The institutional investors go from being net buyers to net sellers in the Nordic real estate market. This is due to, among other things, increased appetite for international real estate, major project portfolios, new capital requirements and too high property allocation among some institutions, according to the new report Pangea Institutional Outlook, produced by Pangea Property Partners.
Pangea Institutional Outlook is a detailed market report covering the 160 largest Nordic institutions and their view of real estate as an asset class, including their planned investment strategies over the next twelve months.
“It’s a new trend that we are seeing right now. Nordic institutions have been large net buyers in the Nordic real estate market throughout the 2000s and they have contributed to low property yields. In 2017 and 2018, however, the Nordic institutions have turned net sellers,” says Mikael Söderlundh, Head of Research and Partner at Pangea Property Partners.
Combined, the Nordic institutions own real estate valued at EUR 116 billion, which corresponds to
9.2 percent of their total assets under management. The Swedish institutions have the highest property allocation (11.3 percent), followed by institutions from Norway (11.1 percent) and Finland (7.3 percent). The lowest property allocation is found among the Danish institutions (5.6 percent).
“The Swedish institutions have gradually increased their property allocation, from 6.9 percent at end of 2010, while the Finnish institutions have gone in the opposite direction and reduced their property allocation significantly,” continues Mikael Söderlundh.
Real estate is still ranked as one of the most attractive asset classes among the Nordic institutions, but competition has increased from, for example, government bonds. Alternative investments such as hedge funds and infrastructure are also considered to be attractive in the current market, according to the report. Within real estate, public properties are ranked as the most attractive segment, followed by offices, residentials and logistics. More institutions are also interested in buying real estate abroad.
“Many Nordic institutions are starting to feel that their domestic markets are expensive and therefore they start looking for investments abroad. In parallel to building up an international real estate exposure, they are also investing more in property development to enhance returns,” says Joakim Arvius, Project manager and Partner at Pangea Property Partners.
It is primarily the largest institutions that are interested in international real estate and Asia and the
US are considered the most attractive markets. Continental Europe, on the other hand, has lost in attractiveness in recent years, according to the report.
Pangea Property Partners is an independent Nordic corporate finance and advisory firm focusing on the real estate sector. The company has offices in Stockholm, Oslo and London with more than 30 employees. We also have a strategic cooperation with Mrec in Finland. Since 2010, Pangea Property Partners has advised on more than 350 transactions with an underlying property value above €29 billion. The mandates include property divestments and acquisitions as well as large corporate transactions, capital raisings and debt financing.