The renaissance palace Erottaja2 was filled with an international crowd on 8 May 2019. KTI (Kiinteistötieto), BlackRock and Trevian arranged a pre-seminar which set the tone for the MSCI/KTI-Nordic seminar the next day. We were lucky to have many international guests at our event and the wonderful venue provided a beautiful backdrop for the information packed day. The first one to present at the start of the event was KTI’s Hanna Kaleva, who summarised the outlook and trends in the Finnish property investment market. Kaleva based her presentation KTI’s new market review.
Below is a summary of her presentation and a video recording from the event – enjoy!
Outlook for the Finnish economy
Kaleva says that the Finnish economy is stable but the growth seems to be decelerating. The economy in Finland has been on the rise for the past couple of years. Finland is very dependent on the global economy and the economy relies heavily on the exporting sectors, which is why the changes in global economy have a direct impact on the Finnish GDP. GDP growth is expected to slow down to around 1.5-2% during the next couple of years.
Structure and players of the Finnish property investment market
The holdings of professional property investors as of december 2018 amounted to around 70 bn €. The market has grown by 9% only in 2018. Almost a third of this market is currently owned by non-domestic investors. This is another aspect of the market which has changed enourmously in the past years.
”The Finnish market is quite different from many other markets in Europe”, says Kaleva. The biggest sector since a few years back has been the rental residential sector. One of the reasons behind this is that the Finnish rental market is among the least regulated in the world. The retail sector has not been performing well, which is also the case in many other countries.
The transactions in the Finnish property investment market amounted to 9,4 bn € in 2018. Non-domestic players amounted to 2/3 of the whole. The Helsinki metropolitan area dominated the market in 2018, amounting to 60% of the total volume. ”Sectorwise the investor interest was spread quite nicely among the main property sectors, offices being the most traded sector accounting for almost 40% of the total volume”, Kaleva summarises.
The state of property investment market in Finland
Yield data in Kaleva’s presentation is based on a barometer survey KTI conducts twice every year. According to the survey, the average yield of a prime office in the Helsinki CBD was on average 3,9%. In the residential sector it looks like the yields are leveling down, 3,6% being the last average. However, yields might be lower than that in the very best assets and in new developments.
The KTI index results for 2018 show that the Finnish property market delivered a total return of 6.6%. The residential sector outperformed other sectors in 2018 and is also the best performing sector when looking at 5 and 10 year periods. In retail, however, the story is less beautiful: negative capital growth in retail in all investment periods of 1, 5 and 10 years.
Rental markets in Finland – office, retail, residential
The KTI index for Helsinki CBD shows that office rents increased by 2.5% p.a. in Helsinki CBD. 2019 and 2020 will mark quite an add to the overall stock in the Helsinki metropolitan area, but when looking at new construction permits the development volume is clearly slowing down. ”Most of the nearly 200 000 m2 currently under construction will be completed in 2019 or 2020.” Retail rental market’s outlook is turning towards negative. The only submarket with a positive figure is Helsinki CBD.
Residential construction activity in Finland is record high, partly boosted by investor demand. There is a small decline in new permits even in this area beginning in 2018 according to Kaleva. Residential rents continue to increase in big cities, which clearly indicates that there is demand for rental housing as its becoming more popular especially in the larger cities. The rental residential investment market has been dominated by domestic players until about two years ago. This is changing as many foreign players are entering the Finnish market.