Newsec Property Outlook - Spring 2023

Key insights

Statement 1 & 2: “Buy low sell high” & “cash is king”

The market environment has changed and cash is again king, benefitting cash strong actors. Institutions have increased their activity on the market and this investor type is generally overrepresented in downturns of the cycle, which could be noted in the GFC but also in the last months of 2022. Indebted actors are instead switching to the sell side and are forecast to be net sellers this year. At the same time, investors are hesitant to act and are trying to catch a falling knife. These investors are likely to get stuck in the “wait and see” trap and miss opportunities.

Statement 3: “non-nordic investors to save the day”

Contrary to popular belief, non-Nordic investors are and have since the GFC accounted for a rather small share of the total transaction volume. The share is equivalent to the share of inter-Nordic investors. The share of non-Nordic investors has not necessarily been increasing either and can to some extent be seen as white noise. The share taken by this investor type has also seen sharper falls in downturns (GFC & covid 19 pandemic) than inter-Nordic investors.

Statement 4: “The residential asset class has become unattractive”

Although the segment has experienced some turbulence in the past few years, both with changing macroeconomic factors and unfavourable regulation, the underlying fundamentals of why the segment was attractive from the get-go are still there. There is a large housing demand in the Nordics from a population that is growing faster than the rest of Europe. There is also currently a supply shortage and annual construction needs in some capital cities are among the largest in Europe. Due to the downturn, the segment is likely to hold mispriced opportunities in the coming years.

Statement 5: “Public properties with short leases also carry low risk”

Newsec has investigated the chances that a public tenant will extend a lease. The investigation reveals that the chances are much larger than those of an office tenant in a prime location.

Conclusion:

Newsec analyses how to tackle the change and highlights the importance of seeing the long term perspective for real estate.