NEWSEC PROPERTY UPDATE

Transcription

1 NEWSEC PROPERTY UPDATE 21 Sweden Finland Norway Denmark Estonia Latvia Lithuania LATVIA 54 LITHUANIA 58 TRANSA C TIONS 64 SWEDEN 1 SWEDEN 1

2 EDITORIAL CONTENTS Executive Summary 4 Northern European Region 6 Retail Market 1 Wind Power 12 The Full Service Property House 14 Addresses and Definitions 15 time to enter the market but beware of a weak global recovery Copyright Newsec 21 This report is intended for general information and is based upon material in our possession or supplied to us that we believe to be reliable. Whilst every effort has been made to ensure its accuracy and completeness, we cannot offer any warranty that factual errors may not have occurred. Newsec takes no responsibility for any damage or loss suffered by reason of the inaccuracy of this report. Editor: Marie Bucht, Newsec, Box 7795, SE Stockholm, Sweden. Phone , Fax , You may use the information in the Newsec Property Update but acknowledgement must be made for all quotations and use of data/graphics. Design: Liedgren Design. Production and layout: Sjö&Berg. Printing: Elanders. The world economy is recovering, but the rebound in the developed world is built on unstable ground, with large household indebtedness and toxic bank balance sheets. However, the Nordic region seems to stand out like a shining star in dark skies - with low sovereign debts, competitive export industries and consumers with sound personal finances. The property market is recovering all over the region liquidity on the investment markets has bounced back, prime rents have started to increase and prime yields are falling. In fact, the combined transaction volume in Sweden and Norway during the first half of 21 exceeded last year s full-year volume by some margin. In the Baltic region also things are starting to look brighter; the economy has passed its bottom, the first light of dawn can be seen on the horizon and, despite somewhat hesitant investors, there are great opportunities awaiting the daring. The issue for today s investors is not when to enter the property market it is about identifying the best-performing segments in a crippled world economy

3 All in all, both domestic and foreign investors, as well as banks, are showing a growing interest in the Northern European market, a market where there is surely money to be made during coming years. However, I believe that some of these prospective investors are asking themselves the two eternal questions of the property market where to enter the market, and when. Where to enter the market? The slowness of the global rebound is clouding the Nordic region s economic outlook and, as discussed on Page 6, this makes each country s domestic demand of which household consumption is the main factor increasingly important. During the next few years we will have a situation with a number of growing Nordic cities inhabited by people who constantly consume more. The bottom line for property investors is therefore quite obvious find the property segments with the most direct connection to domestic demand and you find your safe property cash-flows. This reasoning naturally leads thoughts to the retail sector and, yes, high-quality retail premises in good locations are safe cards during the coming years. But not the only ones efficient offices and well-located residential properties in growth cities are also tightly correlated to domestic demand, and the trend of a gradually urbanising population favours these segments as well. So, to sum up to find where to enter the Nordic property market, just follow the consumers....and when? The when question is easier to answer than the where one. Prices for prime properties are currently rising in virtually all property segments in the Nordic region, so the faster you enter the market the better return you get. However, it is certain that not all properties will perform well during coming years, not even in the sectors connected to domestic demand. The prime issue for today s investors is therefore not when To find where to enter the Nordic property market, just follow the consumers to enter the property market it is how to pick the best-performing assets in an uncertain global economy. In fact, the two questions should be re-phrased as What asset to pick? and When to exit the market when the economic cycle is turning? and this is where Newsec enters the scene September 21 Marie Bucht Transaction Volume Sweden Source: Newsec BSEK % E 211E 212E Transaction volume Prime office yield Stockholm CBD how can newsec see through the veil of the future? This is the autumn update of the annual Newsec Property Outlook and our latest survey of the Northern European property market. The Outlook takes as its backbone Newsec s internal survey The Five Year Forecast, which outlines the likely development of the property market over the next five years, and then adds snapshots, articles and presentations of especially interesting submarkets and segments on the Northern European property market. The purpose of the Outlook concept is to channel some of Newsec s knowledge and experience so as to pinpoint property segments with exceptional future potentialities. Newsec s forecasts are based upon our macro forecast, regional analysis, supply and demand analysis, trends on the investment market and the widespread market presence of about 55 employees all over the Northern European region. The forecasts are not based purely on mathematical connections but are based chiefly on our combined knowledge and experience of the property market s development in relation to the general economy. Newsec s macro forecast, which is one important part of the groundwork for understanding trends on the Northern European property market, uses the following three basic assumptions: Slow economic recovery in the developed world Low inflationary pressure generating low interest rates A gradually improving credit market editorial 3

