Activity continues after record year

DTZ Research
INVESTMENT MARKET UPDATE
Activity continues after record year
Sweden Q1 2015
24 April 2015

The commercial property investment market in Sweden rounded off its strongest
quarter in 12 years with a record high transaction volume of SEK 66 billion in Q4
2014, and took the full year 2014 volume to a new record at nearly SEK 158 billion.

Activity has continued also in 2015. The total transaction volume in Q1 totalled
SEK 21.8 bn which is 10 percent higher than the average Q1 volume for the period
2003-2014.

Domestic investors have been heavily dominating the Swedish scene over the last
few years. Nonetheless, activity by international investors picked up from 9
percent in Q3 to nearly 23 percent in Q4 2014. An in Q1 2015 the international
share increased further to 25 percent.

This quarter Quoted Property Companies was the leading investor category on the
buy side and this was also the largest net buyer group. On the sell side the three
categories Private Property Companies, Institutions and Private Property Vehicles
stood for around 25 percent each of the sales volume.

In terms of geography Stockholm retains the top position, but Gothenburg and
Malmö are stepping up the ladder. In Q1 Västra Götaland (incl. Gothenburg)
attracted nearly 20 percent of the invested capital and Skåne (incl. Malmö)
absorbed another 21 percent.

Retail was the most popular sector in Q1, accounting for 33 percent of the volume.
Two large shopping center deals and a growing interest for supermarkets help to
explain Retail’s large share. Residential and Offices remain popular sectors,
representing 22 and 17 percent of the total in Q1.

