NEWSEC PROPERTY OUTLOOK - SPRING 2021 - Total Balance
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NEWSEC PROPERTY OUTLOOK SPRING 2021
NEWSEC PROPERTY OUTLOOK
TO BE, OR NOT TO BE?
In the last edition of the Newsec Property survive the pandemic. I dare to state the
Outlook we concluded that the pandemic had opposite – the concept of the office will not
accelerated several developments and trends be rendered obsolete.
already taking place in society pre-covid-19.
The concept of the office in the wake of the In the history of humanity, the office is a
pandemic has been under a lot of scrutiny and relatively new phenomenon driven by our urge
we will now take a closer look at this theme. In to enable communication, increase efficiency
this edition of the Newsec Property Outlook, and fulfill the organization’s goals. The office
we explore what the future holds for the office also works like a glue in sticking the individual
market in the Nordics and Baltics. pieces together, by offering a physical place
where the members of an organization socially
Over time, we have seen a gradual shift in terms interact with one another to build the company
of office space. The trend has been fewer square culture and enforce its core values.
meters per person, as we have gone from
working in individual rooms to open landscapes I strongly believe that the office will hold even
and activity-based offices. Not to mention co- more importance in terms of a company’s
working that has experienced a great hype in the competitiveness going forward. Having the
last few years. right kind of office in the right location will be
key to attracting and retaining the most sought
Then the pandemic struck, really putting after employees. And after all, the employees
digitalization and flexibility to the test as are one of, if not the most, important asset of
governments urged offices to close and every- an organization. We will surely see continued
one that possibly could to work from home. developments and new usages as our behavior
It is impressive to see the giant leap that we have changes, but I am certain that the office will
taken in these last months, but I also think that continue to evolve and meet our needs. As Mark
this has made one point very very clear, at least Twain put it: “the reports of my death are greatly
for me personally… Fine, it works. But nothing exaggerated”.
more than that.
With that, I wish you an interesting read!
Rather, it has reenforced my belief in the
importance of the office. Nothing can compete
with meeting in person. What happens in the
human interaction when we meet face to face
is irreplaceable, whether it is about creativity,
creating a sense of community or building a
company culture. Some voices have been Max Barclay,
certain that the office as a concept will not Head of Newsec Advisory
3
CONTENTS
Property in uncertain times............................................................................................. 7
The death of the office has been greatly exaggerated ........................... 12
The Swedish Property Market .................................................................................... 18
The Norwegian Property Market ............................................................................. 20
The Danish Property Market ....................................................................................... 22
The Finnish Property Market ...................................................................................... 24
The Estonian Property Market .................................................................................. 26
The Lithuanian Property Market ............................................................................. 28
The Latvian Property Market ..................................................................................... 30
European Property Markets ........................................................................................ 32
Macroeconomic data.......................................................................................................... 34
Property data ........................................................................................................................... 37
Definitions .................................................................................................................................... 41
The Newsec Property Outlook Team ................................................................... 42
The Full Service Property House ............................................................................ 44
Newsec’s market reports ............................................................................................... 45
Contact and addresses .................................................................................................... 46
Copyright Newsec © 2021
This report is intended for general information and is based upon material in our
possession or supplied to us that we believe to be reliable. Whilst every effort has
been made to ensure its accuracy and completeness, we cannot offer any warranty
that factual errors may not have occurred. Newsec takes no responsibility for any
damage or loss suffered by reason of the inaccuracy of this report.
Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00,
www.newsec.se.
You may use the information in the Newsec Property Outlook but acknowledge-
ment must be made for all quotations and use of data/graphics.
Cover photo: iStock
5
YOUR
PARTNER IN
THE NORTH Newsec, the Full Service
Property House in Northern
Europe, is the solid choice
of partner within Advisory and
Property Asset Management.
With sharp analyses, hard facts
and just the right skill set,
we’ve got you covered.
NEWSEC PROPERTY OUTLOOK • SPRING 2021 PROPERTY IN UNCERTAIN TIMES ●
Photo: Maskot
PROPERTY IN UNCERTAIN TIMES
Klas Eklund, Senior Economist, Mannheimer Swartling
We live in strange and turbulent times. In 2020, the economies of all Nordic countries contracted. Still, their property
markets showed strong resilience – both prices and transaction volumes. The main reason was strongly expansionary
policies in all countries. Asset markets – both stocks and real estate – are supported by monetary policy, in particular
negative real interest rates. Thus, an analysis of future developments must factor in actions from central banks to a
larger extent than usual. The basic forecast is continued strength of the property markets in 2021 and 2022 – but with
downside risks in the longer run.
Wild swings Differences between sectors and nominal key rates were negative in
The economic development in Europe countries have been large. Manufac- both Finland and Denmark, and zero in
showed strong gyrations in 2020, as turing has fared better than services. Norway and Sweden. Thus, real rates
the pandemic spread and lockdowns A number of countries like the UK, were negative in all countries. Central
followed. There was a sharp contrac- Spain and Italy on the one hand con- banks also pursued QE, quantitative
tion in Q2, a bounce-back in Q3, and tracted by some 10 per cent in 2020. easing, meaning they bought large
then a second slowdown in Q4, leading On the other hand, the Nordics did amounts of bonds to press down
to a new, but milder contraction in better, with GDP shrinking by 2–4 per market yields. 10-year real govern-
Q1 of 2021. The pattern, consequent- cent. Bad numbers, but not as abysmal ment bond yields are negative in all
ly, has been similar to a W, with the as was feared in the spring of 2020. countries. In all four Nordic nations,
second downturn less severe than the Strong support from fiscal and mon- fiscal policy also turned expansionary
first. etary policy gave relief. By year-end, last year, with budget deficits rising. →
7
● PROPERTY IN UNCERTAIN TIMES NEWSEC PROPERTY OUTLOOK • SPRING 2021
»There is a good chance that growth
numbers, in particular for private
consumption will be strong in 2022«
These efforts supported asset good chance that growth numbers, in inflation. American bond yields have
markets. After the initial fall of stock particular for private consumption will started to move up – albeit from low
markets as the pandemic broke, mon- be strong in 2022. levels. A return of inflation obviously
etary support made equities bounce would have massive repercussions on
back and stocks reached all-time highs However, the expected upturn starts bond yields – and real estate.
by year-end. Real estate markets from a low level of capacity utilization,
were resilient in all four countries with high unemployment. In this In the spring of 2021, consumer
throughout 2020, and segments of respect, annual numbers for the whole prices (CPI) are rising sharply in most
the markets reached all-time highs. of 2021 may not look particularly advanced economies. But this is a
Transaction volumes were also strong, strong, even if growth rates per se will temporary phenomenon, caused by
in several cases also surpassing be high during H2. Sticky unemploy- “base effects”. Firstly, the pandemic
previous peaks. ment means that economic policy will is changing the weights of different
remain expansionary throughout all of consumption items in the CPI basket.
