We once again focused on the Nordic real estate markets. It is obvious that this is less difficult for us due to our broad and deep market coverage as a company with Nordic roots. On the other hand, we have also noticed stronger investor demand in the Nordics in the past 24 months, especially with enquiries from first-time international investors particularly.
The fact that rising demand is not directly reflected in more transaction activities seems understandable these days. Also, time lag effects between market research and investments. However, one key finding becomes clear during this phase: the growing interest of investors in Nordics is shifting to the residential segment - in our analysis of the 12 Nordic real estate markets surveyed.
In these markets, the total transaction volume in 2018 even rose slightly by 2 percent compared with 2017 to EUR 44.3 billion (2017: EUR 43.3 billion).
- Sweden achieved the highest transaction volume of all Nordic countries with EUR 14.86 billion, while Norway recorded the highest growth rate with an increase of 25 percent compared to 2017 and was also the second strongest market in 2018 (EUR 10.63 billion transaction volume). Although Finland achieved a slight decline, at EUR 8.90 billion it is still the second-highest result of all time.
- The share of international investors fell by 25 percent compared to 2017, a decline that is primarily attributable to the reluctance of US and Asian investors. By contrast, foreign investments in the residential sector rose sharply by around 66 percent, the highest result of all times.
- The most sought-after asset class remains the office sector, followed by residential real estate with steadily rising demand and transaction revenues. Retail properties follow in third place.
- Stockholm is the most expensive office and residential location among the Nordic cities, with prime yields of 3.5 and 1.5 percent respectively. The highest prime yield of 6.75 percent can be found in Turku, both in the office and retail sector.
- The diversification potential in the Nordic countries remains high due to the heterogeneous yield structure. There is currently a 525 basis point yield spread between the office, retail and residential sectors in the various countries.
We expect stable or slightly rising office rents in almost all Northern European markets during the course of the year. The current market leader with a prime rent of 59.10 €/sqm is Stockholm, the lowest value is to be found in the Danish city of Odense (12.50 €/sqm). Due to the continuing high demand for office space and a low development pipeline, vacancy rates in most markets are therefore expected to decline slightly in the current year.