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Savills World Research
Sweden Investment
Market report
Sweden Investment
GRAPH 1
GRAPH 2
Investment volumes Modest start in 2015
following an exceptionally strong Q4
MSEK
MSEK
MSEK
70,000
70,000
70,000
60,000
60,000
60,000
50,000
50,000
50,000
+32%
+32%
+32%
40,000
40,000
40,000
+18%
+18%
30,000 +24% +60%
-6%+18%
30,000
30,000
-6%
+24% +60%
-8% -6%
+60% -8%
+24%
-8%
20,000
-37%
20,000
20,000
-37%
-37%
10,000
10,000
10,000
,0,0
,0
Q1
Q2
Q1
Q2
Q1
Q2
Graph source: Savills
Q1 2015
Number of deals Fewer deals have closed so far
in 2015
2012 2013
2013 2014
2014 2015
2015
2012
2012
2013 2014
2015
+119%
+119%
+119%
No
2012
MSEK
2012
70,000
200
2013
2014
2013
2015
2014
2015
+119%
+34%
60,000
175
+18%
+18%
+41%+18%
+41%
+41%
-30%
-30%
-30%
+51%
+51%
+51%
-22%
-22%
-22%
150
50,000
+70%
-7%
125
40,000
100
-8%
30,000 -15%
+24%-8% +60% -8%
75
20,000
50
+15%
-15%
+51%
+11%
+29%+32%
+24%
+44%
--13%
+18%
-6%
-37%
+41%
-35%
-30%
-22%
+18%
10,000
25
Q3
Q3
Q3
0,0
Q4
Q4
Q4
Q1
Q1
Q2
Q2
Q3
Q3
Q4
Q4
Graph source: Savills
SUMMARY
Strong investment across all geographic submarkets and all segments
Following an exceptionally strong
fourth quarter with an investment
turnover of SEK 70bn, it was no surprise
that 2015 started in a more modest pace.
Prime assets remain favoured by a
majority of investors, but the lack of
seller interest is likely to limit supply and
many investors are likely to widen their
investment requirements in terms of subsegments as well as asset quality.
The interest for alternative financing,
such as bonds and preferential shares,
has continued to grow and is expected to
grow throughout 2015.
Prime yields could move in further, but
the lack of prime assets is likely to push
secondary yields downward resulting in
a reduced yield gap between prime and
secondary.
The increased appetite for property
lending among banks has led to a
competitive climate among lenders,
which in turn has led to more favourable
terms for property owners.
“Investment turnover is
expected to remain high
throughout 2015 due to the
strong investor appetite and as
interest rates are expected to
remain at historically low levels
during 2015 and early 2016.”
Peter Wiman, Head of Research Savills
Sweden
en.savills.se/research
01
Market report | Sweden Investment
Q1 2015
GRAPH 3
The Swedish economy grew by 2.1% in
2014, which was slightly weaker than
most forecasts but is still a strong growth
figure compared to many European
countries. The recovery within the
manufacturing sector has remained
disappointing and exports have not
been a significant contributor to the GDP.
Instead, the growth has mainly been
driven by domestic demand as well as
investments into residential development
schemes across the country. Consensus
Forecast indicates an expected growth of
just over 2.5% for 2015 and 2016. Forward
looking indices such as ESI and PMI vary
and the volatility has been unusually high,
but the indices all indicate growth rather
than a contraction of the economy.
GDP growth Above the Eurozone average
However, the Bank of Sweden remains
worried about the economy and has
continued with conveying a dovish line
by cutting the repo rate to -0.25% in late
March and launching a small QE program.
The BoS expects inflation to remain low
in the short term and most forecasters
expect the lending rate to remain low
throughout 2015 and well into 2016.
Graph source: Savills
Other macro-economic figures
are moving in a positive direction:
unemployment is decreasing; employed
workforce is increasing; and, bankruptcy
rates have continued to drop, all of
which are positive signs for the economy.
Household savings ratios have remained
on high levels, but consumer spending
has picked up. Our prediction is that
Sweden will outperform in Europe in the
short and medium term.
