We sat down with our Nordic Capital Markets leadership to discuss the current real estate investment market sentiment. Continue reading to learn more about their key insights and top picks.
“It’s clear that we are headed towards a tough winter. The war in Ukraine, the joint European decision to phase out Russian natural gas, and the high inflation put pressure on the households’ wallets. It shifts the focus towards affordability and energy efficiency.
The rate hike cycle we’re in to combat inflation has also shifted the investment market. Investors are now once more prioritizing cash flow over high future growth. For assets with high resilience, strong cash flows and strong ESG credentials, the investor interest remains high.
Strong occupier markets with rental growth are also prioritized regardless of the asset type. In the coming months, there might also be interesting opportunities coming to market that wouldn’t have happened in a more positive economic environment.
The general advice is to stick to your strategy, don’t try to time the market, and don’t be afraid to act when you know you’ve found the right deal“ summarizes Amanda Welander, our Head of Research, Nordics.
Expo Real 2022 was organized earlier this month. Based on what you learned there, how do you see the market sentiment at the moment?
“Market sentiment is very affected by everything that happens around us. Investors are cautious in investing unless they see a true upside on their investment. It is positive for the Nordics that there is equity set to invest in the region. And that local financing also is available” tells Patrik Kallenvret, MD, Capital Markets, Nordics.
What kind of investors are likely to be most active?
“It’s a mixed picture, but far from all gloomy and dark despite the current market environment and headwinds. We are particularly seeing Nordic private equity and managers continuing to be particularly active and buying, but also more institutional investors are now eyeing an opportunity to acquire assets they would normally not be able to get their hands on. Furthermore, due to the very strong US dollar we see that certain US investors are being more opportunistic and deploying more capital into Europe and the Nordics. There is plenty of dry powder, so for the right opportunity there is capital – but it is more selective than it has been in many years” adds Jorgen Arnesen, Head of Real Estate Investment Banking, Nordics.
What do you think are the most interesting investments right now?
”There are many interesting investment opportunities and themes with strong fundamentals that investors are eyeing in the current market environment. We are currently seeing most activity in the residential, I&L, office and health care sectors in Finland which is particularly benefiting from the euro currency and stability along with the other Nordic countries. There is a clear investment appetite for core investment opportunities and particularly assets with high ESG credentials. On the other hand, value-add opportunities are providing an interesting spread against the interest rate environment” comments Ilpo Münster, Head of Investment Properties, Finland.
What trends will be even hotter one year from now?
“Affordability and energy efficiency in residential properties will be critical as economic leeway will be reduced for private individuals during the current economic turmoil” summarizes Christian Bro Jansen, Head of Capital Markets, Denmark
If you were an investor, what ESG feature would you prioritize in the coming year?
“There has been an increasing focus on Social and Governance, but the focus will be on Environmental in general and especially energy. With the cost of gas and electricity increasing massively, energy savings and efficiency will be top priority” tells Alexander Stensrud, Head of Capital Markets, Norway.
To conclude, what Nordic country and sector would you choose as your top pick if you can't choose your own?
Patrik: “I think the most important thing is that you invest in products and regions you really are comfortable with. It is almost impossible to find the lowest point when it comes to pricing. Make sure it is a good investment, rather than anything else. It does make sense to have a strong cash flow, it secures good financing terms.”
Jorgen: “Denmark and Sweden. I would go for more operational real estate sectors such as student housing, self-storage, kindergartens or nursing homes. But we are also seeing great opportunities in retail, which to some extent has already repriced and thus provides a positive yield gap in the current market.”
Ilpo: “I believe the I&L sector is offering some interesting opportunities where the sector is highly driven by the strong occupier market throughout the Nordics and which is expected to continue. With a good pipeline there is also an opportunity to execute interesting aggregation and growth strategies.”
Christian: “I would consider investing in retail as we see many situations with healthy and robust schemes having a resilient income mix, that are being sold at yields significantly higher compared to the other sectors. I think the risk adjusted return looks attractive in several cases.”
Alexander: “I would go for modern office buildings in the largest cities. Return to the office after Covid is advanced in the Nordic Region compared to many other regions. Low supply and high demand, especially in the city centers, govern rental growth. It’s important to have a healthy cash flow in a market with an increasing cost of debt.”
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