Looking ahead 2021. Key rates will stay low. Secondly, a year ago, oil prices col-
The outlook is uncertain. A gradual lapsed. Now both oil and other com-
recovery is the baseline scenario, but This will continue to support asset modities are rising again, and as last
there are upside as well as downside markets. The question that will arise year’s negative values fall out of the
risks which are impossible to quantify. is whether the boom has gone too 12-month statistics and are replaced
On the one hand, vaccines are being far. Equity valuations are indeed very by positive numbers, reported prices
rolled out and pent-up demand may be high: for the US S&P 500 the p/e ratio on an annual basis automatically rise.
unleashed as a return to some kind of is now the highest since 1929 (after In several countries, CPI will reach 2
normalcy ensues. On the other hand, which came the stock market crash) per cent or above.
there is a risk of a third wave of infec- and 1999 (after which followed the IT
tions and lockdowns, as new forms of crash). No wonder some investors are But this is a one-off effect, which will
the virus emerge and vaccination is starting to fret, searching for alter- ease as soon as more new numbers
delayed. native investments, creating froth in are incorporated into the 12-month
subsegments of risky assets. series. The consensus view is there-
While this creates uncertainty in fore that inflation will fall back, due to
the short to medium term, we also However, if we study historical yields, low capacity utilization. So in H2, infla-
encounter uncertainty concerning we find that this peak is different. Real tion numbers should be back down to
structural changes as a result of the bond yields are negative – at the same low levels again. But looking further
downturn and technical change. Dig- time as inflation is extremely low. ahead – into 2022 and 2023 – raises
italization has taken a leap forward, Thus, it would seem that the key to several uncertainties.
affecting shopping, working, living high equity valuations is the low level
and commuting. This will have conse- of interest rates. With rates as low as Wages have historically been a pri-
quences for real estate. today, it is not difficult to justify high mary driver of costs and inflationary
equity valuations. pressure. Given that unemployment
A reasonable starting point is that is high and capacity utilization low,
the first quarter of 2021 will prove to Inflation? it is difficult to see any rapid, cost-
be weak, and that the cycle bottoms Will rates remain low? This raises the inflating rise in wages in the near
out in the second quarter. This would issue of inflation. For years, inflation future. A more difficult issue is that
imply an upturn during the second has stayed low; in most countries of the massive liquidity stimuli from
half of the year. This could be brisk as (including the Eurozone) clearly below central banks. Traditional monetary
households spend more of the savings inflation targets. Now, however, the theory claims this should be inflation-
that have been amassed during combination of a possible strong ary. But so far, we have not seen any
the lockdowns, and as corporates cyclical rebound and massive increase inflationary impulses.
increase investments again. There is a in liquidity has raised the specter of
8NEWSEC PROPERTY OUTLOOK • SPRING 2021 PROPERTY IN UNCERTAIN TIMES ●
Photo: iStock
How will central banks react? Thus, from 2022 on, I presume infla- home. Travelling patterns – both
That may change as capacity utili- tion in the US will rise somewhat, but long-range and commuting – changed.
zation picks up. The combination of nominal interest rates will stay low, Sure, many office workers will come
rising capacity, liquidity and perhaps rising only slowly. Bond yields will back after the pandemic, but working
rising inflationary expectations could move higher than short-term rates; from home has nonetheless proved to
very well end the period of ultra-low yield curves will steepen. Europe will be an efficient complement. We can
inflation. As we move into 2022, lag, but here, too, the same forces therefore expect demand for extra
inflationary pressures gradually may will gradually materialize. As a result, space at home to increase. Demand
start to increase. For whatever it is real yields will stay negative in most for co-working space in residential
worth, I believe that inflation will see a countries – preserving favourable areas may also increase. As a result,
short-term spike in H1, fall back in H2 conditions for asset markets. there will be – ceteris paribus – a
2021, but then gradually climb from movement out from city centers and
2022. This process will be stronger in But there are inherent risks in this smaller apartments, to bigger houses
the US, because of more rapid growth Goldilocks-situation. Inflation may in suburbs and smaller towns.
and more expansionary policy. suddenly pick up – and markets rate as
well, threatening confidence in central On top of this, we have seen another,
Central banks will not react to the banks’ abilities to handle the situation. unexpected and possibly temporary
spike in H1 by tighter policy. They will, effect of the pandemic. As more peo-
rightly so, see the uptick as tempo- So: my base case with regard to ple work from home and have been
rary. And my guess is that they also monetary policy is one of beneficial hampered by lockdowns while ser-
will be reluctant to hike key rates even conditions for real estate for yet an- vices like restaurants and travelling
if inflation starts to move up in 2022. other year or two, but with increasing have been restrained, some house-
The reason is the huge pile of debt risks of a set-back. holds have started to spend more on
which might unleash a financial crisis, housing consumption; rejuvenating,
should rates be hiked too rapidly. Also, Structural changes decorating and refurbishing.
the Fed and some other central banks This general picture should be
clearly have stated that they will accept complemented with a realization that The Nordics
somewhat higher inflation, partly as real estate also will be influenced These trends apply also to the Nordic
a compensation for many years of by technological and demographic region. In 2020, the four Nordic coun-
undershooting inflation targets. In- trends which intensified during the tries – Denmark, Sweden, Norway and
stead, they will attempt to hold down pandemic. Finland – all suffered recessions, but
market rates via “yield curve control”, less severe than continental Europe.
