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The fundamentals for real estate investment are strong in all four Nordic countries, but opportunities differ per city and region and local knowledge is essential in order to exploit them.

Leading market experts who attended PropertyEU's Nordics Investment Briefing in London this week debated the merits of investing in different property sectors across the Nordics, from residential in Denmark and offices in Finland to logistics and retail in Sweden and Norway.

The office market in the Nordic countries has seen robust development, fuelled by limited availability of product and an increase in cross-border investments, but ‘demand is strong and pricing is tight, so it is difficult to create returns. Offices is a more local business than retail or residential, so in order to add value it is essential to know where the asset is, and have offices and people on the ground to gain a good insight,’ said Anders Palmgren, director and head of investor relations at Genesta.

Palmgren claims there are great opportunities in Helsinki, as ‘office buildings in the centre of the city offer incredible rates of return.’ Outside the city prospects are less rosy: ‘I am bullish about Helsinki but not about Finland in general, because population growth is zero and there is massive migration from the countryside into the capital, so it is important to pay attention to where you invest,’ he said.

Political risk
All panellists minimised the impact of political risk due to Finland’s proximity to Russia. ‘Last year Finland had the highest foreign investment as a percentage of all Nordic countries, as investors are discovering the opportunities,’ said Andrew Smith, managing director of Catella. ‘The idea of it being risky is nonsense: if anything, the perception of risk being high means that there are more opportunities,’ said Palmgren. The only negative impact has been on retail complexes near the border, which catered mainly to Russian shoppers and have seen a collapse in footfall since the fall of the rouble.

The residential sector is also interesting as the Nordics is a rental market, with less emphasis on home ownership than for example in the UK. Denmark seems to offer the best opportunities, said Smith: ‘Residential is where investors can make their mark and get those higher returns.’

Germany’s Patrizia Immobilien is also investing in the residential market in Denmark: ‘We believe the demand will concentrate on the cities, and that in the coming years growth will be driven by domestic demand,’ said Marcelo Cajias, senior manager of research at Patrizia.

The Nordics are also a case study of how situations perceived as negative can be turned around to offer an advantage. One example is Norway: the steep fall in the oil price is already having an impact on the economy, even if it remains to be seen how it will translate to the real estate sector. Yet the slowdown is a cloud with a silver lining, said Palmgren: ‘As a value-added manager we see interesting opportunities in the oil price falling. Twelve months ago Norway was not a target market for us, but now it is because of the higher returns it offers.’ Some investors are expecting returns of 17%.

The cold weather is another factor usually regarded as a negative, yet it is helping the logistics sector boom. In a region with a big and growing technology sector, companies need space for data centres and, as computers need cooling, they prefer the cold climates of the Nordics. Smith said that ‘Facebook, Microsoft, Google and many others have taken big lettings, huge space in the North, it is cheaper and colder so it meets their needs and it makes perfect sense.’