Stockholm City photographed by Pangea.

Nordic commercial property markets are expected to develop positively in 2022. Accelerating inflation will lift rental growth in all countries, but also put upward pressure on interest rates, which may hit required returns (yields). Transaction markets are expected to remain active, but at a lower pace compared to last year, according to the new report Pangea Property Outlook 2022.

“Compared to most other asset classes, real estate offers an efficient inflation protection, which is highly attractive in the current market. In addition, the Nordic economies are performing strongly, and will attract significant capital going forward. However, increasing interest rates might somewhat curb the investor optimism,” says Mikael Söderlundh, Head of Research and Partner at Pangea Property Partners.

Active transaction markets, but not another record
The Nordic property markets recorded the highest volume ever in 2021 with a transaction volume of EUR 72 billion (+67% from 2020). The transaction activity is expected to remain strong in 2022, and the momentum from last year has continued in January.

“Investor interest remains strong for practically all types of property. However, to set a new transaction record in 2022, a number of very large M&A deals and public takeovers will be needed, just like in 2021”, says Bård Bjølgerud, CEO and Partner at Pangea Property Partners.

Comeback for retail
Sector wise, most property segments are expected to perform well in 2022, driven by strong rental markets. Residentials and logistics continue to be the two favorite segments among investors, despite increased new-building activity.

“About 1.35 million sqm of new logistics space will probably be hitting the Swedish market this year, compared to an average below 0.5 million sqm over the last ten years. This should increase overall vacancy and add downward pressure on rents on more peripheral asset, while there is still an attractive rental upside on strategic last-mile logistics,” says Mikael Söderlundh.

Despite higher vacancy rates, all the Nordic office markets are expected to have positive rental growth in 2022. A strong comeback for retail is also expected, driven by increased consumption, plus investors returning to the segment.

“Without a doubt, the retail segment has been punished too hard over the last few years. We expect retail yields to drop, especially on high-quality assets, and the Norwegian market to lead the way,” says Bård Bjølgerud.

High M&A activity rewarded by the stock market
The Nordic listed property sector is larger than ever before with 44 companies on the main list with a combined market cap of EUR 84 billion. The companies are expected to be active in the pan-Nordic transaction markets this year, driven by their robust valuation premium to NAV at 41 percent on average.

“We observe that high M&A activity is rewarded by the stock market. Both bond and traditional financing is very available, which gives listed companies strong purchasing power for further growth and M&A activity,” says Mikael Söderlundh.

Pangea Property Outlook 2022 is an annual in-depth report on the Nordic real estate market produced by Pangea Property Partners and published for the sixth year in a row.

Mikael Søderlund is partner in Pangea AB

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