Country s First quarter 2017 Please click on the appropriate sector to view Offices Retail Industrial About & Contacts
Office Market During Q1 2017 the GDP growth estimate for 2016 was revised up by 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. The office market had a sound start to the year, with investment sentiment improving and subsequently yields sharpening. Minor rental growth was also evident in Espoo and Vantaa. Occupier demand has continued to grow during the first quarter of 2017, however the overall vacancy rate remains high at 14.20%. The demand is mostly towards smaller units (200-300 sq.m) in modern buildings with good locations. There were no new office developments completed in the Helsinki Metropolitan Area (HMA) in Q1 2017. However, there are an estimated 64,000 sq.m due to be completed in the HMA during 2017. The current market conditions will support positive rental growth at the prime end of the market. For secondary properties, the rental level is estimated to remain stable. The ongoing investments in public transport infrastructure will alter future demand in the office market in Helsinki. The new metro line towards the west from Helsinki has been delayed and will now open in 2017. This could provide an opportunity for companies looking to relocate now to secure a cheaper rent, before this area becomes more popular with the completion of these infrastructure projects. Total office investment volumes were 220 mn in Q1, with private property vehicles being the most active investors, accounting for approximately 90%. International investors accounted for around 63% of office deals. Investor demand is still clearly focused on prime product. However, the demand for secondary office properties increased during 2016 and Q1 2017, as the lack of quality product forced investors to look elsewhere for opportunities. Prime : Vacancy is still high and rents are generally stable, but there is some potential uplift for quality stock. Prime yields are expected to further decrease in the short term. Supply is expected to increase slightly in the short term before stabilising later in 2017. A strengthening of demand is apparent but this is from a low base. Prime Office rents March 2017 LOCATION US$ GROWTH % 1 5 Helsinki (City Centre) 35.00 420 42.5 2.9 3.1 Helsinki (Out of Town) 21.50 258 26.1 0.0 2.5 Turku 17.00 204 20.6 3.0 2.5 Tampere 21.50 258 26.1 2.4 3.1 Oulu 15.00 180 18.2 0.0 n/a Prime Office yields March 2017 LOCATION Helsinki (City Centre) 4.25 4.30 4.40 6.00 4.25 Helsinki (Out of Town) 5.25 5.50 5.75 6.95 5.25 Turku 7.00 7.20 7.25 8.00 5.80 Tampere 6.50 6.50 6.75 7.75 5.80 Oulu 6.50 6.50 6.75 7.75 5.80 8.00% 15.0% 1 5.0% -5.0% -1 Prime, well-let assets will remain a key focus for investors, although demand for non-core assets has improved and will attract more investors. The occupational market is expected to gradually improve once the economy starts to build good momentum.
Retail Market During Q1 2017 the GDP growth estimate for 2016 was revised up by 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. According to Statistics Finland, consumer confidence increased from 19.5 in December 2016 to 22.9 in March 2017 - the highest recorded value. Retail occupier demand remained steady from Q4 2016. However, on q/q comparison to Q1 2016 and 2015 the demand in the first quarter of 2017 showed positive signs. Retail rents remained mostly stable in Q1, with a decrease in Oulu due to increased amount of vacant retail space. Demand is expected to strengthen further for key retail thoroughfares and the prime rents in the Helsinki CBD are expected to increase during 2017. In Q1 2017 some 22,000 sq.m of new retail premises were completed, as the second phase of Ainoa shopping centre and new Lidl supermarket was opened in Espoo. Development activity is expected to further improve in the coming years, with over 380,000 sq.m of new shopping centre space due to delivered in 2017-2019. More than 60% of new shopping centre space will be opened in the Helsinki area. Although strong supply in the retail market when comparing to annual growth in demand the pace of annual completions indicates even the HMA shopping center segment