According to Savills' latest market report the number of transactions on Sweden’s investment market has risen both in Q2 (+26%) and Q3 (+32%) 2013 after recording a decrease over the previous 10 quarters.
The international real estate advisor suggests the reason for this increase in deal numbers is two-fold; firstly the improvement in the lending market as investors can more easily secure bank financing for prime investments. Secondly, the firm notes that the limited supply of prime stock available on the market has led more investors to look at secondary assets pushing up deal numbers for this asset type.
According to the report, in the third quarter of 2013 a total transaction volume of SEK 21 billion (€2.39 billion) was recorded, representing a 40% increase year-on-year. Overall, in the first three quarters of the year total investment volumes amounted to SEK 68 bln (€7.73 bln), compared with SEK 67 bln (€7.62 bln) in the same period in 2012. Savills forecasts the total volume will reach SEK 100 bln (€11.37 bln) by year end, slightly below the 2012 total of SEK 107 bln (€12.17 bln).
Peter Wiman, head of research at Savills Sweden, comments: “The trend of declining transaction numbers has now been broken for two consecutive quarters and we are optimistic they will continue to rise. Aggressive pricing and limited supply of prime product has led investors to widen their criteria to include good secondary assets. Going forward we expect the yield gap between prime and the best secondary stock to shrink although prime product will remain the preferred choice among investors.”
In the prime sector office yields currently stand at 4.50% in Stockholm and 5.00% in Gothenburg, according to Savills data, whilst retail warehouse yields are at 5.75%, shopping centers at 5.25% and yields for prime logistics assets at 6.50%. In terms of location Stockholm continues to be the favored investment destination, accounting for 47% of activity so far in 2013, followed by Gothenburg (15%).
Savills highlights that Sweden’s investment market, and particularly the prime sector, continues to be dominated by domestic buyers who accounted for 85% of investment in the third quarter of 2013. Swedish pension funds are particularly active with less competition from investors that are dependent on leverage.
Johan Bernström, head of investment at Savills Sweden, says: “Domestic institutions are the dominant players in Sweden although cross border interest is strong. Foreign buyers have so far been unable to compete with Swedish investors for prime offices, but they have been successful in acquiring prime retail warehousing, logistics and shopping centers.”