Artikkeli

Investors home in on Nordic multifamily markets

More international investors are looking to Sweden and Finland for stable income and rising asset values.

syyskuu 29, 2019

Multifamily in the Nordics region is fast becoming an investor favourite with a series of recent high-profile deals across the region.

For now, they’re largely concentrating on major cities in Sweden and Finland. In July, Aberdeen Standard Investments’ pan-European residential fund acquired a new build PRS portfolio in the Swedish capital in a €112 million deal.

It follows on from Sweden’s largest forward-funded deal by a foreign investor in recent times; Barings Real Estate’s Swedish debut, a €128 million deal in Stockholm. The investment manager is backing the development of 610 apartments for rent, with completion due in 2022.

Another recent high-profile deal, Vonovia’s acquisition of 61.2 percent of the Swedish multifamily company Hembla from a subsidiary of Blackstone, makes Frankfurt-listed Vonovia one of the largest apartment owners in Sweden. The acquisition, at a purchasing price equivalent to €1.14 billion, takes Vonovia’s portfolio to 38,000 units under management across the country.

In Finland, Catella Residential Investment Management’s pan-European residential fund bought a 300-apartment portfolio across Helsinki Metropolitan Area, Tampere and Jyväskylä. The deal comes two years after Barings invested in a portfolio of residential assets in regional Finnish cities.

Indeed, international investors are increasingly looking beyond Finland’s capital to its regional cities; German asset manager DWS, bought 542 apartments from Finnish construction firm, Lehto, in Espoo, Turku, Kirkkonummi, Riihimäki and Jyväskylä.

Denmark, and specifically Copenhagen, is also attracting foreign capital. In June, AXA IM exchanged on a 396-unit residential portfolio in the Danish capital for €174 million, its second in the sector in Denmark.

“We’re seeing appetite from international investors looking to benefit from the reliability of the Nordic markets – both in terms of income and politics,” says Filip Skoldefors, Head of Living Capital Markets at JLL Sweden. “There’s an increasingly wider range of market participants these days, primarily from Europe but we’re also seeing an increased interest from North American and Asian investors.”

“That coincides with a wider trend to create new platforms and vehicles; investors are looking for local partners to develop product and create portfolios and achieve scale.”

Diversifying the investor mix

Despite increased activity among international investors, the Nordics are still dominated by domestic investors, ranging from insurance capital such as Stockholm-headquartered Folksam, to funds and vehicles backed by major Swedish pension funds AP1, AP3 and AP4.

Around 60 percent of multifamily investment across the Nordics comes from local sources, according to JLL.

However, international capital is making inroads and could, over time, account for a greater overall market share in Sweden, says Skoldefors.

In Finland, meanwhile, foreign investors accounted for 61 percent of volumes in 2018 after Morgan Stanley, Aberdeen Standard and Round Hill Capital all entered the market, compared with an average of 13 percent between 2015 and 2017.

“While there’s some initial interest from North American investors, we expect European investors to continue to make up the majority of foreign investment. UK and German institutions are particularly strong,” says Tero Uusitalo, director of Capital Markets, JLL Finland.

Rising rental demand

As more people head to live in cities and households get smaller, demand for purpose-built rented accommodation is growing.

Furthermore, buying a home has traditionally been less popular in the Nordics than in other European countries. With home ownership falling to a record low of 64 percent last year in Sweden, income from leased residential property is reliable, Skoldefors says, thanks also to rental vacancy being minimal, averaging as low as 0.2 percent in Stockholm.

“Demand among tenants is high for professionally-managed, well-located apartments close to public transport and amenities and with affordable rents,” says Skoldefors. “For investors, stable income, as well as the potential for asset value appreciation, make Swedish multifamily an attractive sector.”

In Finland, the focus is on location, quality design and affordability, says Uusitalo, with microliving apartments also set to rise in popularity in coming years.

“Demand from investors is also driven by residential’s countercyclical characteristics, alongside its low volatility and granular income streams,” says Skoldefors.

Changing political outlook

As many European countries seek to impose greater regulation on rents and landlords, less, rather than more rental regulation, is likely for Sweden in the future, says Skoldefors. While the country has long regulated its residential rents, the medium to long term political outlook for the country’s multifamily market is more liberal than it has been – particularly for newly-built assets.

“Improving the supply of quality housing is the best way to ease pressure,” he says. “More investment from both domestic and international investors can go some way to addressing that.”

However, a lack of large-scale investment opportunities could constrain multifamily market growth in the coming years in both Finland and Sweden.

“More development of high-quality homes and in good locations is needed,” says Skoldefors. “Then demand from a growing pool of core-oriented international and domestic investors should be more satisfied.”

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