The Market Sizzled in 2005
For Nordic Real Estate

The Nordic real-estate market is creating a buzz. Sweden, Norway, Finland and Denmark saw a record €20.5 billion ($24.5 billion) in commercial real-estate deals last year, up 37% from €15 billion in 2004, according to figures from real-estate-advisory firm Cushman & Wakefield Healey & Baker.

The total value of deals this year is expected to surpass last year's record, with some sizable assets for sale, says Magnus Lange, head of the capital markets group at Cushman & Wakefield's Stockholm office.

The Nordic region's favorable yields, political and economic stability, positive growth outlook and sound fiscal policies have boosted its popularity. The biggest investors in the Nordic countries' commercial real-estate sector are Nordic investors themselves, followed by U.S., U.K. and German investors, Mr. Lange said.

Driving the growth in commercial real-estate deals is Sweden, which accounted for about half of all commercial real-estate investment in the region last year -- roughly €11 billion, according to Mr. Lange. Sweden was a big European real-estate winner last year, accounting for 6.1% of Europe's commercial real-estate investment, in fourth place behind the U.K., France and Germany, beating out Spain and Italy, which both have much bigger populations than Sweden.

Sweden offers the most investment opportunities in the region because it has the most properties available for sale, says Rolf Johanssen, a partner at the law firm Linklaters in Stockholm. "There's also a high level of liquidity in the real-estate market, and it's very transparent," he said.

One company that has cashed in on investor demand is GE Real Estate, part of GE Commercial Finance, a unit of U.S.-based General Electric Co. It sold a portfolio of 84 properties in Sweden in December to Danish real-estate company Keops AS for €293 million. "We wanted to decrease the number of locations in which we're present in Sweden, to have a more-concentrated portfolio and to benefit from the good ride we've had. We made a healthy profit on the portfolio," said Lennart Sten, managing director of GE Real Estate, Nordic region. GE Real Estate acquired the portfolio in March 2001.

Recent buyers in the Nordic region, including Keops and London & Regional Properties Ltd., may consider selling assets this year in a round of profit-taking, Mr. Lange said. London & Regional spokesman Nils Pers in Stockholm said the company is a long-term investor in the Nordic market and aims to invest more this year.

Last month, Swedish real-estate company Kungsleden AB sold a €185 million retail portfolio to closely held, U.K.-based Boultbee Land PLC. Finnish retailer Kesko Corp. is also in the process of selling a retail portfolio of 100 properties, believed to be valued at around €200 million. Nordic countries, especially Norway, have tended to offer higher yields than other Western European countries, industry experts say. (The yield is the annual percentage return, expressed as the ratio of annual net income to the capital value of a property.)

According to Ubbe Strihagen, a Stockholm-based international director at Aberdeen Property Investors, the total return -- or capital growth plus rental growth -- on real estate is likely to be about 10.6% in the Nordic region this year. This compares with the real-estate total returns of 9.9% that Jones Lang LaSalle forecasts this year in the U.K., Europe's most popular real-estate market -- and it is much higher than in countries such as Germany and Austria. Aberdeen Property Investors -- the real-estate arm of U.K.-based asset-management group Aberdeen Asset Management PLC -- predicts Germany will produce returns of 6.8% this year and Austria 5.6%.

"We think that Norway is the strongest Nordic market economically, partly because it's propped up by oil money," Mr. Strihagen said. "But it's a very difficult market for foreign investors to get into, partly because it's not an EU member and isn't part of the euro zone."

Unlike Norway, Sweden, Finland and Denmark are all part of the European Union; however, only Finland is part of the euro zone.

The Nordic countries' economies continue to outpace that of the EU. Aberdeen Property Investors predicts gross-domestic-product growth of 2.7% for Sweden and Finland this year, 2.6% for Norway and 2.2% for Denmark. For the euro zone as a whole, Aberdeen Property forecasts GDP growth of 1.8% this year.

The main difficulty of investing in the Nordic market for international investors, Mr. Lange said, is that there are limited quantities of the exact type of property they seek. "For core office investors, it is almost impossible to identify 'a modern office building in a good location leased to stable tenants on long leases,' " he said. As a result, he says, investors need to compromise on building quality, location or leasing status. Major shopping centers are scarce in the region, although retail warehouses and local, smaller shopping centers are more readily available, he said.

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