Market comments

The coronavirus pandemic dominated economic development both globally and in Sweden during most of 2020. The periodic closure of businesses and drastic restrictions to activities across society led to sharp declines in GDP and rapidly rising unemployment.

Swedish, Danish and Finnish economies

During the final quarter of the year, the worst negative projections were adjusted and the opinion among the majority of financial commentators is now that the economic recovery experienced during the latter part of the year, compared with the particularly negative trend that left its mark primarily on the second quarter of 2020, will continue in 2021. Nonetheless, unemployment in Sweden is expected to rise to just over 9% in 2021. Sweden’s GDP for the full-year 2020 is now expected to have fallen 4% to then recover, up +2.6% in 2021, after which a robust increase in growth to +5% is predicted for 2022 (Riksbank, Nov. 2020). Low interest rates and very robust monetary policy and fiscal measures have helped to support financial markets. The Swedish housing market has so far not been negatively impacted but rather markedly positively as regards price performance. The housing market could be negatively impacted, however, by a further rise in unemployment and fall in economic activity, resulting in adverse implications for GDP from slowing private consumption.

The development of the Swedish krona exchange rate plays a key role for inflation in Sweden, as a weak exchange rate normally contributes to higher inflation. The krona was weak in 2019 (TCW index) and continued to be so in the first quarter of 2020, though it strengthened during the summer and, for example, closed in on the ten-krona level against the EUR. According to the Riksbank (Nov. 2020), inflation – expressed in terms of CPIF – is expected to have fallen to +0.4% in 2020 and to then rise to approximately +0.9% in 2021 and +1.2% in 2022.

Danish and Finnish GDP growth and unemployment respectively were also severely impacted in 2020 as a consequence of the global coronavirus pandemic. Private consumption has also fallen, in a similar way to Sweden, but weaker export prospects have also had an adverse effect. Fiscal measures have been implemented with some positive effects in addition to the beneficial effects of a highly expansive monetary policy, though it remains unclear how positive an effect these will yield on performance over time. The main scenario, primarily for Denmark, is similar to that of Sweden: relatively strong recovery in 2021 following a sharp drop in GDP in 2020, while recovery in Finland is expected to be somewhat less robust in 2021.

Overall, this means the trend for the economy in the immediate future remains extremely difficult to assess.

Macro indicators, Sweden

Unemployment

 

8.6% (November 2020)

Inflation

 

0.5% (December 2020, cf. December 2019)

GDP growth

 

4.9% (Q3 2020, cf. Q2 2020)

Source: Statistics Sweden

GDP growth per year

Source: IMF World Economic
Outlook Database

Macro indicators, Sweden

Source: The Riksbank, The National Institute of Economic
Research (NIER) and IMF World Economic Outlook Database

Interest and credit market

In December 2019, Sweden’s Riksbank raised interest rates from –0.25% to zero. The Riksbank’s latest repo-rate path (Nov. 2020) indicates that the repo rate will remain at zero at least until late 2023. Swedish long-term interest rates fell drastically in 2019 through early autumn, when they bottomed out and subsequently trended upward again. However, the upswing broke off in early 2020 and, since then, long-term interest rates posted a downward trend that nonetheless flagged during the autumn. At the end of 2020, the five-year swap rate was approximately 10 basis points (0.1%), which was marginally higher compared with the half-year mark. Current levels are historically very low. STIBOR 3m, which rose gradually during the first quarter, fell back approximately 25 basis points to about +5 basis points at the end of June and continued slightly downward during the autumn. At the end of December the STIBOR 3m was once again negative, approximately 5 basis points below zero. Taken together, the yield curve was marginally positive between STIBOR 3m and the five-year swap rate at the end of the year.

Access to financing in the Swedish and international capital markets deteriorated radically at the end of the first quarter of 2020 and credit spreads then widened drastically. The situation improved somewhat to become markedly better in late summer and early autumn. The credit spread for investment-grade borrowers during the autumn has again approached the levels in effect in early 2020, even though lending conditions in the property sector have not improved to the same extent as for most other sectors.

