Newsec Property Outlook, Spring 2020

NEWSEC PROPERTY OUTLOOK SPRING 2020



NEWSEC PROPERTY OUTLOOK



INCREASED ALLOCATION TO REAL ESTATE INVESTMENTS The property market in Northern Europe has in popularity among all kinds of investors. For in- seen a sharp increase in both capacity and stance, we have observed a noticeable increase activity in recent years and is now one of the in the percentage of capital allocation towards most liquid and active markets, not only in real estate compared to other investments Europe but the entire world. Over the last ten amongst the largest public and private pension years the transaction volume has doubled from funds that invest in the Nordics and Baltics. EUR 20 billion to 40, where it has been stable for a few years now. In this edition of the Newsec We see a continued favourable climate for Property Outlook, we leverage our substantial real estate investments and believe the expertise and experience to map out the future increased capital allocation will persist in this of the Northern European real estate market. low-interest environment where there’s not many alternatives available in the hunt for Let me just emphasize that no one is better return on investment. I believe it is important to positioned than Newsec to do so. As the largest have different types of investors in the market real estate player in Northern Europe we have as they bring different perspectives and that access to an unparalleled amount of data. And makes for a good dynamic. Both the short-term yes, I may be biased, so I’ll let the numbers speak and long-term perspective is equally impor- for themselves. Newsec has EUR 60 billion tant in urban development. Regardless of the under management and annually signs lease horizon I believe the market flourishes through agreements of 1 million square meters, manages committed and engaged investors, that under- transactions of EUR 5 billion and carries out real stand the importance of active property asset estate valuations of underlying property worth management. EUR 175 billion. With that I wish you an interesting read! Over the 30 or so years that I have been working in the real estate industry we have seen much Max Barclay, more international capital flowing into the Head of Newsec Advisory Nordic and Baltic region. Last year international investors accounted for 31 per cent of the total transaction volume in Northern Europe. Real estate, traditionally described as an alternative investment class, has seen a steady increase 3



CONTENTS Property markets for ever?......................................................................................... 7 Back to the Future: What’s Next for Real Estate?...................................... 12 The Swedish property market ................................................................................. 18 The Norwegian property market ......................................................................... 20 The Danish property market .................................................................................. 22 The Finnish property market ................................................................................. 24 The Estonian property market .............................................................................. 26 The Lithuanian property market ......................................................................... 28 The Latvian property market ................................................................................. 30 European real estate prospects ............................................................................ 32 Macroeconomic data..................................................................................................... 34 Property data ..................................................................................................................... 37 Definitions .............................................................................................................................. 41 The Newsec Property Outlook Team ................................................................ 42 The Full Service Property House ......................................................................... 44 Newsec’s market reports .......................................................................................... 45 Contact and addresses ............................................................................................... 46 Copyright Newsec © 2020 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Newsec, Box 7795, SE-103 96 Stockholm, Sweden. Phone + 46 8 454 40 00, www.newsec.se. You may use the information in the Newsec Property Outlook but acknowledge- ment must be made for all quotations and use of data/graphics. Cover photo: Getty Images 5

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NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY MARKETS FOR EVER?  ● PROPERTY MARKETS FOR EVER? Klas Eklund, Senior Economist, Mannheimer Swartling A year ago, the global outlook was bleak. All regions were slowing down and geopolitical uncertainty was on the rise. But central banks saved the day. New monetary expansion put a cushion under most economies, and over the past few months, signs of a trough and possible upturn have been visible. Property markets have continued to climb, in the Nordic countries as well as worldwide. Yet there are uncertainties: Is there a risk of new bubbles? And what will the effects of the Corona virus be? However, rates remaining low for long will constitute a strong force which will continue to support property markets. Global economy bottoming out In 2019, first the Federal Reserve and future. As a result, market rates fell In the autumn of 2019 and the begin- then a number of other central banks to record-low levels. After recession ning of 2020, most economic fore- cut their key rates and increased the fears receded, they rose slightly but casters lowered their global growth size of their liquidity injections. The remain historically low. forecasts for 2020. But none project- ECB even launched an open-ended ed an outright recession. The consen- new phase of quantitative easing – the In the US, GDP growth has gradually sus has rather been that the global liquidity injections were to continue slowed to around 2 per cent. Not economy would gradually start to pick as long as needed. Given that the bad, after the longest expansion in up by the end of 2020, albeit slowly. ECB’s own inflation forecast says American history. Unemployment is One important reason is the renewed inflation will remain below target for now the lowest for over half a century. strong expansionary policy from big another two years at least, that means But it must be conceded that the ex- central banks. aggressive easing for the foreseeable pansion has been supported not only 7

●  PROPERTY MARKETS FOR EVER?   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 »The consensus has been that the global economy will gradually start to pick up by the end of 2020, albeit slowly« by monetary policy, but also by a very US, but American and European reg- persist, at least for the foreseeable loose fiscal stance, resulting in a large ulations and standards differ, which future. government debt. may cause problems. The American presidential election may cause even Financial markets obviously are The Eurozone is stagnating, with stronger polarization with accusations believers. Bond yields, both real and German manufacturing in recession. of a rigged outcome. Should President nominal, are historically low. As a The automotive industry is struggling Trump be elected for a second term, result, the past year has been good with the effects of the trade war and we may well see a further dismantling to stocks and real estate. With stock new environmental regulations. Japan of the global governance system. market valuations starting to look is suffering from zero growth, with stretched, asset managers have zero rates and booming debt. Inflation The trade war may seem as though it loaded up on property, and real estate has been low in most places, although has been put on hold, courtesy of the is now the world economy’s biggest China has experienced temporary “First phase” agreement between asset class. Property prices have bouts of pork price hikes. the US and China. However, from an picked up again. economic point of view the deal is a Risks disaster. Bilateral talks are disrupting This is what we should expect in a That was the situation in January, the multilateral global trade system; low-inflation, low-rate environment. when the Corona virus struck. So far, China will not be able to reach the And most strategists have interpreted the virus has been mainly confined import targets without blows to other recent moves from central bankers as to China, but it is still too early to put exporters; and the impasse in the though monetary policy will remain specific numbers to the economic tariff war is less important than the expansionary for a long time. Should effects. What is clear, though, is that strong escalation of the technological any recessionary threats arise, e.g Chinese growth during H1 2020 will rivalry over 5G standards and the from the Corona virus, they expect take a hit. The quarterly numbers will development of AI. A “decoupling” of key rates to be lowered even more. probably look abysmal. Since China standards is taking place, breaking is the shop-floor of the world as well up global supply chains and putting That could indeed happen. But low or as the largest consumer market, pressure on European companies to negative interest rates are not very global supply chains will be negatively pick sides. As a result, productivity will effective as a weapon against supply affected. Several neighbor countries suffer. side shocks. The main tool used for will also suffer, but direct effects stabilisation thus remains fiscal policy. on Europe and the US will be small. Low inflation, low rates – and Here, the US and Japan have been Production may rebound during H2, booming real estate pushing the envelope; and as long as unless virus contagion will continue to Unemployment has fallen in most rates are low, rising government debt spread outside China. But at the time Western countries. However, wages does not seem to be a problem. The of writing, it is impossible to quantify and inflation have not responded. Eurozone – in particular, Germany such effects. The old inverted relation between – is, however, much more hesitant to unemployment and inflation – the really use fiscal stimulus. Europe will Other geopolitical risks are, of course, Phillips curve – has turned flat. This continue to be parsimonious. also present. The first step in the could be because of a number of Brexit process has been taken, and in structural supply shocks – globali- After so many years of record-low that sense, uncertainty has diminished. zation, digitalization, weakening rates and booming markets, a word of However, the negotiations over the unions – which have made inflation caution from the grumpy economist future trade agreement are likely to permanently low; or it could be that is in order. Markets are hooked on be messy. There are obvious conflicts these shocks are temporary, and that cheap money. The hunt for yield in between the UK position on the one further demand stimulus actually an environment of low returns may hand, and the EU’s unwillingness to would revive inflation. Here, the jury is once again cause asset bubbles. At the allow the UK to cherry-pick. The UK still out. But most, if not all, forecast- same time, central banks are gradually also wants a special relation with the ers now believe that low inflation will moving from strict inflation-targeting 8

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY MARKETS FOR EVER? ● »Unemployment has fallen in most Western countries. However, wages and inflation have not responded. The old inverted relation between unemployment and inflation – the Phillips curve – has turned flat« Photo: Shutterstock 9

●  PROPERTY MARKETS FOR EVER?   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 »A word of caution from the grumpy economist is in order. Markets are hooked on cheap money. The hunt for yield in an environment of low returns may once again cause asset bubbles« to a broader interpretation of their 2020 will remain around 2 per cent. imported inflation (because of a goals. So, even if the risk of tighter Expectations are for investments in weak currency) has made Norwegian monetary policy and bursting bubbles the petroleum sector to gradually sof- inflation the highest in the Nordic re- is low, it certainly is not zero. ten, which will also have repercussions gion; it remains slightly above target. for the mainland. Thus, both these This caused Norges Bank to hike its The Nordics are doing rather well … GDP measures will slow down over the key rate last year – it is now clearly As usual, Norway is the best-perform- course of this year and 2021. the highest among the neighboring ing economy in the Nordic region. countries. Mortgage rates rose. Still, Petroleum investment is pushing total Unemployment is low, and disposable home prices increased, while the GDP (including the oil and gas sector) income has grown. Nonetheless, rental market also benefited from the towards a growth rate of above 3 per households have remained cautious, sound macro fundamentals. Demand cent this year. The mainland economy, and the savings ratio has risen. A for property is strong. The benign however, is slowing, and growth in strong domestic economy plus rising macro situation will persist this year, 10

