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STRICTLY CONFIDENTIALSTOCKHOLM | OSLO | HELSINKI | LONDON
REAL ESTATE OUTLOOK – SWEDENPangea’s view on 2017
2 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
PREFACE
This outlook is produced by Pangea Research to highlight
the main drivers for the real estate market in 2017:
» Buy side intentions
» Sell side intentions
» Financing
» Rental markets
This edition focuses on the Swedish market, but also
contains a summary of the entire Nordic market. A
similar edition on the Norwegian market is also available.
» Macro economy: solid onshore GDP growth back to +2% levels
» Property yields: trending upwards but stable in strong rental markets (e.g. Oslo office, hotel)
» Rental markets: positive outlook for Oslo office and hotel rents, mixed development in other segments
» Transaction volume: stable NOK 50-60bn “bread-and-butter” market, plus NOK 10-20bn mega deals
NORWAY
BACKGROUND
SWEDEN
FINLAND
» Macro economy; strong diversified growth continues, driven by strong labour market, growing population
(despite stop for immigrants) and public stimulations, but slightly down from 2016 level
» Property yields; prime yields expected to remain record low, due to exceptional demand and limited supply,
plus rental growth, but secondary yields starting to climb
» Rental markets; strong rental growth in Stockholm continues, fuelled by a growing labour market and new
supply not meeting demand, while stable in smaller cities
» Transaction volume: lower than 2016 but still very strong, around SEK 150-180bn expected
Mikael Söderlundh, Nordics
Head of Research & Partner
MOB: +46 73 770 77 90
Jørn Høistad, Norway
Head of Research Norway & Director
MOB: +47 92 82 84 37
» Macro economy: economic growth finally picking up speed as economic reforms starting to materialise
» Property yields: attractive 75-150 bps yield spread compared to rest of Nordics, attracting foreign interest
» Transaction volume: record high volumes in line with previous years expected, EUR 6-8bn
DENMARK
» Macro economy: private housing market loosing momentum, but economic recovery continues
» Property yields: stable prime yields, with some investors shifting focus from residential to office and retail
» Transaction volume: moderate volumes of DKK 45-60bn expected, with focus on Copenhagen and Aarhus
3 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 REAL ESTATE FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
4 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET TEMPERATURE WATCHStrong macro and property market in 2017, but some upwards pressure on secondary yields
GDP GROWTH
EMPLOYMENT
POPULATION
GROWTH
LISTED SECTOR
PROFIT TAKING
COMPLETED
DEVELOPMENTS
BANK LOANS
RETAIL
INFLATION
INSTITUTIONS
PROPERTY FUNDS
INTEREST RATES
INTERNATIONAL
DISTRESSED SALES
STRATEGIC EXITSPORTFOLIO
SHARPENING
ALTERNATIVE DEBT
BOND MARKET
STOCKHOLM OFFICE
HOTELS
PROPERTY YIELDS
RENTAL MARKETTRANSACTION
MARKET (VOLUMES)
FINANCING
OVERALL MARKET
YIELDSRENTAL MARKETS
REGIONAL OFFICE STOCKHOLM OFFICE
REGIONAL OFFICE
HOTELS
RETAIL
PREFERENCE SHARES
» Strong macro fundamentals remain
throughout 2017, reinforcing the view
of Sweden as a stable core market
» Solid buy-side demand for property,
combined with more sellers triggered
by good exit timing
» More cautious banks, affecting