In Denmark, the CIBOR 3m fell about 10 basis points in the spring and summer after rising sharply in the first quarter of 2020, primarily in light of the Danish krona coming under a certain amount of pressure against the Euro, which led the central bank of Denmark to raise its marginal rate by 15 basis points. At the end of the fourth quarter of 2020, CIBOR 3m was around –0.2% compared to –0.4% at the end of 2019. EURIBOR 3m also fell slightly during the spring and summer, following a temporary and relatively sharp rise in April and was about –0.55% at the end of the fourth quarter.

Castellum’s market share

Castellum owns a total lettable area of approximately 4.4 million square metres with a total property value of roughly SEK 103 billion. At year end, Castellum’s market capitalisation amounted to approximately SEK 57.9 billion, which at that time made the company the 13th largest listed property company in the European property market (excluding 100% housing companies and 100% retail companies), the third largest property company in the Nordic region in terms of market capitalisation and the second largest in terms of its free float.

Together, the 200 largest property owners in Sweden own a taxable area of around 99 million square metres of office, public sector properties, retail, warehouse, logistics and industrial properties, of which Castellum’s market share amounts to approximately 4–5%.

The largest property owners in Sweden, apart from the listed companies, are publicly owned companies as well as Swedish and international institutional investors. In addition, there are a number of smaller property owners such as property and construction companies, small works and private individuals.

Macro indicators, Denmark

Source: Danmarks Nationalbank and
IMF World Economic Outlook Database

Macro indicators, Finland

Source: European Central Bank (ECB) and
IMF World Economic Outlook Database

Sweden’s foreign trade – Export

Jan–Oct 2020 (10 months)

 

 

Exports

 

Total SEK 1,180 billion

Germany

 

125

Norway

 

125

USA

 

101

Denmark

 

88

Finland

 

83

China

 

68

Source: Statistics Sweden

Sweden’s foreign trade – Import

Jan–Oct 2020 (10 months)

 

 

Imports

 

Total SEK 1,125 billion

Germany

 

204

Norway

 

108

Netherlands

 

108

Denmark

 

77

China

 

61

Poland

 

52

Source: Statistics Sweden

Swedish, Danish and Finnish property markets

The volume for transactions over MSEK 40 in the transaction market in Sweden for 2020 totalled around SEK 183 billion (~218) over 447 transactions (447) through 31 December 2020.

Sentiment among investors in the Swedish property market remained strong during the quarter, and there is a great deal of interest in and capital for property investments in the market. During the fourth quarter of 2020, several major portfolio transactions took place at lower yields in both the Office and Warehouse/Logistics segments. The share of foreign investors through 31 December 2020 was approximately 27% (30), which remains a historically high figure. The Nordic property market remained attractive to international investors.

In Castellum’s markets, the required yield for office properties was stable during the year, but the number of comparative transactions following the outbreak of the coronavirus crisis remains limited for the office segment.

Warehouse and logistics properties continue to attract a growing number of both domestic and international investors, driven largely by the growth of e-commerce, a trend that seems to have strengthened during the ongoing coronavirus crisis. Low levels of supply among attractive logistics properties, in combination with high demand among investors, resulted in falling required yields during the year.

In Denmark, the transaction volumes in the property market totalled approximately DKK 65 billion (~52) through 31 December 2020. The mood among investors remains strong and a shift in investor interest from the housing segment to the office segment has been noted. The required yield for offices in the CBD in Copenhagen is assessed as remaining stable at 3.5%.

In Finland, the transaction volume in the Finnish property market totalled approximately EUR 5.0 billion (6.6) through 31 December 2020. There is a considerable demand among investors for the most attractive objects, and the required yield for offices in the CBD is estimated at 3.4%, which is roughly on a par with Stockholm. Increased investor interest has been noted for secondary and development properties as well.

Altogether, this indicates a strong property market, despite the fact that the full macroeconomic effects of the pandemic are as yet not transparent. Most property categories remain very interesting, but in particular those with secure cash flows, such as public sector properties and logistics properties.

Yearly transaction volume Sweden and investment yield, major cities

Source: Newsec

Transaction volumes/year, European property market

Source: Savills

Property holdings, listed property companies

Source: Q3 2019 reports from the respective companies.
Refers to companies with a property value of MSEK >3,000

Transaction volume by geography

Source: Newsec

Market investment yield – office

Investment yield 2020 (bars) according to Forum Fastighetsekonomi (Swedish
cities) and JLL (Copenhagen/Helsinki) for a number of different geographical
markets and segments in Castellum’s portfolio.