Eurozone
8
Sweden
Forecast Eurozone
Forecast Sweden
6
4
“The increased appetite for property
lending among banks has led to a
competitive climate among lenders, which
in turn has led to more favourable terms of
property owners.” Peter Wiman, Head of Research
Savills Sweden
2
0
-2
-4
Investment activity
The transaction turnover amounted
to SEK 24bn for the first quarter, which
was a slight decrease of approximately
8 % compared to the corresponding
quarter 2014. The slight drop in turnover
should not be interpreted as a sign of a
weakening market, but is likely a direct
result of Q4 2014 being an exceptionally
strong quarter. The strong quarter was
most likely due to a number of active
investors busy merging acquisitions into
their portfolios and advisors filling up with
new mandates. The number of recorded
transaction amounted to 115, which was
a slight drop compared to Q1 2014, but is
still a relatively strong Q1 figure.
2018*
2017*
2016*
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
-6
2015*
Economic background
The main driver behind the strong
market situation is the sufficient
amount of equity available for all types
of property investments. With bond
yields at low levels, domestic institutions
have increased their exposure toward
properties chasing higher returns and
significantly increasing the supply of
equity on the market. Banks are
becoming more interested in lending
against properties and are in some cases
competing, which has led to improving
lending conditions with more favorable
terms for property owners, such as higher
LTVs and lower margins. Alternative
financing in the form of bonds also offer
an attractive alternative for investors
wanting to achieve higher returns
through financial leverage.
Outlook for the
remainder of 2015 and
2016
The cross border activity was relatively
strong in the quarter and amounted to
approximately SEK 10bn. However, this
is not an indication of lack of investor
interest from international investors,
but rather a result of foreign investors
failing to outbid domestic investors in
structured processes. Going forward we
expect transaction volumes to pick up
as the interest for property investments
is exceptionally strong from all types of
investors.
Yields
The market is still extremely well supplied
with equity, and the availability of bank
financing has led to a highly competitive
market where yields have continued
to harden. Although investor interest is
still focused on prime assets primarily
in Stockholm, the shortage of prime
products in Gothenburg and Malmö has
led to a wider interest for secondary assets
for all property types.
Prime yields have hardened at a slower
pace and secondary yields have hardened
across most segments as investors are
chasing investment options and also
higher returns. We expect yield gaps to
continue to shrink across all segments in
2015.
Most forecasts indicate fairly strong
growth figures for Sweden for 2015 and
2016, at least when compared to most
other European economies. However, the
export oriented manufacturing industry
is still facing challenges and exports are
not expected to grow fast in the short
term. Growth is primarily expected to
come from consumer spending and
investments into housing development.
The new government has announced that
they will not allow a spending deficit, but
if the economy worsens, Sweden has the
capacity to increase spending to support
the economy.
The recent cuts of the repo rate along
with QE measures from the Bank of
Sweden indicates that Sweden is likely
to be in a low interest rate climate in the
short term and most forecasters do not
expect interest rates hikes until mid-2016.
It is therefore likely that the amount of
equity targeting property will continue
to increase and bank financing is also
readily available at attractive rates. As
the manufacturing industry is hesitant to
initiate investment programs, banks are
BOND FINANCING
Alternative financing has
become an increasingly
attractive option
Bond financing has grown in popularity in the last few
years and the average yearly volume issued by the
listed companies during the last three years amounted
to approximately SEK 7bn. The trend has continued
into 2015 and during the first four months the listed
companies emitted a bond volume of SEK 7.1bn, which is
a strong signal of the interest for bond financing.
GRAPH 7
Bonds issued by listed property
companies (SEK m)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2010
2011
2012
2013
2014
2015
Graph source: Focus Economics & NIER
For state-backed property companies and institutionally
owned property companies, bond financing is an
attractive alternative to bank financing and can in many
cases offer lower financing costs compared to what banks
can offer.