leverage and margins, and pushing
interest to alternative financing
» Some upwards yield pressure, partly
compensated by rental growth
PRIVATE COMPANIES
RESIDENTIAL
RESIDENTIALS
SECONDARY ASSETS
MACRO BUY SIDE SELL SIDE
Solid economic growth, higher interest
rates and inflation on the rise
Many active domestic investors,
hard competition for foreigners
More sellers driven by good timing
for harvesting profits
More cautious banks, hampered
by high property prices and regulation
Stockholm office will outperform,
but most segments positive
Higher financing costs put pressure on
yields, but limited overall impact
Rental growth and strong transaction
market, but some upwards yield pressure
HOT
COLD
Source: Pangea Research
5 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
INVESTOR OUTLOOKActive buyers and sellers – 2016 vs 2017
CATEGORY HOLDINGS ACTIVITY 2016 OUTLOOK 2017 COMMENT
Institutional
investorsSEK ~500bn
Buy: SEK +33bn
Sell: SEK -28bn
Net: SEK +5bn
• 2016: net buyers; outlook 2017: net buyers
• Still underweighted in real estate and positive net inflow of capital
• Current allocation 9% of AUM, up from 7% two years ago
• Some institutions starting to reach their allocation targets
Listed property
companiesSEK ~650bn
Buy: SEK +60bn
Sell: SEK -26bn
Net: SEK +34bn
• 2016: net buyers; outlook 2017: neutral
• Stock market valuation changing from premium to par
• Access to capital; large equity and bond issues done recently
• Large net buyers in 2016 due to by Norrporten
Property funds SEK ~170bn
Buy: SEK +13bn
Sell: SEK -11bn
Net: SEK -1bn
• 2016: neutral; outlook 2017: net buyers
• Many funds with significant capital to spend over the next few years
• Around SEK 20bn raised to Swedish property funds/clubs in 2016
• Difficult to find opportunistic returns in Sweden
Private property
companiesSEK ~1,200bn
Buy: SEK +51bn
Sell: SEK -66bn
Net: SEK -15bn
• 2016: net sellers; outlook 2017: net sellers
• Record low yields triggering strategic sales
• Consolidation trend with smaller companies selling to larger
• Also high profitability and capital to spend (amortizing not interesting)
International
investorsSEK ~230bn
Buy: SEK +34bn
Sell: SEK -42bn
Net: SEK -8bn
• 2016: net sellers; outlook 2017: neutral
• Many foreign investors considering the Nordics a safe haven
• However, tough competition from domestic investors
• Positive currency effect for US investors, negative for UK investors
Other investors n/a
Buy: SEK +17bn
Sell: SEK –34bn
Net: SEK –17bn
• 2016: net sellers; outlook 2017: net sellers
• Municipalities sold for approximately SEK 10bn in 2016
• Further sales expected before next election year 2018
• Banks and owner-occupiers also included in the category
1
2
3
4
5
Source: Pangea Research. Arrows show expected change in 2017 compared to 2016
6
6 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
7 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
A few more years with solid growth, well above the other Nordic countries
GDP GROWTH
GDP GROWTH (2010-2020F)
GDP BREAK-UP BY SECTOR (CAGR 1Y VS. 5Y) GDP FORECASTS (2017-2020F)
» Nordic growth slightly above the Eurozone average
» Strong Swedish GDP growth of 2.5% in 2016-2020F, driven by:
• Growing population
• Increasing exports (undervalued currency)
• Low interest rate and public spendings (housing, social infrastructure, etc.)