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY MARKETS FOR EVER? ● »Even though the Nordic countries differ in several respects, the area as a whole is performing decently, and property markets will be strong in all countries for the remainder of 2020« resulting in another good year for prices while holding back the transac- but the market interpretation was property. tion volume. that the side effects of negative rates were getting worse. Consequently, the The Danish economy also looks … but Sweden’s macro performance Riksbank does not want to move back fundamentally sound. GDP growth is is worst in class into negative territory. This means hovering around 2 per cent, slowing Economically, Sweden is the worst that now that the zero rate has been gently. Inflation is low, and because performer in the Nordic area. In 2019, reintroduced, it will probably remain of the fixed-currency regime, the growth slowed to a paltry 1,1 percent in place for the remainder of this year, Danish central bank is carrying out (meaning just about zero growth per and probably also most of 2021. an ultra-loose monetary policy with capita). The trough of the downturn is negative rates. Danish banks are actu- expected this year, which means that In this environment, the property ally charging negative interest rates the annual growth rate will be as low market is thriving. Construction on large household deposits. Employ- as last year, not visibly moving up until is recovering. House prices have ment growth has been fairly strong, 2021. recovered what they lost two years but inflation remains far below target. ago. Transaction volumes have risen Swedish manufacturing and exports sharply. Lack of supply will continue to In this situation of easy money, have been negatively affected by the hold up prices. The coalition govern- mortgage rates fell last year. That also European slowdown. Sentiment indi- ment has stated it wants to loosen freed up liquidity for consumers, who cators point to continued weakness rent control, but political tensions and could refinance into cheaper loans. in industry, while domestic sectors waning popular support makes this The combination of low rates and such as retail and construction show unlikely. strong liquidity is supporting the prop- signs of stabilisation. Construction erty market. Consequently, strong is particularly important, since it has All in all, even though the Nordic transaction volumes are expected to large “multiplier effects” on the rest countries differ in several respects, persist. of the economy. Household consump- the area as a whole is performing tion weakened in 2019 but is expected decently, and property markets will Finland is a member of the Eurozone to gradually recover as disposable be strong in all countries for the and largely follows the economic income rises. remainder of 2020. trends in the monetary union, Germa- ny being its most important trading The labour market has cooled. Un­ partner. Economic growth is around employment is rising. At 7 per cent, it 1.5 per cent, gradually slowing down. is the highest among the Nordic coun- Manufacturing is gloomy, and invest- tries, and actually one of the highest in ments are weak. Unemployment is Europe – somewhat surprising, given high compared to Norway and Sweden’s traditionally strong showing Denmark, and sentiment among in this area, and the government’s households has deteriorated. A pledge that Sweden this year would government crisis at the end of 2019 have Europe’s lowest unemployment was resolved, and the new govern- rate. One reason is poor integration ment will probably re-establish politi- of new immigrants. cal stability. Inflation is clearly below the Riksbank Inflation is below target, and since target of 2 per cent and is likely to Finland is part of the EMU, the ECB’s remain there. Even so, the central loose monetary policy will also remain bank is not expected to cut its repo in place and affect the Finnish market. rate. After five years of negative Low rates support the property rates, it hiked to zero by year-end. The markets. Lack of supply is pushing up reasons given were somewhat vague, 11

●  BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 WBAHCAKT’TSONTEHXETFFUOTRURREEA:L ESTATE? Real estate in the Nordics and Baltics has been booming, with record volumes being achieved in Sweden, as well as in the Nordics as a whole. In the past five years, transaction volumes of over EUR 40 billion have been achieved every year in the Nordics, and the average total return for real estate across the regions has been above 10 per cent in each of these years. At the same time, macroeconomic indications are weakening, and appear to indicate that things will get worse before they get better. Should we be worried about the future of real estate? In this edition of the Newsec Property Outlook, Newsec makes use of our substantial expertise and experience of the real estate industry to map out the future for Nordic and Baltic property markets. The macroeconomy looks uncertain the Nordic and Baltic economies are some investors. Should we be worried 2020 has so far been marked by generally resilient, they are also highly about the impact that a weakening cautiously rising stock markets, and dependent on the global economy, macroeconomy could have on real mostly stagnant interest rates, with making many worried about the future estate in the Nordics? signals from central banks worldwide – not least on the property market. indicating further increases in the Newsec does not believe that a turn- key interest rates are highly unlikely. Indeed, macroeconomic indications ing macroeconomy has to be detri- Global trade growth has decelerated are often widely cited in many prop- mental for property. Graph (1) shows and there is international uncertainty erty contexts, with a particular focus the relationship between transaction regarding the state of the global econ- on GDP growth rates – which lately, volume and GDP growth in the Nordics omy. The spread of the coronavirus, have not been looking too positive in and Baltics. As can be seen in the as well as the prospect of intensified the Nordics. In Sweden, GDP growth figure, with the exception of 2009, the trade and military conflicts between for 2019 was 1.2 per cent, the weakest relationship has been relatively weak major countries remain a worry, and growth rate since 2012 – and 2020 is historically, with clear peaks in trans- political uncertainty resulting from expected to be an even weaker year. action volume where GDP growth was the Brexit negotiations persists. The remaining Nordic countries are relatively low, and vice versa. Higher Europe has been affected by the un- expected to grow at slightly higher GDP growth rates do not necessarily certainty, with Germany in particular rates, but still below 2 per cent, while appear to correspond to a higher displaying signs of struggle. In growth the Baltics will see growth rates above transaction volume. terms, fears of a downturn – or at the 3 per cent, slightly lower than previous very least, a slowdown – have become years. But the gradually turning econ- → more expressed worldwide. Though omy is setting off alarm bells among 1. Transaction Volume and GDP Growth in the Nordics & Baltics Per cen6t 4 M6E0U0R00 50,000 40,000 2 30,000 0 20,000 -2 10,000 -4 0 -6 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ■ Transaction Volume, millions of EUR, transactions over 4 MEUR (left axis) GDP growth, per cent (right axis) 12

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?   ● »Newsec does not believe that a turning macroeconomy has to be detrimental for property« 13

●  BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 »N ewsec does not believe that a turning macroeconomy has to be detrimental for property« Nordic and Baltic Predictions using a model to predict the past is rel- ing to property to secure high returns, If GDP growth alone is a relatively atively easy – but predicting the future and the likelihood of a number of poor predictor of transaction volumes tends to be more complex. As a result, major M&A transactions. and the attractiveness of real estate, by making use of the wide range of then what is a strong predictor? experience and expertise available When breaking the Nordic volume in Newsec has conducted extensive his- within Newsec, Newsec has adjusted 2020 and 2021 down by country, the torical analysis from 1990 to 2020, the model’s predictions to more accu- other countries will not have quite as analysing the relationships between rately reflect what is likely to transpire record-breaking years as Sweden, but real estate markets and over thirty in the future. This adjusted model is will still produce strong volumes. In other factors, pertaining to the macro- shown in graph (3). Norway, volumes of between EUR 9 economy and beyond. By selecting a and EUR 10 billion are forecast, falling number of these factors and conduct- Newsec forecasts that transaction short of the record volume seen in ing econometric analysis based on volumes in the Nordics are likely to economic forecasts, Newsec can go vary from year-to-year, though still re- List of factors selected back to the future and make math- main above EUR 40 billion each year. by Newsec to consider in ematical predictions based on past In 2020, Newsec forecasts a Nordic mathematical analysis historical relationships regarding the transaction volume of around EUR future of the transaction market in 45 billion. However, in 2021, Newsec GDP growth (per cent), the Nordics. The model predicts past expects a new record transaction population growth, unemploy­ transaction volumes with 93 per cent volume of EUR 50 billion – which will ment rate, building costs, accuracy. be the strongest volume in the next government bond yields, public 5-year period. This will be driven by debt, gross investments and In graph (2), a scenario is presented the strong volume that is expected exchange rates. Values and showing the model’s predictions for in Sweden, of around EUR 21.5 billion forecasts based on data from Nordic transaction volume. The model (SEK 225 billion). The record volume Newsec, national statistical da- predicts stable transaction volumes is likely to be achieved owing to the tabases and public institutions. of between EUR 40 and EUR 45 billion persistent low interest rate climate, over the next five years. However, the increasing amount of capital look- 2. Mathematical Model Prediction – Nordics & Baltics MEUR 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E ■ Sweden ■ Norway ■ Denmark ■ Finland ■ Baltics 14

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?   ● »In 2021, Newsec expects a new record transaction volume of EUR 50 billion in the Nordics – which will be the strongest volume in the next 5-year period« 2015, but with strong potential to volumes. Finland will produce a vol- Nordic market analysis → constitute the second strongest year ume of EUR 6 billion in both years, in In sum, the other Nordic markets to date for the market. In Denmark, a line with the historical average, while are not likely to be as strong as the volume of around EUR 9 billion is ex- the Baltics will outperform the histor- Swedish market in 2020 and 2021. pected (DKK 70 billion) in both years, ical average slightly, with volumes of One primary reason is the relative lack below record levels, but still strong around EUR 1 billion. of listed property companies, leading to less M&A transactions in the other Nordic countries. Further reasons are more country-specific. In Norway, bonds tend to yield a little higher than in Sweden owing in part to the higher key interest rate, meaning that the opportunity cost of not investing into real estate is not as high. The Finnish economy struggled a little more than its Nordic counterparts over the past decade, which means that investors are a little more hesitant than in other Nordic countries, now that the macro- economy is starting to waver. Liquidity is also lacking, with supply insufficient to meet demand for prop- erty. In Denmark, too, investor senti- ment has been less positive than in Sweden, while weak Nordic currencies have attracted some capital that may otherwise have been invested into Denmark. As investors become more 3. Newsec’s Adjusted Prediction – Nordics & Baltics Volume MEUR 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E ■ Sweden ■ Norway ■ Denmark ■ Finland ■ Baltics 15

