DTZ Research. Property Times Helsinki Business Parks H Growing Business Park Market. 12 September Contents. Author.

Transcription

1 Property Times Helsinki Business Parks H Growing Business Park Market 12 September 2012 Contents Economic overview 2 Investment market 3 Office market 4 Business park market 5 Major transactions 8 Major construction projects 9 Definitions 10 Author Jenna Känkänen Valuation and Market Analyst jenna.kankanen@dtz.com Contacts Magali Marton Head of EMEA Research magali.marton@dtz.com Matthew Hall Global Head of Forecasting matthew.hall@dtz.com The supply of business parks in the Helsinki Metropolitan Area has been increasing rapidly during recent years. This has been widening the definition of a prime office premise. Foreign investors, especially German ones, have shown interested in Finnish business parks. As a direct consequence of this interest, almost two thirds of business parks are owned by foreign investors. Business parks represent a substantial part of the prime office market in Finland. Business parks are typically constructed close to traffic hubs, located next to a highway and are accessible by train or bus. There is currently 90,000 sq m of lettable business park space under construction in the Helsinki Metropolitan Area. Business park rents have stabilised after increasing by 1-2 / sq m / month at the end of The current level of prime rents is around / sq m / month. Business park rents are forecasted to stay at the current level. Owners attract tenants by offering incentives such as stepped rents or rent free periods. Figure 1 Prime / Business park area gross rents, / sq m / month Hans Vrensen Global Head of Research hans.vrensen@dtz.com DTZ Research

2 Economic overview The Finnish economy keeps up According to some of the leading Nordic banks, the Finnish GDP grew approximately 2.9 % in As a result of weak export, decreasing consumption and rising unemployment rate, the GDP is expected to be decrease to 1.0 % in At the end of 2013 export and investments are forecasted to pick up again, and thus, the GDP is estimated to increase by 1.6 % in The inflation rate was around 3.4 % in 2011 but it has been estimated to decrease to 2.8 % in 2012 and to 2.5 % in Due to the continuing challenging times in the Eurozone, interest rates have remained low. They are expected to increase once the European market has showed some recovery signs. In the first half of 2012 the average unemployment rate was 8.3 %. The rate is however forecasted to slightly increase during Private spending grew approximately 3.4 % in 2011, but rising unemployment and decreasing consumer confidence have now been slowing down the consumption. The private spending is however estimated to grow still slightly, 1.9 % in 2012 and 1.6 % in 2013, but is expected to stay below the inflation. Consumer purchasing power is expected to remain at the current level. The Finnish economy is export driven with some 40 % of the GDP from this sector. The most important export countries are Germany, Sweden and Russia representing normally over 30 % of the total export. Figure 2 Economic indicators 10 % 8 % 6 % 4 % 2 % 0 % -2 % -4 % -6 % -8 % E 2012E 2013 Unemployment Inflation GDP Private spending Source: Bank of Finland, Sampo Pankki, Nordea and Handelsbanken Figure 3 Finnish export by country in 2011 Other 47.2 % Source: National Board of Customs Sweden 11.9 % 9.9 % 9.4 % 6.7 % 5.1 % 5.1 % 4.7 % UK China US Germany Russia Netherlands Property Times 2

3 Investment market Six business parks deals already closed in 2012 In H the transaction volume of the published deals was approximately 0.8bn, down by 20 % from the level recorded in H The total transaction volume registered in 2011 reached 1.8bn. The domestic investors have for the last three years been the most active on the Finnish market. The market share of international investors has been slightly increasing despite a soft start in The foreign investors accounted for some 15 % of the purchases in H The most active foreign investors were from Sweden. In 2011 office sector represented over 40 % of the total transaction volume. During the first half of 2012 over 200m were invested in the office market. This volume included four business park deals which were all acquired by Finnish institution Tapiola Pension at the total price of 55m. In Q two business park transactions have been accomplished in the Helsinki Metropolitan Area (HMA). The business parks were acquired by the same German investor at the total price of 85.3m. Both business parks are under construction, for a completion in 2012 and in The prime office yield has decreased by 15 basis points in a year and is now at 5.5 %. The yield compression in the retail market has been 10 basis points to its current level 5.4 %. The prime yield level in the logistic, warehouse and industrial sectors remained at 7.25 %. All yields are expected to slightly decrease during Q A prime building in the CBD was recently purchased at record low yield. The gap between the prime and secondary markets continues to stay wide due to uncertain economic and financial conditions. The large difference in yields and rents between prime and secondary properties has been a characteristic for recent years. The spread between Finnish government bonds and the prime office yield is exceptionally high and is currently at 4.5 %. Figure 4 Transaction volume, bn Figure 5 HMA (Helsinki Metropolitan Area) Prime yields 10% 8% 6% 4% Figure HMA prime office yield and interest rates 10% H Domestic purchaser International purchaser 2% Office Retail Logistics 8% 6% 4% 2% 0% Office Euribor 3 month 10 Yr.Gov.Bond Property Times 3