which in essence means further inter- Digitalisation took a quantum leap, Initially, Norway was hardest hit, given
ventions on the bond markets. with e-commerce and working from its dependency on oil and gas – the →
9● PROPERTY IN UNCERTAIN TIMES NEWSEC PROPERTY OUTLOOK • SPRING 2021
Photo: Shutterstock
prices of which tumbled. With regard the pandemic hit. That hurt both GDP As vaccination spreads and if the virus
to political reactions, Sweden was the and the housing market. However, is contained, pent-up demand should
odd man out, initially implementing both bounced back in the autumn of mean a strong rebound. As the krone
weaker restrictions and more lenient 2020, and the long period of rising is tied to the euro, but in the stronger
lockdowns. The number of infected real estate prices took a new optimis- part of the trading band, the National
and dead turned out higher than in tic turn. bank has room for a small rate cut.
the neighbouring countries, while it is
difficult to see any beneficial effects The Danish economy managed better As a result, the real estate market is
on Swedish economic performance. than most in 2020. The reasons expected to stay strong. Bubble risks
were swift measures to prevent the are contained by a slew of macro
With regard to monetary policy, virus from spreading, a diversified prudential regulations, e.g tougher
Finland is a member of the Eurozone, export sector (including both foods credit standards and higher required
while Denmark has a fixed exchange and pharma), and financial resilience down payments.
rate to the euro. Both Sweden and courtesy of a strong savings buffer.
Norway have floating national curren- Government support schemes worked Finland
cies. All four countries have strong well. Consumption was stimulated by The Finnish experience is similar
fiscal positions. As a result, they have one-off disbursements. At the end of to the Danish. A quick and decisive
all been able to undertake strong the year, though, Denmark suffered lockdown in spring of 2020 contained
supporting policy measures. a new virus scare as a mutation came the contagion and made a gradual
from minks. New lockdowns were im- opening up possible during summer.
Denmark posed in Q4 of 2020, which is hurting As a result, the GDP contraction was
Denmark quickly chose a hard line in the economy going into 2021. less than half that of fellow euro mem-
closing down part of its economy as ber states. Within manufacturing,
10NEWSEC PROPERTY OUTLOOK • SPRING 2021 PROPERTY IN UNCERTAIN TIMES ●
»In general, the Nordic countries
have fared better than countries
on the continent«
structural ailments in the forestry and enforced at the same time as com- The Swedish economy is expected to
pulp industry hurt. modities prices collapsed. Norway was rebound in H2 2021. The Riksbank is
hit by a double whammy. Construction still expected to keep rates low for the
Restrictions in services have held back was scaled back. remainder of 2021 and 2022. The bank
household consumption, but as they has signaled it will pursue a similar
are lifted, pent-up demand is expected Still the housing market turned out strategy to that of the Fed and the
to cause a strong upturn. Construc- to be strong in 2020. One reason was ECB, i.e to allow inflation to gradu-
tion has turned up. Key interest rates swift action by the central bank, which ally crawl up, without hiking rates in
remain negative and the Financial cut its key rate to zero – the same level advance. This is a positive signal to
Supervisory Authority has raised the as in Sweden. This gave a new boost to the real estate market. However, the
cap on home loans. real estate and weakened the krone. Financial Supervisory Authority has
said it wants to re-tighten amortiza-
Finland is a member of the Eurozone, Looking ahead, Norway will probably tion rules which were relaxed during
meaning that monetary policy is set in be the first country to hike key rates, the pandemic. The net effect is none-
Frankfurt and is based on the perfor- maybe even before the end of 2021. theless a continued strong real estate
mance of the entire Eurozone, not just The central bank is afraid of over-heat- market.
Finland. More specifically, this means ing and high debt levels. Possibly,
that the refi rate will stay low for long, this will mean a slower growth of real All in all
even if inflation were to gradually rise. estate and house prices. An outright The major European trends also
fall is less likely, as underlying demand characterize the Nordic region. But
This will contribute to another strong growth still will be strong. in general, the Nordic countries have
year on the housing market. But fared better than countries on the
urbanization and migration to the Sweden continent. The health care systems
Southwest is causing house prices to Sweden is the largest economy in the are universal and well-funded. Public
diverge, with asset prices and wealth Nordic region. Although authorities finances are sound. Low interest rates
rising primarily in the greater Helsinki employed a lighter hand in applying have supported asset markets in the
area. corona restrictions than its neigh- midst of the pandemic.
bours, the economic outcome was
Norway roughly the same in 2020, i.e a sharp Looking ahead, these trends will con-
For years, Norway’s housing market drop in Q2 followed by an autumn tinue. Falling savings ratios may cause
boomed, driven by strong demand, bounce-back. When the second wave strong growth in 2022, too. The two
not least from rising incomes in the oil of the virus came, at year-end, the major risks are that 1) a third wave of
and gas sector. Disposable household Swedish strategy was no longer an the pandemic will cause new lock-
incomes have doubled since the start outlier, as the government started to downs and a new recession, 2) that a
of the millennium and borrowing costs apply the same kind of restrictions as bout of inflation and rising inflation-
have fallen. Norway is now by far in the other Nordics. All in all, growth ary expectations would force central
the wealthiest country in the Nordic in 2020 came in at minus 3 per cent, banks to abandon their low interest
region. which is the average for the region. rate strategies. That seems less likely
today. But the Norwegian central bank
Since Norway is not an EU member, Fiscal policy turned expansionary. will nonetheless cautiously prepare to
Norges Bank is independent, and the The Riksbank kept the repo rate start raising rates from the zero lower
krone is floating. Due to inflationary at zero throughout the year and bound.
pressures from the commodities sec- intensified quantitative easing. This
tor, key rates historically have been supported real estate, which despite
higher than in neighbouring countries. the pandemic showed a stellar per-
However, when the corona pandemic formance, with strong price increases
struck, a strict lockdown was rapidly and record-setting transactions.
11● THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED NEWSEC PROPERTY OUTLOOK • SPRING 2021
THE DEATH OF THE OFFICE HAS BEEN
GREATLY EXAGGERATED
Just shy of one year ago, soon after the pandemic begun to escalate, Twitter was one of the first companies to
announce that they would move to a permanent work-from-home model, which would extend beyond the end of the
pandemic. Many other companies, including a number in the Nordics & Baltics, were quick to follow suit, and virtu-
ally every company in the region has adopted some form of remote working in 2020 and 2021. This has led some to
believe that the suit & tie era of commuting to a physical office is under pressure, and that the future of the office
market is bleak. In this edition of the Newsec Property Outlook, Newsec looks at some of the changes that the
future holds for office space, and highlights a few lesser known trends that will come to impact the office market
– in markedly different ways than those that are currently the talk of the town.