●  BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?   NEWSEC PROPERTY OUTLOOK  •  AUTUMN 2019 acclimatized to the falling yield levels Looking further to the future, years volumes are expected to be stronger and the low interest rate, investment 2022 and onwards in Sweden are like- than those seen over the past few is likely to increase. In the Baltics, in- ly to be more in line with the historical years, indicating an outperformance vestor sentiments remain strong, and average. This is owing to the expected of the historical average. In Finland, the transaction market reflects this. recovery of the macroeconomy, which transaction volumes will continue to New record volumes are expected in will make alternative investments remain roughly on the long-term equi- Lithuania, Latvia and Estonia, owing more attractive when compared to librium level. In Denmark, transaction to the relatively higher returns that today. The Norwegian market will volumes will exceed the historical properties in the region can afford. also not reach record levels, but average slightly, but much like in 4. Nordic & Baltic Total Return on Property Per cent 16 12 8 4 0 -4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 16

NEWSEC PROPERTY OUTLOOK  •  AUTUMN 2019 BACK TO THE FUTURE: WHAT’S NEXT FOR REAL ESTATE?  ● »T here has been an increase of almost 100 per cent in investment allocation to real estate over the past 15 years, with an increase from an average of 5.8 per cent in 2005 to 10.9 per cent in 2019« Sweden will be slightly weaker than 5. Average allocation of investments towards property 2020 and 2021. in the Nordics & Baltics All in all, Newsec predicts both healthy Per cent transaction volumes and a healthy 12 property market. This is displayed in graph (4). Average total returns, 10 although not as strong as in record years (largely dragged down by retail 8 real estate), are set to remain formida- ble going forward. Though the returns 6 look a little weak compared to the his- torical average, they are still generally 4 stronger than those on stock, bond, and other alternative markets. Hence, 2 interest in the property market will remain strong. 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E Investment allocation to real estate is on the rise * At the time of writing, not all actors have released their annual reports for 2019, What does all of this mean? Prop- meaning the 2019 figure is subject to change. erty is becoming a more popular investment class. In fact, it has been Norwegian actors at 70 per cent, volume of EUR 50 billion in 2021, rising steadily in popularity among all Danish actors at 55 per cent, and despite a somewhat shakier macro­ kinds of investors. This is evidenced Finnish actors at 20 per cent. While economy. in pension funds’ capital allocation. investors in individual countries differ Since 2005, we have seen a marked in their preferences (the laws & reg- There is a lot of potential for investors increase in the percentage of capital ulations that they must abide by also looking to invest into property in the allocation toward property compared differ), and the results are influenced Nordics and Baltics. Are you interest- to other investments. to varying degrees by the relative in- ed in more in-depth analysis of this crease in property value over time, the kind, or do you need help in finding the The graph (5) constitutes a compre- overall trend is clear. Investor appetite right asset or market to invest into? hensive analysis of capital allocation for real estate has risen over time – Newsec is the leading commercial real trends among the thirty largest public and Newsec forecasts that this will estate advisor and first port of call for and private pension funds that invest continue for the foreseeable future. investors in the Nordics. into real estate in the Nordics and Baltics. The trend is clear – there has The future outlook Ulrika Lindmark been an increase of almost 100 per Newsec’s analysis indicates that [email protected] cent in investment allocation to real investors should not let themselves be Adam Tyrcha, PhD estate over the past 15 years, with an swayed by individual macroeconomic [email protected] increase from an average of 5.8 per factors when making investment cent in 2005 to 10.9 per cent in 2019. decisions. Instead, they should base The largest increase has been noted their decisions on the overall merits among Baltic actors (from very low and demerits of investing in the levels), with an increase of around property market. Property remains 880 per cent (Estonia being most pop- the high-yielding, low risk investment ular), followed by Swedish actors with of choice for investors, and Newsec an increase of around 165 per cent, forecasts a strong transaction volume of EUR 45 billion for 2020 in the Nordics, and a record transaction 17

●  THE SWEDISH PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE SWEDISH PROPERTY MARKET THE STRONGEST TRANSACTION YEAR OF ALL-TIME – BY FAR 2019 was a relatively weak year for the Though the Swedish economy may interest in real estate appears to be at Swedish economy, with a GDP growth be struggling a little, the Swedish real a post-crisis high, as the property mar- rate of around 1.2 per cent. Despite a estate market is most certainly not. ket continues to be the high-yielding, slowdown in the economy, the Swedish 2019 saw a record transaction volume low risk choice for all kinds of inves- Riksbank deemed that Sweden was of SEK 218 billion – the strongest tors. In 2020, a strong transaction close enough to reaching the inflation year of all-time, by far. The previous volume of around SEK 200 billion is goal of 2.0 per cent to warrant an record year, 2016, had seen a trans- expected, while in 2021, the market is increase in the key interest rate, which action volume of SEK 201 billion, expected to reach new record highs. resulted in this being increased from which was eclipsed by almost 10 per -0.25 per cent to 0 per cent just before cent. As in previous years, average Contact: Christmas. This means that Sweden deal sizes continued to rise, with the Alexandra Lövgren now does not have a negative key average deal now being close to SEK [email protected] interest rate for the first time since 500 million. A number of major M&A Adam Tyrcha, PhD 2015. The SEK strengthened a little transactions as well as major portfo- [email protected] as a result, but remains a weakly per- lio purchases resulted in a record 42 forming currency. Going into 2020, deals over SEK 1 billion, which drove GDP growth of 0.9 per cent is expect- the rise in the size of the average deal. ed. Further, the economy is expected However, despite this rise, the number to continue to grow at a low, but stable of deals over SEK 40 million also rose rate in the coming years and a reces- when compared to 2018, from 433 to sion is deemed highly unlikely. 448. Both international and domestic Photo: Serneke 18

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE SWEDISH PROPERTY MARKET  ● »2 019 saw a record transaction volume of SEK 218 billion – the strongest year of all-time« Interesting trends on the Swedish property market in 2019 and 2020: RESIDENTIAL RETAINS ITS CROWN SEK 218 BILLION RETAIL SLUMPS The residential segment remained 2019 transaction volume Though retail is far from a full- the most popular segment for blown crisis, interest in the the third year running in 2019, ac- 166,000 SQM segment has weakened. Retail counting for a 32 per cent share of accounted for just 6 per cent of the transaction volume. The strength Office stock expected to total transaction volume in 2019 – of residential was primarily driven be added to the Stockholm the lowest level since 2003. by Vonovia’s purchase of 61.19 per Nevertheless, prime retail rents cent of the shares in residential market in 2020 have continued to rise, and it is giant Hembla for SEK 32.7 billion, primarily the poor retail – in worse the largest transaction of the year. THE RETAIL SEGMENT locations, with limited catchment Amasten’s purchase of Urbano for areas and with lower adaptability SEK 3 billion, as well as a number of dropped to just 6 per cent of to other uses – that is struggling. portfolio purchases also contrib- transaction volume in 2019 Strong shopping centres and out- uted to the strength of residential. of-town retail remain attractive, Nevertheless, the office segment 33 billion, taking 15 per cent of and should properties of this kind was also strong in 2019, retaining trans­action volume. It is likely that be put up for sale, they are likely its second place at 24 per cent of logistics will continue to rise in to attract considerable interest. transaction volume, the strongest popularity over time. Furthermore, the strength of share taken by offices since 2016. logistics is in many ways driven by The strength of offices was not F OREIGN INVESTMENT AT the strong growth of e-commerce, driven by any individual transac- A POST-CRISIS PEAK meaning the retail segment is likely tion, but rather a number of major to remain integral to society, and purchases, with 17 office purchases Accounting for 30 per cent of thus also real estate, in the future. over SEK 1 billion in 2019. transaction volume in 2019, foreign investment reached the highest OFFICE CONSTRUCTION IS AT RECORD PUBLIC PROPERTIES JUMP levels seen since 2007. Foreign LEVELS – WITH MORE TO COME INTO THIRD PLACE investors of various origins remain highly interested in the Swedish 2019 saw approximately 154,000 The public properties segment property market, with multiple sq m being added to the Stockholm experienced its strongest year of purchases for over SEK 1 billion office stock, which is the largest all time in 2019, accounting for over being made by American, British, amount of new stock since 2003. In 18 per cent of transaction vol- German and Korean purchasers, 2020, even more stock is expected ume. The segment’s strength was while Nordic investors also re- to be added, at 166,000 sqm, and primarily driven by SBB’s purchase mained active. the years that follow are expected of Hemfosa (with SEK 39.8 billion to be as strong or even stronger. In in assets, of which SEK 27.4 are in Gothenburg, too, the office sector Sweden). However, there were 64 is booming, and large amounts of transactions over SEK 40 million new stock are expected to be com- involving public properties in 2019, pleted in the coming years, coincid- indicating the segment’s wide ing with the city’s quadricentennial popularity. Logistics, meanwhile, jubilee. Despite this, net take-up dropped into fourth place, but remains strong across Sweden, still produced one of its strong- and office vacancy rates are low. est volumes of all time at SEK 19

