DTZ Research. Property Times Helsinki Q Highlights from year 2012 hh. 24 January Contents. Author. Contacts

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1 Property Times Helsinki 2012 Highlights from year 2012 hh 24 January 2013 Contents Investment market 2 Property market 4 Office market 5 Retail market 6 Logistics market 7 Definitions 8 Contacts 10 Author Jenna Känkänen Valuation and Market Analyst jenna.kankanen@dtz.com The annual investment volume in 2012 was 2.1bn which is 16 % more than recorded in The foreign investors share was 25 %, some 10 % decline from previous year. The prime yields decreased slightly during At the end of the year prime office and retail yield was at 5.25 %. The prime logistics yield was at 7.0 %. Office rents continued increasing in the Helsinki CBD. Contrary, in certain areas, such as in Vallila, Pitäjänmäki and Lauttasaari, prime rents have been declining. Cost reductions and work productivity requirements have been pushing occupiers to look for smaller office premises. During 2012 there has been a high demand for premises up to 200 sq m. During 2012 redevelopments were initiated in several shopping centres in the HMA. For example shopping centres City Centre, Itis and Galleria Esplanad carried out a substantial renovation or restructuring. Logistics areas outside the HMA were favoured by several companies due to companies cost reduction plans. Contacts Magali Marton Head of EMEA Research magali.marton@dtz.com Hans Vrensen Global Head of Research hans.vrensen@dtz.com DTZ Research

2 Helsinki 2012 Investment market Annual transaction volume increased 16 % The annual transaction volume of the published deals in 2012 amounts to 2.1bn, resulting to over 16 % increase from the previous year. 45 % of transactions occurred in the HMA The Helsinki metropolitan area represents some 45 % of the transactions in Some 60 % of the office deals occurred in the HMA. Foreign investors share declined from 30 % to 25 % Foreign investors represent some 25 % of the acquisitions in The most active foreign investors in the Finnish property market were from Sweden, Germany and the United Kingdom. Retail transaction volume increased over 50 % from 2011 The retail transaction volume in 2012 amounts to 550m. The first half of 2012 was more active representing some 85 % of the annual retail volume. During 2012 over 900m has been invested in the office market which represents over 45 % of the total transaction volume. Approximately 20 % of the office transactions were business park acquisitions. The year 2012 was exceptionally quiet in the logistics sector. The annual volume of the logistics deals was 140m which is more than 40 % lower than in Prime office and industrial yields decreased 25 bp, retail yields 15 bp At the end of 2012 the prime office and retail yields were at 5.25 % and the prime logistics yield at 7.0 %. Figure 1 Transaction volume, bn Figure HMA (Helsinki Metropolitan Area) Prime yields 9% 8% 7% 6% 5% 4% % 2005 Domestic purchaser International purchaser Office Retail Logistics The gap between the prime and secondary markets widened during The spread between Finnish 10 year government bonds and the prime office yield remained wide. At the end of 2012 the gap was 3.6 %. Sale of Nokia Headquarters the biggest office deal in 2012 The biggest office transaction occurred in December when Exilion Real Estate I Ky bought Nokia Headquarters at the price of 170m. The deal comprised three office buildings (48,000 sq m) and a parking building. The buildings were leased back to Nokia with long lease agreements. (Exilion is owned by four Finnish pension insurers Fennia, Keva, Etera and Tapiola.) Property Times 2

3 Helsinki 2012 Swedish investor Niam conducted the biggest office portfolio acquisition The portfolio of 15 offices and 2 retail properties was bought by Niam at the price of 175m. The total lettable space was over 100,000 sq m. Keva behind the biggest retail transaction Local government pension institution Keva purchased the Hämeenlinnakeskus shopping centre project from NCC Property Development for 100m. The shopping centre will be constructed above the Tampere motorway. The scheme consists of 27,800 sq m retail space and 17,700 sq m residential space. Swedish investor Sveafastigheter made the biggest retail portfolio acquisition In February Sveafastigheter Fund III acquired a portfolio of 68 retail properties for over 100m from Niam. The portfolio comprised 80,000 sq m of small and mid-sized grocery stores located across Finland, all leased to Kesko. Availability of debt financing tightened Debt financing has been available mainly for prime properties and parties with a long relationship with the lenders. Secondary properties suffered from the lack of finance. Large amount of property debt matured during In approximately 6-7bn outstanding debt needs to be refinanced. Due to the lack of financing, companies have been trying to find alternatives for debt funding. For example during the last year Finnish listed companies Citycon and Sponda issued bonds to ensure their growth strategies. Property Times 3

