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Focus is shifting towards the non-prime end of the Nordic property market

The Nordic property market is in the middle of a market shift. High-quality properties outside the prime locations are attractively priced, and properties in these segments will be the winners in coming years. Higher interest-rates and improving return on alternative investments will make property lose its unique ability to produce a real return. However, Nordic prime property will absorb increasing interest rates well and is expected to continue to provide attractive returns, all according to Newsec Property Outlook.

Banks are increasingly interested in financing new property deals, and well-established property investors now have a variety of financing options. As a result investors’ access to financing has improved and interest-rate margins have come down.

“So far in 2013 there have been few transactions in the absolute prime segments; instead, the segments with most activity have been offices in inner-city and prime suburban locations, as well as residential properties in suburbs and regional cities. This trend is expected to pick up speed during the second half of 2013 and to strengthen further in 2014-2015 – and it will be these segments that show the strongest return on the Northern European property market in coming years,” says Newsec’s Chief Economist Arvid Lindqvist.

Real interest rates followed a declining trend from the early 1980s to mid-2012, and decreasing yields have been an important driver of stock, bond and property returns alike. However, long-term interest rates have been rising for the past six months, and Nordic five-year government bond yields are expected to maintain an increasing trend – ending up at about 3-4% in 2016-2017.

“The transformation to a higher-interest-rate environment will have a deep impact on all types of assets – including stocks, bonds and properties. In this process property will lose the unique ability to produce a real return that it has had in recent years – and improving investment alternatives will produce an upward pressure on prime property yields,” says Newsec’s Chief Economist Arvid Lindqvist.

However, the property market is much more inert than both the bond and stock markets. Despite investors’ strong interest in Nordic prime property during recent years, the margins between the real interest rates and prime property yields have remained rather healthy. These margins, in combination with a strong upward trend in rents, will help Nordic prime property to absorb increasing interest rates better than bonds – and thereby continue to provide attractive returns, even if yield compression will no longer be a contributing factor for these segments.

For further information please contact:Arvid Lindqvist, Chief Economist Newsec

Telephone +46 708 43 30 50, e-mail arvid.lindqvist@newsec.se

Niklas Alm, Communications Director Newsec

Telephone +46 708 24 40 88, e-mail niklas.alm@newsec.se

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