●  THE NORWEGIAN PROPERTY MARKET    NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE NORWEGIAN PROPERTY MARKET ANOTHER STRONG TRANSACTION YEAR IN NORWAY Photo: Shutterstock The Norwegian economy continues 2019 was yet another good year for In addition to developments in terms to grow at a steady pace, with a GDP Norwegian commercial property. In of yields and rents, Newsec is seeing growth rate of around 2 per cent in total, commercial real estate was sold a substantial trend shift across all 2019. Unemployment and employ- for NOK 100 billion, spread across segments. History can no longer be ment figures are strong, core inflation 286 transactions. The rental market used to predict the future. One must is keeping pace, and following interest has and will continue to benefit from think both innovatively and different- rate hikes in March, June and Septem- a strong economy in 2020. Newsec ly, because user needs are changing ber 2019, the prospect of further inter- believes that office vacancies will con- across the office, retail, logistics and est rate increases is limited. Though tinue to fall in Oslo and remain stable hotel markets. The changes that occur signs of volatility on the oil market in the other major cities. Rental levels over the next 10 years will probably be could impact Norwegian growth, all in will continue to rise, especially in Oslo greater than those seen over the past all, the Norwegian economy is expect- and centrally in Trondheim. However, 100 years. ed to grow at a stronger rate than the recently, rental growth projections other Nordic countries in the coming have fallen somewhat, and Newsec Contact: years. Newsec also believes that expects a lower growth rate over Øyvind Johan Dahl, the turmoil that has characterized time, in line with the weaker economic [email protected] the stock market in recent times will outlook for 2021 and 2022. Never- persist and the long stable cash flows theless, strong fundamentals and a offered by the real estate market will strong demand for real estate lead tempt more investors. There is a lot of Newsec to believe that the transaction capital, there is a lot of equity, and the volume will be in line with 2019, with banks are willing to lend, which bodes an expected volume of NOK 100 billion well for the real estate market. in 2020. 20

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE NORWEGIAN PROPERTY MARKET  ● »There is a lot of capital, there is a lot of equity, and the banks are willing to lend, which bodes well for the real estate market« Interesting trends on the Norwegian property market in 2019 and 2020: SYNDICATES ACCOUNTED FOR 31 PER NOK 100 BILLION well-informed investors will find CENT OF TRANSACTION VOLUME IN 2019 opportunities in overlooked areas. 2019 transaction volume Considering that the new Alterna- MIXED DEMAND ACROSS THE COUNTRY tive Investment Fund Act was not 31% adopted until Q3 2019, after which In Oslo and Bergen, newer buildings considerable time had to be spent SYNDICATES in proximity to major roads and on adapting to new regulations, syn- railways are in high demand. In Oslo, dicates accounting for 31 per cent accounted for 31 per cent of we see this demand pushing prices transaction volume in 2019 up west. In Stavanger, construction of transaction volume constitutes3,75% is strengthening as oil prices surge, but improved absorption of existing a very strong result. Syndicates land means that particularly strong purchased properties for three impacts have not been seen yet. times as much as they sold for, with However, rental levels in central primarily offices and logistics being Stavanger are on the rise. Prime traded. Furthermore, it is inter- yields remain at 3.75 per cent for esting to note that life insurance the most attractive office proper- companies have shifted firmly over ties in Oslo, which means that inves- to the buy-side once again. In 2019, tors are looking for higher returns they bought offices and logistics in secondary cities such as Bergen, while selling off retail. Trondheim, Stavanger and Tromsø. FOREIGNERS ARE NET SELLERS OFFICE PRIME YIELDS THE SEARCH FOR RETURNS CONTINUES remain at 3.75% Unlike syndicates and life insur- Expectations of increased rental ance companies, foreigners in NOMINAL VALUES FOR OFFICES IN levels also mean that more prop- general were net sellers in 2019. OSLO CBD HAVE DOUBLED SINCE 2013 erties are shifting hands in search Foreign investment peaked in 2014 of increased returns when renego- and pushed yields downwards in The value increase in commercial tiating contracts. Newsec has also central areas for the first few years. real estate has been formidable noted a continued willingness to How­ever, 2018 was the first year in over the last 6–7 years, with an buy housing, although house prices which foreigners were net sellers, acceleration in both yield compres- generally appear to be stabilizing. which has intensified in 2019. sion and rental growth. Looking at Areas outside of Oslo with strong Norway has simply become too developments in rents over the last population growth are seeing expensive when considering the few years in Oslo, the CBD has per- particularly high demand, as these hedging costs foreign investors formed the strongest, with nominal are now more stable than the Oslo must pay. values for offices doubling since market. 2013. Many other central areas have also seen strong growth. However, 21

●  THE DANISH PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE DANISH PROPERTY MARKET THE TRANSACTION MARKET REMAINS HEALTHY 2019 was a reasonably strong year for Photo: Shutterstock the Danish economy, with a growth rate of around 2.0 per cent. In Septem- expected to be high. The challenge, tion volume of around DKK 65 billion ber, the key deposit rate was lowered however, is that sellers have limited is expected in 2020. by ten basis points to -0.75 per cent, alternative investment opportunities, following a move by the European which inflates seller expectations and Contact: Central Bank to lower rates. Despite causes yield compression on the mar- Niels Juul Belling this, Danish fundamentals remain ket. Nevertheless, a strong transac- [email protected] strong, although the currency peg to the euro has become increasingly difficult to maintain. 2019 was also a year in which a lot of political debate related to the residential property market occurred. The debate was mainly related to the rental level in Copenhagen and the different factors impacting this, such as the renovation option in paragraph 5.2 of the Rental Regulation Act. This has impacted the real estate market, causing a drop in the transaction volume of the older stock equal to around 70 per cent. The Danish real estate market in general came off to a slow start in 2019, which turned into a sprint with many large transactions in the fourth quarter. Interest rates did not rise as was initially forecast, and the low interest climate is now instead expected to persist over the coming years. This, together with plenty of liquidity in the market, catalyzed the transaction volume in the second half of 2019. The last quarter saw a strong volume of around DKK 21 billion, with the total volume exceeding DKK 55 billon. Despite DKK 55 billion being a decrease compared to 2018’s level of DKK 74 billion, the level is still high and the hesitation at the beginning of the year can be seen as a sign of a healthy market, where investors critically question the risk-inducing elements. In a market characterized by a high degree of capital allocation towards real estate investment, all else being equal, the volume of transactions is 22

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE DANISH PROPERTY MARKET  ● »S ellers have limited alternative investment opportunities, which inflates seller expectations and causes yield compression on the market« Interesting trends on the Danish property market in 2019 and 2020: SWEDISH INVESTORS ARE PARTICULARLY OFFICES ARE HIGHLY DEMANDED INTERESTED IN DENMARK BY INVESTORS Foreign investors accounted for The office market accounted for approximately 50 per cent of the transaction volume in 2019. DKK 55 BILLION approximately 29 per cent of Swedish investors accounted for almost half of this, equating to 2019 transaction volume the transaction volume in 2019, around 25 per cent of total volume. corresponding to DKK 16 billion. In The foreign investors who allo- 25% cated most money toward Danish 2018 the office market accounted properties are KLP, Niam, CapMan, SWEDISH INVESTORS Folksam and Klövern. 92 per cent of accounted for around for a market share corresponding the transactions involving foreign 25 per cent of transaction to 24 per cent. Office properties investors occurred in the Greater Copenhagen area. volume have become more demanded by RETAIL PROPERTIES FACE CHALLENGES 55 %ionfvfiecsetovorslu. 7m8episerincethnet of the traded Copenhagen The retail market is facing signifi- cant challenges. This can be seen in area, and 13 per cent in Greater Co- an increasing vacancy rate, going from 5.38 per cent in 2018 to 6.31 penhagen, which clearly underlines per cent in 2019 on the national level. The transaction volume that the office transaction market is dropped from DKK 8.6 billion to largely concentrated to the capital approximately DKK 5.0 billion, city region. The office buildings which is a decrease of 42 per cent. In 2018, retail properties accounted being traded often have long leases for 11 per cent of the transaction vol- ume, which dropped to 9 per cent and are in prime locations. Yields in 2019. The decreasing demand as low as 3.5 per cent have been from investors can be explained by low yield levels, especially in light observed. of the structural development of the sector, where e-commerce is THE OFFICE MARKET LONG LEASES ARE BECOMING increasingly winning market share. accounted for around MORE IMPORTANT This has increased the uncertainty 29 per cent of transaction in relation to the market rent and There is growing interest in office volume properties with long leases and a strong tenant. This indicates that in- vacancy risk. This is expected to vestors are increasingly focusing on lead to higher yield requirements, the lease contract that is acquired, which can already be observed on rather than necessarily focusing on the market. the physical asset. The same can be seen in the industrial and logistics market where we increasingly see sale & leaseback transactions with triple-net leases, where the risk to the investor during the contract period is limited. 23