is fairly balanced or even short of supply. Investment volumes in the retail market were 470 mn in Q1, with a largest deal being the 50% share of the Kamppi shopping centre in Helsinki. International investors accounted for around 65% of retail deals and the most active investor type was private property vehicles. The consumer spending is expected to be influenced by the rising inflation. However, the retail property market is expected to remain relatively stable with an increasingly positive outlook. Occupational and investor demand is estimated to improve and some yield compression is expected in the prime locations in 2017. Prime : Stable rents, although some marginal growth potential in the best prime high streets in Helsinki. Some yield compression expected for shopping centres and prime high street retail, but stable across all other retail segments. Increased supply in 2017, mainly through new shopping centre developments. Steady demand for prime assets in Helsinki and for the best retail stock in dominant regional cities. Prime Retail Rents - March 2017 HIGH STREET SHOPS US$ GROWTH % 1 5 Helsinki 133 1,590 161 1.9 0.0 Turku 65 780 79 0.0-1.5 Tampere 70 840 85 0.0-2.6 Oulu 60 720 73-14.3 n/a Prime Retail - March 2017 HIGH STREET SHOPS Helsinki 4.40 4.40 4.50 5.80 4.40 Turku 6.00 6.00 6.00 7.20 5.65 Tampere 5.75 5.75 5.75 6.95 5.40 Oulu* 6.50 6.50 6.50 7.00 6.50 SHOPPING CENTRES Country prime 4.50 4.70 4.80 5.80 4.50 Note: *4yr record. 25.0% 2 15.0% 1 5.0% -5.0% -1
Industrial Market During Q1 2017 the GDP growth estimate for 2016 was lifted with 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. The export sector is estimated to slightly pick up during 2017. Investor demand exists, albeit exclusively for prime product, and despite the limited activity in Q1, logistics yields hardened by 5bp-20bps across a number of markets. The activity patterns seen in 2016 were largely unchanged in the first quarter of 2017. The absorption of space remains limited. The average vacancy in the HMA remains at 6.0%. In Q1 2017 some 41,000 sq.m of new logistics space was completed in the HMA. The new developments consists of a new logistics terminal for Metsä Fibre and new HQ/logistics premises for HUB Logistics. There are currently under construction some 35,000 sq.m of new logistics premises to be completed in 2017 in the HMA. This is mostly covered by the new Finnair s 30,000 sq.m cargo terminal. The lower cost of land is resulting in the outer parts of HMA, such as Sipoo or Kerava, becoming increasingly popular in location strategies. Low investment activity in the industrial sector continued in Q1, with just 62 mn transacted, mainly due to the lack of prime properties for sale. Demand remains strong, however, both from domestic and international investors but there is a clear focus on quality, income producing properties. Prime yields in Q1 were at 6.25% in Helsinki and are around 75-125 bps higher in the regional markets. As the export sector is estimated to gradually pick up during 2017, we might see some more activity on the industrial occupier market. The fundamentals underpinning the industrial real estate sector will remain stable, with further consolidation by occupiers dominating activity going forward. Indeed, volumes are unlikely to pick-up dramatically until the performance of the economy improves. Prime : Low demand and limited new supply should maintain a relative stability in the market for rents. Prime yield compression is estimated for 2017 as the demand for prime products remains high. Vacancy should remain fairly stable and new supply will be driven by prior commitment. Demand, for both occupiers and investors, will concentrate on best in class assets. Prime Industrial Rents March 2017 LOGISTICS LOCATION US$ GROWTH % 1 5 Helsinki 9.25 111 11.22-2.6-1.0 Turku 7.75 93 9.40 0.0 0.0 Tampere 7.75 93 9.40 0.0 0.0 Oulu 7.00 84 8.49 0.0 0.0 Prime Industrial March 2017 LOGISTICS LOCATION Helsinki 6.25 6.30 6.50 8.00 6.25 Turku 7.00 7.20 7.50 9.40 7.00 Tampere 7.00 7.20 7.50 9.40 7.00 Oulu* 7.50 7.70 8.00 8.75 7.50 Note: * 4yr record 9.00% 8.00% 6.0% 4.0% 2.0% -2.0% -4.0% -6.0%
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