The Nordic property markets will continue to perform well, according to the new report Real Estate Outlook 2017 produced by Pangea Property Partners. In particular, segments with strong rental growth such as central offices in Stockholm and Oslo, as well as quality hotels, are pinpointed as winners, while yields will tilt upwards for secondary assets. Transaction activity is expected to remain high.
“The strong investor demand for Nordic real estate in recent years is now combined with more sellers putting their assets for sale,” says Mikael Söderlundh, Partner and Head of Research at Pangea Property Partners.
The identified sellers are for example property funds about to reach expiry, property companies who want to streamline their portfolios by divesting non-core assets and various private investors seeing good exit opportunities in the current market. In addition, there is increasing sell focus among municipalities, owner-occupiers and developers.
“Several international investors will probably also realize their profits in the Nordic markets in 2017, but there are new large global property funds, many with core and core+ profile, entering the market at the same time,” adds Söderlundh.
According to the report, there will be widening yield spreads in 2017. Secondary yields will start climbing due to higher financing costs, while prime yields will remain record low, pushed down by strong investor demand and rental growth. In particular, office rents in Stockholm will continue increasing throughout 2017 and the Oslo office market will follow.
“It’s quite exceptional, both cities will shrink their office stock over the next few years, while occupier demand is rising,” says Jørn Høistad, Director and Head of Research Norway at Pangea Property Partners.
The estimate for 2017-2018 is that almost 500,000 sqm of office space will be converted to other uses in Stockholm and Oslo. This substantially exceeds the new office supply of about 450,000 sqm.
“The stock to be converted is from the secondary markets so it’s not a one-to-one relationship, but it will certainly put further pressure on rent increases. Vacancy levels are already low,” adds Høistad.
Hotels are expected to be another winner in 2017, with strong performance in most major Nordic cities.
“Investors are gradually accepting hotel as a defensive investment offering long leases, low vacancy risk and stable cash flows,” says Bård Bjølgerud, CEO and Partner at Pangea Property Partners.
The Real Estate Outlook 2017 is a new pan-Nordic research report produced by Pangea Property Partners. During the coming weeks, it will be presented to more than 80 major property investors within and outside the Nordics.