SWEDEN - Swedish commercial real estate returns fell to -3.3% in 2008, according to latest figures from the SFI/IPD Index published by the Investment Property Databank (IPD).
The major repricing of assets and a 13.3% rise in yields over the year caused total property returns to falls sharply from 14.7% in 2007 to -3.3% and triggered a capital growth rate of -7.9%, down significantly from the 9.5% rise in values in the previous year, according to Christina Gustafsson, head of IPD in the Nordic Region.
"Yields have now, after five years of decompression, started to rise across all property sectors in Sweden," said Gustafsson.
"The shift alone would have cut the values by close to 12%, but this was partially counterbalanced by a robust rental market. Investors reported fairly strong rental growth of 4%, which is roughly in line with increases linked to the contractual indexation of rents in commercial leases in Sweden," she added.
Income return was only marginally higher in 2008 than the record low return of 4.8% in 2007, at 4.9%.
The industrials sector was the best performing sector in 2008, delivering a total return of -0.4%, followed by retail and offices with -2.6% and -3.5% respectively.
The residential sector was the worst performing sector in 2008, with a total return of -3.7%. However, capital values fell the furthest in the office sector, at -8.2%, and analysts are predicting office vacancy rates to go up in 2009.
That said, Gustafsson said pension funds are showing increasing interest in the residential sector as it offers lower risk and is easier to finance in the current economic climate.
Commenting on whether pension funds are likely to invest in the Swedish real estate market, she said: "Only the ones with equity could invest in these markets but they are still waiting I think for the prices to go down further, so we have not seen many transactions at all this year."
The largest transaction to recently take place in the Swedish property market was announced in December 2008, when the Tredje AP-Fonden (the AP3 pension fund) bought 50% ownership of Kungsleden's Hemsö Fastighets AB ("Hemsö") portfolio. On 30 September 2008, "Hemsö was valued at SEK15.6bn (€1.34bn) and was made up of 277 properties including schools, retirement and care homes.
The preliminary liquidity impact for Kungsleden, the Swedish property firm with a SEK28.6bn book value, was SEK2.3bn.
Swedish property outperformed equities, which returned -39.5%, but lagged behind bonds, which returned 15.7%.
The total value of the properties covered by the Index was SEK 225bn (€19.7bn) in 2008, representing 26% of the value of assets of all Swedish financial institutions and quoted property companies.
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