Scandinavian domestic economies continue to outperform the rest of Europe. Scandinavia’s strong macroeconomic environment and political stability provide safe investment opportunities for investors in the region. The uncertainty over Brexit is also one of the factors moving investors to these nations. There is an increase in the number of international investors putting capital into commercial real estate. Foreign net investments rose mainly in Sweden, while for Norway and Denmark, it decreased considerably in 2018.
Scandinavia has developed into an attractive market for German investors. A total of USD 1.37 billion flowed into the region during 2018. Sweden witnessed the greatest growth among other countries in Europe. In Sweden, investments into the logistics market is gaining momentum. For instance, Allianz Real Estate and CBRE Global Investment Partners jointly introduced a portfolio of eight logistics properties in Sweden and Denmark.
The outlook for Norway in the future remains positive, with a strong rental market. Norway’s low interest rate and a strong economy are favoring the commercial real estate market in the country.
Denmark is the country with the lowest borrowing costs because of its unique mortgage system. Copenhagen offers several new large urban development areas, mainly near the city. The country offers a high yield in various retail properties located in the capital. Overall, the Scandinavian market offers many opportunities for real estate investments supported by its stable economy.
Key Market Trends
Increase in Transaction Volume in the Office Market of Scandinavian Countries
Swedish investment volumes for office spaces in 2018 reached EUR 15.1 billion (for transactions over SEK 40 million), while yields remaind at the low level of 3.4%. The total transaction volume for the year was slightly higher than the previous year’s volume worth EUR 14.7 billion, due to the substantial demand in the market.
Transaction volumes in Norway, in 2018, reached worth EUR 9.03 billion. The transaction volume was slightly less than the previous year's, as office yields arre still low. Office buildings dominated the total volume with roughly 41% share. For the first time, logistics surpassed the retail segment, with 21% and 16% of the total volume, respectively.
Office investment volume was approximately worthh EUR 2 billion for Denmark in 2018. The investment in industrial and logistics properties almost doubled from 4.5% to 8%, as buyers acquire core properties with a shortage of products. Transaction costs on commercial real estate investment in Denmark are very competitive.
Rising Rents in Oslo and Stockholm for the Office Market
The office market in Sweden has a lower supply, indicating that the growth in office rents is likely to continue, but the pace is slowing down. Stockholm still has the highest growth pace in Europe. Office demand remains strong with falling vacancies, though the lack of vacant stock slowed the net absorption rate in 2019.
The demand for office space improved in 2018 in Norway. However, the occupational market in Oslo is focusing on the space shortage situations. There is a lack of construction on new offices plus office space is getting converted to alternative uses like residential. The current situation is favoring rents positively, which increased since 2016, and they were expected to increase in 2019 as well.
Competitive Landscape
The commercial real estate market in Scandinavia is fragmented and competitive. There are growing partnerships between international and local players in real estate, which provides opportunities to grow for investors. Strong interest from international investors that is lowering down the yields in the market. Major players in the market are Vasakronan AB, Jeudan, and Citycon.
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