4 executive summary macro data office vacancies office rents GDP Growth Office Vacancies Nordic Region Office Rents CBD Nordic Region Percent 15 Source: Newsec Percent 2 Source: Newsec EUR/m 2 6 Exchange rate August 21 Source: Newsec E 211E E 211E E 211E Sweden Norway Finland Denmark Estonia Latvia Lithuania Stockholm Gothenburg CBD Malmö CBD Oslo Helsinki Copenhagen Stockholm Gothenburg Malmö Oslo Helsinki Copenhagen 3M Market Interest Rates Office Vacancies Baltic Region Office Rents CBD Baltic Region Percent 15 Source: Newsec Percent 6 Source: Newsec EUR/m 2 35 Exchange rate August 21 Source: Newsec E 211E Sweden Norway Finland Denmark Estonia Latvia Lithuania E 211E Tallinn CBD Riga CBD Vilnius CBD E 211E Tallinn Riga Vilnius The economic recovery which started in mid is fragile but is continuing. The global recovery is affecting the Nordic and Baltic countries through increasing demand for exports and higher willingness for risk among investors. The Baltic countries are recovering from a deep recession but domestic demand is weak due to high unemployment and low wages. Nordic market interest rates are at historically low levels. However, the Swedish and Norwegian central banks have started to increase their steering interest rates. Baltic market interest rates have decreased substantially during late and 21 and are expected to converge further with the euro area as the economies recover and the risk of devaluation keeps on decreasing. Newsec expects interest rates to remain low during due to a low inflationary pressure. The financial market is expected to improve gradually during , although banks interest-rate margins are forecast to stabilise at higher levels than before the financial crisis. The recession showed effects on the labour market in the Nordic and Baltic economies during, with falling capacity utilisation and declining employment. The Swedish labour market turned around in early 21 and employment is expected to grow during Employment is expected to keep on falling in Finland and Norway in 21. However, in 211 employment is expected to stabilise in Norway and start to grow in Finland and Denmark. Newsec expects vacancies in all the Nordic capitals to stabilise in 21 due to the stronger-than-expected economic recovery. In the Baltic countries prime office vacancies have decreased substantially since the end of due to low overall supply of high-quality office premises. The Nordic rental markets have stabilised and Stockholm and Oslo are expected to lead the recovery as vacancies in the CBDs are now close to equilibrium. Prime office rents stabilised in late and are expected to increase in 21. In Helsinki CBD office rents were stable until early summer and then started to decrease slightly. However, rents in all submarkets are expected to stabilise by the end of 21. In Copenhagen, rents for prime locations have stabilised and are expected to remain stable in 211. In the Baltic countries prime office rents stabilised in Tallinn and Vilnius in late, while Riga is expected to see rental stabilisation in 21. All the Baltic capitals are expected to see increasing prime rents in executive summary

5 ContaCT ARVID LINDQVIST office yields retail nordic region retail baltic region Office Yields CBD Nordic Region Prime Retail Rents Nordic Region Prime Retail Rents Baltic Region Percent Source: Newsec EUR/m 2 Exchange rate August 21 Source: Newsec EUR/m 2 Exchange rate August 21 Source: Newsec 8 2, , , E 211E E 211E 18 21E 211E Stockholm Gothenburg Malmö Oslo Helsinki Copenhagen Stockholm Gothenburg Malmö Oslo Helsinki Copenhagen Tallinn Riga Vilnius Office Yields CBD Baltic Region Prime Retail Yields Nordic Region Prime Retail Yields Baltic Region Percent Source: Newsec Percent Source: Newsec Percent Source: Newsec E 211E E 211E 7 21E 211E Tallinn Riga Vilnius Stockholm Gothenburg Malmö Oslo Helsinki Copenhagen Tallinn Riga Vilnius Ooffice yields have peaked in the Nordic region and have started to fall for prime properties in all submarkets except Copenhagen. Attributes like quality and location have increased in importance and yields on non-prime properties are expected to have a significantly slower recovery than prime properties. Norway experienced the yield shift in earlier than the rest of the Nordic countries due to the gradual improvement of the financial market in combination with stabilised vacancies and recovering rents. In Stockholm and Helsinki the recovery started later and prime yields started to fall during the first half of 21. In Copenhagen yields are stable in prime locations due to an improved financial market situation and the limited supply of office premises. In the Baltic countries yields have decreased during 21 due to the clear signs of an economic recovery, significantly lower interest rates and a slightly improving credit situation. Further yield compression is expected in as the mood on the property market improves. A potentially stable private consumption in combination with the ongoing urbanisation process is generating strong fundamentals for high-quality retail premises during coming years. Prime retail rents fell only slightly during the economic downturn in, which in combination with a better functioning credit market has increased investor interest significantly in 21. Both domestic and foreign investors have shown interest in the market. However, the number of deals has generally been relatively low due to a shortage of willing sellers. Prime retail yields have peaked and are currently falling; however, the flight to quality trend has become even more evident which has resulted in a wider yield-spread between prime and secondary products. Domestic demand in the Baltic region is weak due to high unemployment and low wages. However, retail turnover stabilised in early 21 and some retailers started to report minor growth. The most successful shopping centre schemes currently have quite low vacancy levels, not exceeding 5%. However, lower-quality centres, which had problems even during the boom, are now experiencing a real challenge with vacancies over 2%. Numerous rent renegotiations have led to temporary rent discounts of around 3 35% and to changed payment structures with turnover-based rents increasingly common. No retail transactions were made in the Baltic countries during -21 apart from a few small supermarket acquisitions in Estonia. Llocal investors are the most active in monitoring investment opportunities. The largest appetite is for big box retail, ideally leased to large, reputable occupiers. Because of the insufficient number of transactions, yield levels are hardly determinable. The most recent small transactions have been concluded in the range 8.5 1%. executive summary 5

