Record Q1 for Swedish property investment

Investors put a record SEK35bn ($4.3bn) into Swedish commercial real estate in the first three months of 2016, a 39% jump year on year.

Savills said this investment volume was 11% higher than the previous Q1 record in 2007 and an all-time high for a first-quarter period.

The office market was the most desirable real estate sector for the period, accounting for 24% of total investment. Residential and industrial represented 20% and 19% of the total transaction volume respectively.

Peter Wiman, head of research at Savills Sweden, said: “The increased appetite for property lending among banks has led to a competitive climate among lenders, meaning more favourable terms for property owners.

“Sweden is characterised by a strong expansionary monetary policy and the Swedish economy is expected to remain strong throughout 2016. This in turn has made our commercial property an increasingly desirable asset and fuelled demand from investors here and abroad.”

Total investment for 2015 was SEK154bn, a slight dip on 2014’s SEK160bn, but the 640 transactions completed last year was a record high and up 11% year-on-year.

Transaction numbers for Q1 2016 were 20% lower than last year but the high transaction volume meant that the average deal size reached SEK315m, 25% higher than the 10-year average deal size.

The portfolio transaction volume during the first quarter of 2016 reached SEK22bn, up 107% on Q1 2015, accounting for 64% of the total transaction volume.

“The amount of capital targeting property investments has led to portfolio premiums being paid for sizeable property portfolios,” said Wiman.

Savills said that cross-border investment had also increased continuously since 2009 and foreign investors accounted for 21% of the total transaction volume in 2015. 

The share of foreign investors has continued to increase in 2016 and reached 24% in the first quarter.

Recent rate cuts by the Bank of Sweden are expected to be favourable for the real estate sector and the cost of financing will remain at historically low levels, which suggests a positive outlook for the rest of 2016.

Fredrik Östberg, head of investment at Savills Sweden, said that an ongoing shortage of supply means that demand for assets across all sectors and geographical markets is likely to remain high.

“Yields across all property sectors are expected to remain stable and demand will continue to outstrip supply,” he said.

“However, we do anticipate that fierce competition for prime assets could create increasing demand for secondary assets, leading to a compression in the yield gap.”

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