Nordicum - Real Estate Annual Finland 2017 | Page 54

Make the Deal

Property transactions hit an all-time high in Finland in 2016 – but what will the new year bring ?
Real estate is keeping it real . The year 2016 witnessed the highest property transactions volume ever in Finland . Already in early December , the transaction volume in the Finnish property market hit its new annual record level with approximately EUR 6.4 billion . The former record , dating back to 2007 , was EUR 6.29 billion .

S upported by continuously low interest

rates , property investments are attracting both domestic and foreign investors . Yields are being pressured by the high investment demand , which is now , increasingly , being seen also outside the Helsinki Metropolitan Area ( HMA ).
” In addition , the activity within real estate transactions is very high globally ,” notes Janne Larma , CEO of Advium Corporate Finance . The same applies to M & A volumes on a global scale : Investors are investing in those asset classes where they see attractive risk / return ratios .
“ Finnish real estate is providing , both in absolute and relative terms , attractive expected returns . We have witnessed new investors in the Finnish market during the last 12 – 24 months . The Finnish REITs are attracting a lot of capital and they are nowadays a big investor group in Finland ,” Larma says . By December 2016 , the share of foreign investors was about 28 per cent of all transactions .
Builder ’ s Game
Recently , Finland has witnessed a trend where construction has become the most significant engine of the economy . The Finnish Confederation of Construction Industries RT expects construction volumes to increase by some 6-7 % in 2016 . The volumes are increasing in residential , commercial and public property sectors ; the residential construction volume is expected to increase by as much as 20 % for the year .
Infrastructure construction is also increasing , supported by both the development of new residential areas as well by investments in the improvement of existing traffic infrastructure . Construction is , however , already being checked by availability
54 Nordicum of skilled workforce and delivery capacity of construction materials .
Larma strongly believes that the year 2017 will be another good year for real estate investments in Finland , from the perspective of both volume and returns . “ We do not expect European Central Bank to raise short term interest rates and even though the euro government bond yields will likely increase , they will remain at a very low yield compared to real estate yields .”
Urban Excellence
Janne Larma is also of the opinion that the growth centers in Finland will continue to grow – which means that the long-term outlook for real estate in these cities is good . “ Having said that , there are , of course , locations and types of properties which are less attractive and will have a less rosy outlook .”
“ The most important thing for communities is growth ,” Larma points out . The population of the city must grow in order to “ guarantee ” a decent expected return for the real estate investment .
“ In addition , your investment lot size should be proportionate to the size of the market . If you can tick both these boxes , I believe the best returns can be made in the ‘ second cities ’ in the coming two years .”
Go Strong , Go Long
During 2016 , several exceptionally large portfolio transactions of existing properties took place – and there are delightfully many investors out there that are playing “ the long game ”. Larma notes that the more Finland is able to attract investors that are investing with a long-term horizon , the better it is for the Finnish real estate market . ” Quite many of the new foreign investors are investing based on this strategy ,” he says .
“ We naturally need also those investors who keep the property for 3 – 5 years and then sell in order to keep the market liquidity at an attractive level . Finland is attractive as our yields are higher than those of our closest peers . Our market is very transparent , the rents are at a reasonable level and the economy in the growth cities is doing well ,” Larma says .
The dropping office vacancy rates have been an issue in the HMA , and now the situation seems to have stabilised somewhat – and rents have increased slightly in the best areas . With many companies looking for space efficiency ( and smarter space in general ) also new office premises are being built continuously .
Oldies Goldies ?
But what do you do with all that old office space that is no longer attractive in ( almost ) anybody ’ s eyes ? – Janne Larma sees various ways to deal with this issue : There are several good examples of converting or totally refurbishing old buildings to modern office space , residential or hotels . Take , for example , Brondankulma which was converted to modern office space , Bulevardi 12 – 14 ( converted to residential use ) and Yrjönkatu 13 ( converted to hotel ) in Helsinki .
“ On the other hand , Kasarmikatu 21 is an example where an office building was demolished and a modern office building is currently being built .”
According to Larma , it is quite clear that an inefficient , old office building needs to be totally refurbished in order to attract tenants . “ The hard fact , however , is that outdated / inefficient office space outside city centres is not always worth the effort as the refurbishment sometimes costs close to as much as building greenfield ,” he adds . l