6 northern european region The economic recovery which started in mid is fragile but is continuing. The rebound is led by a number of Asian and Latin American countries, particularly China. However, several of these countries are showing clear signs of overheating and are generally too small and export-dependent to be significant engines in the world economy. The US recovery seems to have lost some of its momentum, but some European countries, especially Germany, showed strong growth rates in early 21 through a surging export demand. So far the growth impulses have largely been based on stock adjustments, government stimulations and expansive monetary policies all temporary factors which do not solve the fundamental problems of large current-account imbalances, highleveraged consumers, toxic bank balance sheets and indebted governments. These underlying global problems are expected to generate only a slow economic recovery in the developed world and there is a tangible risk of a new economic downturn in the not-too-distant future. Nordic households the new growth engine in a dull global economy The Northern European region is heterogeneous, with large differences between the Nordic and the Baltic countries. The real economic fundamentals for Sweden, Norway and Finland differ from those of the developed world in general due to the lack of housing bubbles, a healthy banking system and strong government finances. Sweden is experiencing the fastest recovery, driven by increasing export demand and stable private consumption. The Norwegian economy performed well during the economic downturn due to the stable export incomes generated by the country s oil and gas assets, but the recovery has been slower than anticipated due to a moderate growth in consumption, high capacity utilisation and declining investments in the petroleum sector. As in Sweden, the recovery in Finland is propelled by exports and private consumption. However, growth is expected to be somewhat slower due to the composition of the country s exports, with a heavy dependence on investment goods. Denmark has had a scenario more like the USA and the UK, with slumping house prices and falling private consumption. However, the economy is now recovering and, although households remain hesitant, private consumption is a key factor in the process. All in all the Nordic economies are small and export-dependent and therefore highly affected by dull global economic prospects. Against this, the countries are characterised by stable government finances and wellfunctioning labour markets with a highly educated labour force and competitive industrial produc- There is a tangible risk of a new economic downturn in the not-too-distant future - BERGEN STAVANGER GOTHENBURG OSLO COPENHAGEN TRONDHEIM MALMÖ STOCKHOLM TURKU KALININGRAD TAMPERE RIGA HELSINKI TALLINN VILNIUS 6 northern european region

7 tion, which together generate good fundamentals for stable longterm growth even in an uncertain global economic environment. The Baltic region ongoing export-driven recovery The Baltic countries are recovering from a deep recession; their economies have been excessively leveraged with too-large private consumption growths, which created asset-bubbles and reduced their domestic competitiveness. Since the countries have been determined to hold on to their fixed exchange rates, these problems had to be solved through internal devaluation. The process has been successful so far and competitiveness is steadily increasing through falling wages and prices. Exports are expected to be the single most important engine of economic recovery but after domestic demand is expected to increase in importance as private consumption starts to recover. Estonia is showing the fastest recovery due to improving competitiveness, its ability to reform and good government finances. Confidence in the country s economic recovery is strengthened by the European Commission s recommendation to adopt the euro in 211. Latvia was seriously affected by the global recession, but is now experiencing economic stabilisation propelled by the export sector. However, the recovery is still being hampered by the large budget deficit, political instability and a hesitation to reform. Lithuania too is experiencing a fragile export-led recovery. Although domestic demand is weak due to high unemployment and low wages, the country s political willingness to reform and its relatively large population enhance its ability to recover. All in all, the Baltic region s competitiveness is improving and, as the internal imbalances are solved, the region is expected to continue its progress up the economic ladder. Low global inflation pressure generates low interest rates Newsec expects inflation and short-term interest rates throughout the Northern European region to remain low for some years due to the large output gap in the world economy and an intense global competition that puts strict limits on price increases. Despite the low interest rates, however, there is currently an endogenous tightening in the credit market the banks interest-rate margins are high due to consolidations in their balance sheets. In order The financial market is expected to improve gradually during to reduce their balance-sheet risks, banks are generally hesitant to lend to anyone other than well-known customers with highquality investment portfolios. The financial market is expected to improve gradually during , although banks interest-rate margins are forecast to stabilise at higher levels than before the financial crisis. The Nordic construction industry is recovering but office completions next year will be modest The start-up of new construction projects in the Nordic region slowed during the downturn in, but the industry has now started to recover. However, the time lag between project start-up and completion will make the 211 construction figures relatively low. In Helsinki Metropolitan Area around 85, m 2 of office premises are expected to come onto the market in 21 and 75, m 2 in 211. In Stockholm about 16, m 2 of new office premises are expected to be completed during 21 and another Office Rental Cycle Q3 21 Country Balance GDP Development Rental growth slowing Rents falling Riga Percent of GDP 1 Source: European Commission Percent 5 Source: Newsec/Nordea London City Rental growth accelerating Rents bottoming out Frankfurt, Munich 2-2 Sweden Norway Finland Denmark Estonia Gov gross debt (% of GDP) Gov budget balance 21E (% of GDP) Current account balance 21 (% of GDP) Exports (% of GDP) Latvia Lithuania Germany UK France USA Sweden Estonia Denmark Finland Norway 21E 211E Latvia Lithuania Germany France UK USA London West End Moscow Paris Stockholm, Oslo Vilnius Malmö, Gothenburg Helsinki Copenhagen, Tallinn northern european region 7

