EUR 2.8 bn), up 18% on the same period in 2011. Domestic investors, particularly institutions and the Swedish pension funds which are becoming more risk averse, have maintained a strong appetite for prime assets. These investors are also generally all-equity buyers and therefore experience less competition from investors that are dependent on debt leverage.

According to the report, debt availability will be fundamental to determining the development of the property market in Sweden for the remainder of 2012. The firm notes that there are currently few indications of a pick-up in lending due to the uncertainty arising from the European sovereign debt situation and the possible effects on the banking system.

Savills said that, in spite of being net sellers during 2011 and 2010, interest from international investors will remain firm during 2012.