Trevian’s market review on the Finnish real estate market: The fall in real estate values and the more competitive financing costs of Central European banks favor international investors

Central European banks often offer more competitive interest and financing costs than Finnish banks, giving international investors a significant advantage in the Finnish real estate market. Investors are particularly interested in long-term leases, which provide security and facilitate financing transactions. The peak of interest and financing costs was reached last year, and now the Finnish real estate market, which has been stagnant for a long time, is opening up again due to the decrease in real estate values, driven by the declining interest rate 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.

Property values in the Finnish real estate market have decreased, as confirmed by appraisers. This has led to a better mutual understanding of pricing for both sellers and buyers. In transactions completed at the beginning and during the current year, sellers are typically under heavy sales pressure. This pressure is usually due to a failure to refinance maturing loans, the redemption of open-end funds, or the fact that the funds have reached the end of their term.

Nevertheless, properties on the market are more likely to be sold than last fall. We expect this trend to persist. With more and more properties finding a market price, the Finnish real estate market, which has been stagnant for a long time, is slowly returning to life.

Investors are currently showing interest in long-term leases. Predicting the future rent development for commercial real estate with short-expiring contracts has become challenging. Adjusting new leases to match the indexation level of existing contracts can be difficult.

Starting new residential construction projects remains challenging, although the situation has gradually improved. Relatively high construction costs, land prices, and interest rates make it difficult to turn a profit. Additionally, the value of existing housing stock has noticeably decreased.

However, there are also positive developments in the housing market. The underutilization is decreasing in several locations, although there is still an oversupply of studios in some cities. With the new construction law set to take effect at the beginning of 2025, converting office spaces into apartments will be easier. This will help address the issue of vacant office buildings and contribute to finding new uses for them.

Banks have shown positive signs of being willing to finance new projects and investments. This can be attributed partly to the decrease in interest rates on business loans, which has compelled banks to adopt more competitive pricing to sustain their loan portfolios. Due to the earlier exceptionally low interest rates, the banks' balance sheets include several items from which they may not recover all their capital. However, banks have not indicated an expectation of significant credit losses thus far. Nevertheless, there is still a substantial risk of potential credit losses, particularly regarding weaker office properties.

Last year saw a significant increase in interest and financing costs. Market pricing indicates a substantial drop in interest rates this year. Banks in Central Europe, especially German ones, currently have a competitive advantage over typical Finnish and Nordic banks in terms of margins. This gives international investors a clear advantage, with the margin difference exceeding 50 basis points in some cases.

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