4 Helsinki 2012 Property market Uncertainty hinders the rental market activity Current economic conditions have reflected to uncertainty in the rental market lowering volumes and prolonging the decision making. Substantial growth in office rents in the CBD Despite general weakening market conditions, office rents in the CBD increased during The annual rental growth was approximately 7 %. Prime rents declining close to the average rent levels in certain districts For example in Vallila, Pitäjänmäki and Lauttasaari, the prime rents have decreased and the gap between prime and average rents is narrowing. Occupiers favoured small office premises The efficient use of premises has become the main market trend in the office sector. Cost reductions and work productivity set requirements for premise demand. During 2012 premises up to 200 sq m were desired. High demand slowed down at the end of 2012 In 2012 more rental contracts were signed than in the previous year, but due to a small size of premises, the total volume stayed below the volume recorded last year. Property owners using rental incentives Due to challenging market conditions and the trend to reduce occupied office space, rental incentives in the secondary locations have become more common. During 2012 property owners have been attracting old and new tenants by offering rent free months, rent deductions or tenant improvements. The importance of green building certifications is growing Property owners are acquiring green building certifications especially for the new construction. The amount of certifications issued for existing buildings has been increasing during The most applied certifications were LEED and BREEAM. Figure 3 Prime office rents, /sq m/month By 2012 over 25 buildings have been LEED certified. By 2012 over ten buildings have been BREEAM certified. Some 80 buildings have been registered in the LEED certification program. Green building certificates must for German investors Last year 100 % of the office acquisitions made by German investors have or are in process of acquiring a green building certificate. Property Times 4

5 Helsinki 2012 Office market Expanding office market During 2012 over 145,000 sq m of lettable office space were completed in the HMA. Approximately 70 % of that space covered business parks. Over half of the planned projects are business parks The supply of office buildings is presumed to keep up as the amount of office space under construction was 150,000 sq m at the end of First occupiers moved to the Töölönlahti office area The first building in the new office area Töölönlahti was completed at the end of The area will consist of 40,000 sq m of lettable office space which is already fully let. The main users in the area will be Alma Media, KPMG, UPM-Kymmene and Ernst&Young. The completion of the Töölönlahti area will expand the CBD to the North. Relocation cycle in the CBD Companies moving to the Töölönlahti area have vacated prime properties in prime locations. Due to a strong interest in these prime premises, this has caused a relocation cycle in the Helsinki city centre. Vacancy rate increased due to new construction Due to various new office construction projects in the HMA, the vacancy level of office premises increased slightly in At the end of 2012 the vacancy rate was around 11 % in the HMA and 6.5 % in the CBD. Nokia reducing its space In May 2012 Nokia vacated some 17,000 sq m of office premises in Ruoholahti. Despite the temporarily increasing vacancy level, this has created new demand for smaller premises. Office buildings were converted into apartments and hotels Due to increasing vacancy, some of the office buildings have been converted into hotel or residential use especially in Helsinki. For example office properties Lönnrotinkatu 3, Vironkatu 1 and Bulevardi 12 are in planning process to be converted into apartment buildings. In addition, few office buildings have been demolished and new apartment buildings have been constructed on the sites. Office take up resulted in 300,000 sq m Last year the office take-up level in the HMA amounted approximately to 300,000 sq m. (Source: KTI) Figure 4 Prime office rent, /sq m/month Figure 5 Office vacancy 14 % 12 % 10 % 8 % 6 % 4 % 2 % 0 % Property Times 5

6 Helsinki 2012 Retail market New international retail chains entered the market During 2012 few international brands have been entering the Finnish market. For example Tommy Hilfiger, New Yorker and Bik Bok opened their first store in Finland. HMA retail market faced modest growth Some 50,000 sq m of new retail schemes was completed in the HMA during Redevelopment projects were executed in several shopping centres in the HMA In October 2012 the previously known shopping centre Kämp Galleria was reopened after a redevelopment process of 11,700 sq m of gross lettable space. In connection with the redevelopment, the shopping centre was renamed as Galleria Esplanad. A full redevelopment project of shopping centre Itis was initiated in 2012 together with the renaming of the shopping centre. The Dutch property owner Wereldhave has said that they will invest some 90m in the redevelopment which includes the expansion of retail space with 11,000 sq m. Figure 6 Prime retail rent, /sq m/month Figure 7 Prime retail yield 7 % 6 % 5 % Redevelopment works in shopping centre Forum was also commenced in The plan of the redevelopment is to cover the Kukontori square on the top of the building and create a new restaurant area there. The old food court in the basement will be redeveloped into retail use. 4 % 3 % The first extension phase of Iso Omena Shopping Centre was completed in The extension covered some 2,400 sq m of new lettable retail space. Future retail projects The major retail projects planned in the HMA include Marja- Vantaa commercial centre (100,000 sq m), redevelopment projects in Tapiola (50,000 sq m) and a shoppind centre in Kalasatama Centre (58,000 sq m). Redevco exits the Finnish property market Redevco divested five of its properties (total of 22, 000 sq m) in Finland during Two high street retail properties were located in Oulu and Jyväskylä, and three retail warehouse properties in Oulu, Jyväskylä and Lappeenranta. Occupancy level remains high The occupancy rate in retail premises continues to be at a high level in the HMA, the vacancy rate being only 3 %. In the CBD the vacancy level is even lower. Property Times 6

