Nordicum - Real Estate Annual Finland 2019

Real estate market maintains momentum Finnish real estate market is still in fine form and firing on all cylinders. I f the year 2017 was white-hot with its record-breaking transaction volume (€10.2 billion), the year 2018 is red-hot. According to data by independent research organization KTI Finland, transaction vol- ume for January-October was €7.3 billion, making it the second highest Jan-Oct vol- ume of all time (after 2017). Lauri Tiensuu, Director at Advium Corporate Finance, says that this year has surpassed the expectations of many indus- try experts. “The year 2017 was seen as such an outlier with, for example, the larg- est-ever property transaction in Finland tak- ing place,” Tiensuu says, referring to Black- stone’s Polar Bidco acquiring the listed com- pany Sponda and her assets. Another large property company transaction occurred as China Investment Corporation acquired Logicor from Blackstone’s fund. “These two Blackstone deals contrib- uted to half of the transaction volume, so it was a pretty extraordinary year in that regard. Nevertheless, this year we’re get- ting quite close to that total transaction vol- ume, thanks to a multitude of transactions,” Tiensuu believes. Going Shopping This year is special also in regard to the fact that it features the largest ever single asset transaction in Finland: namely, Itis shop- ping center, which is now changing hands from Dutch property investor Wereldhave to a fund managed by Morgan Stanley Real Estate Investing. Itis shopping center is located in the Itäkeskus district in Eastern Helsinki, and it is one of the largest shopping centers in the Nordic countries. The gross transaction price was announced to be EUR 516 million, and net of deferred tax liability at EUR 450 million. The hottest type of real estate in the land has not been retail, however, but offices – with almost one third of the total volume (31%). According to the statistics of KTI, some 211,000 sqm of new office space were under construction at the end of September in the Helsinki Metropolitan Area (Helsinki, Espoo and Vantaa). 54 Nordicum Other cities are following suit: for example in Tampere, there is some 30,000 sqm of new office space under construction. Time to Move Tiensuu credits the solid economy as the key driver in the office boom. “During the leaner years, many com- panies who had plans for new premises put those plans on hold. Now those companies are ready to make their move,” Tiensuu says, adding that for certain type of enterprises – such as IT/tech companies – great-look- ing, modern office is an important tool all around. “In order to attract the best talent, for example, it’s really important to provide a working environment that is enjoyable,” he points out. These high-performance busi- nesses regularly operate in sectors where the office-related costs do not constitute a huge slice of the total costs – and therefore it makes sense to woo people with killer premises. More and more, these premises are multispace and flexible, Tiensuu believes. “We are seeing the total number of square meters coming down and efficiency per square meter going up.” Cherry-picking in the Provinces? Strong Finnish performance of late is no big surprise to industry people, also from an international perspective. The share of foreign investors is likely to grab two thirds of this year’s volume (66% by October) and also new international players have entered the market. Tiensuu assesses that as Finnish econ- omy indicators are solid, international play- ers have taken interest – and have ventured also outside the “Big Three”, namely Hel- sinki Metropolitan Area, Tampere and Turku. There may be attractive “stones pre- viously left unturned” in other areas, too – and as the foreign investors’ knowledge of the local markets has increased, they feel more confident in “going rural”. Still, Tiensuu points out that the inter- national players are far from a homogenous group: there are different types of compa- nies with totally different agendas. ”Foreign core investors new to the market are extremely selective whereas the opportunistic investors have widened their scope and are venturing to quite exotic strat- egies. Between these two investor types there is a multitude of strategies being implemented.” Hurray for Housing In addition to offices – a traditional foreign investors’ go-to play – also the residential side has attracted the international crowd. Tiensuu comments that a stable residential market contributes to this trend – and also, for example, that in Finland you can more easily sell off single apartments, too. “When you look around Europe and compare the situation to Finland, you can easily make the case that urbanization here is not yet on the same level,” Tiensuu says, adding that this should mean that there are opportunities to be tapped into in the form of residential market in the cities, for instance. According to Tiensuu, also such prop- erties as logistics centers and hotels are very much on foreign investors’ radar. “If you look at the evolution of logistics, for exam- ple, there is a powerful megatrend that sup- ports development there,” Tiensuu says, referring to the rise of e-commerce which requires for the entire transportation chain to be reworked. No Dark Clouds Ahead – Yet But is the current winning streak sustaina- ble? What is waiting for us around the cor- ner, in 2019? – Tiensuu believes that the good times are not going away any time soon: “The real estate market will continue to be very active, driven by both domestic and foreign demand.” According to Tiensuu, there’s still plenty of “dry powder” stored up in the

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