8 3, m 2 in 211. In the Oslo area about 14, m 2 of new office premises are expected to be completed during 21 and a further 11, m 2 in 211. In Copenhagen, building activity has slowed significantly, mainly due to increased equity requirements, and the new supply is expected to be low in coming years. In the Baltic countries the planned new-development volumes for are modest and the few projects that will actually come onto the market are generally completions of previous years projects. It is unlikely that developers will start developing without some pre-leases, and banks will be extremely selective in financing new projects for at least the next two years. Soaring transaction volumes in Sweden and Norway while Finland and Denmark await the market turnaround In mid the trend of decreasing liquidity on the Nordic property markets was broken and activity started to increase. However, there is a sharp contrast between Sweden and Norway on the one hand, both of which experienced significantly increased transaction volumes during the last year, and Finland and Denmark, with a more hesitant transaction development. During the first half of 21 the total transaction volumes ended up at EUR 4.1 billion in Transaction Volumes Billion EUR Source: Newsec Nordic Region Office property data and trends in the Nordic Capitals Q3 21 City Helsinki Stockholm Copenhagen Oslo Tallin Riga Vilnius Prime Rent (EUR/m 2 /year): CBD Vacancy (%): , Prime Yield (%) Stock (million m 2 ): Sweden and EUR 2.1 billion in Norway around four times higher than the same period the year before and roughly in line with whereas the volumes for Finland and Denmark fell by 24% and 38% respectively, to EUR.65 billion in Finland and EUR.4 billion in Denmark. In Sweden and Norway, interest from both domestic and international investors has increased and prices for core assets have started to rise. Important factors explaining the increasing liquidity are the improved willingness of banks to finance transactions, the re-entrance of foreign banks, stabilising rents, and investors expectations of a relatively strong economic development. However, both Transaction Volume Quarterly Nordic Region Billion EUR Source: Newsec 2.5 banks and investors are selective regarding the quality and location of targets, and it is mainly prime properties with long, stable lease agreements that have seen increasing price levels. The most active foreign buyers on the Swedish property market have been German and Norwegian investors, while Swedish property funds have been the most active on the Norwegian market. In Finland the low liquidity can partly be explained by a rather later economic recovery in combination with a small market for prime assets, where sellers are currently not willing to sell at today s prices. Equity investors such as Finnish pension funds and local investors have been active, as have some international investors searching for core targets. The spread between the sellers asking prices and potential buyers bidding prices is narrowing and is currently about 5 1%. After a long period of declining prices, property values have stabilised and signs of yield compression have been seen in the core market. In Denmark, investment demand is led by financially strong investors such as institutional investors and well-consolidated property companies, able to match the equity ratios required by banks. Lower property prices in combination with difficulties for Danish investors to get loan-financing have opened up the Danish property market to international financial institutions, which are gradually becoming interested in the market Sweden Finland Norway Denmark H1 21. Q1 Q2 Q3 Q4 Sweden Norway Finland Denmark Q1 21 Q2 21 Q3 21E Liquidity on the Swedish and Norwegian property markets is expected to keep on increasing during , while the transaction volume in Finland is expected to pick up as the financing 8 northern european region

