Up and coming asset classes like social infrastructure are attracting a lot of interest, but traditional sectors like offices and retail are still performing well in the Nordics, delegates heard at Real Asset Media’s European Outlook H2, which was held in Stockholm in early June.
Office rents have been rising and the upward trend is set to continue. Even independent research forecasts 3.6% growth for rents per annum for the next four years in Stockholm and Helsinki is not far behind.
‘Prime office rents in Stockholm are at the same level as the CBD in Paris, which in an interesting comparison, given the difference in population, number of workers and office stock’, said Adam Irányi, Head of Investment Europe II, Union Investment Real Estate GmbH, Germany. ‘It feels high for Stockholm, but we still believe that some of the markets still offer strong rental growth simply because there are no vacancies and nothing to be built’.
It cannot go on like this forever, experts agreed, but for the time being the supply/demand imbalance works in investors’ and landlords’ favour.
Some are more cautious: ‘I personally would be quite afraid to buy some CBD office today at a yield of 3% and rents which are the second-highest in Europe’, said Nils Styf, CEO, Hemsö Fastighets AB, Sweden. ‘I prefer to work on the cash flow and get a better yield but no rental growth. But I buy to hold and have a 25-year horizon, so I am less concerned about liquidity’.
At the other end of the spectrum from prime offices is social infrastructure, otherwise known as the cradle-to-grave sector, which spans kindergardens, schools and nursing homes but also hospitals and student housing. ‘There are a lot of investors coming into this space,’ said Styf. ‘I believe this asset class soon will be just as established as logistics, office and retail’.
Retail has had a bad press recently, but some strongly believe it still offers opportunities.
‘We have a contrarian view to many other managers,’ said Nicole Bangstad, Research Analyst, Savills Investment Management, Sweden. ‘We are seeing a consolidation in the retail market and there is clearly a polarisation where the best performing assets are doing well at the expense of others and I think this trend will continue’.
There is polarisation between winning assets and losing assets and also between the luxury market and the affordable market.
‘The discount sector is growing massively across Europe, but what is doing well is the luxury segment at one end and the discounts attracting the broader mass at the other end’, she said. ‘What we are seeing is the middle getting squeezed, which is also the segment that is not doing well online’.
The strong will get stronger and the weak will get weaker, but investors with local knowledge are able to cherry pick.
‘We see great opportunities in the retail segment but they are very asset-specific,’ said Bangstad. ‘There are opportunities if you know where to look’.
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