DTZ Research. Investment Market Update Finland Q Increasing Transaction Volume. 10 November Contents. Author. Contacts

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1 Investment Market Update Finland Q Increasing Transaction Volume 10 November 2014 Contents Economic Overview 2 Investment market 3 Major Transactions 5 Author Ville Suominen Analyst (0) ville.suominen@dtz.com The transaction volume of the published deals was some 3.2 billion in Q1-Q Over 35% of the total transaction volume has been made by foreign investors. We expect that the trend of increasing number of foreign investors continues. Private property vehicles and companies have been the most active investor sectors in The share of institutional investors has been low since Q and is currently only some 2%. The warehouse sector was the most active sector measured in transaction volume, followed by the office sector. In 2014 Q2 and Q3 the majority of the transaction volume occurred from portfolio deals, which significantly increased the share of multi-regional deals. The prime office and retail yields are currently at 5% and the prime logistics yield is at 7%. Prime retail and office yields are expected to slightly decrease in Contacts Magali Marton Head of EMEA Research + 33 (0) magali.marton@dtz.com Figure 1 Availability of financing has been one major factor behind the increased investment activity. Transaction volume, bn Hans Vrensen Global Head of Research + 44 (0) hans.vrensen@dtz.com DTZ Research

2 Economic Overview The GDP is estimated to increase by 0.8% in The Finnish export sector is estimated to improve during 2015 as a result of global economic growth and a weaker Euro, compared to the dollar. Figure 2 Main Economic Indicators The Ukraine crisis and the escalated sanctions directed at Russia, have caused uncertainty for the Finnish export sector and weakened the export to Russia. However, the export sector increased during H to EU countries. The economy is stagnating for the third consecutive year. The GDP is expected to decrease by 0.3% in The GDP decreased by 1.3% in In 2015 the private spending is estimated increase modestly by 0.5% as the economic growth is expected to pick up. Private spending is estimated to decrease by 0.2% in 2014, due to modest salary increases, weak employment situation, and slightly higher taxes. Source: Bank of Finland, Danske Bank, Nordea, and Handelsbanken Figure 3 3 Month Euribor and 10 Year Government Bond The inflation forecast for 2014 is 1.0%. The inflation rate is expected to increase slightly to 1.1% in The inflation rate was 2.8% in 2012 and 1.5% in The third consecutive year with a stagnant economy has naturally effect the employment situation. The unemployment rate is estimated to increase to 8.6% in 2014 and to remain at the same level in The European central bank is estimated to keep the interest rate at a low level during There is however a clear demand for increased inflation which might increase interest rates. The Finnish 10-year government bond will probably slightly increase due to a lower credit rating for Finland. Another indicator of the economy and real estate market building permits and building starts has shown a steady decline since Normally the second quarter of the year is the most active, measured in granted permits and building starts. Comparing Q to previous years the decrease is noticeable. Source: Bank of Finland Figure 4 Building Permits, Started Constructions, and Completed Buildings, All Building Types, Floor Area (sq m) Source: Statistics Finland Investment Market Update 2

3 Investment market Good Investment Activity Continues The transaction volume of the published deals has been some 3.2 billion in 2014 so far. Compared to Q1-Q ( 1.3 billion) the transaction volume has more than doubled. Moreover, current transaction volume for 2014 already outperforms the annual transaction volumes of the years Figure 5 Transaction Volume, bn The activity of international investors in the market significantly dropped in 2009, being some 20% of the total investment volume. Since then the proportion of international investors has been increasing rather steadily, exceeding 35% in In 2014 the share has remained at the same level compared to Major Deals in 2014 The largest deal in 2014 so far is the joint venture, a company called Certeum, launched by Sponda and Varma Mutual Pension Insurance Company. Certeum bought logistics and light industrial properties for 917 million. The deal included Sponda s share of the Sponda Fund I, Sponda Fund II, and Sponda Fund III. Sponda and Varma are shareholders in Certeum with shares of 38% and 39% respectively. In addition, State Pension Fund of Finland holds a 10% share and other domestic investors holds a 13% share. The largest single property transaction in 2014 was when Deka Immobilien (Germany) purchased the Sanoma House office building in the Central Helsinki. The purchase price was 176 million in the sale & leaseback agreement with Sanoma. Transactions by Investor Type The most active investors in 2014 have been private property vehicles and private property companies, accounting for over 80% of the transaction volume. The share of quoted investors (quoted property companies and vehicles) have decreased from 12% in Q1-Q to 8% in Q1-Q Figure 6 Quarterly Investment Volume, mn Figure 7 Transactions by Investor Group The Finnish institutional investors have not been on the buy side and out of the total transaction volume, they represented only 2% of the buyers in This is due to the strategy adopted by many, to either move the investments from direct to indirect investments or to keep the property portfolio at existing levels. Investment Market Update 3