Strong investor demand has pushed yields down in all three major markets this
quarter. Prime office yields in Stockholm now stand at 4.00 percent. In
Gothenburg prime office yields has been lowered to 4.50 percent and in Malmö to
5.25 percent.
Contents
Transaction activity
2
Source of capital
2
Investor categories
2
Sectors and locations
3
Yield development
3
Definitions
4
Figure 1
Author
Karin Witalis
Head of Research - Sweden
+ 46 (0)8 671 34 26
karin.witalis@dtz.com
Contacts
Magali Marton
Head of EMEA Research
+ 33 (0)1 4964 4954
magali.marton@dtz.com
Nigel Almond
Head of Capital Markets Research
+ 44 (0)203 296 2328
nigel.almond@dtz.com
Quarterly transaction volume, SEK bn
70
60
50
40
30
20
10
0
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015
All sectors
All sectors Q4 moving average
Source: DTZ Research
www.dtz.com
Investment Market Update
1
Sweden Q1 2015
Transaction activity
Figure 2
The commercial property investment market in Sweden
rounded off its strongest quarter in 12 years with a record high
transaction volume of SEK 66 billion in Q4 2014, suggesting
the transaction market is approaching the momentum of precrisis days. The massive investment activity towards the end
of the year took the full year 2014 volume to a new record at
SEK 158 billion.
Quarterly transaction volume, SEK bn
Activity has continued also in 2015. The total transaction
volume in Q1 totalled SEK 21.8 bn which is 10 percent higher
than the average Q1 volume for the period 2003-2014.
We expect activity to continue this year as investor sentiment is
up and the market is flooding with cheap money. The central
bank rate is down at -0.25 percent and leading economists
expect further rate cuts this spring. According to DTZ’s latest
investor survey more than half of the respondents expect
financial conditions to continue to improve.
However, one factor that could put a brake on transaction
activity is a shortage of stock that meets investor criteria. This
quarter the share of investors who plan to be net buyers in the
short term has come declined to 40 percent from 54 percent
last quarter (DTZ Investor Survey). However the net seller
group has advanced from 8 percent to 17 percent meaning that
the number of assets for sale could increase somewhat.
50
40
30
20
10
0
Q1
2011
2012
Q2
2013
2014
Q3
Q4
2015
Source: DTZ Research
Figure 3
Purchaser domicile, % of transaction volume, Q1 2015
Norway
France 1%
7%
UK
16%
Source of capital
Domestic investors have been heavily dominating the Swedish
scene over the last few years. Since 2009 foreign investors
have accounted for on average 13 percent of the investment
volume. Many cross border investors are reliant on borrowing,
except for institutional and sovereign wealth money. These
investors find it harder to compete in Sweden where a mix of
institutions, quoted and private property companies are already
very active.
Sweden
75%
Source: DTZ Research
Nonetheless, activity by international investors picked up in Q4
2014 from 9 percent in Q3 to nearly 23 percent in Q4. An in
Q1 2015 their share increased further to 25 percent. The
largest deal by non-Swedish investors in Q1 was Grosvenor’s
purchase of Skärholmen shopping center (100,000 sq m) in
suburban Stockholm for an estimated SEK 3.5 billion. Another
major deal was Unibail Rodamco’s acquisition of Nova Lund
shopping centers in Skåne (25,900 sq m) from Steen & Ström
for SEK 1.6 billion.
There are additional international investors searching for
Sweden property and provided that high quality, sizeable (SEK
1 billion or more) portfolios or single properties come up for
sale, the international share could rise further.
Figure 4
Purchaser type, % of transaction volume, Q1 2015
Public Sector
Other/Unknown
1%
3%
Corporate
1%
Institution
7%
Quoted Property
Company
39%
Private Property
Vehicle
21%
Investor categories
In Q1 2015 Quoted Property Companies was the leading
investor category on the buy side, accounting for 40 percent of
the investment volume. They were also the largest net buyer
group. On the sell side the three categories Private Property
Companies, Institutions and Private Property Vehicles stood for
around 25 percent each of the sales volume.
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Private Property
Company
28%
Source: DTZ Research
Investment Market Update
2
Sweden Q1 2015
Sectors and locations
Figure 5
Locations, % of transaction volume, Q1 2015
Looking at investors’ preferred markets in Sweden Stockholm
retains the top position, grasping 35 percent of the investment
volume in Q1. However, the Gothenburg and Malmö regions
are getting increasingly popular. In Q1 Västra Götaland (incl.
Gotheburg) attracted nearly 20 percent of the invested capital
and Skåne (ibcl. Malmö) absorbed another 21 percent.
Multi-county
11%
Rest of
Sweden
13%
The largest investment sectors in Skåne in Q1 were Retail (53
percent) followed by Residential (30 percent). In Västra
Götaland investors had a broader focus, targeting almost every
property sector, but with preference for Offices (45 percent).
Skåne
21%
Source: DTZ Research
Figure 6
Property sectors, % of transaction volume, Q1 2015
The increased appetite for risk is also being reflected in the
number of development projects being transacted. This
quarter such projects accounted for 10 percent of the
transaction volume.
Other
9%
Retail
33%
Six portfolios with assets spread over more than one county
were transacted in Q1. These portfolio deals are included in
the Multi-county segment in figure 5, and they stood for 11
percent of the transaction volume in Q1. The average size of
these deals was just under SEK 400 million.
Office
17%
Residential
22%
Source: DTZ Research
Figure 7
Prime office yield, Q1 2015
We notice also a strong demand for public buildings such as
schools, nursing homes, student housing, police stations and
courthouses. Hotel is another sector that is increasingly
sought for by investors as its risk premium has gradually come
down.
6
Yield development
4
Strong investor demand has pushed yields down in all three
major markets this quarter. Prime office yields in Stockholm
now stand at 4.00 percent. In Gothenburg prime office yields
has been lowered to 4.50 percent and in Malmö to 5.25
percent.
3
With investor demand still in place, we would expect the
pressure on prime yields to continue. Since a growing number
of investors are also willing to consider secondary stock, at
least in the core markets, we are seeing a continuing narrowing
of the yield gap between the prime and secondary property.
www.dtz.com
Stockholm
Gothenburg
Q4-2014
Q2-2014
Q4-2013
Q2-2013
Q4-2012
Q2-2012
Q4-2011
5
Q2-2010
Looking at the whole market, Retail was the largest sector in
Q1, accounting for 33 percent of the total volume. The
Skärholmen and Nova Lund deals mentioned earlier make up
for 72 percent of Retail’s total. Supermarkets have emerged
as an increasingly popular sector, and in terms of number half
of the retail deals were supermarkets. Residential and Offices
remain attractive sectors, accounting for 22 and 17 percent of
the total in Q1.
Mixed
5%
Industrial
14%
Q2-2011
There are a few reasons for this. Firstly low interest rates have
forced investors out the risk curve. In addition the rental
market looks robust to say strong and financing is not a
problem. As a result investors feel confident to take on more
risk today compared to a few years ago.
Västra
Götaland
20%
Q4-2010
Besides the newly awakened interest for Västra Götaland and
Skåne, investors continue their search for return, going into
new sectors and to second tier markets across the country.
Stockholm
35%
Malmö
Source: DTZ Research
Investment Market Update
3
EMEA
Sweden
John Forrester
Agneta Jacobsson
CEO
+46 (0)8 671 34 55
agneta.jacobsson@dtz.com
Chief Executive
+44 (0)20 3296 2002
email: john.forrester@dtz.com
Johan Zachrisson
Deputy CEO
+46 (0)8 671 34 19
johan.zachrisson@dtz.com
Victor Anderkvist
Head of Transactions
+46 (0)8 671 34 81
victor.anderkvist@dtz.com
Disclaimer
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