Savills latest Sweden investment research reports that a total of SEK 26 billion (€2.9 billion) has been transacted in the first quarter of 2014, up from just over SEK 16 billion (€1.79 billion) on the same period in 2013, reflecting a rise of 55%.
Savills latest Sweden investment research reports that a total of SEK 26 billion (€2.9 billion) has been transacted in the first quarter of 2014, up from just over SEK 16 billion (€1.79 billion) on the same period in 2013, reflecting a rise of 55%. In addition, the international real estate advisor has recorded a significant year-on-year rise in the number of transactions completed, with just over 100 deals carried out in Q1 2014 representing a 48% increase on Q1 2013. The firm attributes this rise in investment activity, in part, to improved bank lending as well as low bond yields, which have led domestic institutions to seek higher returns and increase their exposure towards property thus significantly boosting the supply of equity in the market.
Savills notes that buyers continue to favour prime properties in the larger cities of Stockholm, Gothenburg and Malmö, however the scarcity of such assets currently on the market has led to aggressive pricing pushing down yields to historically low levels. Prime office yields in Stockholm currently stand at 4.5% and the firm highlights that these yields have only contracted to below 5% on two previous occasions, in the late 1980s and immediately prior to the financial downturn in 2008.
Johan Bernström, head of investment at Savills Sweden, says: “Activity in Sweden’s investment market remains robust, however there is a limited supply of sought after prime office stock pushing prices up. As prime office yields consequently contract, especially in Stockholm, Gothenburg and Malmö, we are seeing a rising number of buyers starting to focus on secondary assets, looking for higher returns. This could lead to a further closing of the yield gap between prime and secondary going forward.”
According to the report in the prime office segment the yield spread has been reduced by approximately 50 bps during the last 12 months with prime office yields currently standing at 4.5% in Stockholm, 5% in Gothenburg and 5.5% in Malmö. In other sectors Savills research shows that prime shopping centre yields average 5.25%, prime retail warehouse yields stand at 5.5% and prime logistics properties transact at yields of 6.5%.
Savills data reveals that the share of cross border activity in Sweden has increased as a result of these investors selling their Swedish assets whilst foreign acquisitions remain at low levels. The firm believes this is due to the difficulty of international buyers bidding against domestic investors rather than a lack of interest. Domestic investors continue to dominate investment volumes accounting for 95% of the volume in Q1 2014.
Peter Wiman, head of research at Savills Sweden, comments: “There is strong interest from overseas investors for Swedish property but so far they have been unable to compete with domestic investors for prime offices. However, they have been successful in acquiring prime retail warehousing, shopping centres and particularly logistics assets, with the industrial segment overall attracting an increasing level of interest from both domestic and international buyers.”
The research shows that the industrial, warehouse and logistics sector transacted SEK 3.4 billion (€380 million) in Q1 2014, representing 13% of total investment turnover in this period, against SEK 1.1 billion (€120 million) in Q1 2013. This growth, Savills suggests, is primarily due to the market gradually maturing and the relatively high returns offered compared to prime offices.