4 Transactions by Property Sector The office sector has typically been the largest sector measured by the transaction volume. In 2014, Q2 was a clear exception as nearly 65% of the transaction volume was in the industrial sector. However, this is mostly due to the previously mentioned joint venture by Sponda and Varma. In Q3 the office and other/mixed use properties were the most active sectors, both individually representing some 30%. Figure 8 Transactions by Property Sector Transactions by Region Usually, Southern Finland, especially the Helsinki Metropolitan Area (HMA), has clearly been the most active region in the Finnish property investment market. Portfolio deals significantly increased the share of other regions due to multi-regional deals in 2014 Q2 and Q3. Prime Yields The prime office and retail yields are currently at 5.0% and the prime logistics yield is at 7.0%. The spread between Finnish government bonds and the prime office yield is currently around 3.8%. Figure 9 Transactions by Region Outlook DTZ Research estimates yield compression in prime yields in The trend with increased share of foreign investors on the Finnish market is estimated to continue. There are several international investors looking at the Finnish market at the moment. Foreign investors are mainly interested in the HMA. According to the DTZ Property Investor Confidence Index survey undertaken in September, 68% of the participants stated that the office yields will remain stable in Q4 2014, and 19% stated that the office yields will decline. In addition, 54% of the participants stated that the retail yields will remain stable in the upcoming quarter, however, 33% stated that the retail yields will increase. Figure 10 Helsinki Metropolitan Area (HMA) prime yields The secondary market is also estimated to improve. Financing is improving and margins are decreasing. There are also more interest from foreign banks in the Finnish market which will further improve financing conditions. The Finnish Association of Building Owners and Construction Clients, RAKLI, published in co-operation with their member companies a recommendation regarding the publishing of information about the property transactions. The key goal of the recommendation is to increase the transparency of the Finnish property investment market and make the market more attractive to both domestic and foreign investors. Investment Market Update 4

5 Major Transactions Table 1 Examples of Major Office Transactions in Q1-Q Building City Date Vendor Purchaser Area (sq m) m / sq m Voimatalo Helsinki Q3 AXA Real Estate NIAM 9,300 n.a. n.a. Derby Business Park Espoo Q3 SRV NIAM 20,000 n.a. n.a. Office building in Tampere city centre Tampere Q3 UBS Real Estate Kapitalanlagegesellschaft mbh Sponda Oyj 20, ,200 Porkkalankatu 5 office property Helsinki Q2 Aberdeen Real Estate Fund Finland AXA Real Estate 12, ,420 Sanoma House Helsinki Q1 Sanoma Oyj Deka- ImmobilienGlobal 25, ,900 Office Building Helsinki Q1 NCC Property Development Oy OP-Vuokratuotto special investment fund 5, ,210 Table 2 Examples of Major Retail Transactions in Q1-Q Building City Date Vendor Purchaser Area (sq m) m / sq m Dixi shopping centre (under construction) Vantaa Q3 YIT NREP Nordic Strategies Fund 9,100 n.a. n.a. 8 retail properties Multi-city Q2 Glitnir Bank Luxembourg Balder n.a. 65 n.a. 68 grocery store and supermarket properties Multi-city Q2 Sveafastigheter Fund III Trophi Fastighets AB (Redito) 80, ,550 Investment Market Update 5