1. The rise of the regional city naturally been influenced by covid-19,
Over the past few years, Newsec has but in the long-term is being driven by Definitions
highlighted the positive net internal a changing family cycle, a perceived Capital cities
migration that regional cities have rise in crime and lack of safety in major Stockholm, Oslo, Copenhagen,
been experiencing in the Nordics. Since cities, and generally changing prefer- Helsinki, Vilnius, Tallinn, Riga
2016, net internal migration to the ences. Major cities
capital cities in the Nordics has been Gothenburg, Malmö, Bergen,
negative, and since 2019, even the Office developers have not been Trondheim, Stavanger, Turku,
Greater Metropolitan capital regions particularly influenced by this trend. Tampere, Aarhus, Odense,
have seen negative net internal migra- Diagram (1) shows the office space Kaunas
tion. Meanwhile, net internal migration currently under development, that is Regional cities
to the regional cities has remained set to be completed in 2021 and 2022. All other cities with a population
positive. In 2020 and early 2021, this The graph clearly shows that both in above 50,000 in the Nordics &
trend has strengthened further, with a absolute terms, and on the per capita Baltics
fall in international migration meaning level, capital cities are expected to see
that many of the Nordic capitals have around twice as much development as
seen their population decline for the regional cities, with major cities also
first time in decades. This trend has being well ahead of regional cities. This is despite many internal migrants,
who tend to be more qualified and
prone to office work than international
migrants, flocking to the regional
1. Office space under development
cities. While some of these workers
Sqm
will work from home, and others might
2,000,000 40 commute to the head office in a larger
city a few times a week, Newsec can
1,500,000 30 still clearly identify a continued need
for modern, attractive office space
in regional cities that is not currently
1,000,000 20
being met.
500,000 10 Of the regional cities that do have
expected office space under de-
0 0 velopment, cities like Lund, Vaasa,
Capital cities Major cities Regional cities Kristiansand and Tartu come out
Expected office space (sqm, left axis) on top, while others like Eskilstuna,
Expected office space per capita (right axis) Jyväskylä, Fredrikstad/Sarpsborg and
12NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED ●
»Newsec can clearly identify a need for modern,
attractive office space in regional cities that is not
currently being met«
Photo: i Stock
Aalborg have relatively little planned despite rental potential in absolute office space in regional cities, as it is
new production of office space. This terms being more limited. This in turn easy to rent out new space in these
is despite the latter cities generally means that the gap in quality between areas to tenants at strong rental levels.
experiencing strong inflows of internal the existing office stock and new
migration, and having relatively young production is wider. In addition, there is Should more actors look to build in
populations. also more prestige attached to sitting regional cities, the transaction market
in the few newly produced office build- will be impacted, too. Currently, the
Further, in most regional cities, market ings that are produced, and vacancy transaction market in many ways
rents are between 10-15% higher for rates tend to be low. This results in mirrors the office development market
newly produced office space than ex- newly produced properties often being – with the capital and larger cities being
isting grade A office space, and in some fully let before completion, as was the red hot, while demographically strong
regional cities can skew even higher. case in e.g. the office and retail project cities like Östersund and Oulu see little
This is partly because much of the in Kuopio, Finland, which Lapti sold to activity. As a result, there is clearly
existing office stock is generally not as Aberdeen Standard Investments in a lot of untapped potential in Nordic
modern as in the major cities, because early 2021, where Newsec advised the regional cities – for both developers
renovations are not substantially seller. Hence, there is a strong case for and investors alike.
cheaper than in the major cities, new production of →
13● THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED NEWSEC PROPERTY OUTLOOK • SPRING 2021
»Investors and tenants increasingly require office
properties to be environmentally certified in order
to even consider a purchase or tenancy«
3. Capital cities
10 %
4%
2. Sustainability – a mainstay 2. Environmentally certified office space under construction 22 % 64 %
on the office market Sqm Per cent
While regional office markets have 2,000,000 100
strong potential to thrive, other trends
are also increasingly impacting the 3. Capital cities
1,500,000 75
market. One such trend is environmen- ■ BREEAM
tal sustainability, with different types 10 % ■ LEED
of environmental certifications rising 1,000,000 4% ■ WELL50
substantially in popularity over the ■ Other
past few years, and quickly developing 500,000 25
22 % 64 %
into mainstays on the commercial
4. Major cities
property market. This is shown in 0 0
diagram (2). Today, virtually all office Capital cities Major cities Regional cities
space being produced in capital and Total (sqm, left axis) Certified of total (per cent, right axis) 11 %
major cities is environmentally certi- 9%
fied, and a lower amount (though still ■ BREEAM
the majority of space) in regional cities ■ LEED 57 %
is certified. This further increases the favourable financing possibilities. As of ments. As a result, in a number of the
■ WELL 23 %
attractiveness of the relatively few year-end 2020, 59 per cent of all listed■ OtherNordic & Baltic countries, Newsec has
modern, environmentally certified Nordic property companies have is- noted evidence of a green premium
office buildings produced in regional sued3.green bonds.
Capital cities 62 per cent of listed being paidcities
4. Major among large international
cities. companies have set up a framework for corporations for environmentally
■ BREEAM
green financing, the majority having sustainable space. As green financing
10 % ■ LEED
Investors and tenants increasing- occurred
4%
in 2019 or 2020. These green and11sustainability
% agendas continue to
■ WELL
ly require office properties to be loans can either be linked to specific grow in prevalence, it seems inevitable
9% ■ Other
environmentally certified in order to green goals or projects as set out in a that environmentally certified office
even consider a purchase or tenancy. green
22 % framework 64(e.g.
