From a strong property market to uncertain times
Year 2022 was a year of change that marked the end of a longterm strong property investment market. The change is due to the war in Ukraine, which rapidly increased inflation and eventually interest rates to a much higher level than had become the norm. Transaction market was really strong during the first half of the year, but an exceptionally radical turn took place in the summer, and the rest of the year was challenging in terms of property investments.
It seems that the period of extremely low interest rates, which strongly supported the property market for almost a decade, is over, at least for now. As interest rates finally took an upturn last spring, the pace of transaction market also waned, and there was a clear upward adjustment in property yield requirements. Because of the uncertainty caused by market transformation, property transaction volumes were in a clear decline already in the autumn. After a very strong start to the year, the last quarter was the weakest since 2014 in terms of transaction volume. This year, too, is likely to start off slow, and the first half is likely to produce weaker transaction volume than usual.
Yield requirements decreased almost continuously since 2010 after the financial crisis when the prime yield requirement for offices in the Helsinki CBD was approximately 6%. Prime yield requirement was at its lowest in the winter of 2022, at the level of 3.2%. Last autumn, it quickly rose from rock bottom to the level of 4.0%. Although yield requirements have changed significantly, prime yield requirement is still nowhere near the average level over the last 20 years which is 4.9%, not to mention the levels seen after the financial crisis. Fortunately for investors, the rapid increase in yield requirements is somewhat compensated by large index increases in rents that can take place now for the longest time as a result of high inflation.
The Catella Market Indicator, Spring 2023 can be ordered by clients and co-operators for free from the following e-mail: email@example.com.
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