4 Office market New office areas under construction in Helsinki Traditionally the office market has been the dominant sector in the Finnish real estate market. Offices stand for approximately 35 % of the whole property stock. The Helsinki region is the largest office market in Finland with 8.5m sq m representing some 45 % of the office stock in the country. On a national perspective the HMA is the most important area in terms of occupational transaction activity, with a market share of 40 % in H One third of the HMA transactions were made in the office market. The office market in the HMA has become two tiered. Old offices, especially in certain outskirt areas, are suffering from high vacancy rates as occupiers focus on new office premises. There are no signs of improvement for the situation, and thus the future of older office buildings is quite unclear. Some of the buildings could be converted into another use whereas in some cases, the whole area is to be redeveloped, typically for residential use. In the HMA there is currently 160,000 sq m office space under construction of which approximately 60 % cover business parks. The construction of office buildings is expected to keep up as the amount of issued building permissions grew 20 % in 2012, compared to The vacancy rate is not expected to increase in modern buildings in good locations, but it will remain high in secondary locations. The vacancy rate for more modern offices increased slightly during 2009 and 2010, but was slowly decreasing in The vacancy rate in the HMA is approximately 11.5 % and in the CBD 6 %. Vacancy rates in the main business park areas are presented in the figure 8. Figure 7 Prime office rent, /sq m/month Figure 8 Office vacancy 14 % 12 % 10 % 8 % 6 % 4 % 2 % 0 % The HMA office market is currently confronting a restructuring due to the construction of a new metro line and redevelopment of Jätkäsaari and Kalasatama. These two districts will have a development potential for 14,000 workplaces (300, ,000 sq m). In addition, a new office area called Töölönlahti is under construction in the centre of Helsinki. As a direct consequence of the preletting of some office buildings, 40,000 sq m of office space will be vacated in the city centre, pushing up the vacancy rate in the CBD. Some major occupants are also vacating office space in the Ruoholahti district. For example, Nokia has vacated 17,000 sq m. Property Times 4

5 Business park market Increasing supply of business park premises Business parks represent a substantial part of the prime office market in Finland. There are currently eight main business park areas in the Helsinki metropolitan area. Four of these business park areas are located in Helsinki, three in Espoo and one in Vantaa. Modern premises attract especially foreign investors and approximately two thirds of business parks are owned by international companies. The amount of business parks in the Helsinki metropolitan area has been increasing quite dramatically during the last few years. One business park consists typically of 3-5 buildings and offers some 6,000 sq m per building of lettable office space. Figure 9 Prime office and business park rents, /sq m/month There is currently some 90,000 sq m of lettable business park space under construction in the HMA. Business parks are typically constructed close to traffic hubs. Most of the business parks are located next to a highway and are accessible by train or bus. Several business parks areas located primarily in Espoo will soon benefit from the new metro line which will be opened in Business parks offer office premises to companies who have high standard requirements for premises, location as well as for services. Business parks attract tenants with their various business services of which occupiers can tailor their own service package. The lease agreements typically consist of business services such as office, restaurant, catering, reception, security, cleaning and postal services as well as leisure facilities. The business park rent includes also an additional service charge, based on the cost of above mentioned services used by the tenant. The target rents of some new business parks decreased during due to subdued demand. At the end of 2010 the rent level started to recover and rents increased by 1-2/sq m/month. In 2011 rents remained quite stable and are forecasted to stay at the current level during Due to the amount of new construction and high vacancy, owners tend to use incentives, such as rent free periods and stepped rents, to attract new tenants and to extend expiring leases. Tenant incentives are used especially in the office sector. The pattern to use tenant incentives depends mostly on the landlord. Property Times 5

6 Requirements for premises increase Changes in the working culture have been setting new international requirements for office premises. Tenants are now increasingly looking for flexible and efficient office premises. This trend has become more common during the recent years and is expected to continue. The strong occupier demand for modern premises has been changing the type of supply delivered onto the office market. New requirements have especially boosted the construction of new business parks in order to fulfil the tenant requirements. In addition to modern materials and office layouts, business parks offer energy saving solutions with an importance of convenient indoor temperature. Despite of global requirements for business park premises, Finland is the number one in the world when it comes to the office space utilisation per worker. One worker demands approximately 24 sq m of gross lettable area whereas for example in Stockholm only 18 sq m are used by a worker. The figure 10 represents the space utilisation in an office premise in different cities. Figure 10 Space utilization standard per worker, sq m Business parks acquire green building certificates Almost all new business parks under construction are acquiring green building certificates. A certification has become a key investment criterion among investors. This has set certain standards for new business parks that developers need to implement. Business parks in the Helsinki metropolitan area tend to acquire either LEED or BREEAM certificates. Due to the increasing understanding of the certification levels, mainly the best levels of certificates are desired. The importance of energy saving and location near good public transportation connections is expected to be even more crucial in the near future. Certifications are considered to become a standard that tenants and investors are asking for. Property Times 6