9 Contact ARVID LINDQVIST market gradually improves and prime property prices continue to recover. In Denmark the gap between buyers and sellers has narrowed and there is hope that will see a renewed rise in property investment turnover. Because bank interest-rate margins are expected to normalise at higher levels than before the credit turmoil, liquidity on the Nordic property market is not expected to reach the high levels of former years. Investors still reluctant to enter the Baltic market In the Baltic countries only a few minor transactions have been completed during the first half of 21, and the total transaction volume did not exceed EUR 2 3 million. The market has so far mostly been explored by local investors such as private firms and small funds. Interest from opportunistic Finnish and Swedish buyers has increased recently, but they have not made any significant transactions yet. Buyers of distressed properties have not made any major deals in the field of income-producing assets since banks would rather come to agreements with existing owners than initiate forced sales. Although the general economic development has turned out better than expected, especially in Estonia and Lithuania, large institutional investors are still reluctant to enter the market and are expected to continue to stand by during Recovering yields for prime properties Office yields in the Nordic region have peaked and yields for prime properties have started to fall in all submarkets except Copenhagen. Norway experienced the yield shift as early as sooner than the other Nordic countries due to the gradual improvement of the financial market in combination with stabilised vacancy rates and recovering rents. The recovery started later in Stockholm and Helsinki, and the effects of a stabilised rental market in combination with low interest rates and gradual improvements on the financial markets generated falling prime yields during the first half of 21. In Copenhagen yields are stabilising in prime locations due to the improved financial market, the limited supply of office premises and expectations of a general economic recovery. Property attributes like quality and location have increased in im- portance on the Nordic property market, and yields on non-prime properties are expected to have a significantly slower recovery than for prime properties. In the Baltic countries yields stand at high single digits. Yields have decreased during 21 due to the clear signs of an economic recovery, significantly lower interest rates and a slightly improving credit situation. Further yield compression is expected in as the mood on the property market improves and foreign investors interested in opportunistic deals enter the market. Stockholm and Oslo are leading the rental recovery in the region The recession showed effects on the labour market in the Nordic and Baltic economies during, with falling capacity utilisation and declining employment. However, a turnaround on the Swedish labour market occurred in early 21 and employment is expected to grow during Finland is experiencing a slightly later economic recovery than Sweden, and employment is expected to keep on falling during 21 and show growth in 211. Norway had a high rate of capacity utilisation throughout the recession, with low unemployment and only a minor decline in employment. However, the labour market has not yet bottomed out and employment is expected to fall slightly in 21. Denmark was hit hard by the recession but the labour market is now showing signs of stabilisation and employment is expected to start to grow in 211. In the Baltic countries, the recession has had extensive effects on the labour market, with significant falls in wages and high unemployment in all sectors of the economies. Although the Estonian labour market has started to recover, unemployment rates in the region remain high and wages are still declining in Latvia and Lithuania. The Nordic rental markets have stabilised and Stockholm and Oslo are expected to lead the recovery as vacancies in the CBDs are now close to equilibrium. Prime office rents stabilised in late and are expected to increase in 21. In Helsinki CBD, office rents were stable until the early summer of and then started to decrease slightly, while rents in existing lease agreements have not been substantially adjusted downwards. However, rents in all submarkets are expected to stabilise by the end of 21. In Copenhagen, rents for prime locations have stabilised and are expected to stay stable in 211. In the Baltic countries prime office vacancies have decreased substantially since the end of due to the low supply of highquality office premises. Rents stabilised in Tallinn and Vilnius in late, while Riga is expected to see a rental stabilisation in 21. All the Baltic capitals are expected to see increasing prime rents in 211. Companies increasing focus on keeping down costs and the continued emphasis on attracting competent workers are re inforcing the trend seen in recent years towards locating in newly constructed or highly efficient refurbished office premises. The results have been a better rental development for prime office premises and a fairly quick absorption of new space put on the market. At the same time there have been higher vacancies and a slower rental development in the older, unmodernised stock. Prime office rents in Stockholm and Oslo stabilised in late and are expected to increase in 21 Total Property Returns Percent (in Local Currencies) Source: IPD Nordic Region Sweden Finland Norway Denmark northern european region. 9

