The bottom of the Nordic property market is just starting to appear. Prices in Norway and Denmark have begun to stabilize, although the bottom has not yet been reached in Sweden, Finland and the Baltic countries. The rental market throughout the region has weakened significantly in the past year, but the trend varies to some extent between the countries, with Helsinki and Copenhagen generally showing smaller rent reductions than the other capital cities.
There is currently a break in the downward trend, with prices in Oslo and Copenhagen beginning to stabilize. One reason for the stabilization in Norway is the country's faster economic recovery due to its raw-material-based economy with substantial oil and gas exports. In addition, the country experienced the credit crunch earlier than the rest of the region, which led to a faster decline in property prices. The low interest rate in combination with a slightly better functioning credit market is now counterbalancing rising vacancies and expectation of lower rent revenues when lease contracts are renegotiated. In Copenhagen the stable trend in rents for good-quality properties in good locations means that prices are not expected to sink much further.
"We are now seeing signs that the bottom of the market is approaching, since a number of players are starting to come in and buy. Indications from the property markets in London and Paris reinforce this, since foreign investors have returned, transaction volumes have started to increase and prices are beginning to show signs of stabilizing," says Marie Bucht, Head of Advice at Newsec.
Prices still falling in Stockholm and Helsinki
In Sweden and Finland, falling rent levels mean that prices are continuing downwards in spite of the low interest rates, although at a slower pace than before. In the Baltic countries prices have fallen dramatically in the past year as a result of the far-reaching recession, the risk of devaluation and a consequent reduced acceptance of risk among investors. However, prices are expected to stabilize in coming years, although this is more to do with generally lower interest rates than an upturn in the market.
"In the current situation, property-market price levels are attractive in both the Nordic and Baltic regions," says Marie Bucht. "Gradual improvements on the credit market combined with the business opportunities that now exist mean that the downward trend in transaction volumes could soon be halted - especially for good-quality properties in good locations. In market situations like this, too, no investor wants to be the last to re-enter the market, which suggests that the trend may move upwards rapidly once the transaction market really turns."
Rental markets weakening throughout the region
The rental markets have weakened in all countries in the region, but the trend varies to some extent between the cities. Up to now the central areas of Stockholm and Oslo have experienced the largest rent reductions, while less central locations have managed better. Rents in Helsinki are still falling in line with falling employment, while Copenhagen has a relatively stable rental market, with rents expected to decrease only marginally in 2009.
In Oslo rents are expected to stabilize towards the end of 2009, while in Stockholm it is thought that the largest fall in rents has already occurred, although further small declines are expected in 2009-2010.
Reduced activity by foreign investors
In the first half of 2009 transaction volume on the Nordic and Baltic property markets totaled 2.7 billion, which is a record low and represents a reduction of just under 80% compared with the same period in 2008. Transaction volumes in Sweden and Denmark fell the most, by around 80%, while the volumes in Finland and Norway fell by 75% and 60% respectively. In addition foreign investors have reduced their activity in the region.
The declining number of property transactions during the first half of 2009 is mainly due to difficulties in obtaining loans for property investme