7 Map 1 CBD and key business park locations in the HMA Table 1 CBD and business park locations No City District Prime / Business park rent Average rent Office stock (net floor area) Vacancy rate 1 Helsinki CBD 30 / sq m / month 26 / sq m / month 410,000 sq m 6 % 2 Helsinki Ruoholahti 25 / sq m / month 19.5 / sq m / month 390,000 sq m 14 % 3 Espoo Keilaniemi & Otaniemi 25 / sq m / month 19 / sq m / month 355,000 sq m 12 % 4 Helsinki Ruskeasuo 24 / sq m / month 20 / sq m / month 35,000 sq m 10 % 5 Espoo Leppävaara 22 / sq m / month 17.5 / sq m / month 195,000 sq m 10.5 % 6 Vantaa Aviapolis 22 / sq m / month 18 / sq m / month 205,000 sq m 11 % 7 Helsinki Pasila 21 / sq m / month 18 / sq m / month 400,000 sq m 10 % 8 Helsinki Pitäjänmäki 20 / sq m / month 15 / sq m / month n.a. n.a. and KTI Property Times 7

8 Major transactions Table 2 Business park transactions Building City Date Vendor Purchaser Area Price m Eventes Business Garden Espoo Q PEAB Oy Union Investment Real Estate GmbH Price / sq m Initial yield 14, ,408 n.a. Alberga Business Park (B-building) LEED certified Espoo Q NCC Property Development Oy Union Investment Real Estate GmbH 5, ,018 n.a. Business Park Stella Nova Espoo 2012 Etera Mutual Pension Insurance Company Tapiola Pension 4,000 n.a. n.a. n.a. Business Park Stella Solaris Business Park Dynamo, Business Park Plaza Alto Business Park Safiiri Plaza Business Park Hehku Sola Business Valley LEED certified Polaris Business Park Castor Triotto Business Park Espoo 2012 The Finnish Paper Workers' Union Tampere Vantaa Tapiola Pension 4,000 n.a. n.a. n.a. Q Ektornet Finland II Oy Tapiola Pension 16, ,406 n.a. Espoo Q YIT Construction Ltd RREEF Grindbesitz Europa Fund Vantaa Q NCC Property Development Oy Union Investment Real Estate GmbH Espoo Q Lujatalo Oy Veritas Pension Insurance Espoo Q NCC Property Development Oy and Lemminkäinen Oy IVG Institutional Funds GmbH 14, ,571 n.a. 5,600 >20 3,571 n.a. 16,000 n.a. n.a. n.a. 7,500 n.a. n.a. n.a. Helsinki 2011 YIT Construction Ltd Hansainvest 15, ,645 n.a. and KTI Property Times 8

9 Major construction projects Table 3 New business park projects under construction Estimated completion City District Building Lettable area Q Helsinki Ruskeasuo Manskun Rasti phase II Constructor 7,300 Skanska Construction Oy Investor Q Espoo Keilaniemi Koy Espoo Swing Plus C 5,400 Hartela Tapiola Q Helsinki Käpylä Triotto Business Park phase II Q Espoo Leppävaara Alberga Business Park B-building Skanska Commercial Development Oy 7,000 YIT Construction Oy Hansainvest 6,000 NCC Construction Oy Union Investment Real Estate GmbH Q Espoo Leppävaara Business Valley Sola 16,700 Lujatalo Oy Veritas Eläkevakuutus Q Vantaa Aviapolis Plaza Business Park Loiste 7,240 NCC Construction Oy NCC Property Development Oy 2013 Helsinki Ruskeasuo Aitio Business Park phase I 2013 Espoo Leppävaara Alberga Business Park C-building 6,500 NCC Construction Oy NCC Property Development Oy 5,500 NCC Construction Oy NCC Property Development Oy 2013 Espoo Matinkylä Business Park Safiiri phase II 6,000 YIT Construction Oy RREEF Real Estate 2013 Espoo Perkkaa Derby Business Park phase II 19,000 SRV SRV 2013 Vantaa Aviapolis Avia Line 3 3,300 YIT Construction Oy IVG Institutional Funds 2014 Espoo Matinkylä Eventes Business Garden 14,100 PEAB Oy Union Investment Real Estate GmbH and KTI Property Times 9

10 Definitions Business park HMA New supply Prime rent Prime yield Vacancy An area that is specially designed for modern multi-tenant office buildings. Typically locates outside the city centre next to a main road and good public transportation connections. Offers services such as office, restaurant, catering, reception, security, cleaning and postal services as well as leisure facilities. 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. 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 10

11 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. Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Great Wall of Money October 2012 Property Market Correlations October 2012 J-Reit October 2012 Rise of City Clusters September 2012 Singapore luxury condominiums September 2012 China Hongqiao Transportation Exchange June 2012 Global Debt Funding Gap May 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. 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. 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. 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. 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 11

12 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 October Property Times 12