GRAPH 8
Bond yield spreads
Buyers
of residential assets (SEK m)
Excluding Housing Co-Ops
Yield spreads (bp's) from STIBOR on bonds issued by listed companies & linear trend
900
Foreign
Graph source: Savills
120,000
Western Sweden
100,000
60%
50%
40%
Southern Sweden
Mixed
30%
Malmö
Land
20%
40,000
Other
10%
Gothenburg
20,000
Stockholm
2009
Graph source: Savills
2010
2011
2012
2013
2014*
torsdag-11
thursday-11
söndag-04 Wednesday-08
onsdag-08
sunday-04
lördag-12
saturday-12
tisdag-05
tuesday-05
Graph source: Focus Economics & NIER
80,000
Hotel
0%
0
måndag-07
monday-07
60,000
0
Graph source: Savills
2014
22%
Mälardalen
2013
17%
02
Residential
Storage/Industrial
9%
70%
100
140,000
2012
34%
Office
80%
2011
5%
400
200
Northern Sweden
2009
Retail
500
Average
300
2004
5%
4%
600
160,000
2008
90%
Domestic
700
180,000
2007
100%
4%
Breakdown per origin of investor Continued
predominance of domestic investors
2010
Breakdown per location Stockholm remains the most
sought after location
2006
Breakdown per asset Retail prevailed in
Q1 2015
800
GRAPH 6
GRAPH 5
2005
GRAPH 4
For medium to high-leveraged listed property companies,
bond financing is not a replacement for traditional bank
financing as financing costs (spreads) are higher with
bonds. It is instead a means to achieve higher financial
leverage as most banks are still restrictive on allowing
high LTV-loans. We expect that bond issuances will be an
attractive option and that volumes will grow in the near
future.
en.savills.se/research
03
Market report | Sweden Investment
likely to increase their exposure towards
real estate.
Prime yields could harden further as the
competition for prime assets is fierce and
prime remains the favored investment
for institutional investors. The shortage of
supply alone is likely to result in a stronger
interest for secondary assets within all
segments and the yield gap will continue
to shrink.
International investors are struggling to
outcompete domestic institutions for
prime assets as they are not willing to
meet the yields necessary. Furthermore,
many have increased transaction costs
as they tend to hedge the currency
risks. However, we expect international
investors to be more successful in
segments where yield compression has
been less aggressive, such as retail and
logistics, where returns are higher. ■
“The proposed
new corporate tax
system could have a
significant impact on
the property market
but effects are hard
to estimate before
a new proposed
law is presented.
The current
proposal could incur
significantly higher
tax burdens for highly
geared investors”
Peter Wiman, Head of
Research Savills Sweden
OUTLOOK
Fierce competition for prime
assets could result in higher
competition for secondary
assets and the yield gap is
expected to shrink
Prime commercial assets in Stockholm, Gothenburg
and Malmö are still the most preferred asset class with
many investors, but lack of supply will open up for a
stronger market for secondary assets.
Funds and opportunity investors might take advantage
of the strong market and dispose of their holdings.
Uncertain effects from the proposed change to
corporate taxes, which could very well be significant for
the property market. However, the scheduled change has
been pushed forward and will take place in Jan 2017 at
the earliest.
Oversupply risks are limited in most segments and
speculative builds are only present in balanced markets or
markets with a shortage of supply.
Prime yields
Q1 2014
Q3 2014
Q1 2015
Stockholm offices
4.50%
4.50%
4.25%
Gothenburg offices
5.00%
5.00%
4.75%
Malmo offices
5.50%
5.25%
5.00%
Retail warehouse
5.50%
5.50%
5.5%
Shopping centres
5.25%
5.25%
5.15%
Logistics
6.50%
6.50%
6.25%
The transaction pace is expected to remain high in all
property segments.
The general elections have resulted in a new political
map, but in spite of this we expect sales of public assets
and residential assets by the municipalities to continue.
Savills Sweden
Please contact us for further information
Peter Wiman
Head of Research
+46 (0)733 58 64 22
[email protected]
Fredrik Östberg
Head of Investment
+46 (0)766 27 91 00
[email protected]
Savills plc
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