In their most recent study, the analysts at DEGI Deutsche Gesellschaft für Immobilienfonds mbH examine current developments in the office and retail property markets of the states in the Baltic Sea region, and in addition to the macro-economic and property-business framework conditions also provide a detailed assessment of the locations Copenhagen, Tallinn, Helsinki, Riga, Vilnius, Tricity (Gdansk, Sopot and Gdynia), Saint Petersburg, Malmö and Stockholm.
Despite shared roots in their economic history, the property markets involved are very different: they range from rudimentary market structures in Tricity and the Baltic states, with office space stocks of significantly below 0.5 million m² and high returns, to fully developed property markets heavily influenced by the international capital markets, particularly in the metropoles of Scandinavia. The low market maturity of some locations goes hand in hand with increased investment risks, so that there risk premiums in the form of high prime yields can be earned. St. Petersburg, with a prime yield of 8.5 % for office properties and 7.2 % for retail properties, lies significantly ahead of Tricity and the locations in the Baltic states; it is in the Russian city, too, that the highest office rentals around the Baltic Sea are paid, peaking at more than 80 $/m². Conversely, investors in the more mature markets of Scandinavia have to make do with peak returns for Class-A office space of 5.0 % and less. The market for retail properties, too, can be regarded as mature at the highly developed locations, so that Sweden, for example, with 392 m² of lettable area per 1,000 population, has the second-highest shopping-centre density in Europe.
Dynamic growth as a common denominator
All the countries examined score in terms of dynamic economic growth significantly above the EU average of 2.1 % p.a. Despite their heterogeneity, the office rental cycles of the locations are developing very similarly; solely the largest city of the three Baltic states, Riga, correlates only weakly with the other Baltic metropolises. When the risk and return profiles are compared, Malmö and St. Petersburg stand out attractively from their relevant cluster of so-called 'mature' or 'emerging' markets, by exhibiting for both office and retail properties more return for a comparable risk or a low risk for a comparable return. Within the three Baltic states, Tallinn offers the best structural and legal framework conditions for investors, presumptively also a reason why the Estonian capital has developed into the most firmly established office market within the Baltic states.
Multi-dimensional explanatory approach for cross-border investments
The study, entitled 'The Baltic Sea Region. Property market structures and investment opportunities', contains a multi-dimensional scheme for explaining cross-border property investments in the Baltic region, in the shape of the DEGI Investment Matrix. The analysts at DEGI presented to the public for the first time at the commercial property trade fair Expo Real what is meanwhile the sixth publication in the 'Property management trends' series. The study can be ordered in printed form at www.degi.com.
Source: DEGI Research
