Nordic focus: strong investor demand for prime while momentum rises in residential sector

Investor interest in Nordic markets by volume shifted from commercial to residential in 2018, as overall transaction volumes rose 2% year-on-year to €44.3 billion.

Highlights include:

  • Sweden reached the highest transaction volume of all Nordic countries with a total of €14.86 billion while Norway registered the highest growth rate, at 25% compared to 2017, and also represented the second strongest market in 2018 (€10.63 billion transaction volume). Although Finland achieved a slightly decline, the result of €8.9 billion is still the second highest of all time.
  • In Denmark, transaction volume decreased by 18 % to €9.86 billion, due to lower activity of foreign investors and a lack of larger portfolio deals, especially in the retail sector. Overall, property fund and institutional investors were the most active, contributing with approx. 69 % of the transactions. Danish investors were the most active in 2018 with a share of 55 %. Swedish investors were the most active players in Denmark, while US-headquartered companies could increase their investment activity compared to 2017.
  • The share of international investors decreased by 25% compared to 2017, mainly due to reticence of US and Asian investors. By contrast, foreign investment volumes in the residential sector increased significantly, by approx. 66%, the highest result which was ever recorded.
  • The most popular asset class remains the office sector, followed by residential real estate with steadily rising demand and transaction revenues. Retail properties follow in third place.
  • Stockholm is the most expensive office and residential location among the Nordic cities, with prime net yields of 3.50 and 1.5%, respectively. Highest prime yields can be found in Turku at 6.75%, both in the office and retail sector. 
  • Diversification potential across the Nordic countries remains high due to heterogeneous yield structure. There is a current yield gap of 525 basis points between the office, retail and residential sector in the different countries.

Thomas Beyerle, Head of Group Research at Catella, explains:

“Over the course of the year, we expect roughly stable or slightly increasing office rents in almost all North European markets. 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.”

james.wallace@realassetmedia.com