7 Helsinki 2012 Logistics market Prime logistics rent increased Rents in the HMA logistics market have remained stable since 2009 but during H rents increased slightly. The prime rent is currently at 10/sq m/month. Logistics areas outside the HMA attracted companies Previously the surroundings of Ring Road III have been one of the most favoured locations for logistics premises in the HMA. Due to increased cost reduction plans in 2012, several companies were relocating outside the HMA. Vacancy remains low Logistics and warehouse buildings are typically constructed for a specific user, and thus the vacancy level remains quite low. In the HMA the vacancy level of warehouse and industrial premises is currently some 6 %. New logistics space completed mainly in the airport area During 2012 only some 60,000 sq m of new lettable logistics and warehouse space has been completed in the HMA. The majority of the new supply focused on the airport area. New construction slowed down during 2012 At the end of 2012 there was only some 10,000 sq m of new logistics space under construction. However, the amount of logistics space planned in the HMA amounts to 200,000 sq m. These projects are mainly planned in the airport area but the construction work will not start before the premises are leased. Figure 8 Prime logistics rent, /sq m/month Figure 9 Prime logistics yield 10 % 8 % 6 % 4 % 2 % Property Times 7

8 Helsinki 2012 Definitions HMA New supply Prime rent Prime yield Take-up The Helsinki Metropolitan Area comprises the city of Helsinki and three other cities: Espoo, Kauniainen and Vantaa. Approximately 1.1 million people live in the HMA area. Represents the total amount of floor space that has reached practical completion (including major refurbishments) as known on the last day of the quarter, regardless whether the space is occupied or still available on the market. Common areas and service areas are not included. Represents the attainable average prime rent that is expected for an office unit commensurate with demand in each location, highest quality and specification in the best location in a market at the survey date. The rent is given as a gross rent. The rent quoted reflects prime units of over 500 sq m. Represents the initial yield estimated to be achievable for a notional property of highest quality and specification in the best location fully let and immediately income producing in a market at the survey date. Floor space acquired for occupation, including the following: (i) (ii) (iii) Offices let/sold to an eventual occupier; Developments pre-let/sold to an occupier; Owner occupier purchase of freehold or long leasehold. (NB. This includes subleases but excludes lease renewals.) Vacancy Represents the total floor space in existing properties, which is physically vacant, ready for occupation and being actively marketed as known on the last day of the quarter. The vacancy rate represents the total vacant floor space divided by the total stock at the survey date. Property Times 8

9 Helsinki 2012 Other DTZ Research Reports Other research reports can be downloaded from These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices 2012 Obligations of Occupation Americas 2012 Obligations of Occupation Asia Pacific 2012 Obligations of Occupation EMEA 2012 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe and UK. Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. India Special Economic Zones-December 2012 Singapore Executive Condominiums -December 2012 European Retail Guide- Shopping Centres-December 2012 UK Secondary market pricing-december 2012 Singapore office demand-november 2012 Ecommerce & Logistics -November 2012 Net Debt Funding Gap-November 2012 German Open Ended Funds-October 2012 London office to residential conversions-october 2012 Great Wall of Money-October 2012 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information. Property Market Indicators Time series of commercial and industrial market data in Asia Pacific and Europe. Real Estate Forecasts, including the DTZ Fair Value IndexTM Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA. Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe. Foresight Quarterly commentary, analysis and insight into our inhouse data forecasts, including the DTZ Fair Value Index. Available for Global, Asia Pacific, Europe and UK. In addition we publish an annual outlook report. Money into Property DTZ s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. Property Times 9

10 DTZ Research Contacts Valuation Juha Mäki-Lohiluoma Phone: Capital Markets Ilkka Kujanpää Phone: Letting & Occupier Services Raul von Denffer Phone: Valuation Janne Eriksson Phone: Capital Markets Arno Jaulas Phone: Letting & Occupier Services Hanna Lamadon Phone: DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. DTZ January Property Times 10