Nordicum - Real Estate Annual Finland 2013 - Page 63

Photo: Sini Pennanen are even competing for these assets,” Larma says, adding that especially the foreign investors are keen on prime properties – but also the long-term lease contracts are highly attractive. This trend, however, is not that much different from what the domestic players are doing: “Also the majority of domestic investors is preferring properties in the capital region or in the best spots of the biggest growth centres.” Also-rans in Trouble According to Larma, it is considerably harder to get the investors excited about properties that are not top quality and of optimal location. “Due to this development, I feel that the yield gap between prime real estate and other properties has become too wide. As a result, we perceive that investors now have a chance to make great deals by taking on a bit more risk and investing outside the Helsinki Metropolitan Area,” Larma says. In the present situation, Finland is better off than many – or even most – European economies. Finland is one of the last EU countries in possession of AAA rating, and has made a name for itself as the “Germany of the North”. Larma perceives another strong asset that the Finns have: the rents have stayed stable and vacancy level has not become a big problem even during the most acute phase of the financial crisis. “In many other European capitals, the economic turmoil hit much harder.” Hold the Line M anaging Director Janne Larma from Advium says that the prevailing sentiment on the property investment market is pretty much the same as that of other investment markets: investors shun away from risk, whenever they can. “The biggest challenges have to do with low investor demand,” he says, while making one exception to the rule: “Prime real estate is still doing well and investors Larma notes that especially the commercial and residential property markets have been going quite strong and rents have even increased during the crisis. “This goes a long way to add stability and decrease the risks of the investors. Also the companies’ balance sheets are solid and the development of profits is quite good.” Still, the vacancy rate for offices in the Helsinki metropolitan area is likely to increase since there are a lot of new properties coming to the market. An exodus from less-than-prime real estate may well be in the cards in the near future, which leaves the property owners with a dilemma: is the problem cyclical or structural? In the first case, the improving economy will fix the situation eventually, but if an aging property is deemed obsolete the high vacancy rate may become a permanent problem. In this set-up, many owners of office properties are forced to evaluate, if it is possible to redevelop the property into something else altogether – or, alternatively, if the property should be demolished, even. KTI Finland observes that during the last five years, around ten office properties – with a total area of 50,000 square metres, have been redeveloped into hotels in Helsinki. Some offices have also been transformed for residential purposes, and, in a couple of cases, properties have been demolished. Flooding the Market According to KTI Finland, there were 230,000 square metres of office