• Strong labour market
» Important real estate sectors doing well, e.g. construction
COMMENTS
-2.0%
0.0%
2.0%
4.0%
6.0%
2010 2011 2012 2013 2014 2015 2016F 2017 2018 2019 2020F
Sweden Norway Finland Denmark Eurozone
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Sweden Norway Finland Denmark Nordics Eurozone
2017F 2016-2020F
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
1Y 5Y
Source: IMF, SCB
8 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
Strong population growth continues, despite stop for immigrants
POPULATION
POPULATION GROWTH (2010-2020F)
POPULATION IN SWEDEN BY AGE (1980-2020F) POPULATION FORECASTS (2017-2020F)
» The Nordics show strongest population growth in Europe, with Sweden
and Norway in top
» Driven by net immigration, higher birth rates and aging populations
» Stop for new immigrants has no immediate effect, due to 18-24 months
queues at the Migration Authority
» Immigration leads to short term investments and significant costs for the
municipalities (probably covered by government support)
» Overall, limited economic growth measured as GDP per capita
COMMENTS
-0.5%
0.5%
1.5%
2.5%
2010 2011 2012 2013 2014 2015 2016F 2017 2018 2019 2020F
Sweden Norway Finland Denmark Eurozone
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
Sweden Norway Finland Denmark Nordics Eurozone
2017F 2016-2020F
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
0-4Y 5-14Y 15-24Y 25-34Y 35-44Y 45-54Y 55-64Y 65-74Y 75-84Y 85-94Y 95+Y
Source: IMF, SCB
9 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
Inflation is finally on the rise, driven by weak currency
INFLATION
INFLATION (2010-2010F)
CPI BREAK-UP BY CATEGORY (CAGR 1Y VS. 5Y) INFLATION FORECASTS (2017-2020F)
» Higher inflation expected globally, starting in the US and fuelled by tax
cuts and public investments
» Nordic inflation picking up too but not reaching 2% in 2017-2018, with
the exception for Norway
» Partly imported inflation through more expensive foreign products
» Oil and energy prices can hardly go any lower
» However, the inflation forecasts have been wrong the last 8-9 years…
COMMENTS
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
2010 2011 2012 2013 2014 2015 2016F 2017 2018 2019 2020F
Sweden Norway Finland Denmark Eurozone
Source: IMF, SCB
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Sweden Norway Finland Denmark Nordics Eurozone
2017F 2016-2020F
-2%
-1%
0%
1%
2%
3%
4%1Y 5Y
10 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
Strong but two-folded labour market
EMPLOYMENT
UNEMPLOYMENT (2020-2020F)
PRIVATE SECTOR EMPLOYEES IN SWEDEN (2000-2014)* UNEMPLOYMENT FORECASTS (2017-2002F)
» Decreasing unemployment rates throughout the Nordics starting to
reach historically low levels
» Two-folded market; lack of qualified work force, but high unemployment
among certain groups (young people, uneducated, foreign-born, etc.)
» Important industries for the office sector generally doing well, e.g. ICT,
bank and insurance, service sector, etc.
• Limited effects from lay-offs such as Ericsson cutting 3,000 jobs
» Decreasing unemployment rates across Europe too, but high levels
compared to the Nordics
COMMENTS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010 2011 2012 2013 2014 2015 2016F 2017 2018 2019 2020F
Sweden Norway Finland Denmark Eurozone
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Sweden Norway Finland Denmark Nordics Eurozone
2017F 2016-2020F
Source: IMF, SCB
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Agriculture Construction Production Services
11 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
Expectations on slowly increasing interest rates during 2017 (hand in hand with inflation)
INTEREST RATES
INTEREST RATE STRUCTURE (JAN 2017)
5Y SWAP RATES (2012-2017) SIGHT DEPOSIT RATES (2012-2017)
» Quite steep yield curve in the Nordics, especially in Sweden, indicating
that the market believes in higher interest rates
• However, first repo rate increases not expected before end of 2017, at the earliest
» Gradual repo rate increases expected in the US, triggered by tax cuts
(private and corporate) and increased public investments, from Trump
» Higher interest rates would give real estate a ‘double hit’, as fixed income
products become more attractive and financing more expensive
» Currently, large interest rate spread between Sweden and Norway
COMMENTS
Source: Thomson Reuters
-1.0 %
-0.5 %
0.0 %
0.5 %
1.0 %
1.5 %
2.0 %
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Norway Sweden Denmark Finland (Euro)
-1.0 %
-0.5 %
0.0 %
0.5 %
1.0 %
1.5 %
2.0 %
2.5 %
3m 1Y swap 2Y swap 3Y swap 4Y swap 5Y swap 7Y swap 10Y swap
Norway Sweden Denmark Finland (Euro)
-1.0 %
0.0 %
1.0 %
2.0 %
3.0 %
4.0 %
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Norway Sweden Denmark Finland (Euro)
12 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE: DEMAND FOR REAL ESTATE
SELL SIDE: POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
13 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
NORDIC INSTITUTIONS’ INVESTMENTS IN PROPERTY (2009-2016)
COMMENTS
TARGETED MARKETS AND SECTORS (2016)
PROPERTY EXPOSURE SWEDISH INSTITUTIONS (2016)
Current holdings: ~SEK 500bn
1) INSTITUTIONS
» Current property allocation ~9% of AUM, up from 7% two years ago
» Overall, still underweighted but some institutions starting to reach their
allocation targets
» Net inflow of capital and limited supply of core properties – need to look
broader
» Swedish institutions to follow Norwegian institutions providing real estate
debt?