●  THE FINNISH PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE FINNISH PROPERTY MARKET NO RECORDS BROKEN – BUT THE TRANSACTION MARKET REMAINS SOLID 2019 saw the Finnish economy grow concerning the handling of a postal classes in their portfolios, which is by 1.6 per cent, which is a growth rate strike. The new cabinet has come off pushing certain kind of investors to that is a little weaker than in previous to a strong start and political stability buy rather than sell. The disparity be- years, but still relatively solid. The is expected until the next election in tween supply and demand is pushing forecast for the Finnish economy 2023. the transaction volume down from remains relatively strong, though record highs, towards the long-term growth rates will drop to the 1 per cent The Finnish real estate market saw average. Newsec does not expect the level in the coming years. Finland a volume of EUR 6.3 billion in 2019, billion-euro platform transactions that attracted the interest of the global which is weaker than the EUR 9.2 boosted volumes in previous years media in December as the former billion volume seen in 2018. Due to the to occur on the same scale going prime minister, Antti Rinne, resigned, higher yields and a more stable opera- forward, meaning a volume of around paving the way for Sanna Marin, who tional environment compared to other EUR 6 billion can be expected in 2020. at 34-years old is now the youngest investment products, the property serving prime minister in the world. market remains an appealing invest- Contact: The resignation came as a result of a ment sector. However, supply is not Olli-Pekka Mustonen political crisis in the coalition govern- keeping up with demand. Low interest [email protected] ment, with the Centre Party tempo- rates are encouraging investors to rarily withdrawing its support for the further increase the share of property government due to controversies investments in relation to other asset Photo: Shutterstock 24

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE FINNISH PROPERTY MARKET  ● »The disparity between supply and demand is pushing the transaction volume down from record highs, towards the long-term average« Interesting trends on the Finnish property market in 2019 and 2020: RECORD HIGH RENTS FOR OFFICES EUR 6.3 BILLION DEMAND FOR LOGISTICS PROPERTIES Demand for office premises is 2019 transaction volume There is strong demand for small strong in Helsinki city centre and and medium-sized premises in the rental levels for good premises, THE LOGISTICS PRIME YIELD logistics occupier market. However, which are already at a record high, investors lack the courage to build are expected to increase even has dropped to close to 5 per cent multi-tenant properties, and there further. Occupancy in good offices is little speculative construction. At in the city centre is relatively high, GDP GROWTH the same time, third-party logistics and supply is scant among mod- operators in particular cannot ern office premises. The rate of 1.6 per cent in 2019 commit to long leases because of production of new offices in other their clients, causing lease periods significant office submarkets, such intensified further in the Helsinki to shorten considerably. Major as Kalasatama and Pasila, is not Metropolitan Area when the Mall of logistics players can, however, also sufficient to have an impact on the Tripla opened in Pasila in October sign longer leases because they city centre's position and rent level. 2019. The growing competition have already established their Anyone wanting an office in the and the omni-channel retail have position in the market. The logistics prime location of the capital must increased pressures to lower rents prime yield has dropped in Finland, be willing to pay for it. in the Helsinki Metropolitan Area. almost reaching the level of the Investors are very selective when rest of the Nordic countries, which A CHANGING ROLE FOR OFFICES it comes to shopping centres, and is close to 5 per cent. shopping centre management ne- The criteria used by tenants when cessitates a very active approach. ALTERNATIVE AREAS ATTRACT TENANTS selecting office premises have There are considerable varia- changed. Offices are more often tions within the sector, however; Areas outside the Helsinki city seen as a recruitment tool, with grocery retail properties remain centre with improved or developing companies competing for the best an attractive investment, whereas public transport infrastructure and most talented employees. investment demand is weaker for are attracting investors because Intelligent work environments, or shopping centres that are more yields are higher there compared ‘smart offices’, and healthy indoor challenging in terms of location or to city centre properties. The environment certificates are much the services on offer. office submarkets in Keilaniemi talked about but are not yet visible and Leppävaara, for example, were in the market. Coworking solutions very active last year. In addition are still seeking their place in Fin- to the Helsinki Metropolitan Area, land. Coworking properties are cur- property investors are interested rently located near city centres, but in university cities. This applies users are also interested in spaces to both domestic investors and a located in residential areas outside growing number of international the centre. Some shopping centres investors. The meagre supply of outside city centres already offer good properties is a hindrance in or will offer coworking spaces. these areas. Transaction volumes in university cities are expected to MAJOR REGIONAL DIFFERENCES IN THE decrease due to the small number RETAIL PROPERTY SECTOR of large-scale portfolio transac- tions and the scarcity of high-quali- The competition between retail ty individual properties. properties for attracting tenants 25

●  THE ESTONIAN PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE ESTONIAN PROPERTY MARKET SOLID ECONOMIC GROWTH WILL SUPPORT INVESTMENT The Estonian economy continues to sumption is forecast to grow further, economic growth. Newsec believes grow and the country remains one influenced by rising employment and Tallinn will manage to maintain its of the most rapidly developing in the wage growth of nearly 8 per cent. strong position, though its neighbour- European Union. In 2019, Estonia’s The information and communication ing country competitors Latvia and GDP grew the most among the Baltic technologies sector has long been Lithuania are inching closer owing to countries, at around 4.1 per cent. Con- the biggest driver of the country’s widespread technology innovations. The real estate investment market in Estonia underwent a slowdown in 2019, with the total amount invest- ed failing to reach EUR 100 million, though demand for attractive assets persisted on the market. Prime office yields compressed to 6.0 per cent, retail and industrial yields to 6.5 per cent and 7.5 per cent respectively. The office segment in Tallinn is still the largest and most balanced among the Baltic capitals. As supply in the market is growing more slowly and the level of vacancies remains stable, both devel- opers and tenants are preparing for a new intense round of expansion. Once the A class office buildings that are underway are completed, local devel- opers will give more attention to the development of B class office projects, expanding the office complexes and multifunctional properties that are already successfully operating and in demand in the centre of the city. Contact: Kristina Živatkauskaite˙ [email protected] Photo: Shutterstock 26

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE ESTONIAN PROPERTY MARKET  ● »This year, Estonia is on track to significantly outdo its performance in the last several years as total investment transactions may triple compared to 2019« Interesting trends on the Estonian investment property market in 2019 and 2020: A LARGE SUPPLY OF INVESTMENT EUR 90 MILLION in the last several years as total REAL ESTATE investment transactions may triple 2019 transaction volume compared to 2019. The fact that For the size of its investment real most Baltic funds historically began estate market, Estonia really has a PRIME OFFICE YIELDS operations in Estonia means that, lot of properties that could be of in- as the first funds’ operations near terest to investors. There are many compressed to 6.0 per cent an end, their managers will become motivated sellers with assets to sell active sellers. Newsec also notes – portfolios of properties, individual GDP GROWTH more motivated candidates, espe- assets, and especially retail prop- cially the opportunistic foreign fund erties. With the supply of modern of 4.1 per cent in 2019 managers who entered the region office space constantly growing, the 3–5 years ago, who could seize the Estonian market remains attractive Rail Baltica station terminal beside opportunity to sell their assets. both to local investment funds and the shopping centre, successful to international investors seeking operation of T1 still seems realistic. GROWTH IN TOURISM BODES WELL new investment opportunities. The main question is whether the FOR PROPERTY parties involved in the project will AML IS INFLUENCING have enough “financial patience” to In 2019, 3.8 million tourists stayed REAL ESTATE OWNERS wait and see whether Rail Baltica’s in Estonian accommodation es- implementation bears enough real tablishments, 2.3 million of which New anti-money laundering regu- fruit. were foreign tourists. Both the latory changes are impacting the number of foreign tourists as well real estate market too. Investors INVESTMENT VOLUME IS FORECAST as their nights spent increased by with substantial capital of doubtful TO BE THREE TIMES BIGGER IN 2020 5% compared to 2018. The growth origin, from Eastern bloc countries in foreign tourism has been fueled for example, are being forced to sell This year, Estonia is on track to by the expansion of local airlines properties they hold for a variety of significantly outdo its performance Air Baltic and Nordica, as well as reasons. increased competition from foreign airlines. Tallinn remains the most TENSION REIGNS ON THE popular destination, but increased RETAIL MARKET diversification is occurring, with e.g. Swedish airline BRA establishing Tallinn’s new 55,000 sqm T1 shop- direct flights from Stockholm to ping centre survived its first full the island of Saaremaa. The hotel year of operations. The project’s de- market continues to grow as a result velopers offered leisure innovations of the rising international tourist ar- for the city’s residents and guests, rivals, increasing both domestic and but also ran into considerable cus- foreign investor interest in Estonia. tomer-flow challenges. Assuming future completion of the planned 27

●  THE LITHUANIAN PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE LITHUANIAN PROPERTY MARKET ALL EXPECTATIONS EXCEEDED AS RECORDS ARE SET ON THE PROPERTY MARKET Photo: Shutterstock Economic growth in Lithuania in 2019 country’s investment volume reached market in 2020 as well. Over the next surpassed even the most optimistic an all-time high of over EUR 435 two years tenants will be offered some forecasts. GDP last year grew 3.9 per million, and accounted for nearly 60 300,000 sqm of new office space. cent, marking a third straight year of per cent of the total Baltic market. In Pre-lease agreements will be the similar strength. The country is well 2020, investors, aiming to direct in- driver of projects now in development, placed to show further vigour. For the vestments to properties that generate with all office developers set to active- first time in almost three decades, cash flows, will quite aggressively seek ly compete for several large tenants. Lithuania’s population increased, not to acquire properties that offer a good Once those leasing transactions are only in the capital of Vilnius but also in ratio of quality to value. Newsec no completed in the market, the annual the other big cities. The main factors longer expects marked compression average will reach the level of the last behind the change are Lithuanian citi- of yields, which will stay just below 6 5 years, which was 70,000 – 80,000 zens returning from abroad, as well as per cent in the prime office segment. sqm. Lack of space will be greatest in immigrants from Ukraine and Belarus. There remains a big chance, though, class A properties, especially in the Unemployment in Lithuania increased that the 5 per cent yield level will be central business district, with vacan- slightly in 2019, but the growing labour tested in the central business district. cies of less than 3 per cent. force offers a favourable environment Yield compression has reached 6.5 for the foreign service providers and per cent in the retail segment and 7.5 Contact: manufacturers that are rapidly setting per cent in the industrial segment. Kristina Živatkauskaite˙ up and expanding in the country. After record activity last year, when [email protected] new lease agreements were signed for 2019 was a record-breaking year for approximately 115,000 sqm, demand Lithuania’s transaction market. The will remain strong in the Vilnius office 28

