DTZ Research INVESTMENT MARKET UPDATE The annual transaction volume increased by 70% Finland Q4 2014 5 February 2015 Contents Economic Overview 2 Investment Market 3 Major Transactions 5 The transaction volume of the published deals was approximately €4.0 billion in 2014. Over 35% of the total transaction volume was made by foreign investors. We expect that the share of foreign investors will remain at the same level, or even increase during 2015. Private property vehicles and companies have clearly been the most active investor sectors in 2014, accounting for over 80% of the transaction volume. In Q4 the retail sector was the most active sector measured by transaction volume. Whereas in 2014, the industrial sector was the most active. The prime office yield is currently at 4.75%, the prime retail yield is at 4.8% and the prime logistics yield is at 6.75%. The prime yields are estimated to further decrease during 2015. The Quantitative Easing by the European Central bank is boosting European property’s attractiveness, as it pushes down bond yields and forward interest rates. Author Ville Suominen Analyst +358 (0)10 836 8455 [email protected] Figure 1 Transaction Volume, €bn Contacts 7 Magali Marton Head of EMEA Research +33 (0)1 49 64 49 54 [email protected] 6 4 60% Hans Vrensen Global Head of Research +44 (0)20 3296 2159 [email protected] 3 40% 100% 80% 5 2 20% 1 0 0% 2005 2006 2007 2008 Domestic purchaser 2009 2010 2011 2012 International purchaser 2013 2014 % International Source: DTZ Research www.dtz.com Investment Market Update 1 Finland Q4 2014 Economic Overview Main Economic Indicators The inflation rate estimated at 0.9% in 2015. The inflation estimate for 2014 is 1.0%. The inflation rate was 2.8% in 2012 and 1.5% in 2013. The third consecutive year with a stagnant economy has naturally affected the employment situation. The unemployment rate is estimated to increase to 8.6% in 2014 and to further increase to 8.8% in 2015. The European central bank quantitative easing (QE) is estimated to keep the interest rate at a low level during 2015. The ECB QE program is however expected to increase inflation. The Finnish 10-year government bond rate has continued to decline, due to ECB buying of government bond. E2016 E2015 E2014 2013 2012 2011 2010 2009 In 2015 private spending is estimated to continue to decrease by 0.1%, due to modest salary increases, weak employment situation, and slightly higher taxes. 2008 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 2007 The prolonged Ukraine crisis and the sanctions directed at Russia, have caused uncertainty for the Finnish export sector and weakened the export to Russia. The weakened exports have kept down the GDP growth. Figure 2 2006 The GDP is estimated to increase by 0.2% in 2015. The Finnish export sector is estimated to improve during the latter part of 2015 as a result of global economic growth and a weaker Euro, compared to the dollar and other major currencies. The GDP decreased by 0.2% in 2014 and by 1.2% in 2013. Unemployment Inflation GDP Private spending Source: Bank of Finland, Danske Bank, Nordea, and Handelsbanken Figure 3 3 Month Euribor and 10 Year Government Bond 5% 4% 3% 2% 1% 0% Q4 2006 Q4 2007 Q4 Q4 Q4 2008 2009 2010 Euribor 3 month Q4 Q4 Q4 2011 2012 2013 10 Yr.Gov.Bond Q4 2014 Investment Market Update 2 Source: Bank of Finland www.dtz.com Finland Q4 2014 Investment Market Figure 4 Transaction Volume Transaction Volume, €bn The transaction volume of the published deals was some €4.0 billion in 2014. The transaction volume made 2014 the most active year since 2008. Moreover, the transaction volume increased almost 70% compared to 2013 (€2.4 billion). 7 4 60% The activity of international investors is currently at the highest level since 2008. In 2013 the share of international investors exceed 35% and remained at the same level in 2014. During 2014 several new international players entered the Finnish property market. 3 40% Major Deals in Q4 2014 The largest deal in the fourth quarter was when a joint venture of Trevian Asset Management, Cording Real Estate Group, and H.I.G. Capital, purchased a retail portfolio, from a fund managed by AXA Real Estate Investment Management. The portfolio comprised 123 retail assets. The purchase price was €107 million. The largest single property deal in the fourth quarter was, when a fund managed by AXA Real Estate Investment Management purchased MREC Espoon Keilalahden FG-talo, located in the Keilalahti office area, from Exilion Real Estate I fund. The property is a part of Microsoft Mobile’s complex consisting of three properties. The total lettable area of the building is some 17,000 sq m. The purchase price was €64.8 million and the net initial yield was approximately 5.8%. Another significant single property deal was when AFIAA Swiss Foundation purchased a landmark building, Brondankulma, in the Helsinki CBD. The property was sold by CBRE Global Investors. The purchase price was over €60 million. The building covers a total of 8,230 sq m and the main tenant is Hannes Snellman, a major law firm. 100% 6 80% 5 2 20% 1 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Domestic purchaser International purchaser % International Source: DTZ Research Figure 5 Quarterly Transaction Volume, €mn 2000 1500 1000 500 0 Q1 2013 Q2 2013 Q3 Q4 Q1 Q2 2013 2013 2014 2014 Domestic International Figure 6 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) slightly increased in last quarter of 2014. Out of the annual transaction volume the share was some 11%. Transactions by Investor Group www.dtz.com Q4 2014 Source: DTZ Research Transactions by Investor Type The share of the Finnish institutional investors increased in Q4 2014, however they represented only 4% of the transaction volume in 2014. 