• BREC raised SEK 2.6bn in 2016 funded by e.g. KLP, Folksam and PRI
8.0
5.9
0.0
2.0
4.0
6.0
8.0
10.0
2009 2010 2011 2012 2013 2014 2015 2016
Geographical split Sector split
65%8%
13%
14%Sweden
Norway
Finland
Denmark
45%
15%
19%
13%
8% Residential
Office
Retail
Public sector
Other
0%
4%
8%
12%
16%
20%
0
2
4
6
8
10
AMF Alecta Skandia
Liv
AP1 AP3 SEB
Trygg Liv
AP2 AFA AP4 Folksam
Liv
Other
Real estate % of AUM
EU
Rbn
Source: Pangea Research
EU
Rbn
14 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
2) LISTED COMPANIESCurrent holdings: ~SEK 650bn
CURRENT VALUATION (PRICE / EPRA NAV)
SWEDISH LISTED SECTOR LTV AND INTEREST RATE (2000-2016) STOCK MARKET PERFORMANCE (LAST 12M)
» Reduced investment schemes due to revaluation – from premium to par
» However, still good access to capital (banks, bonds and equity) and low
leverage (<55%)
» Some new strategies already implemented, e.g. Kungsleden and Castellum,
and others may be triggered by new owner situations, e.g. D Carnegie,
Heba, Tribona
» In addition, new transaction intense companies coming to the main market:
SBB, Stendörren, Magnolia, etc.
COMMENTS
Source: Pangea Research, Thomson Reuters
0.7
0.9
1.1
1.3
1.5
Sag
ax
Jeudan
Vic
tori
a Par
k
Pan
dox
Fas
tPar
tner
D. C
arnegi
e &
Co.
NP3 F
astigh
ete
r
Hufv
udst
aden
Wal
lenst
am
Bal
der
Fab
ege
Pla
tzer
Cas
tellu
m
Heba
Cat
ena
Entr
a
Atr
ium
Lju
ngb
erg
Hem
fosa
Wih
lborg
s Fas
itgh
ete
r
Core
m
Diö
s
Klö
vern
Kungs
leden
Norw
egi
an P
ropert
y
Cityc
on
Sponda
Tech
nopolis
Ola
v T
hon
-20%
-10%
0%
10%
20%
30%
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
PREX Sweden PREX Norway PREX Finland PREX Denmark PREX Nordic
2%
3%
4%
5%
6%
7%
8%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Loan-to-value Avcerage intrest rate
Sweden Finland DenmarkNorway
15 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
3) PROPERTY FUNDSCurrent holdings: ~SEK 170bn
EXAMPLES CAPITAL RAISINGS 2016
EQUITY RAISED TO SWEDISH BASED PROPERTY FUNDS/CLUBS (2010–2016) TARGETED MARKETS AND SECTORS (2016)
» Increasing activity excepted in 2017
» Around SEK 20bn new equity raised to Swedish based property funds
and investment clubs in 2016 – to be spent over the next years
» In addition, all capital raised 2014-2015 not spent yet
» Broad focus, targeting many sectors and not only Sweden
» In general, difficult to find opportunistic returns due to low yields and
decreasing leverage
COMMENTS
Source: Pangea Research
*estimated figures
0
5
10
15
20
25
2010 2011 2012 2013 2014 2015 2016
Equity,
SEK
bn By geography By sector
44%
49%
7%
Nordics
Sweden
Stockholm
Vehicle Sector focus Markets Equity (SEKm)*
Niam VI Mixed Nordics ~7,500
Thule Real Estate Fund (Skandia) Mixed Sweden ~3,600
Intea Fastigheter Public sector Sweden ~1,750
Svenska Handelsfastigheter Retail big boxes Sweden ~1,575
Mengus III Commercial Stockholm ~1,200
Stenvalvet Public sector Sweden ~1,000
Domestica IV Residential/long lease Sweden ~850
Alma Property Partners I Commercial Nordics ~750
SPP Fastigheter Development Sweden ~750
Aberdeen Sweden Commercial Sweden ~500
Svenska Bostadsfonden 14 Residential Sweden ~300
Aros IV Development Sweden ~300
