The Finnish Property Market 2009 - KTI

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Rental practices Rental practices in the retail market are becoming more varied. Different types of investors have differing strategies and preferences, and also the type of retail space in question has an increasing effect on terms applied. Rental agreements are normally longer in retail than in the office market. Fixed terms are more commonly applied in the retail market, as location is a key factor in the retail trade, and tenants want to ensure this with agreements. The typical minimum term for retail space is three years if the location is competitive. In many cases, agreements are first made for a fixed period and are then continued for an infinite time period. These kinds of terms are typically applied in high street shops especially. In hypermarket and supermarket properties, investors are increasingly cash flow driven, and agreements are typically relatively long-term contracts with net rent. In shopping centres, rental agreements are typically developed towards the more co-operative type of deals between the tenant and owner. Affordability varies between different tenant categories, as does the bargaining position. Anchor tenants often have leases of five to ten and even 15 years, with renewal options sometimes applied in shorter leases. Other tenants have typically shorter leases. The use of turnover leases is gradually increasing in shopping centres. The retail market in 2009 The outlook for retail property market is, in many aspects, more positive than in the office market. Retail sales continued their growth in 2008, and increased by 5.4% compared to the previous year, thus supporting the retail properties’ relatively strong performance. Consumers’ disposable income will continue increasing in 2009 thanks to tax cuts and wage increases. However, increasing unemployment and economic uncertainty have impacted consumer confidence significantly, which now is at its lowest level since the recession of the early 1990s. This increases the uncertainty related to retail sales. So far, however, consumers’ willingness to consume seems to be at a relatively sound level. The current economic situation’s impact on retail sales varies between retail sectors, thus increasing the variation of the performance of different types of retail properties. The outlook is relatively positive for perishable goods, such as for grocery stores. Increased cautiousness is likely to impact most the sales of durable goods and luxury products. The demand for retail space has remained strong, and there is practically no vacant retail space in most Finnish growth centres. New development will add to the stock significantly in some regions, but most of the new space has been rented out before the start of the project. Developers are currently increasingly cautious with starts of new projects in the retail sector as well, which has resulted in a decline in construction volumes. The enormous number and amount of planned retail projects around Finland will start construction only if and when the economic situation looks more positive again. Retail properties maintained their strong position in the transactions market by accounting for some 37% of the total transactions volume. However, a few major transactions accounted for a major proportion of the total volume. The biggest retail transaction of 2008 was the acquisition of the Kamppi shopping centre by Protego Real Estate in March. “Retail properties’ total return decreased significantly in 2008” 38 Prime retail rent in the Helsinki CBD The Finnish Property Market 2009 eur/sqm/month 120 110 100 90 80 70 60 50 40 05-1995 09-1995 05-1996 09-1996 05-1997 09-1997 05-1998 09-1998 05-1999 09-1999 05-2000 09-2000 05-2001 09-2001 05-2002 09-2002 05-2003 09-2003 05-2004 09-2004 05-2005 09-2005 05-2006 09-2006 05-2007 09-2007 05-2008 09-2008 (09-2009) Source: KTI´s barometre survey
Total returns on retail investments 1998-2008 % 16 14 12 10 8 6 4 2 0 -2 Total return Income return Capital growth -4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: KTI The retail sector’s returns suffered the most from the economic downturn in 2008, and total return on retail decreased to 3.0%. This is a dramatic decline from the previous year’s level of 15.8%. After having been the best performing property sector for several years, retail properties now produced the lowest total return among all property types. Rental values continued their growth, while increasing yields pressured capital growth to -3.3.% 5.3 Residential sector – positive outlook in the rental market There are some 2.5 million dwellings in Finland. Of these, about 40% are single-family homes. More than 44% of the dwellings are in apartment buildings. The average size of a Finnish household has decreased constantly, and is currently 2.1 persons. Therefore, the demand for smaller dwellings has been increasing steadily, especially in urban locations. Two-thirds of Finland’s housing stock consists of owneroccupied homes, and home ownership is widespread in all forms of housing, including apartments as well as detached and terraced houses. There are slightly less than 800,000 rented dwellings in Finland. Of these apartments, ca. 50% have been provided with some kind of public subsidy – either state housing loans or an interest subsidy. In recent years, the dynamics of the housing market has been affected by the availability and pricing of housing loans. In early 2000s, easing availability of finance strengthened the demand for owner-occupied housing, which caused increases in house prices. At the same time, rental demand was stable or even decreasing. Thus, rents remained relatively stable, which made the net income available from residential investments non-attractive. This resulted in a decline in the supply of rental apartments in favourable locations, in particular, as it was attractive to realise sales profits of previously rented apartments – which was done by private investors, especially. In the latter part of the 2000s, however, high house prices and relatively moderate rental levels have made rental housing more attractive for tenants again. This has resulted in a strong increase in rents for especially small apartments and centrally located dwellings. Residential prices are currently decreasing, but the decline is very moderate so far, which does not thus support the attractiveness of owner-occupied housing. Players The players in the rental residential market vary according to the sector in question. In the subsidised market, municipalities are the major players, but there are also some significant private, non-profit companies in the market (e.g. Sato, VVO, Avara). There are various forms of public subsidy for the supply side; some have specific strict rules for tenant selection and the rents are regulated, whereas other forms of subsidies allow a more market-oriented approach. On the other hand, tenants are also subsidised through public housing support system. Of the rental apartments in the non-subsidised free market, more than 50% is owned by small investors, mainly individuals. The so-called professional residential investment market currently consists of some 150,000–200,000 39 The Finnish Property Market 2009
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 34 and 35: The office market in 2009 The deman
Page 36 and 37: Prime office yields in Finnish citi
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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