Trevian’s market review on the Finnish real estate market: Finnish properties stand out as a choice for international investors
Finnish properties stand out as a choice from the international investor point of view, particularly within the Nordic and broader European real estate markets. At the same time, sustainability-related projects take center stage in the Finnish market. This market review reflects the views and evaluations of Trevian Asset Management's team of real estate professionals on the development of the real estate markets in Finland. The evaluations are based on market data, trends visible in our business activities, and our long-standing experience in the real estate sector.
In Finland, properties were acquired with yield requirements as low as three percent before the acceleration of inflation. After the rise in interest rates, such transactions became unviable. As such, the real estate transactions in the past year mainly involved sellers under pressure to sell, particularly from specialized investment funds facing high redemption demands, which exceeded fund subscriptions for the first time in their history. In addition, selling pressures have emerged from difficulties in refinancing maturing loans or the closure of funds reaching their term. The Finnish specialized investment funds facing this extraordinary situation account for 10 percent of the professional Finnish real estate market. The Bank of Finland reported redemptions of around 300 million, a situation never encountered before. The first Finnish fund has been shut down as a result.
The anticipated interest rate cuts in 2024 are a positive development, especially for real estate investments due to their highly debt-financed nature. However, it is essential to remember that declining interest and inflation rates are partly due to the slowdown in economic growth. This year's growth forecasts for the Eurozone and Finland are modest, with GDP expected to show only a slight positive trend. On the other hand, urbanization persists, bringing positive news to property investors. In particular, the Helsinki region is experiencing significant expansion, contributing to heightened demand for new childcare facilities, schools, and retail premises. This sustained urban population growth is expected to continue for an extended period while zoned areas transform into new residential areas.
The outlook on financing new projects and investments looks brighter. The most significant impact on interest rates and financing costs occurred the previous year, facilitating an upward trend in Loan-to-Value ratios. The potential rapid decline of interest rates may present positive surprises as the conservative interest cost estimates used in formulating 2024 budgets may now have significant room for downward adjustments. In addition, alternative financing options are increasingly entering the market alongside traditional financing methods.
Sustainability-related projects will take center stage during 2024
Major international investors will have various energy infrastructure, social infrastructure, and data center investments in their scopes during the year. Talks of green premium or brown discounts will increase, suggesting that differences in pricing between energy-efficient and poorly managed properties will increase. Similarly, financing for non-sustainable properties will become more challenging, and the differences in financing costs between different ESG classes will grow. Various innovative energy projects and production technologies are rising with the EU's ongoing implementation and development of its sustainable finance program. How different sustainability measures will impact the overall value of properties and real estate portfolios still needs to be fully understood.
"At Trevian, we have heavily invested in training our staff on sustainability matters. We engage in active discussions with various stakeholders to understand the measures that need to be focused on in different property classes to enhance the value of our assets."
Finnish properties stand out as a choice from the international investor point of view, particularly within the Nordic and broader European real estate markets. As property and portfolio sustainability will be benchmarked against various national legislation, ensuring the competitiveness and comparability of Finnish real estate among alternative investment markets is essential. Energy efficiency classifications are a concrete example of discrepancies in the comparability of properties between different countries.
For additional information, please contact:
Kasper Joukama
Transaction Manager
Trevian Asset Management
+358 400 764 547
kasper.joukama@trevian.fi
Trevian Asset Management is a Finnish real estate investment and property management company focused on commercial and residential real estate, owned by its key personnel. We offer full-service asset management and structured investment services throughout the whole investment lifecycle. The services are focused especially for institutional real estate investors, banks, and other professional investors. Trevian’s assets under management is 1.2B€. www.trevian.fi/en