17%
5%
57%
13%1%7% Commercial
Development
Mixed
Public sector
Residential
Retail
16 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
4) PRIVATE COMPANIESCurrent holdings: ~SEK 1,200bn
LARGE SWEDISH PRIVATE PROPERTY OWNERS
» Heterogeneous group with property holdings for around SEK 1,200bn
» Overall, high profitability among all property owners and capital to be spent
– amortizing not that interesting
» However, record low yields are also triggering strategic sales
» Long-term consolidation likely to continue – small property owners selling
to large property owners, e.g. institutions and listed companies
» Some private companies also looking abroad, e.g. Akelius
COMMENTS
o Overall high profitability across the property sector 2016
o Strong returns likely in 2017 as well, despite higher financing costs
o Leverage has already come down, and low interest rates do not provide
incentives to reduce leverage further
o Re-investing dividends outside the property sector is also challenging
o Hence, plenty of capital to be spent on acquisitions and developments
Borrowing
costs
Rental
income
Property
values
De-leveraging Dividends Re-investment
PROPERTY SECTOR PERFORMANCE (2016)
TYPICAL APPLICATION OF FUNDS (2017)
17 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
5) INTERNATIONAL INVESTORSCurrent holdings: ~SEK 230bn
WORLDWIDE CAPITAL RAISED FOR PE REAL ESTATE
LARGE INTERNATIONAL INVESTORS IN SWEDEN FUNDS WITH EUROPE-SPECIFIC MANDATES; 2014-16 VINTAGE
» Many large global property funds raised in 2015-2016 and a portion of
the capital will target the Nordics
» Sweden seen as a safe haven, increasingly so after Brexit and Trump
» However, fierce competition from domestic investors and low property
yields, also in comparison to other core markets
» Difficult to find opportunistic returns through plain asset deals
» Positive currency effect for US based investors and negative currency
effect for UK based investors (after Brexit)
COMMENTS
176.5
224.0
271.1
0
50
100
150
200
250
300
2014 2015 2016
USD
bill
ions
Fund Equity, USDm Profile
Blackstone Real Estate Partners Europe V 7 361 Opportunistic
Blackstone Real Estate Partners Europe IV 6 099 Opportunistic
European Poperty Investors Special Opportunities (EPISO) 4 1 577 Opportunistic
Blackstone Real Estate Partners Europe IV (Alberta) 1 472 Opportunistic
Ares European Real Estate Fund III (EU III) 1 375 Opportunistic
Ares European Real Estate Fund IV 1 300 Opportunistic
European Poperty Investors Special Opportunities (EPISO) 3 999 Opportunistic
European Shopping Center Fund II 792 Core +
Mayer Bergman European Retail Partners III 789 Value-add
Mayer Bergman European Retail Partners II 789 Value-add
LaSalle Residential Finance I 543 Core
Ares European Property Enhancement Partners II 366 Opportunistic
Source: Pangea, market research
18 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
19 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
COMPLETED DEVELOPMENT
Skanska 1,000 Klipporna in Malmö
Areim 1,059 Chokladfabriken in Solna
Skanska 970 Hotell Hagaplan
TRANSACTION TRIGGERSHas the profit harvesting season started?
