The Finnish Property Market 2009 - KTI

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The office market in 2009 The demand for office space started to soften in late 2008 together with the increased economic uncertainty. The uncertainty also affected the market position of offices in different quality categories. The demand for prime offices, which previously were relatively easy to rent, started also to soften. Class B and C offices, which had faced vacancy problems during the upturn, even strengthened their relative position in some cases, thanks to tenants’ increasing interest in cutting costs and better possibilities to negotiate the rent. The Helsinki central business district (CBD) retains its position as the top office location in Finland. That is also where rents and vacancies have showed the best performance recently. The KTI rental index showed an increase of some 2.7% in 2008, with the increase slowing down towards the end of the year. Other attractive office areas with modern stock include Ruoholahti in Helsinki, Keilaniemi and Leppävaara in Espoo and the airport area in Vantaa. In cities outside of the Helsinki region, offices are typically concentrated in city centres and one or two office areas outside city centres. “No new office development projects are being started in the current market situation” Leasing office space has become significantly more challenging during the past year. In the Helsinki region especially, the decrease in demand coincides with a sharp peak in supply. During 2008 and 2009, some xx0.000 sqm of new office space have been and will be completed. This represents an increase of almost 5% in the total office stock. The amount of new office space being planned is an even bigger number. However, practically none of the new projects are being started at the moment due to both financing problems and lack of demand for premises. The volume of new starts has decreased dramatically during the past year. In the current letting market situation, tenants have a strong bargaining position, and can negotiate tenant improvements and rental levels, among other things. Rental levels are more flexible in older buildings, whereas other issues are discussed in new premises. A common strategy is to negotiate some free months in the beginning of the rental period, or to discuss tailored modifications in the premises. “Tenants have a strong bargaining position in the rental market” Increasing stock and decreasing demand is likely to increase the vacancy rate, which, according to Catella Property, currently stands at ca. 9% in the Helsinki metropolitan area. Rents, which have mainly shown stable development so far, are expected to fall, and the strength of the decline depends on the overall economic situation and employment, in particular. The development of rents and vacancies will also probably strongly vary between sub-markets, with the prime office locations being probably hit less than B and C locations. Another phenomenon brought about by the recession is sub-letting, as the tenants of the new buildings, in particular, cannot take up all the space they’ve committed into in the beginning of the project. The impact of this phenomenon on rents and vacancies is not easily captured by statistics, which increases the opaqueness of the market. 34 The Finnish Property Market 2009
Building projects under construction in January 2009, rentable* area, sqm m 2 400000 350000 300000 250000 200000 150000 100000 50000 ■ Retail ■ Offices ■ Industrial / warehouse / logistics ■ Other property types 0 Espoo Helsinki Vantaa * If information on rentable area hasn’t been available, rentable area has been estimated based on gross area information. Sources: KTI, Reed Business Information Investment demand for offices decreased during 2008 both in absolute and relative terms. Office transaction volume amounted to €1.1 billion, representing some 28% of the total volume. In 2007, office transactions’ proportion of total volume was almost 40%. Total returns for offices decreased to 4.6% in 2008. This shows a clear decrease compared to the previous year’s 9.8%. Total return consisted of a capital growth of -1.6% and an income return of 6.3%. Capital growth was pressured by the increase in valuation yields, with an impact on values of -2%. Rents and yields: Helsinki vs. other European capitals Office rents and yields in Helsinki seem to be significantly less volatile than in most other European cities. Despite the compression of yields between 2004 and 2007, they remained attractive in European comparison, and never fell much below 5%. Thanks to the moderate decrease in yields, it is now expected that also the downturn’s impact on the Total returns on office investments 1998-2008 14 12 10 Total return Income return Capital growth Development of prime office yields ■ Q2 / 2007 ■ Q4 / 2007 ■ Q2 / 2008 ■ Q4 / 2008 % 8 7 6 8 6 4 2 0 -2 -4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5 4 3 2 1 0 London Stockholm Paris Helsinki Oslo Source: KTI Source: Jones Lang LaSalle, KTI (Helsinki) 35 Office market vacancy rates, Q4/2008 Dublin Moscow Budapest Amsterdam Stockholm Brussels Berlin Helsinki Milan Paris Madrid London Oslo Warsaw 0 5 10 15 20 % The Finnish Property Market 2009 Sources: Jones Lang LaSalle, Catella Property Group (Helsinki)
Page 1: The Finnish Property Market 2009 1
Page 5: Contents Preface 7 1. Basic facts a
Page 8 and 9: 1. Basic facts about Finland 2. The
Page 10 and 11: subordinated loans or state guarant
Page 12 and 13: Key Figures - Finnish Economy 2001
Page 14 and 15: 14 The Finnish Property Market 2009
Page 16 and 17: The indefinite leases often last lo
Page 22 and 23: Real estate investments’ proporti
Page 26 and 27: The Finnish fund managers concentra
Page 32 and 33: 5. Property sectors - market struct
Page 36 and 37: Prime office yields in Finnish citi
Page 38 and 39: Rental practices Rental practices i
Page 42 and 43: 5.4 Logistics market - a developing
Page 44 and 45: The Helsinki Central Business Distr
Page 46 and 47: Preferred office locations in Helsi
Page 48 and 49: 6.2 Other growth centres: Tampere,
Page 50 and 51: Throughout the recent years, the va
Page 54 and 55: Key terminology Property Kiinteist
Page 56: 56 The Finnish Property Market 2009

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