% many Nordic & space will continue
57 % be sold at a premi-
Indeed, Newsec has identified a clear Baltic companies adhere to the Green um,
23 % and attract higher rents, than any5. Regional cities
rise in retrograde certification of exist- Bond Principles), or linked to the com- non-certified grade A office space in
ing properties, as well as a rise in green pany’s own goals in terms of sustaina- the entire Nordics & Baltics.
tenancy agreements and green financ- bility, ESG or a specific project. This has
ing. The importance of green financing indirectly led to increased prevalence Which types of environmental certifi- 29 %
■ BREEAM ■ BREEAM
in particular has risen substantially, of certification among newly produced cations are developers going for in43the%
■ LEED ■ LEED
as sustainability-linked and other office buildings, often required to fulfill Nordics & Baltics? Of the total existing
■ WELL ■ WELL
forms of green loans allow for more ambitious
Other
green financing require- certified office stock, just over 60%
■ ■ Other
21 %
8%
3. Capital cities 4. Major cities 5. Regional cities
■ BREEAM
10 % ■ LEED
11 %
4% ■ WELL
9%
29 % ■ Other (national
certifications etc.)
43 %
22 % 64 % 57 %
23 %
21 %
8%
■ BREEAM ■ BREEAM ■ BREEAM
■ LEED ■ LEED ■ LEED
■ WELL ■ WELL ■ WELL
14 Other
■ ■ Other ■ Other (national
certifications etc.)
4. Major cities 5. Regional citiesNEWSEC PROPERTY OUTLOOK • SPRING 2021 THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED ●
»Newsec expects international certifications in
particular to rise further in popularity, in step
with globalization and international investor
interest for the Nordic & Baltic property market«
of office properties are certified with
national certifications. However, the
popularity of different certifications
for office properties currently under
construction is shown in diagrams
(3), (4) and (5). BREEAM is the most
popular certification for office proper-
ties under construction in capital and
major cities, while in regional cities,
where perhaps the brand appeal of
BREEAM and LEED is perceived to be
more limited, national certifications
tend to be more popular. International
certifications account for 90% of certi-
fications for coming projects in capital
Photo: i Stock
cities, and 58% in regional cities. The
WELL health certification remains the
least popular of the three major inter-
national certifications, but is rising in
importance as more developers seek 3. The office market overall and in modern office space, is
to both health and environmentally of the future set to decrease further in the long-run,
certify their projects. Newsec expects Closely connected to the sustainability as offices become even more efficient.
that certain forms of certifications will of office space is the degree to which Newsec notes a slightly higher amount
become more attractive than others to this office space is being used in effi- of office space per worker in the major
investors going forward. cient ways. Diagram (6) highlights the cities, and the highest in the regional
usage of office space per worker cities, owing to inefficiency and a lot
What does the future hold in terms of in different regions in the Nordics & of potential to build or repurpose into
sustainability on the office market? Baltics. The average worker in the Nor- more modern and effective office
Environmental certification is a prod- dics & Baltics has 18 sqm available to space. The lowest amount of office
uct of the wider sustainability drive them. This is despite the most modern space per worker is found outside of
in society today, and this is likely to office space being closer to 10 sqm per the cities, where traditional office work
continue to intensify in the Nordics & office worker or lower. The average is performed from home, from a make-
Baltics. Newsec expects international space available per worker, both shift office, or other non purpose-built
certifications in particular to rise fur-
ther in popularity, in step with globali-
zation and international investor 6. Average sqm of office space per worker
interest for the Nordic & Baltic prop-
25
erty market. Among international
purchasers, these certifications in
20
particular are likely to carry an increas-
ing green premium in the long-run.
15
Properties with both environmental
and health certifications are likely to
10
thrive, while property owners of older
properties will continue to play catch-
5
up and invest increasingly in retro-
grade certification. 0
Capital cities Major cities Regional cities Rest of country →
15● THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED NEWSEC PROPERTY OUTLOOK • SPRING 2021
»Newsec expects that most employees will work from the
office for 3–4 days a week post-pandemic, meaning that offices
will continue to play a prime role in the society of the future«
commercial space. Somewhat para- needs to be flexible and adapted to In 2020 and so far in 2021, institutions
doxically, as a result of missing out on match the rapidly changing needs of have been the second largest purchas-
many of the different waves of office modern tenants. Further, shorter and er, but have accounted for a very small
development (e.g. cellular offices), more flexible leases with more meeting amount of sales. The impacts of these
office space in rural areas is in some spaces (and less fixed workspaces) long-term trends are shown in diagram
ways the most efficient of all, in that it are likely to be required, as well as a (7). The diagram shows the % of the
does not exist in abundance. number of smaller meeting rooms, office stock in the capital city CBD’s,
to enable e.g. video meetings to take and in the major cities in general,
Beyond an increased drive for effi- place from the office. For employers, that is effectively “stuck.” This office
ciency and sustainability, though, employer branding and culture is also stock is controlled by pension funds,
what does the future of the office likely to become even more key. New institutions and other very long-term
market hold, and how will an increased office clusters are under development investors who have sold less than 10%
propensity to work remotely impact in all of the Nordic & Baltic countries, of their office stock in the past 5 years,
it? Some parts of the office market and where this office space meets the who are highly unlikely to divest. As
will suffer. Office space in some outer above requirements and has access to can be seen, in the capital cities in the
suburban areas, with poor access to public transport links, it is likely to be Nordics & Baltics, over 50% of the
public transport and services or in successful. Newsec expects that most office stock is controlled by such actors
socio-economically vulnerable areas, employees will work from the office for (highest in Oslo at 67%, and lowest in
is likely to be increasingly consolidated 3-4 days a week post-pandemic, mean- Stockholm at 47%), while in the major
or converted into other uses. Equally, ing that offices will continue to play a cities in general (including outside the
Newsec believes that some office prime role in the society of the future. CBD), over 20% of the office stock is
market subsegments remain underde- effectively stuck in this way.
veloped, and that with the right market While the office of the future will
knowledge, office investors will contin- certainly be more efficient, the office In the future, Newsec expects long-
ue to prosper. This is because the office market as a whole is also likely to look term investors to further increase their
as a concept will continue to fulfill a different to today. The average office presence on the transaction market.
number of key functions, particularly transaction is increasing in size, and The allocation strategy among pension
in terms of allowing for the exchange of existing property owners are growing funds is likely to increase from today’s
ideas, scrum space, and certain types larger, while the absolute number of ~12% to closer to 20% of capital being
of deskwork. However, office space office transactions continues to fall. allocated towards properties. If allo-
cation were to reach 20% and be pro-
portionally spread across the segment
around the Nordics & Baltics, 40-50%
7. Office space available to the investment market
of the office stock will be owned by
100 long-term actors in the capital cities,
as well as almost all of the office stock
in the CBD’s. Since offices account for
75
over a quarter of the annual transac-
tion volume in the Nordics & Baltics, a
50 change like this could lead to increased
turnover of the remaining office stock.
