REAL ESTATE - Helsinki’s office market is showing the first signs of recovery, though it remains vulnerable to short-lease expiries, according to Merrill Lynch.

In research note issued by the bank on Finnish property management firm Sponda, real estate analyst Robert Fowlds rejected the widespread view that rising prices and intensifying competition in capital Helsinki had diminished the market’s attractiveness to investors.

Fowlds said his team’s ‘buy’ rating for Sponda depended on acquisitions within the next year in Russia, the Baltic States or its core domestic market.

Yet Finland is increasingly competitive and Russia is still relatively high risk. In February Sponda investor relations manager Pia Arrhenius told IPE Real Estate that the firm had no immediate acquisition targets in Russia, and that the Baltic States currently offered the same yields as Finland but with higher risk.

The lowest risk option would be to form a partnership with Finnish company entering Russia because it would guarantee rent in an often-complex market. “With the Russian market, we’re hopeful,” said Arrhenius last week. “We’re open to anything.”

Property price rises and increased competition for a decreasing number of available properties in Finnish capital Helsinki make domestic acquisitions less likely, although last month the firm also said it planned to expand to office and retail properties in mid-sized Finnish towns despite a fall in domestic yields last year of 0.2—0/7%.

Fowlds believes a further cut in yields is possible, though not likely. “You would imply it’s a risk, though it’s a small risk,” he said.

Asked if he was optimistic that Sponda’s management would share Merrill Lynch’s sense of acquisitive urgency, he said: “It’s a new CEO so it’s difficult to judge.”

He added that lease expiries were now the main obstacle to a sustained recovery in the Finnish market.

But Arrhenius dismissed claims that the expiry of short leases in suburban areas formed a risk, pointing out that the average lease-length was 4.3 years, with 10% of expiries annually on its overall property portfolio. “It depends on the property, the target and the tenant, but we’re currently seeing leases of between three and seven years,” she said.