Please take note, property investors: the fastest-growing metropolitan area in Europe isn’t London, despite its ever stronger status as workplace and playground for the world’s rich and (sometimes) famous.
It isn’t Dublin, which has attracted the headlines for bouncing back from the Irish bust with a vengeance, and cementing its position as a location for the offices of multinationals.
It’s Oslo, capital of Norway, one of the highest-income countries in the world. This wealth, based largely on revenue from oil that has been spread quite equally and very efficiently through the economy, has attracted a stream of immigrants. The population has also been boosted by Norway’s highly developed welfare system, which has contributed to rises in life expectancy and the birth rate. As a result the city’s headcount has been growing by almost 2% per annum over the past decade, according to the United Nations, World Urbanization Prospects: The 2014 Revision, released in May 2015. Despite new large projects such as the Barcode, development of residential is not keeping up with increase in demand and growth in office supply is only modest as many old, outdated office buildings are being converted to residential.
Second is Stockholm in neighbouring Sweden, a city whose growth is driven by similar factors. London is a mere seventh in Europe, one place behind another Nordic city, Copenhagen. Dublin, for its part, is growing more slowly than three of the Nordic capitals.
The economic strength of the four Nordic countries of mainland Europe is an important part of their attraction to property investors.
The economic strength of the four Nordic countries of mainland Europe – including Finland, which offers its own distinctive appeal as the Nordic region’s only member of the currency union – is an important part of their attraction to property investors.
They got their financial crisis over with early: fiscal policies were tightened, banking systems reformed, and markets deregulated in response to challenges in the 1980s and 1990s, allowing these countries to shrug off the Great Financial Crisis that hit other developed markets in 2008. Another structural competitive advantage lies in their labour forces, which are highly skilled because of strong education systems: for example, Finland’s teenagers are the best readers in Europe, according to the Organisation for Economic Co-operation and Development rankings.
It’s no surprise, then, that the Nordics score so highly in the World Economic Forum’s league table of Global Competitiveness. Finland is despite current economic challenges, at fourth, the highest-ranked country in the EU.
This all adds up to property returns that are either good or excellent. Between 2000 and 2014 Norwegian real estate put in an average annual return of almost 9%, according to the Investment Property Databank index, compared with under 7% for the pan-European index. Even the mainland Nordic country with the lowest return, Finland, slightly outperformed the European average.
International institutional investors like large markets.
International institutional investors like large markets. For this reason some, in the past, have overlooked Nordic real estate. However, increasing numbers are perusing it with great care. Because of this, the international share of total investment volume has risen to more than one third in 2015, compared with only 14% in 2009. International investors know that, when taken together, the Nordic market is very large: with a total value of €258 billion according to MSCI, it’s the fourth biggest in Europe.
The fact that this quarter of a trillion euros is split between four countries is an advantage: it creates diversity, with different markets complementing each other’s strengths and weaknesses. Sweden has one of the most professional and transparent markets in Europe with highest turnover compared to property stock – the Norse myth where the mighty Thor is tricked into trying to drain the world’s oceans from a drinking horn, but is unable to do so despite three attempts, is apt.
However, the country’s capital values are relatively volatile, because of the large number of international investors. Danish property values show low volatility, but the market is smaller, less liquid and less transparent.
How can investors make the most of this diversity? It’s best to have a team on the ground, which understands the idiosyncrasies of each market. If international investors don’t want to make the big commitment of hiring their own team, they can allocate to investments built on the expertise of someone else’s, such as segregated accounts with local managers, pooled property funds or listed Nordic property companies.
Economists, professors and politicians have long beaten a path to the Nordics, to work out why these societies are so successful in so many ways. It’s time for real estate investors to make the same journey. The past shows proven performance; the outlook is promising.
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