10 the northern european retail market The Nordic REGIon The developed world is rebounding from the recession, but large household debts and unstable house prices are hampering the recovery. The real economic fundamentals for the Nordic region differ from those of the developed world in general due to the lack of housing bubbles, a healthy banking system and vigorous consumer saving ratios. However, the slow global rebound is affecting the region s economic outlook and increases the importance of domestic demand, which is expected to increase its share of the region s GDP during coming years. Within domestic demand, private consumption is the single most important component, which in combination with the ongoing urbanisation process generates an increasing urban population that also consumes more per capita. All in all, this is creating the fundamentals for a steadily increasing demand for high-quality retail premises in good locations in the major cities during coming years. Added retail space will put pressure on existing centres In Sweden, some 1,, m 2 of new retail space is predicted to be completed by 215, with several major projects planned in the northern parts of Greater Stockholm and in Malmö. In Finland, some 8, m 2 is expected to enter the market in the same period, mainly in the Helsinki Metropolitan Area and Tampere. The Norwegian and Danish retail markets are influenced by tight legislation which regulates both the size and location of retail areas strengthening high-street retailing and central shopping centres at the expense of out-of-town shopping centres and retail parks. Great investor interest in high-quality assets Investors have opened their eyes to the Nordic retail market during 21 because of the potential offered by stable private consumption. Prime retail rents fell only slightly during the economic downturn in, which in combination with stable vacancies and a better-functioning credit market has improved investor sentiment significantly in 21. Prime retail yields have peaked and are currently falling; however, the flight to quality trend has become even more evident, with investors and banks not only demanding a secure cash flow but also placing additional emphasis on residual value and alternative usage. The two sectors most affected by this trend are big boxes, and retail in secondary locations, resulting in a wider yield-spread between prime and secondary products. In Sweden both domestic and foreign investors have made deals during 21. Although liquidity has been low in prime locations in Stockholm, Gothenburg and Malmö because of a shortage of willing sellers, investors have shown great interest in prime assets in regional cities. During the first half of 21 Diligentia acquired a shopping-centre portfolio from Boultbee in Uppsala, Skövde and Norrköping for SEK 1,44 million; Areim acquired a shopping centre in Södertälje in the Greater Stockholm region from Atrium Ljungberg for SEK 315 million; and the German investor LB Immo Invest purchased a hypermarket property (Coop Forum) in Uppsala for SEK 168 million. In Finland the retail transaction market has mainly consisted of domestic investors acquiring retail portfolios outside the country s absolute prime locations. Although there are international investors searching for core targets, the prime-assets market is small and sellers are currently not willing to sell at today s prices. However, despite the low liquidity several retail transactions have occurred during the first half of 21. Aberdeen European Balanced Property Fund bought the 7,-m 2 Chydenia I Shopping Center in Seinäjoki from Rockspring and also acquired the 9,7-m 2 Turun Sampotalo in Turku from Redevco; and Ilmarinen Mutual Pension Insurance Company signed a preliminary agreement with Renor Oy for the development of Puuvilla Shopping Center in Pori, comprising 37, m 2 of retail space. The transaction volume in Norway has increased substantially during the last year and a few large retail transactions have occurred. The biggest during 21 is NIAM s acquisition of the property company Sector EiendomsUtvikling for around NOK 5 billion. Other major transactions are Salto Eiendom s acquisition of Sortland Kjøpesenter for NOK 37 million and an investor syndicate s ac- Retail stock in the Nordic region The total retail stock in Sweden is approximately 18 million m 2, with around a quarter located in Stockholm. The stock in the major Finnish cities totals approximately 6.4 million m 2 of which around 3.3 million m 2 is located in Helsinki Metropolitan Area. The Norwegian shopping centre stock is around 5.1 million m 2 and the total Danish retail stock is around 12.1 million m 2 of which some 2.2 million m 2 is in Copenhagen. 1 the northern european retail market

11 Contact Sandra Greisman quisition of Orkidehøgda Næringspark for NOK 122 million. Several investors are currently interested in prime retail properties, but liquidity is hampered by the limited number of core assets and the shortage of willing sellers. In Denmark liquidity on the transaction market has been low during the first half of 21 due to difficulties in obtaining financing and the spread between sellers asking prices and potential buyers bidding prices. However, there have been a few purchases of prime retail properties in Copenhagen during 21, mainly by domestic investors. The Baltic region Consumer confidence is improving but from a low level The Baltic countries are recovering from a deep recession, but domestic demand is still weak due to high unemployment and falling wages. However, retail turnover stabilised in early 21 and some retailers began to report minor growth on a monthly basis. Local indices of consumer confidence have started to improve and are continuing to rise in all three Baltic countries. Most of the local retail chains expect the retail market to recover in early 211 in major cities and in mid 211 in smaller towns. The Baltic countries have a diversified retail stock with large variations in quality. In all three countries the stock now exceeds the EU-27 level the average shopping-centre space per capita for the 27 EU countries. With slightly over 2 m 2 of shopping centre space per 1, inhabitants, Lithuania and Latvia exceed the EU-27 level by about 5%. Estonia, with almost 3 m 2 per 1, inhabitants, is nearly 4% above the average European level and in line with the Scandinavian countries, the UK and France. Due to the recent severe recession and a saturated market, there are few new shopping centres in the pipeline for , with just one expansion of an existing scheme in Tallinn and one highstreet retail project in Riga. High risks make investors hesitant The most successful shopping centre schemes such as Akropolis in Lithuania currently have quite low vacancy levels, not exceeding 5%. Lower-quality centres, which had problems even during the boom, are now experiencing a real challenge with vacancies Retail Trade Turnover Percent (change on previous quarter) Nordic Region 27 Sweden Norway Finland Denmark Source: Eurostat 21 over 2%. There have been numerous rent-price renegotiations which have led to temporary rent discounts of around 3 35% and to changed payment structures, with turnover-based rents increasingly common. Apart from a few small supermarket acquisitions in Estonia, no retail property investment transactions were made in the Baltic countries during 21. Local investors are the most active in monitoring investment opportunities. The largest appetite is for big box retail, ideally leased to large, reputable occupiers. Because of the insufficient number of transactions, yield levels are hardly determinable. The most recent small transactions have been concluded in the range 8.5 1%. With the exception of some opportunistic players, large international buyers are still reluctant to enter the market. Retail Trade Turnover Percent (change on previous quarter) Estonia Latvia Lithuania Baltic Region 27 Source: Eurostat 21 the northern european retail market 11