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE LITHUANIAN PROPERTY MARKET  ● »2 019 was a record-breaking year for Lithuania’s transaction market. The country’s investment volume reached an all-time high of over EUR 435 million, and accounted for nearly 60 per cent of the total Baltic market« Interesting trends on the Lithuanian investment property market in 2019 and 2020: NEW INVESTMENT PROPERTIES EUR 435 MILLION Akropolis could fundamentally alter MEET THE HIGHEST STANDARDS the Vilnius Akropolis concept. 2019 transaction volume Vilnius very clearly stands out as LOCAL INVESTORS CANNOT COMPETE the region’s city with the most insti- GDP GROWTH WITH INTERNATIONAL INVESTORS tutional investor capital and where new generation office buildings are of 3.9 per cent in 2019 Acquisitions of small commercial meeting the requirements placed properties are getting harder on them. International investors 300,000 SQM and harder to carry out due to currently see more opportunities sellers’ high price expectations in Vilnius than in Tallinn or Riga. of new office space coming and stricter financing conditions. The Vilnius office market has well- to the Vilnius office market Recent policy changes enacted by established leasing practices and a over the coming two years the central bank and commercial developed central business district, banks have continued to weaken and the office projects that are THE RETAIL MARKET IN THE CAPITAL small investors’ ability to acquire being carried out meet the highest HAS MATURED FOR NEW AND commercial properties. This mainly Western European standards. PARTICULARLY LARGE PROJECTS impacts local market players, who are finding it nearly impossible to TWO RECORD SIZE INVESTMENT TRANS- Last year in Vilnius, construction acquire properties at a yield of less ACTIONS IN THE OFFICE SEGMENT began on the Vilnius Outlet shop- than 6 per cent. The Baltic region’s ping centre (~60,000 sqm in total) investors are being forced to bide In late 2019, German property man- and plans for a second Akropolis their time or turn their investments ager Deka Immobilien purchased Vingis shopping and leisure centre to relatively niche properties such the Quadrum business center in (~120,000 sqm in total) started as logistics projects, hotels and Vilnius, with 44,000 sqm of moving in earnest. These projects development projects. leasable space, from the Norwe- will essentially redraw Vilnius’s gian-owned Schage group for EUR shopping-centre map and spur the NORDIC APPETITE FOR VILNIUS 156.1 million. This was the biggest development of adjacent territo- business-centre acquisition in the ries. Newsec believes that the sec- Demand for Vilnius office space will history of the Baltic countries and ond Akropolis and the development continue to grow among companies again drew international investors’ of a national stadium and multifunc- operating in the Nordics and seek- attention to the Baltic capitals. In tional sport complex beside the first ing to move some of their functions early 2019, Eastnine acquired the and activities to Lithuania. Newsec three buildings of the S7 office com- has calculated that service centres plex, with 42,500 sqm of leasable currently occupy 150,000 sqm, or space, from Galio Group for EUR 20 per cent of the modern office 128.3 million. These transactions space in Vilnius. With the number mark a key stage in the develop- of fintech companies and employ- ment of the Baltic commercial real ees in Vilnius rapidly increasing, estate market, particularly in light their demand for office space will of their size. They show increased also grow. Those companies are investor trust and market liquidity, relocating from smaller offices and a result of international and local co-working spaces to expanded investors’ considerable need for offices in the city centre and the old especially high-quality projects. town. 29

●  THE LATVIAN PROPERTY MARKET   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE LATVIAN PROPERTY MARKET LATVIA IS ENTERING A NEW PHASE OF MARKET EXPANSION Latvia’s economy displayed slower resilience, ability to adapt goods and has stagnated. Newsec is finally growth in 2019, as was expected. services to new markets and tenacity noting a supply of new office space, Annual GDP grew about 2.5 per cent, working in difficult conditions that though new premises are dominated with forecasts for this year offering they have acquired provide an advan- by class B projects in class B locations. hope of faster expansion. The biggest tage relative to competitors. Future supply of quality class A space driver of economic growth is domestic that could liven up the leasing market consumption, which is what ensures The real estate investment market in is still awaited. There is no clearly the greatest stability. Employment Latvia performed similarly to 2018 delineated central business district is rising and the unemployment level in 2019, with a total invested amount in the Riga office market, so planned should fall below 6 per cent. The situa- of just over EUR 230 million. Prime new projects (like those by Lords LB tion on the labour market is positively office yields compressed to 6.2 per and Galio Group) are sure to position influencing wage growth. Latvia has cent, while retail and industrial yields themselves as alternative CBDs with been among the first in the Baltics fell to 6.75 per cent and 7.75 per cent their attractive business locations. to start feeling the negative impact respectively. The Riga real estate of falling external demand and thus market is seeing changes it has not Contact: also reduced foreign trade volumes. seen in at least the last decade, a time Kristina Živatkauskaite˙ However, many companies view such when new office projects have been [email protected] challenges as opportunities. The rare and the new office space market Photo: Shutterstock 30

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE LATVIAN PROPERTY MARKET  ● »In late 2019, the Vienna Insurance Group’s VIG Fund acquired three office buildings in Riga from the Baltic RE Group. This was the first purchase in the Riga office sector by a Western European investor and one of the biggest invest- ments in Latvian commercial property in several years« Interesting trends on the Latvian investment property market in 2019 and 2020: MAJOR INVESTOR SHIFT ON THE EUR 230 MILLION EXPERIENCED BALTIC PROPERTY LATVIAN INVESTMENT MARKET DEVELOPERS ARE PREPARING FOR 2019 transaction volume NEW PROJECTS IN LATVIA Since US-based Blackstone, the world’s biggest investment fund GDP GROWTH Over the last 2 years, at least 3 or 4 manager, entered Latvia in 2015, major office development projects the country had not seen any of 2.5 per cent have been initiated by developers significant new investors. In late that have experience on the market 2019, the Vienna Insurance Group’s OFFICE PROJECTS and are serious about undertaking VIG Fund acquired three office new projects. Projects consisting buildings in Riga from the Baltic consisting of more than of more than 235,000 sqm are RE Group. That market entry by a 235,000 sqm are in the already in the planning stage. Western European investor of such These steps suggest the market calibre is the first sign of trust in planning stage can expect new foreign investors, the country and the first invest- who could be attracted as early as ment of its size on the Latvian shopping centre (formerly Atrium the construction stage. office market in several years. Azur) has been heavily overhauled, This can be compared to German Domina Shopping and Spice are RIGA HAS NOTABLE POTENTIAL TO investment fund Deka Immobilien's still being renovated and enlarged, BECOME THE BALTIC REGION’S CAPITAL return to the Baltics, with their and the older part of Origo is being acquisition of a prime office project closed entirely for reconstruction. Newsec believes it is essential in the central business district of The opening of new shopping for the city of Riga, at a strategic Vilnius. centres with formats not yet seen level, to clarify the location of its on the market is awaited: the Via central business district, focusing RIGA AKROPOLE CONTINUES Jurmala Outlet Village and the business and municipal efforts and TO MAKE WAVES Saga family-focused shopping and investments in order to take ad- entertainment centre which is in vantage of the favourable market On the retail market, the main development beside the Riga IKEA. conditions, the scale of which Riga player on whom everyone’s eyes Riga’s retail market is set to ascend has not seen in the past 10 years. are fixed is the new Riga Akropole. to a new level and form a supply of Developers in Riga should look to The shopping and leisure centre quality investment projects. seize this opportunity and make will mark its first anniversary in use of the fact that the foreign April 2020. The long-planned developer and investor community project has clearly made serious has turned its attention to all of the waves in Riga’s retail market, as Baltic capitals. preparations for the new player’s arrival began before its launch and competitors are still working on adapting to the new situation. Besides the often mentioned expansions and upgrades at the longstanding Alfa, Origo and Riga Plaza shopping centres, the Ozols 31