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. Q3 2014 100 % 80 % 60 % 40 % 20 % 0% Q1 Q2 Q3 Q4 2013 2013 2013 2013 Institution Private Property Company Other Source: DTZ Research Q1 Q2 Q3 Q4 2014 2014 2014 2014 Private Property Vehicle Quoted Investor Investment Market Update 3 Finland Q4 2014 Transactions by Property Sector Figure 7 The office sector has typically been the largest sector measured by the transaction volume. In Q4 2014, retail and residential were the most active sectors, representing some 35% and 25% respectively. On annual level the industrial sector was the most active in 2014 (30%). Office and retail sectors represented some 20%, respectively. 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. In Q4 2014, over 60% of the transaction volume occurred in Southern Finland. In 2014, over 50% of the transaction volume were multiregional portfolio deals. The share of the deals in Southern Finland were some 43% in 2014. Average Lot Size Average lot size in Q4 2014 was just over €20 million. However, the deals over €50 million represented over 70% of the total transaction volume in Q4. 100 % 80 % 60 % 40 % 20 % 0% Q1 2013 Office Residential Q4 2014 Other/Mixed Use 100 % 60 % The prime office yield is currently at 4.75%, the prime retail yield is at 4.8%, and the prime logistics yield is at 6.75%. The spread between Finnish government bonds and the prime office yield was around 3.8% in the fourth quarter. 40 % European Central Bank’s decision made in January 2015 will increase the supply of funding and will keep the interest rates low. Hence, the real estate investment will remain attractive. Healthcare Q2 Q3 2014 2014 Industrial Transactions by Region Prime Yields Foreign investors have during recent years mainly been interested in core assets, however with the increased demand investors is likely to move to more opportunistic assets as well. Q1 2014 Figure 8 80 % DTZ Research estimates that the prime yields will further decrease during 2015. There are clear signs that the share of foreign investors in the Finnish market will remain at the same level as in 2014, or even increase. Q3 Q4 2013 2013 Retail Source: DTZ Research In 2014 the average lot size was some €30 million. Outlook Q2 2013 20 % 0% Q1 Q2 Q3 2013 2013 2013 Southern Finland Northern Finland Multi-Regional Source: DTZ Research Q4 2013 Q1 2014 Q2 Q3 Q4 2014 2014 2014 Western Finland Eastern Finland HMA Figure 9 Helsinki Metropolitan Area (HMA) Prime Yields 9% 8% 7% 6% 5% Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 F2015 4% Office Retail Logistics Source: DTZ Research www.dtz.com Investment Market Update 4 Finland Q4 2014 Major Transactions Table 1 Major Office Transactions in Q4 2014 Building City Vendor Purchaser MREC Espoon Keilalahden FG-talo Espoo Exilion Real Estate I Ky Fund of AXA Real Estate Brondankulma Helsinki CBRE Global Investors AFIAA Hippostalo Tampere Senaatti Properties The Tampere Student Housing Foundation Plaza Business Park Presto Vantaa Finnish Paper Workers’ Union CapMan Nordic Real Estate fund Area (sq m) Price €mn Price € / sq m 17,076 64.8 3,800 8,230 > €60 > 7,300 19,000 12.1 640 5,760 n.a. n.a. Source: DTZ Research Table 2 Major Retail Transactions in Q4 2014 Building City Vendor Purchaser Portfolio of grocery store properties Multi-City Etelä-Suomen Kauppakiinteistöt Oy (Citycon) Quorum Kehitysrahasto I Ky Portfolio of 123 retail assets Multi-City Fund of AXA Real Estate Trevian AM, Cording RE Group, H.I.G. Capital 40% share of the Iso Omena Shopping Centre Espoo GIC Real Estate Citycon Two retail properties Vantaa and Tampere Unknown OP-Vuokratuotto special investment fund Area (sq m) Price €mn Price € / sq m n.a. 6.7 n.a. 128,000 107 840 63,300 (whole shopping centre) n.a. n.a. n.a. 35 n.a. Source: DTZ Research Table 3 Major Industrial Transactions in Q4 2014 Building City Vendor Purchaser Mäntsälä logistics centre Mäntsälä Capman Real Estate II American Realty Capital Trust Area (sq m) 74,400 Price €mn Price € / sq m n.a. n.a. Source: DTZ Research www.dtz.com Investment Market Update 5 Finland Q4 2014 Table 4 Other Major Transactions in Q4 2014 Building City Vendor Purchaser Area (sq m) Price €mn Price € / sq m Three carsale/workshop properties Multi-City NV Property Fund I Ky Sagax AB 26,600 28.3 1,060 Taaleritehdas residential property funds I and III (509 apartments) Multi-City Taaleritehtaan Pääomarahastot Oy LähiTapiola Group's insurance companies n.a. n.a. n.a. Portfolio of five office buildings, one restaurant, and two undeveloped sites Turku Municipality of Turku Turun Teknologiakiinteistöt Oy n.a. n.a. n.a. Source: DTZ Research www.dtz.com Investment Market Update 6 EMEA Country Head Finland John Forrester CEO +44 (0)20 3296 2002 [email protected] Janne Eriksson Managing Director, Partner +358 (0)10 836 8406 [email protected] Valuation Valuation & Research Capital Markets Capital Markets Juha Mäki-Lohiluoma Director, Partner +358 (0)10 836 8435 [email protected] Ville Suominen Analyst +358 (0)10 836 8455 [email protected] Arno Jaulas Partner +358 (0)10 836 8415 [email protected] Ilkka Kujanpää Partner +358 (0)10 836 8420 [email protected] Letting & Occupier Services Letting & Occupier Services Retail Raul von Denffer Partner +358 (0)10 836 8401 [email protected] Hanna Lamadon Partner +358 (0)10 836 8425 [email protected] Jari Jäntti Director, Partner +358 (0)10 836 8418 [email protected] Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. 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