Denmark, Finland and Sweden offer attractive office yield spreads with long term interest rates compared to other European countries (424bps, 373bps and 371bps respectively). As a result, over the past five years, the region has been attracting rising amounts of foreign capital. Between January and September, cross border investment totalled €9 billion, reflecting an increase of 22% compared to Q1-Q3 2018. This represents 33% of the total volume invested this quarter, compared to 26% to last year.
Excluding cross border investors from the Nordic region itself, interest from international investors is increasingly coming from Germany and the UK. Whilst
activity from US investors has been slowing down over the past two years, the Nordic region has caught Asian investors’ attention, notably Korean investors mainly focusing on office properties, says Savills.
Overall, the office sector will continue to prevail back by above-average economic expectations, whilst multifamily will remain the second preferred asset type fuelled by positive demographic background. Resulting from the strong growth of online retail sales, logistics assets will continue to capture a growing share of total investments, at the expense of retail investment.
Savills says the main drag on future investment activity in the Nordics will remain the lack of available property on the market – a situation which is not peculiar or worst in the Nordic region than in core countries but one that can be more challenging for investors in smaller than in larger markets, especially for big ticket investors.
As environmental, social and governance policies are slowly gaining ground on investors’ radar, the region is also likely to attract a growing number of investors looking to achieve good ESG performances.
Over the past four years, growing investors’ appetite for the Nordic property market has applied strong pressure on prime yields. In Q3 2019, the average prime Nordics CBD office yield moved in by 9bps annually and currently stands at 3.60%, compared to 3.22% on average in core countries, according to Savills.
Industrial prime yields hardened by an average of 29bps over the third quarter to 5.15%. This compares to 4.05% for the average prime Core industrial yields. The average prime residential yield remained stable over the past year, now ranging between 2.75% and 3.5% across the region. Whilst, on the other hand of the spectrum, in Q3 2019 the average prime retail yield moved out by 7bps yoy to 4.55%.