All Scandinavian countries were hit hard by the property crises at the beginning of the 1990s. The turnround in the markets since mid 1990s has been dramatic in the key markets, with substantial rental growth, capital growth and correspondingly high total return. However, the performances of property investments cannot compete with that of equities.

Last year saw sustained investor interest in the Swedish real estate sector and a number of major funds underwent restructuring. This has had a positive and consolidating effect on the investment market in general. In comparison with 1998 there were fewer large portfolios on the market, which resulted in a slight reduction in total transaction volume. A large proportion of the turnover was nonetheless accounted for by this sector of the market. Investors are still keen to concentrate their property portfolios and focus on more profitable areas of business. Consequently, some large portfolios were offered to the market in 1999. Swedish Post, for example, sold a portfolio of buildings at a value of Skr2.4bn to a consortium of Deutsche Bank, SPP and Öhmans Property Fund. In addition, at the end of 1999 the telecommunications company Ericsson put a portfolio of industrial and office properties on the market with a value of approximately Skr10bn. The major part of this portfolio consists of Swedish properties.
Further examples of large commercial portfolio transactions include Länsfastigheters’ acquisition of the listed property company Humlegården, with a portfolio of mainly commercial properties in Stockholm and a value of approximately Skr2.5bn. Likewise, the listed property company Balder acquired Prifast (listed company) with a portfolio of around Skr3bn. Other large transactions include the Drott’s (listed) acquisition of 75 commercial and residential properties, mainly situated in Stockholm, at a price of Skr1.7bn. The developer JM (listed) also sold a property portfolio to Kungsleden (listed) at a price of Skr1.2bn. The listed property company Realia has been quite active and gained a portfolio of commercial and residential property in 15 different Swedish towns, from Lundbergs (listed) at a price of Skr885m, and a portfolio of 10 properties to Norrköping at a price of Skr225m from NCC (listed).
Interest was also apparent from foreign investors and in contrast to previous years they have been attracted to the lower-yield markets in the main cities. Foreign investors were increasingly active in the retail market in 1999. The UK-based Doughty Hanson & Co Real Estate Fund, for example, acquired the shopping centre Jakobsbergs Centrum outside Stockholm at a price of Skr700m. This acquisition also includes residential and office buildings. In 2000 the German company IBG is planning to invest Skr1.3bn, together with the Swedish insurance company Länsförsäkringar Wasa, in a major refurbishment and expansion of the 25-year-old Kista Centrum shopping centre in Kista, an expansive area just outside Stockholm. Sustained buyer activity helped to keep office yields low in 1999. Prime office yields in Stockholm are currently in the region of 5% whilst Gothenburg and Malmö are achieving yields of around 6%. Prime retail yields remain unchanged from 1998, at 5% and likewise industrial yields are stable at 8% in the Stockholm area.
For the next two years we expect a continuously strong development of market rents, mainly in Stockholm but also a positive trend in Gothenburg and Malmo.

With increased interest rates in autumn 1998 activity on the property market dropped to a very low level. However, during 1999 activity on the investment market increased with several large transactions as well a large number in the range Nkr100m– 300m. There is in ongoing structural change in the commercial property market, with property companies enlarging their portfolios. However, there are only a few large players on the market and foreign investors have shown little interest.
Prime office yields fell to 7.75% at year end 1997, and have now slightly increased to around 8%, due to high interest rates and low expectations of future rental growth.
During 1999 several large office buildings, mainly in areas on the fringe of the city centre, were completed. The high level of new construction will continue during 2000 and 2001, which will probably result in a downward pressure of market rents, and increasing vacancy rates.

With low yields in the bond market, real estate investments have become increasingly attractive to especially institutional investors and the demand for fully let office buildings is very big. This has created some pressure on the yield on property investments.
For the central business district, yields for the most attractive properties in prime locations with 10-year leases to strong tenants go down to 6%.
The Copenhagen real estate market in general is in good shape with a good balance between supply and demand because of all the development opportunities. Absorption is big but rents are under control because of new construction.
Rents are expected to continue to grow in 2000 and 2001, but at a very steady rate since the supply of new attractively located projects that are being developed at the moment is large. The rental level is thereby expected to remain comparatively low compared to other European cities. Due to high level of new constructions there could be a risk for a somewhat higher vacancy within the next few years.

A few institutional owners have dominated the property market in Helsinki. The liquidity and transparency on the market is low, which has had a negative impact on the interest from foreign investors. However, some foreign investors are now showing their interest and are studying the market. Property investment companies have expanded their portfolios by acquiring large commercial properties from banks and institutional owners and there is an increasing interest from private investors. However, there is a lack of prime properties on the market.
Yields in prime locations have slightly fallen to a present level of 6–6.5%, while yields in other areas are around 7–9%.
The positive trend in the Finnish economy in general and particularly in the Helsinki region will probably have a positive impact on the property market. Low vacancy rates and high demand indicates that the upward trend in rents will continue at least a few years before planned new constructions will have an impact on vacancy rates and rental levels.
Jan Rosengren is with DTZ Sweden in Stockholm. This article is based on a presentation to the IPD/Global Property Research Conference ‘European Property Strategies’ held recently in Wiesbaden