6 Table 3 Examples of Major Industrial Transactions in Q1-Q Building City Date Vendor Purchaser Area (sq m) m / sq m Industrial and logistics properties Multi-city Q2 n.a. Suomi Toimitilakiinteistö Ky n.a. 100 n.a. Logistics and light industrial properties Multi-city Initial contract in Q2, signed in Q3 Sponda Oyj and Varma Mutial Pension Insurance Company Certeum Oy 1.3 million Table 4 Examples of Other Major Transactions in Q1-Q Building City Date Vendor Purchaser Area (sq m) m / sq m 137 rental apartments NIAM Fund III (office/retail) Multi-city Q3 YIT Ålandsbanken Real Estate Fund, Non- UCITS n.a. 30 n.a. Multi-city Q3 NIAM Partners Group n.a. n.a. n.a. Portfolio of 15 carehomes Multi-city Q1 Trevian Care I Ky Hemsö Fastighets AB n.a. 100 n.a. Production/office building and warehouse/office building Vantaa Q1 Sanoma Oyj Sagax AB 75, Investment Market Update 6

7 Definitions HMA Prime yield 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 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. Investment Market Update 7

8 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 Global Occupancy Costs Logistics Occupier Perspective - User Guide to The Americas Occupier Perspective - User Guide to Asia Pacific Occupier Perspective - User Guide to EMEA Occupier Perspective - Global User Guide Global Office Review India Office Demand and Trends Survey Sweden Computer Games Developers November 2013 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Baltics, Bangkok, Barcelona, Bengaluru, Berlin, Brisbane, Brussels, Budapest, Central London, Chennai, Chicago, Delhi, East China, Europe, Frankfurt, Geneva, Guangzhou & Central China, Hamburg, Helsinki, Ho Chi Minh City, Hong Kong, Hyderabad, Jakarta, Japan, Kolkata, Kuala Lumpur, Los Angeles, Luxembourg, Lyon, Madrid, Manhattan, Melbourne, Milan, Mumbai, North China, Paris, Poland, Prague, Pune, Rome, San Francisco, Seoul, Singapore, South & West China, Stockholm, Sydney, Taipei, Toronto, Ukraine, UK, Warsaw, Washington. 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 and US. 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, North America 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, UK and China. In addition we publish an annual outlook report. 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 2014 German Open Ended Funds October 2014 Insight Singapore medical suites September 2014 China Insight Establishing the Capital Economic Region Aug 2014 Insight European Transaction Based Index Q Insight European Nursing homes -July 2014 Insight GB Retail Property Health Index (RPHI)- July 2014 Insight Beijing TMT Office Occupier Survey- June 2014 Net Debt Funding Gap - May 2014 China Insight Office Pipeline and Dynamics May 2014 Deflation and Commercial Property - March 2014 Tokyo Retail Market 2014 Great Wall of Money March 2014 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 Index TM 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. Investment Market Update 8

9 DTZ Research DTZ Research Contacts Global Head of Research Hans Vrensen Phone: +44 (0) Global Head of Forecasting Fergus Hicks Phone: +44 (0) Head of EMEA Research Magali Marton Phone: magali.marton@dtz.com Head of Capital Markets Research Nigel Almond Phone: +44 (0) nigel.almond@dtz.com DTZ Business Contacts Chief Executive, EMEA John Forrester Phone: +44 (0) john.forrester@dtz.com Valuation Juha Mäki-Lohiluoma Phone: juha.maki-lohiluoma@dtz.com Capital markets Ilkka Kujanpää Phone: ikka.kujanpaa@dtz.com Letting & Occupiers services Raul von Denffer Phone: raul.denffer@dtz.com Chief Executive, EMEA John Forrester Phone: +44 (0) Valuation Janne Eriksson Phone: janne.eriksson@dtz.com Capital markets Arno Jaulas Phone: arno.jaulas@dtz.com Letting & Occupiers services Hanna Lamadon Phone: hanna.lamadon@dtz.com Retail Jari Jäntti Phone: jari.jantti@dtz.com 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 November Investment Market Update 9