According to the Newsec Nordic Report Spring 2009, the worldwide economic downturn has begun to make an impact on the Nordic property market.

Transaction volumes on the Nordic and Baltic property markets fell significantly in 2008, even though a number of large transactions led to some recovery during the second half of the year. Of the Nordic countries, Sweden held its position best, with a fall of -20% calculated in euros, while the transaction volume on the Norwegian market fell by -55%. The greatest problem affecting property transactions has been and is expected to go on being financing, which has caused many investors to leave the market as a direct consequence of the banks’ restrictive lending. However, constitutional investors still have capital, and the current situation opens up new lending for those and other low-leveraged players to do good deals.

Even though international investors are mostly expected to remain on the sidelines for as long as the concern on the financial market continues, there is still a lot of international capital set aside for investments on the Nordic property market, of which Sweden is the largest submarket.

Transaction volume on the Swedish market was expected to fall dramatically in 2008, but the reduction was cushioned by some exceptional large transactions. In the event, investments totalled €12.5bn in 2008, which is a decrease of -20% compared with the previous year.

Despite the economic downturn, this year’s increase in households’ disposable income is expected to be the largest yet during the 2000s. Although the savings ratio is expected to rise, this points to a continuing rise in private consumption, resulting in a relatively stable rent trend for retail properties. However, a large area of new retail space will come on to the market in the next few years, especially in Malmö. This will lead to fiercer competition between sites, so that property owners will need to put more effort into retaining and attracting tenants.

Newsec predicts that direct yield requirements for offices will continue to rise during 2009. The low interest rate depresses direct yield requirements while expectations of increased vacancies and reduced rents work in the opposite direction. Looking ahead, the weak economic trend in combination with restrictive lending is expected to lead to further rises in direct yield requirements.