Nordicum - Real Estate Annual Finland 2014 - Page 69

Photo: Sini Pennanen The real estate sector is still experiencing its share of the uncertainties that impact the economy. The volume of transactions remains on a low level, the leasing of business premises has plenty of challenges and construction projects are slow to move forward. J anne Larma from Advium Corporate Finance argues that one problem in the market right now is the narrow investor base: the buyers in recent transactions have been domestic institutional players (along with just a few Nordic and German funds or investors). Furthermore, many players of this rather small group limit themselves to the Helsinki Metropolitan Area – and focus on clear-cut “core” targets. “It seems rather typical that investors are turning away from all risk and looking for guaranteed income. Of course, the situation has been about the same for over four years now and there is no quick change in the future, either, even though funding issues have improved of late,” says Larma. For the construction market, he lists the non-active leasing market as a significant problem that has quieted things down in office construction very effectively indeed – if one ignores the very best locations and their high-profile projects. In residential construction and the raising of new shopping centres there is still momentum left, however, and more of a ‘business-as-usual’ mentality. Gaining Momentum Despite the apparent challenges, many experts feel that there is light at the end of the tunnel. Janne Larma shares this view: the outlook is better now than 6 or 12 months ago. “Funding is available at terms which have improved a bit and many funds have been successful in raising new capital.” Especially the new residential and healthcare funds have hit the ground running. Also, the stock market has been looking rather robust of late. “The sentiment is better now than last spring. Even though the willingness to take risks is still weak, we feel that the next 6–12 months will be clearly more active than what we saw in 2013.” but probably in 12-18 months investors will find their courage again. ”At the moment it is clearly visible that many European, opportunistic funds have assembled a significant volume of capital and at some point also the Finnish market can attract a share of the capital flows. On the other hand, it would be very good indeed if we finally found some investors in Finland that would recognise the excellent yields potential of the real estate market outside Helsinki,” Larma says, expressing a wish that perhaps eventually a domestic fund will specialise in this segment. Too Much Office Space Leasing of business premises is an uphill struggle in many cases as companies are not too keen on outdated premises – with weak accessability – that are well represented in the market. There is overflowing supply which means that the customers can have their pick and often decide to go with brand new whenever they can. Janne Larma points out that the office market is not one and the same; certain areas may still enjoy nice demand (and even be lacking in appropriate premises). “It would seem that the tenants look for high quality premises that are flexible enough for their purposes – and it should feature good connections and be located near diverse services, too,” Larma lists the requirements for many tenants in the market right now. Grace Under Fire According to Larma, during that last 20 years the Helsinki Region has witnessed a development where a few highly attractive business centres have established themselves so well that they enjoy steady demand even when times are tough; and, at the same time, there are old premises in fringe areas which All Eyes on Prime?                              are hard-pressed to get anybody interested. ”It would be sensible – and highly recTraditionally, the safe haven for investors in ommendable – that an effort was made to murky waters is prime targets, but this soturn these vacant premises with poor yields lution does not fix all problems, since there to new use, by means of modernisation or are only a limited number of targets of this conversion,” he says, adding that in recent quality and the yield levels are low. years the sector has seen the emergence of Janne Larma is expecting for investors few active players who make profit by givto start looking for targets outside prime as ing new life to tired old premises. soon as they get tired of poor yields and feel “In the Helsinki Metropolitan Area, that they could stomach a bit of risk. But the there is a number of such projects with solid timing is still iffy; Larma says that higher prospects going on right now.” risk is not deemed attractive at the moment, Nordicum 67