In this market research report, analysts Oscar Johannesson and Enes Ljuca evaluate the Swedish Real Estate Market. The aim with this report was to first conduct a thorough market analysis on the Swedish property market to be able to identify interesting investment cases based on recent market trends. This report will further analyze four different segments within the Swedish real estate market; Office, Logistics, Residential, and Retail. This report is written in English. If you want to get in touch with the analysts, please send an email to analysgruppen@linclund.com. Please click here or on the picture in order to access the full report.

Interesting Equity Investment Cases within Each Sector

  • Office: Platzer Fastigheter Holding
  • Logistics: Catena AB
  • Residential: Victoria Park
  • Retail: Hufvudstaden

Market Overview

The Swedish real estate market has experienced some drastic changes over the last couple of years. After eight consecutive years with record-low interest rates contributing to a building boom, the Swedish housing market experienced its largest drop in housing prices towards during Oct-Dec 2017. Despite the sharp price adjustment in housing prices, the outlook for the overall real estate market looks bright. Certain segments are expected to growth much faster than others. Construction of logistic properties is expected to increase in the due to e-commerce’s the exponential growth, while yields in the retail property segment is predicted to decline. Further, the demand and yields for offices in Sweden’s three largest cities is expected to remain high. However, the outlook for the residential leasing market looks brighter relative to the residential sales market.

Office Property Market

The vacancy rate for office properties located in the CBD (Central Business District) in all three of Sweden’s three largest cities are currently at historical lows. Office rents have been rising due to high demand and has historically been rising at a rate significantly higher than the inflation. The outlook for the office property segment looks very bright going forward. The combination of expected continuous high demand combined with a shortage in supply is forecasted to lead to increasing prices in the upcoming years.

Logistics Property Market

The demand for logistics premises remained high across the country last year. Although the volume of new logistics facilities has been increasing the vacancy rate for logistics facilities has continued to stay low. One noticeable trend identified is that there has been an increase of speculative building over the past two years. This indicates that investors strongly believe that the demand will continue to grow in the upcoming years. Further, the demand for logistic properties is currently the strongest in Stockholm and Västra Götaland. This emphasizes the importance of convenient locations near major cities for the logistics industry. The large rise in speculative building of logistics properties is mainly driven by investors’ belief in continuous strong growth in the e-commerce market. The Swedish e-commerce market is estimated to grow at 15 % CAGR up until 2020. Due to the fact that e-commerce is expected to maintain its historical high growth rate, logistics real estate will become an increasingly important segment in the upcoming years.

Residential Property Market

For the first time in over a decade the residential property segments was the largest among all in Sweden. In total, residential transactions for SEK 38.5 billion were completed. This represented 26 % out of the total transaction volume in 2017. The current macroeconomic environment in Sweden can partially explain this increase in residential property transactions. The combination of easy access to capital as consequence of continuous low interest rates combined with a large number of housing developers led to the increased activity in the residential property market. As a result, construction of housing properties reach its highest since the 1990s.
The Swedish housing market experienced its biggest quarterly drop since the outburst of the global financial crisis in late 2008 during Q4 last year.  According to the Nasdaq OMX Valueguard-KTH Housing Index (HOX), home prices felt with 7.8 % during the ending three months of 2017. Housing prices has constantly been rising since the end of 2009. The increase in housing prices can partially be explained by rising construction cost. One interesting observation is that housing developers engaged in leasing has been relatively unaffected by the sudden decrease in prices, whereas housing developers engaged in property sales has suffered.

Retail Property Market

A few larger players are dominated the Swedish retail property market. Prime rents throughout the country remained relatively stable for all trading segments, with the exception for external shopping centers in Stockholm were prices increased with 2 %. Although the current strong macro environment indicates continues rise in household spending, the Swedish retail property market is expected to experience a decline in the upcoming years. High rents combined with lower sales are expected to be detrimental for retailers as well as for retail property owners. Many retailers are currently struggling with being profitable due to the drastic change in Swedes’ shopping behavior.

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