Less office properties being accessible
25
to investors could also lead to a lower
overall transaction volume, or higher
0 transaction volumes within other
CBD in the capital cities Capital cities in general
segments.
Percentage of office space that is available to the market
Percentage of office space that is effectively stuck
16NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE DEATH OF THE OFFICE HAS BEEN GREATLY EXAGGERATED ●
»The transaction volume in the Nordics & Baltics as a whole
was comparable to that noted in the UK in 2020 – despite the
population in the region being roughly half of the UK«
4. Offices stand strong 8. Office transaction volume
Despite all the talk of transformation MEUR Per cent
and change, the office market has gen- 15,000 50
erally remained robust in the Nordics &
Baltics throughout 2020 and so far in 12,000 40
2021. Diagram (8) shows the transac-
tion volume on the office market. The 9,000 30
volume in 2020 saw a slight decline,
but still remained mostly in line with 6,000 20
the historical average, both in absolute
terms, and in terms of the percentage 3,000 10
of the total transaction volume that the
office segment accounted for in the 0 0
2015 2016 2017 2018 2019 2020
Nordics & Baltics.
Office transaction volume (millions of EUR, left axis)
Per cent of total transaction volume (right axis)
A number of large office transactions
have served to drive up the transac-
tion volume in the Nordics & Baltics
in 2020, with 2021 set to bring many strong year ahead of it, with Newsec
Country 2020 transaction
more major office acquisitions. A prime volume
expecting record volumes of SEK 225
example of a recent major transaction (bn of euros) billion in Sweden, NOK 120 billion in
is Reinvest’s acquisition of the newly Norway, strong volumes in the other
produced SEB HQ in the Vilnius CBD 1 Germany 59.8 countries, and a record EUR 50 billion
in Lithuania in December, in a record 2 UK 48.7 in the Nordics & Baltics as a whole.
transaction for the Baltic market,
3 France 28.2
where Newsec acted as adviser for the The office looks set to remain an
seller Lords LB Asset Management. 4 Sweden 18.0 attractive investment for a broad
The other Baltic markets, as well as 5 Norway 10.6 range of different kinds of investors
the Norwegian market in particular going forward – as long as it is located
6 Netherlands 10.4
have also been active in 2020 and in the right place and managed in the
early 2021, with 50 bps drops in yields 7 Denmark 9.3 right way. Are you unsure of how to
in Norway over the past year, as well 8 Italy 8.8 meet the needs of the future in your
as a number of record-breaking office office portfolio, or are you struggling
transactions. Investor interest for the 9 Spain 7.7 to identify which office submarkets are
office segment since covid-19 hit has 10 Finland 6.0 likely to outperform others in the long-
also remained substantial in Denmark, run? Newsec, the full service property
Sweden and Finland, although single house, is always here to help you make
property transactions have been a transaction volume in the Nordics & sense of the Nordic & Baltic commer-
little smaller in size. Baltics as a whole was comparable to cial property market.
that noted in the UK in 2020 – despite
In general, interest in the commercial the population in the region being
property market in the Nordics & roughly half of the UK. The volume in Adam Tyrcha, PhD
Baltics was very strong in 2020. The Sweden was not too far off the French adam.tyrcha@newsec.se
total transaction volume ended up transaction volume – even though Ulrika Lindmark
at EUR 44.6 billion, in line with the France is six times larger than Sweden ulrika.lindmark@newsec.se
historical average - an exceptionally in terms of population. Amid all of this,
strong result, given the turbulent year early indications for 2021 are that the
that 2020 was. This means that the Nordic & Baltic market has yet another
17● THE SWEDISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2021
THE SWEDISH PROPERTY MARKET
AN INCREDIBLE END TO 2020
– WITH MORE TO COME IN 2021
Photo: Shutterstock
2020 was an unusual year for Sweden, spite this. In 2021, the Swedish econ- of SEK 74 billion set in Q4 2016. As
much like for the rest of the world. The omy is expected to rebound and grow such, it is clear that market sentiment
covid-19 virus had substantial impacts by around 3.5 per cent. This will entail in Sweden is currently very strong.
on the Swedish economy, which ended a strong recovery, though pre-covid A number of major transactions have
up contracting by 2.9 per cent – one levels of GDP are not expected to be already been completed in 2021,
of the best performances among the reached until 2022. Naturally, the and many more are currently being
major economies in Europe. Though strength of the recovery will continue initiated and likely to be completed in
this was a less severe contraction than to indirectly depend on epidemiolog- Q2 and later throughout the year. As a
initially expected, there were still clear ical considerations in Sweden and result, 2021 is set to be yet another
impacts on e.g. unemployment, which abroad, as well as the success of the very strong year for the Swedish
rose by around two percentage units vaccination process and return to rela- transaction market – with Newsec
throughout the year. The relatively tive normality that follows. expecting a new record transaction
light restrictions instituted in Sweden volume of SEK 225 billion.