12 wind power an evolving transaction market Newsec HAS been active on the Nordic and especially the Swedish wind power market since 27, and today is a leading advisor for private placements and M&A, with a thorough understanding of valuations, value-adding transaction structures and market players internationally. This evolution is based on similarities between property and wind power transactions (capital-intense nature, long cash flows) and the importance of energy costs for property owners. That may be why so many of our property clients are interested in entering or have already entered this market. Market in rapid growth Wind power is the world s fastest-growing energy source, with global growth of 41% in despite recession and financial crisis. Rapid technological development has enabled large-scale energy production with a competitive cost per produced kwh. As renewable energy, wind power also reduces dependence on fossil fuels. Swedish wind power is less developed than, for example, Germany with over 17 times as much installed capacity and Spain with over 12 times. But Sweden s wind resources, population density and availability of balancing sources of energy provides great growth potential. Why do we need wind power? First, we need more energy. Much current production comes from old plants approaching closure. The EU s Green Book estimates that investments exceeding EUR 9 billion will be needed in new energy infrastructure as old plants reach the end of their lifetime in the coming years. Secondly, for security of supply and political stability we want to reduce dependence on imported energy. Last but not least, we need to meet ambitious EU targets for reduced carbon emissions. Sweden has committed to increasing its renewable energy production by 25 TWh by 22 against 22. The Global Cumulative Installed Wind Capacity GW Source: EWEA CAGR 28% Swedish Energy Agency expects half this growth to come from onshore wind power, i.e. growth of 1% TWh/year from under 3 TWh today an annual compounded growth rate of 17%. The investment market Most European markets remain fragmented. For investors, acquisitions are motivated by slow organic growth due to long permitting processes and unwillingness to accept risk in the earlier phases. Both investors and developers are establishing niches in the value-chain instead of vertical integration. The capital intensity of Comparison of Electricity Production Costs Source: World Energy Outlook Nuclear Geothermal Gas Hydro Onshore wind Coal Offshore wind Biomass Tidal and wave Solar SEK/MWh 4 8 1,2 1,6 2,8 The definition of cost includes discounted investment cost and operating costs. Co2 is assumed to be 1 6 USD/ton 12 wind power an evolving transaction market

13 Newsec expects M&A activity to increase in future years and believes that property companies will become increasingly involved in this adjacent market ContaCT Omid ASHRAFI constructing wind farms and the many competences needed over development phases drive the evolution of this young industry. The financial turmoil reduced both transaction volumes and valuations, especially for early-phase assets involving risk. European transaction volumes fell from 54 GW in to 22 GW in (but were only 4 GW in 24). Even so, over EUR 13 billion was invested in and investments accelerated in 21, with investor funds taking the initiative from utilities. Evolvement of a Swedish Transaction Market In Sweden, the large Nordic utilities Vattenfall, Fortum, Eon and Statkraft have yet to take strong market positions. Skellefteå Kraft has the most projects in the pipeline. In August 21, Fortum and Skellefteå Kraft formed a joint venture to construct one of Europe s largest onshore wind farms, Blaiken, with 25 MW planned capacity by 215. In March, Vattenfall acquired the 78 MW Storrotliden wind farm from O2, committing an investment of SEK 1.5 billion. Statkraft entered the market in 27 via an industrial cooperation with SCA and in acquired a minority stake in the Swedish developer Arise Wind Power. International utilities are also interested in the Swedish market but, as nuclear plants and large hydro plants are not for sale, wind power is viewed as the only route onto the market. HgCapital made its second acquisition in Sweden via the 44 MW Ytterberg wind farm. With 17-year project financing underwritten by Commerzbank, this also increased the market presence of international banks. Other investor categories include international developers, independent power producers and industrial players. Stena Renewable Energy acquired the operating 12.5 MW Möckelsjö wind farm in April 21. Several property companies are also investigating entering the market and some have made significant investments. Wallenstam invested SEK 39 million in a wind farm acquired from Eolus Vind in January 21 and aims to become self-sustaining via renewable energy by 212. In January 21, Balder acquired six wind turbine generators and with a partner will invest SEK 142 million. Municipalities and municipality-owned property companies, including Sigtunahem, Askersunds Bostäder and Kopparstaden, have also invested in wind power. Despite expectations of a slow economic recovery, the profitability of Swedish wind power should be able to fuel growth and continued investments. In coming years return on invested capital is expected to benefit from increasing tariffs, cheaper wind turbine generators and increasing availability of debt with longer tenors and lower spreads. Due to the capital intensity and youth of the industry, the fragmented Swedish market is expected to consolidate as it matures and more international players enter. Newsec expects M&A activity to increase in future years and believes that property companies will become increasingly involved in this adjacent market. wind power an evolving transaction market 13

