Investors in the Nordics are increasingly looking to value-add and conversion opportunities as prime becomes overpriced or oversupplied, panellists agreed at the PropertyEU Nordics Investment Briefing, which was held last week in Stockholm.
‘You have to work harder and smarter than before to get good returns,’ said Ed Williams, senior partner at private equity firm CapMan. ‘We are in the value-add space so we now do more project kind of deals. In Stockholm, for example, we can no longer make money in offices because prices are too high, but we have spotted a massive shortfall in schools so we are converting buildings into schools. In Copenhagen, by contrast, we have moved away from residential and are now looking at offices instead. In Helsinki we have converted an obsolete office building into a hotel. The message is that in this market you have to move fast and be nimble.’
Another type of conversion that offers great opportunities is from industrial buildings into mixed-use including residential, as the urbanisation trend means that previously out-of-the-way areas get gradually absorbed into the city. ‘There is a lot of money to be made finding plots of land that can be converted into higher density, mixed-use developments,’ said Klaus Hansen Vikstrom, deputy CEO and director of business development at Fabege. ‘By making the area attractive you can have the best tenants and charge the highest rents.’
Senior living set for boom
The residential sector continues to be interesting and has many different aspects, said Ingemar Rindstig, executive director of real estate Nordics at EY: ‘If you look at the demographics it is obvious that senior living is destined for a boom in the medium to long term. In general, residential is the sector to invest in and conversions in particular are where you can make good money.’
Lars Flaoyen, head of Nordics property research at Aberdeen Asset Management, agreed that ‘conversions into residential offer many opportunities. For this reason we have just started a conversion fund transforming offices into residential, and also convenience stores catering to local residents’.
According to Flaoyen, the Nordics are oversupplied with shopping centres of ‘mostly average quality’, so the winners will be the biggest destinations that offer the best shopping and entertainment experience at one end of the spectrum and small convenience stores at the other end. ‘Everything in between we see as too risky,’ he said.
The Europe-wide logistics success story has not escaped the Nordics, but investors have to be cautious and know the market, experts said. ‘You really need to understand the supply chain and choose locations close to the cities,’ said Flaoyen. ‘You have to look harder to find the right assets. But as e-commerce requires three times the space of ordinary logistics, you can expect rental growth.’
Property taxes in the works
The picture for real estate investment looks pretty perfect, but there is one cloud on the horizon in Sweden, said Rindstig. At end-March, legislative proposals will be tabled to increase taxes in the property sector. These may not eventuate, but are causing concern among investors, he said: ‘It is already an overtaxed sector, in my opinion, so these changes should not occur. I am as pessimistic on this as I am optimistic about the outlook for real estate in the Nordics in general. Unfortunately it is a minus for Sweden.’