contributed to the economy outper- Despite a shaky economy, the Swedish
forming much of the rest of Europe, real estate market performed incred-
though the other Nordic countries, ibly well in 2020. The transaction Contact:
which introduced more severe restric- volume in 2020 ended up at SEK 189 Adam Tyrcha, PhD
tions, performed similarly to Sweden. billion – the third strongest year on adam.tyrcha@newsec.se
Inflation remains below the goal of 2.0 record by some margin. Q4, with a vol- Alexandra Lövgren
per cent, but the Swedish Riksbank is ume of SEK 82 billion, ended up being alexandra.lovgren@newsec.se
likely to leave the key interest rate at 0 the strongest quarter of all-time in
per cent for the foreseeable future de- Sweden, breaking the previous record
18NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE SWEDISH PROPERTY MARKET ●
»2021 is set to be yet another very strong year for the Swed-
ish transaction market - with Newsec expecting a new record
transaction volume of SEK 225 billion«
Interesting occurrences on the Swedish property market in 2020 and 2021
LOGISTICS STEPS UP AND BECOMES INTER-NORDIC INVESTMENT
THE SECOND LARGEST SEGMENT REBOUNDS
After a number of major invest- After a relatively quiet 2019, so-
ment deals were completed in Q4, called inter-Nordic investment
logistics crept past offices and be- SEK 189 BILLION was once again very strong in
came the second largest segment Total investment volume 2020. Foreign investment in total
in 2020
on the transaction market in 2020. accounted for 27% of the Swedish
The segment accounted for 18% transaction volume, and just shy
of the total transaction market, of half of this comprised purchases
which can be compared to 16% for made by Norwegian, Finnish, and
offices, and 33% for residential. Danish investors. This means that
International investors have shown 13% of the total transaction vol-
particular interest in logistics and
SEK 225 BILLION ume in 2020 in Sweden was made
Total investment volume
accounted for around half of the expected in 2021 up of Nordic investment. Newsec
transacted volume in 2020. With expects inter-Nordic interest in the
further growth in e-commerce all Swedish market to remain strong
but guaranteed, the future looks in 2021.
bright for logistics.
M&A DEALS ABOUND
RETAIL HAS A STRONGER YEAR +3.5% For some time now, Newsec has
THAN EXPECTED GDP growth expected
in 2021 forecast that M&A deals will
Despite the doom and gloom that continue to rise in prominence.
perpetuates the retail sector in the Indeed, in 2020, M&A acquisitions
media in particular, retail transac- accounted for over SEK 20 billion
tion volumes in 2020 and thus far INVESTORS LOOK TO REGIONAL CITIES of the total transaction volume in
in 2021 have been stronger than As new segments have gained in Sweden. While there was no single
many would expect. After account- popularity, so too have new invest- enormous acquisition in 2020,
ing for just 6% of the total transac- ment locations around the country. the year still saw a number of
tion volume in 2019, the segment “Other major cities” and the “rest major deals, such as e.g. Fredens-
strengthened in 2020 and account- of Sweden” together accounted borg’s acquisition of the Veidekke
ed for 9% of the total volume. for just shy of 50% of the total property development arm, SBB’s
While this is a far cry from record transaction volume in 2020, and acquisitions of Offentliga Hus and
years of the past, it still signifies a have had a strong start to 2021 Sveafastigheter, and Balder’s
strong recovery for the segment, as well. This is largely a result of acquisition of Masmästaren. Look-
despite covid-19. The strength of many public properties, residential ing to the future, M&A activity on
the segment has been particularly properties and logistics properties the Swedish and Nordic markets is
driven by big box and retail park being located in less traditionally likely to intensify further.
investments, which have continued core areas. As these segments
to attract strong interest from continue to rise in popularity, it is
consumers and investors alike. likely that investment activity will
persist outside of the three major
Swedish cities.
19● THE NORWEGIAN PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2021
THE NORWEGIAN PROPERTY MARKET
WHAT A YEAR IT HAS BEEN – WHAT'S NEXT
FOR NORWAY?
Covid-19 had a strong impact on experience an accelerating recovery. the number of transactions in 2020
Norway in 2020, with the Norwegian The interest rate is expected to be was far higher than in the record year
economy contracting by 3.6% in kept at the 0% level, but increases are of 2015, ending with 323 completed
2020. The recovery continued until possible in the coming years, although transactions compared to 198 in
the end of the year and initial projec- not expected in 2021. Inflation has 2015. This shows the high, increasing
tions were outperformed, however, as been pushed down because of the liquidity on the Norwegian real estate
the virus caught traction towards the crisis but is again being driven up by market. Access to capital and financ-
end of Q3 and more so during Q4, the growth and a weaker currency. The ing has continued to be easy, both be-
economy recovered at a slower pace level of unemployment is projected to cause investors are on the lookout for
than projected. In 2021, GDP growth increase in Oslo and will flatten out at alternative investments, and due to an
is expected to increase substantially a level of 8%, rising from the current active and functioning capital market,
by 2.6%, and a strong growth is also 7.3%. as well as a continued willingness
expected in 2022. However, a full among banks and other market actors
recovery of the economy is not ex- The commercial real estate market to issue debt because of low interest
pected until the autumn of 2022. The also saw a turbulent year with a record rates. The transaction market ended
substantial fall in consumption that start and a deep fall as the pandemic 2020 red hot and going forward the
took place in 2020 will thus be offset spread across Europe. The end of the projection for the transaction volume
by savings and an increased growth year experienced a strong rebound in 2021 is in line with the record year of
in the coming years. An increased ac- and once the dust settled a transac- 2015 at NOK 120 billion.
tivity among Norway’s trade partners tion volume amounting to NOK 113
will lead to an increase in export and billion was recorded, which is slightly
economic activity. The infection rate below the record year of 2015 when Contact:
is expected to go down in the first half the transaction volume amounted Øyvind Johan Dahl
of 2021, and as vaccination is pro- to NOK 120 billion. The intensity on ojd@newsec.no
gressing, the economy will hopefully the transaction market was high and
Photo: Shutterstock
20NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE NORWEGIAN PROPERTY MARKET ●
»The intensity on the transaction market was
high and the number of transactions in 2020
was far higher than in the record year of 2015«
Interesting occurrences on the Norwegian property market in 2020 and 2021
YIELD COMPRESSIONS ON which has seen a yield compression
THE OFFICE MARKET and has also sent international
Although the turbulent year left investors on a shopping spree.
many offices empty, in Norway This led international investors to
the segment did well and experi- NOK 113 BILLION become slight net buyers in 2020,
enced yield compressions, which is Total investment volume compared to previous years when
in 2020
quite an unusual occurrence when international investors have been
compared to the rest of Europe. In clear net sellers.