Market investment yield – Warehouse/Logistics

Investment yield 2020 (bars) according to Forum Fastighetsekonomi
(Swedish cities) and JLL (Copenhagen/Helsinki) for a number of different
geographical markets and segments in Castellum’s portfolio.

Data by Region

 

 

Population

 

Population trend 2010–2020 per year

 

Population trend, 2010–2020 average no. persons/year

 

Population trend, 2020

 

Studying at university/­college

 

Employment growth, 2010–2020 per year

 

Unemploy­ment, 2020

 

Growth total wages, 2010–2020 per year

 

Growth total wages, forecast 2020–2030 per year

National

 

10,438,000

 

1.0%

 

102,200

 

1.1%

 

429,000

 

1.4%

 

8.8%

 

2.6%

 

2.7%

Region West

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gothenburg, Sweden

 

1,420,000

 

1.2%

 

15,800

 

1.4%

 

50,000

 

1.4%

 

10.1%

 

2.9%

 

3.0%

Borås Municipality

 

114,000

 

1.0%

 

1,100

 

1.0%

 

9,000

 

1.4%

 

8.6%

 

2.6%

 

2.2%

Halmstad Municipality

 

105,000

 

1.3%

 

1,300

 

1.8%

 

9,000

 

1.2%

 

9.4%

 

2.5%

 

2.6%

Region Öresund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Malmö

 

1,215,000

 

1.3%

 

14,700

 

2.0%

 

52,000

 

1.4%

 

16.0%

 

2.6%

 

2.7%

of which Lund Municipality

 

127,000

 

1.4%

 

1,700

 

1.9%

 

35,000

 

1.1%

 

7.9%

 

2.2%

 

2.8%

of which Helsingborg Municipality

 

151,000

 

1.6%

 

2,200

 

2.2%

 

1)

 

1.6%

 

12.3%

 

2.8%

 

2.9%

Copenhagen (capital region)

 

1,854,000

 

0.9%

 

15,700

 

0.3%

 

120,000

 

1.2%

 

4.7%

 

1.3%

 

1.5%

Region Stockholm–North

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholm

 

2,857,000

 

1.6%

 

42,100

 

1.6%

 

88,000

 

1.4%

 

8.6%

 

3.0%

 

3.1%

Uppsala Municipality

 

237,000

 

1.8%

 

3,900

 

2.7%

 

39,000

 

1.7%

 

8.1%

 

2.9%

 

2.8%

Gävle Municipality

 

103,000

 

0.8%

 

800

 

0.8%

 

11,000

 

1.2%

 

11.2%

 

2.0%

 

2.1%

Region Central

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Örebro Municipality

 

157,000

 

1.5%

 

2,200

 

1.1%

 

13,000

 

1.7%

 

9.9%

 

2.9%

 

2.6%

Västerås Municipality

 

157,000

 

1.4%

 

2,000

 

2.1%

 

11,000

 

1.5%

 

10.8%

 

2.6%

 

2.5%

Jönköping Municipality

 

144,000

 

1.2%

 

1,700

 

2.2%

 

13,000

 

1.2%

 

6.6%

 

2.5%

 

2.8%

Linköping Municipality

 

167,000

 

1.3%

 

2,000

 

2.2%

 

23,000

 

1.6%

 

7.4%

 

2.7%

 

2.7%

Norrköping Municipality

 

144,000

 

1.0%

 

1,400

 

0.5%

 

2)

 

1.5%

 

11.8%

 

2.6%

 

2.2%

Växjö Municipality

 

96,000

 

1.4%

 

1,300

 

1.5%

 

28,000

 

1.3%

 

9.1%

 

2.5%

 

2.6%

Region Finland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Helsinki (capital region)

 

1,197,000

 

1.4%

 

15,200

 

0.9%

 

53,000

 

0.5%

 

13.5%

 

0.4%

 

2.1%

1.

Campus Helsingborg included in Lund University.

2.

Campus Norrköping included in Linköping University.

Source: Evidens, Statistics Sweden, the Swedish Public Employment Service, Statistics Finland, Statistics Denmark