●  EUROPEAN PROPERTY MARKETS   NEWSEC PROPERTY OUTLOOK  •  AUTUMN 2019 EUROPEAN PROPERTY MARKETS ELONGATED EUROPEAN REAL ESTATE CYCLE Sukhdeep Dhillon, Senior Economist & Associate Director, BNP Paribas Real Estate Since 2012, Newsec has been a BNP Paribas Real Estate Alliance Partner, which gives Newsec access to an international network of potential clients and relevant connections. The alliance allows for both Newsec and BNP Paribas to expand coverage, and help to advise you and drive your real estate strategy internationally. The European economy remained on property yields will remain favourable. looking further afield into secondary the brink of a recession throughout European government bond yields assets, or outside the typical CBD are- last year. Towards the end of the year continue to trend lower. This has been as. Regions such as the ‘Non-Capital’ we saw tentative signs of stabilisation and will be supportive for real estate Cities therefore came onto investor with the latest quarter GDP growth pricing. The European real estate radars. In the case of the UK, 39 per coming in better than expected. Final market is also at a mature stage of the cent of total investment volumes year figures are likely to show the cycle. Our forecasts therefore indicate were allocated to property outside economy slowing more than expected this stage of the cycle will be elongat- of London in 2019. A similar pattern overall in 2019, to a real GDP growth ed. We have revised our view positively was seen in France where investment of only +1.1 per cent, compared to +1.9 with yields across most European outside the capital reached approx- per cent in 2018. To everyone’s sur- markets expected to decrease further imately 30 per cent, up from 25 per prise Germany avoided a recession, this year for both logistics and offices. cent the year before. Areas such as although this does not mean the coun- The retail sector depicts a much more Marseille, Bordeaux and Lille featured try is completely out of the woods. mixed picture. highly. Similarly, investors turned to Looking ahead, growth across Europe cities outside of Madrid, with Seville, is not expected to gain much traction It is important to note that invest- Valencia and Bilbao experiencing through 2020. Employment growth is ment volumes in certain markets are great investor interest. expected to remain at a similar pace limited due to the lack of good quality while unemployment rates are expect- prime assets, as well as other country Looking ahead, this year the focus and ed to remain low. Our central scenario specific factors. This was the case for deployment of investment is likely to is that the European growth will be the UK, where a lack of good quality be on core locations over secondary. slow but positive, with a sub-par fore- prime assets available to the market Cities that remain popular for inves- cast of 0.8 per cent growth in 2020. has held back investment, coupled tors will be the cities that are most We also expect European nations will with caution from investors (overseas supportive of occupiers, specifically consider introducing growth-enhanc- especially) about the direction of the those able to attract the talent needed ing fiscal measures this year to move UK economy with Brexit. No doubt the such as London, Paris and Berlin. Hav- out of this low growth trap. uncertainty and the stage of the cycle ing said that, lack of supply remains also means sellers are reluctant to an issue, whereby investors may in The sub-par forecast for economic bring their assets to the market and certain cases wait for opportunities growth and inflation will place down- are waiting for the right moment. in those core locations or consider ward pressure on the government similar products in regional cities. bond yield outlook. The total amount Overall average total returns for the of negative yielding debt peaked in the markets we cover will reach 9.2 per Alternative sector no longer an summer of 2019 at $17 trillion. A num- cent this year, largely driven by both alternative: it is mainstream ber of factors will continue to push income (+4.3 per cent) and capital Demand for alternative assets is likely government bond yields lower. Unless growth (+4.9 per cent). to increase. Typically, the composition something drastically changes, under- of a property portfolio has consisted lying structural factors suggest bond Core versus secondary markets of offices, retail and industrial assets, yields will remain lower for longer. Last year, across a number of Euro- but this is changing. pean countries, investors became Real estate as an asset is typically frustrated by the lack of prime assets The alternative sector continues to the main beneficiary of low bond available in core locations. As a result, enjoy remarkable growth year on year. yields. The spread between bond and investors widened their risk profile by The alternatives sector is a composite 32

NEWSEC PROPERTY OUTLOOK  •  AUTUMN 2019 EUROPEAN PROPERTY MARKETS ● »Last year, across a number of European countries, investors became frustrated by the lack of prime assets available in core locations. As a result, investors widened their risk profile by looking further afield into secondary assets, or outside the typical CBD areas« Photo: Shutterstock of tenant activities including student pushing this sector closer to becoming Fundamentals across Europe such as housing, hotels, build-to-rent, co- an established asset class alongside an ageing population and the increas- living, senior housing and health- offices, retail and logistics. ing demand for education mean there care. is huge potential for growth in this The alternative sector has benef­ itted sector. What we are likely to see going Last year across Europe the sector from investors who were not interest- forward is investors now venturing grew by an impressive 37 per cent ed in venturing outside of their usual out to other core locations, pursuing – now accounting for 25 per cent locations, but instead diversified their further investments in the alternative, of total investment, up from 16 per holdings in their core locations. Of or the ‘not so alternative’ sector. cent the year before. Looking ahead, course the attractive yields only solid- demand from investors into the ified their decisions to take the plunge alternative sector is likely to continue, and commit to the sector. 33

●  MACROECONOMIC DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 MACROECONOMIC DATA Sweden Source: Newsec Interest Rates Source: Swedbank, Swedish Central Bank Economic Indicators Per cent 3 Per cent 4 3 2 2 1 1 0 0 -1 -1 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate STIBOR 3M STFIX 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average Norway Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 4 Per cent 4 3 3 2 2 1 1 0 -1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate NIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average Finland Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 3 Per cent 4 3 2 2 1 1 0 0 -1 -2 -1 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate EURIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average 34

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 MACROECONOMIC DATA  ● BUY THE COMPLETE FORECAST [email protected] Denmark Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 3 Per cent 3 2 2 1 1 0 0 -1 -1 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate CIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average Estonia Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 3 Per cent 6 4 2 2 1 0 0 -2 -1 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate EURIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average Latvia Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 3 Per cent 6 4 2 2 1 0 0 -2 -4 -1 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E GDP, Annual Percentage Change Employment, Annual Percentage Change Central Bank Interest Rate EURIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average 35

●  MACROECONOMIC DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 MACROECONOMIC DATA Lithuania Source: BNP Interest Rates Source: BNP Economic Indicators Per cent 3 Per cent 6 4 2 2 1 0 0 -2 -1 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 Central Bank Interest Rate GDP, Annual Percentage Change Employment, Annual Percentage Change EURIBOR 3M SWAP 5Y Private Consumption, Annual Percentage Change Inflation, Yearly Average GDP Growth Source: Swedbank GDP Growth 2020E–2021E Per cent 4 3 2 1 2020E 2021E 0 Sweden Norway Finland Denmark Estonia Latvia Lithuania 2020E 2021E 36

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY DATA  ● PROPERTY DATA BUY THE COMPLETE FORECAST [email protected] Office rents Source: Newsec Prime Office Rents (CBD) | Baltic Region Source: Newsec EUR/m2 EUR/m2 Prime Office Rents (CBD) | Nordic Region 1,000 Per cent 210 3 Per cent 10 8 800 2 140 6 600 4 400 1 70 00 2 200 0 Oslo 0 -1 Tallinn Riga Vilnius -70 Stockholm Gothenburg Malmö Helsinki Copenhagen Average Annual Rental Growth 2015–2019 (left axis) Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis) Rent Level 2020E (right axis) Office yields Source: Newsec Prime Office Yields | Baltic Region Source: Newsec Prime Office Yields | Nordic Region Per cent 10 Per cent 5,5 5,0 9 4,5 8 4,0 7 3,5 6 3,0 2017 2018 2019 2020E 5 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 Malmö 2012 2013 Riga Vilnius Copenhagen Tallinn Stockholm Gothenburg Oslo Helsinki Retail rents Source: Newsec Prime Retail Rents | Baltic Region Source: Newsec EUR/m2 Prime Retail Rents | Nordic Region 3000 Per cent EUR/m2 1,5 300 Per cent 6 3 2000 1 200 0 1000 0,5 100 -3 Stockholm Gothenburg Malmö Oslo 0 0 Riga Vilnius 0 Helsinki Copenhagen Tallinn Average Annual Rental Growth 2015–2019 (left axis) Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis) Rent Level 2020E (right axis) 37

●  PROPERTY DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY DATA Retail yields Source: Newsec Prime Retail Yields | Baltic Region Source: Newsec Prime Retail Yields | Nordic Region Per cent 10 Per cent 6 5 9 4 8 3 7 2 2017 2018 2019 2020E 6 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 2012 2013 Riga Vilnius Malmö Tallinn Stockholm Gothenburg Copenhagen Oslo Helsinki Logistics rents Source: Newsec Prime Logistics Rents | Baltic Region Source: Newsec EUR/m2 EUR/m2 Prime Logistics Rents | Nordic Region 150 Per cent 80 4 Per cent 4 3 120 3 60 2 90 2 40 1 60 0 30 1 20 -1 Stockholm Gothenburg Malmö Oslo 0 0 Riga Vilnius 0 Helsinki Copenhagen Tallinn East Average Annual Rental Growth 2015–2019 (left axis) Average Annual Rental Growth 2015–2019 (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Forecast Average Annual Rental Growth 2020E–2022E (left axis) Rent Level 2020E (right axis) Rent Level 2020E (right axis) Logistics yields Source: Newsec Prime Logistics Yields | Baltic Region Source: Newsec Prime Logistics Yields | Nordic Region Per cent 11 Per cent 8 7 10 6 9 5 8 4 2017 2018 2019 2020E 7 2014 2015 2016 2017 2018 2019 2020E 2012 2013 2014 2015 2016 Malmö 2012 2013 Riga Vilnius Copenhagen Tallinn Stockholm Gothenburg Oslo Helsinki - East 38