Oslo, the average office rent ended
the year at the highest levels since STRUGGLE FOR MALLS AND
2008, at NOK 2,470 per square SUCCESS FOR GROCERIES
meter. As shopping goes digital, retail has
A STRONG RENTAL MARKET
NOK 120 BILLION been struggling and has been the
Total investment volume hardest hit real estate segment in
WITH AN EXPECTED INCREASE expected in 2021 the crisis of 2020 and thus far in
IN TENANT MOVEMENT 2021. Parts of the segment such as
Over the past year, many contracts malls and other retail are expect-
have been re-negotiated, with prop- ed to continue to have problems
erty owners giving discounts today throughout 2021, although areas
but in return receiving higher rents which typically lose customers to
and longer contracts in the future. +2.6% cross-border shopping have expe-
This has pushed property values GDP growth expected rienced a slight increase in sales in
upwards. Once again, Newsec has in 2021 some cases. As the crisis and the
observed that investors attach a consumer behaviour shift contin-
premium to stable tenants and sta- ues, malls are expected to continue
ble cashflows, and although returns tions). The office market in Norway their struggle to survive. On the
have fallen, a lack of alternative is all in all one of the most attractive other side of the segment, grocery
investments has led to yield com- and stable markets in the Nordics, stores are doing well and supermar-
pressions. This is because a low risk after the bizarre year of 2020. kets are considered highly attrac-
investment might not yield that low tive tenants, meaning an increase in
of a return, meaning that relatively LOGISTICS IN THE SPOTLIGHT transactions in that sub-segment is
speaking properties as a segment Among the segments that expe- expected in 2021.
are highly attractive (this applies rienced a strong year, one of the
especially to buildings in prime loca- hottest is without a doubt logistics
21● THE DANISH PROPERTY MARKET NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE DANISH PROPERTY MARKET STRONG RECOVERY IN Q4 TURNED 2020 INTO A SATISFYING YEAR The Danish economy contracted Danish bond yields rose and share return on real estate investments. The Photo: Shutterstock sharply in Q1 and Q2 and unemploy- prices fell in March as uncertainty challenging conditions impacted the ment rose from 3.6% in February to about the impact of covid-19 spread. market in Q2 and Q3 where invest- 5.5% in May. Restrictions were briefly However, these movements were soon ment activity was low, but Q4 saw a relaxed during the summer, which led redressed and by the end of 2020 strong return of activity – most signif- to a rapid economic recovery and a share prices were higher and yields icantly the transaction of a residential drop in unemployment in Q3. How lower than at the beginning of the portfolio for DKK 12.1 billion. The ever, due to a second wave of covid-19, year. outlook for the property investment infection lockdown was reimposed in market in 2021 is positive as market Q4 and restrictions tightened further Meanwhile, the transaction volume on conditions will be more favourable at the beginning of 2021. GDP is esti- the Danish real estate market ended than in 2020. mated to have fallen by approx. 4% up at DKK 70 billion, up by 25% com- in 2020. The economy is expected pared to 2019 and above the 5-year to start growing again in 2021 with historical average. Investment activity Contact: GDP increasing by approx. 2.9%. was surprisingly high considering the Robin Rich The Danish government has financial difficult macroeconomic situation. robin.rich @newsec.dk leeway to address the situation with In addition, new housing regulations Daniel Nielsen stimulus packages. It has adopted for residential rental properties and daniel.nielsen@newsec.dk huge fiscal and financial schemes to changes in taxation of commercial support businesses and households. estate caused uncertainty about the 22
NEWSEC PROPERTY OUTLOOK • SPRING 2021 THE DANISH PROPERTY MARKET ●
»The outlook for the property investment
market in 2021 is positive as market conditions
will be more favourable than in 2020«
Interesting occurrences on the Danish property market in 2020 and 2021
RESIDENTIAL DOMINATES mercial properties with effect from
Residential properties were the 2023. Although the final legal text
most traded property type in 2020 has not been finished yet, an effect
with transactions of approx. DKK 38 on the investment market is ex-
billion. This was largely due to some DKK 70 BILLION pected ahead of 2023. The change
Total investment volume
very large portfolios and develop- in 2020
in property taxation from a tax on
ment projects being transacted. actual capital gain to a tax on no-
A large proportion of the buyers tional gain is expected to increase
were foreign investors. Residential the effective taxation, even though
property is expected to be very pop- the nominal tax rate is expected to
ular amongst investors in 2021 too, remain unchanged at 22 per cent.
driven by strong fundamentals in The second theme is about the
terms of demographic growth and DKK 75 BILLION government's plans for a new model
household income. Total investment volume for public appraisals of commercial
expected in 2021
real estate. The proposal presented
MOVEMENTS ACROSS is anticipated, in its present form, to
MANY SEGMENTS diminish transparency and market
Offices were also attractive with conformity.
deals in this segment at DKK 13
billion. The buyers were primarily LONGER TERM IMPACT OF
Danish investors. The outlook for +2.9% COVID-19 WILL EMERGE
GDP growth expected
office buildings is also strong in in 2021 The economy is expected to recover
2021. Many industrial properties rapidly in 2021 when covid-19 is
were also traded in 2020, the major- brought under control. However,
ity of which were sales of smaller businesses will enter 2021 suffer-
properties for less than DKK 100 however, may create possibilities ing from the reimposed lockdown
million. The segment accounted for these segments. caused by the second wave of cov-
for DKK 7 billion of real estate id-19, and the economic recovery
investments. There was a pre- INVESTMENT MARKET WILL will be uneven between industries.
dominance of foreign buyers for LOOK FOR ANSWERS FROM The short-term outlook is weak for
properties in this segment. Modern POLICY MAKERS industries within e.g. tourism and
industrial and logistics properties In 2020, the investment market travel, while many other industries
are scarce and will be sought after was affected by the uncertainty may rebound quickly. The different
by investors in 2021. Meanwhile, concerning residential rental fundamentals between industries
trade in retail property was DKK 4 properties due to changes in the will present different challenges
billion, while hotels accounted for legislation. In July 2020 the amend- and opportunities for the various
only 1 billion. Retail as well as hotels ments to Section 5.2 of the Housing segments of the property market.
are suffering from covid-19 which Regulations Act came into effect.
hit traditional shopping, tourism In 2021, two “political” themes will
and business meetings hard. Market be of relevance to the Danish real
fundamentals for retail and hotels estate investment market. One is
will be difficult in 2021 too, which the change of taxation of large com-
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