14 NEWSEC THE FULL SERVICE PROPERTY HOUSE Newsec is Northern Europe s only full-service company in the property sector, with 12 offices in 7 countries. Newsec offers services to property owners and companies that lease or own their properties. Newsec has about 55 employees and has recently provided advisory services in transactions with a total value of more than SEK 9 billion. Annually we value properties worth more than SEK 65 billion and manage more than 1, properties with a total value of more than SEK 1 billion. Through our well-maintained international network of 6, consultants, we can offer our services in the global market. This makes us Northern Europe s only full-service property house in the property sector, which provides the company with a unique ability to forecast the future. Newsec was formed in Sweden in 1994 as a real estate consultancy company. The first issue of the comprehensive market analysis Newsec Property Outlook was published in 21. The company expanded internationally into Finland in 21 and Norway in 25. Newsec then acquired the Finnish real estate and asset management company Tallberg Toimitilajohto Oy in June 25. The Norwegian full service company Eiendoms-Consult AS was acquired in 26. The Baltic full service company Re&Solution was acquired in. In 25 the group changed its name to Stronghold and the holding company developed a clearer strategy towards becoming more of a pure investment company. newsec services are divided into three business areas: NEWSEC ADVICE years we have grown by 7% annually. We employ more than 4 professionals and have offices throughout Northern Europe. Since we are also the The key to giving the most accurate and reliable advice about the future is specialist knowledge in all areas that affect the property market. market leader in letting, we help to minimise vacancies in your property Through extensive research and unique forecasting methods we offer stock. This means that our property administrators and managers know professional advice in areas such as property acquisition, investment, when to sign long or short lease contracts. By virtue of our size we are business development and capital development projects. Newsec is the able to purchase goods and services at advantageous prices. For you as a leading property advisor in Northern Europe for investors and corporates. Our advice-team of about 5 professionals has recently been enables us to offer you the highest-quality and most cost-effective service. client this means lower prices and better financial returns. All this together advisors in transactions worth more than 9 billion euro, and we value properties exceeding 65 billion euro annually. Our Northern European NEWSEC TRANSACTIONS analysis and valuation unit, the largest in the market, has access to Newsec offers tailor-made property-related financial and strategic advisory services and is one of the fastest-growing consultancy firms for more information than any other player, and through our international partners we have access to 6, specialists based in 8 offices in 2 property transactions in Northern Europe. With over 25 professionals countries. specialising in investment and corporate finance, we have experience of transactions exceeding 9 billion euro. Newsec has a unique updated NEWSEC ASSET MANAGEMENT database of 4, investors with specific needs, all over Northern Europe. This means that we can find the right buyers for specific projects Newsec is the leading asset management company in Northern Europe. With over 5 years of experience, we currently manage over 1, properties representing 7 million m 2 with a total value of 1 billion euro. In that we have for sale, in the most efficient way possible. recent 14 the full service property house

15 SWEDEN Stockholm Head Office Regeringsgatan 65 P.O. Box 7795 SE Stockholm, Sweden Tel: Fax: info@newsec.se Gothenburg Lilla Bommen 5 P.O. Box 1145 SE Göteborg, Sweden Tel: Fax: Malmö Dockplatsen 12 SE Malmö, Sweden Tel: Fax: Stockholm Asset Management Humlegårdsgatan 14 P.o. Box 5365 SE Stockholm, Sweden Tel: Fax: Gothenburg Asset Management Lilla Bommen 5 P.O. Box 1145 SE Göteborg, Sweden Tel: Fax: Malmö Asset Management Dockplatsen 12 SE Malmö, Sweden Tel: Fax: FINlAND Helsinki Mannerheiminaukio 1 A P.O. Box 52 FI-11 Helsinki, Finland Tel: Fax: info@newsec.fi Tampere Aleksanterinkatu 32 B FI-331 Tampere, Finland Tel: Fax: NoRWAy Oslo Filipstad Brygge 1 P.B. 18 Vika NO-123 Oslo, Norway Tel: Fax: info@newsec.no DENMARK Öresund Office Dockplatsen 12 SE Malmö, Sweden Tel: Fax: LATVIA Riga Duntes str. 6 LV-113 Riga, Latvia Tel: Fax: ESToNIA Tallinn Pärnu rd 67A EE-1134 Tallinn, Estonia Tel: Fax: Lithuania Vilnius Jogailos str. 4 LT-1116 Vilnius, Lithuania Tel: definitions data and graphs OfficES New or newly refurbished modern and flexible office premises with normal area efficiency. Finland: office premises with normal area efficiency in office buildings in office areas. The size of the premises is assumed to be around 1, m 2. The market rent includes heating and excludes property tax. Finland: KTI definition of gross market rent net rent plus all costs. Norway and Denmark: The market rent excludes heating and property tax. RETAIl Attractive, modern high-street or central-shopping-centre retail premises with a prime location on the high street or in the shopping centre. The rents do not refer to premises used for groceries and day-to-day items. Finland: all retail premises in central Helsinki, retail parks and shopping centres. The size of the premises is assumed to be around 25 m 2 for premises in Sweden, Norway, Denmark and the Baltics. In Finland the size is in the range 15 4 m 2. The rent excludes heating and property tax in all countries except Finland where the rent is gross rent net rent plus all costs. LoGISTIcs The size of the premises is assumed to be more than 5, m 2. Gross rent net rent plus all costs. addresses and definitions 15