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY DATA  ● BUY THE COMPLETE FORECAST [email protected] Residential Source: Newsec Prime Residential Yields | Nordic Region Source: Newsec Prime Residential Rents | Nordic Region EUR/m2 Per cent 600 5 Per cent 6 4 4 400 3 2 200 2 1 0 Malmö Helsinki 0 0 2017 2018 2019 2020E Stockholm Gothenburg Copenhagen 2012 2013 2014 2015 2016 Malmö Average Annual Rental Growth 2015–2019 (left axis) Stockholm Gothenburg Copenhagen Forecast Average Annual Rental Growth 2020E–2022E (left axis) Oslo Helsinki Rent Level 2020E (right axis) Public Properties Source: Newsec Prime Public Properties Yields | Nordic Region Source: Newsec Prime Public Properties Rents | NordicRegion EUR/m2 Per cent 300 7 Per cent 6 4 200 6 5 2 100 4 0 Gothenburg Malmö 0 3 Stockholm 2012 2013 2014 2015 2016 2017 2018 2019 2020E Average Annual Rental Growth 2015–2019 (left axis) Stockholm Gothenburg Malmö Forecast Average Annual Rental Growth 2020E–2022E (left axis) Oslo Helsinki Copenhagen Rent Level 2020E (right axis) Annual transaction volumes Source: Newsec Transaction Volumes — Annual | Baltic Region Source: Newsec Transaction Volumes — Annual | Nordic Region MEUR 500 BEUR 25 20 400 15 300 10 200 5 100 0 2014 2015 2016 2017 2018 2019 2020E 0 2014 2015 2016 2017 2018 2019 2020E 2012 2013 Norway Finland Denmark 2012 2013 Latvia Lithuania Sweden Estonia 39

●  PROPERTY DATA   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PROPERTY DATA BUY THE COMPLETE FORECAST [email protected] Transaction Volume Transaction Volumes — Quarterly | Nordic Region Transaction Volumes — Quarterly | Baltic Region BEUR Source: Newsec MEUR Source: Newsec 250 8 6 200 150 4 100 2 50 0 2013 2014 2015 2016 2017 2018 2019 2020E 0 2013 2014 2015 2016 2017 2018 2019 2020E 2012 Sweden Norway Finland Denmark 2012 Latvia Lithuania Estonia Office new construction Office stock Office New Construction (Capital Office Market) Source: Newsec Office Stock Q4 2019 (Capital Office Market) Source: Newsec Per cent of stock Thousand m2 Million m2 200 16 14 12 150 12 10 8 100 8 6 50 4 4 2 0 HMA Copenhagen Tallinn Riga 0 0 Oslo Copenhagen Tallinn Riga Vilnius Stockholm Oslo Vilnius Stockholm HMA 2019 (left axis) 2020E (left axis) 2020E (right axis) 40

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 DEFINITIONS ● DEFINITIONS General Logistics Public Properties • All rents, yields and vacancies are • T he forecast is referring to ware- • A public property is defined as a end-of-year values. houses and logistics premises. property used predominantly for tax-financed operations and specifi- • A ll forecasts are referring to nominal • T he rents are referring to premises cally adapted for community service. values. of 5,000-10,000 sqm with a 10 year In this document, public properties lease agreement. are limited to schools (pre-schools • T he rental levels are the most and primary schools), hospitals, and probable prime rent when signing • T he rent is excluding heating and elderly care homes. a new lease agreement. property tax. • T he market data refers to public • All yield levels are referring to net • T he rent refers to modern, newly property premises of normal to initial yield. built premises with a solid lease con- modern standard with normal space tract and tenant A properties. efficiency. Offices • The forecast is referring to new/re- Residential • T he market rent refers to the rent • T he forecast is referring to attractive excluding supplements. furbished modern and flexible office premises with normal area effective- locations with an area of around 80 Exchange rates ness. sqm. All rents and transaction volumes • The rents are referring to premises • D efinitions generally, as well as of are calculated using the average of at least 500 sqm. new and old housing depend on the exchange rates in 2019. country. • The rent is excluding heating and excluding property tax. Retail • The rents are referring to modern retail premises of 70-250 sqm. • The rent is excluding heating and excluding property tax. • The rents refer to prime areas with definitions by each country. 41

●  THE NEWSEC PROPERTY OUTLOOK TEAM   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 PTHREOPNEERWTSYEOCUTLOOK TEAM Max Barclay Head of Newsec Advisory Ulrika Lindmark Alexandra Lövgren Adam Tyrcha, PhD Head of Valuation & Head of Strategic Analysis Head of Research Strategic Analysis [email protected] [email protected] [email protected] Øyvind Johan Dahl Karen Cecilie Thunes Christian Hagen Head of Research Senior Analyst Analyst [email protected] [email protected] [email protected] 42

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE NEWSEC PROPERTY OUTLOOK TEAM   ● Morten Jensen Niels Juul Belling Daniel Nielsen Head of Newsec Advisory Analyst Analyst Denmark [email protected] [email protected] [email protected] Olli-Pekka Mustonen Kauri Melakari Head of Research Head of Data Science [email protected] [email protected] Mindaugas Kulbokas Kristina Živatkauskaite˙ Head of Research & Analysis, Senior Analyst Baltics [email protected] [email protected] 43

●  THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE Newsec — The Full Service Property The Group expanded internationally spread across the seven Nordic and House in Northern Europe — is by far into Finland in 2001, Norway in 2005, Baltic countries. Newsec has approx. the largest specialised commercial the Baltic countries in 2009 and EUR 60 billion under management property firm in Northern Europe. Denmark in 2016. The Norwegian asset and annually signs lease agreements and property management companies of approx. 1 million square meters, Newsec manages more properties and First Newsec Asset Management and management transactions of some carries out more transactions, more TM Partner were acquired in 2012. In EUR 5 billion and does real estate lettings and more valuations than 2013, Newsec acquired Jones Lang valuations with an underlying property any other firm in Northern Europe. LaSalle’s Swedish property manage- value worth almost EUR 175 billion. Through this great volume, and the ment operation. In 2017, Newsec grew Thanks to large volumes and local knowledge and depth of our various with the acquisitions of Norwegian presence combined with in-depth operations, we acquire extensive and Basale and Danish Datea, further understanding of a range of detailed knowledge of the real estate strengthening the position within businesses, Newsec has a unique market. In turn, we can quickly identify Property Asset Management. In 2018, expertise of the real estate market business opportunities that create Newsec opened a London office to as- in northern Europe. added value. sist international investors interested in the Nordic and Baltic region. Our prime market is Northern Europe, but through our alliance membership Newsec was founded in 1994 and is with BNP Paribas Real Estate, we offer today a partner-owned company our services on the global market. This with some 2,000 co-workers. makes Newsec Northern Europe’s only full service property house, and provides us with a unique ability to forecast the future. A history of growth Newsec is the result of a unique his- tory of growth, characterised by con- stant originality of thinking. The first issue of the comprehensive market analysis, Newsec Property Outlook, was published in 2001. 44

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 NEWSEC’S ANALYSIS PRODUCTS  ● NEWSEC’S MARKET REPORTS REQUEST ANY REPORT IN ENGLISH [email protected] Thanks to Newsec’s comprehensive knowledge we are able to offer a number of analyses and segment market reports which provide you with a valuable summary of the property market. Market Report Market Report Market Report Market Report Residential Construction Rights Future Growth Markets Office Market Report Market Report Market Report Market Report Logistics Projects Retail Public Properties Sedis Report Newsec's Valueguard Market Report Transaction List Nordic Market Access Newsec’s market report portal here: https://www.marknadsrapporter.se/store 45

●  CONTACT AND ADDRESSES   NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 CONTACT AND ADDRESSES Sweden Norway Finland Lithuania [email protected] [email protected] [email protected] [email protected] Stockholm Oslo Helsinki Vilnius Stureplan 3 Filipstad Brygge 1 Mannerheiminaukio 1 A Konstitucijos ave. 21C, P.O. Box 7795 P.B. 1800 Vika P.O. Box 52 Quadrum North, 8th floor SE-103 96 Stockholm, NO-0123 Oslo, FI-00101 Helsinki, LT-08130 Vilnius, Sweden Norway Finland Lithuania Tel: +46 8 454 40 00 Tel: +47 23 00 31 00 Tel: +358 207 420 400 Tel: +370 5 252 6444 Stockholm Trondheim Tampere United Kingdom Humlegårdsgatan 14 Beddingen 10 Aleksanterinkatu 32 B P.O. Box 5365 NO-7042 Trondheim FI-331 00 Tampere, London SE-102 49 Stockholm, Norway Finland The Clubhouse 50 Sweden Tel: +358 207 420 400 Grosvenor Hill Tel: +46 8 55 80 50 00 Denmark W1K 3QT London Newsec Advisory Turku Gothenburg in Denmark Yliopistonkatu 16 C Sankt Eriksgatan 5 [email protected] FI-20100 Turku P.O. Box 11405 Finland SE-404 29 Göteborg, Copenhagen Tel: +358 207 420 400 Sweden Silkegade 8 Tel: +46 31 721 30 00 1113 Copenhagen Estonia Tel: +45 33 14 50 70 Gothenburg [email protected] Kungsportsavenyn 33, 5 tr Aarhus SE-411 36 Göteborg, Skanderborgvej 277, Tallinn Sweden 1. sal, blok 1 Roseni av. 7 Tel: +46 31 733 86 00 8260 Viby J EE-10111 Tallinn, Tel: +45 87 31 50 70 Estonia Öresund Office Tel: +372 664 5090 Davidshallsgatan 16 Newsec Property Asset SE-211 45 Malmö, Management in Denmark Latvia Sweden [email protected] Tel: +46 40 631 13 00 +45 26 01 02 [email protected] Lyngby Riga Lyngby Hovedgade 4 Vilandes av. 1–16 2800 Kgs. Lyngby LV -1010 Riga Latvia Aarhus Tel: +371 6750 84 00 Viby Ringvej 2B, #. 8260 Viby J Næstved Ringstedgade 24, 1.tv 4700 Næstved 46

NEWSEC PROPERTY OUTLOOK  •  SPRING 2020 EXECUTIVE SUMMARY  ● 47

THE FULL SERVICE PROPERTY HOUSE IN NORTHERN EUROPE