PORTFOLIO SHARPENING
Castellum 5,800 Portfolio sales in north of Sweden
Hemsö 1,500 Portfolio sale to SBB (35 properties)
Klövern 850 Portfolio sale to SBB (6 properties)
» Almost one-third of all sales in 2016 have been triggered by profit opportunities
in the market
» Also a strong market for divesting non-core properties and strategic
divestments such as property sale leasebacks and privatisations
» Rising interest rates could trigger more properties on the market
» Negative mark-to-market impact of interest SWAP contracts reduced as
interest rates increase and remaining terms are shorter
PROFIT TAKING
Starwood Capital Group 3,100 Portfolio sale to Redito (6 retail properties)
Sveafastigheter 1,500* Exit of Fund II (Partners Group)
Slättö Förvaltning 1,572 Exit of Fund 1 & 111 (Lansa Fastigheter)
STRATEGIC EXITS
Andra & Sjätte AP-fonden 22,600* Norrporten
Anders Hedin 4,150 Portfolio sale (sale leaseback)
Volvo Group 2,800 Portfolio sale (sale leaseback)
2015 2016
SEK 147bn SEK 209bn
WHY PROPERTIES ARE SOLD (2015-2016)
DISTRESSED SALES
PMS (Kaupthing) 875 Portfolio sale (11 properties)
K/S Stockholm III Hallunda (M6) 150 Hallunda Centrum
K/S ISP Stockholm (M6) 50 Diagonalen 1 in Kungens Kurva
17%
23%
52%
5%3%18%
29%44%
8%1%Portfolio sharpening
Profit taking
Strategic exit
Completed development
Distressed sale
Comment: charts based on deals above SEK 500m (representing 60-70% of the market)
Source: Pangea Research
* Estimated property value in Sweden
20 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 EXECUTIVE SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
NORDIC OUTLOOK
APPENDIX
1
2
3
4
5
6
7
8
21 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
REAL ESTATE FINANCINGA long period of low interest rates and steadily increasing lending volumes
0
200
400
600
800
1000
1200
1400
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
<1 year
1-5 year
>5 year
Total lending
Senior debt supply High
# Debt providers 15-20, international/domestic
Terms High leverage, low margins
Alternative financing Limited volumes
Bull market, 2005–20081
Senior debt supply Low
# Debt providers 2-6, Nordic
Terms Low leverage, high margins
Alternative financing Limited volumes
Bear market, 2009–20102
Senior debt supply Medium / High
# Debt providers 8-12, Nordic and German
Terms Medium leverage and margins
Alternative financing Increasing volumes
Steady market, 2011–20163
SENIOR BANK LENDING TO SWEDISH COMPANIES, BY MATURITY (2002-2016)
1 2 3
Rapid credit expansion
and fierce competition
between banks
Deleverage after the
financial crises
Gradually increasing
lending hand in hand with
higher property prices
Source: Pangea, Riksbanken
SEK
bn
22 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
REAL ESTATE FINANCINGHigher interest rates and more cautious banks, pushing interest to alternative financing
Senior bank debt market: stable / negative
» Slightly lower leverage and higher margins
» Focus on quality and existing customers
» Driven by increasing property prices and new
regulation (higher capital requirements)
» Any seasonal effects with banks opening up their
accounts again in Q1 2017?
CORPORATE BOND VOLUMES (2010-2016)*
Corporate bond market: positive
» Increasing volumes / many MTN programs
» Competitive pricing on long maturities
» Average listed property sector bond yield
~1.3% in Jan 2017
» Premium pricing on green labelled bonds
Preference shares market: negative
» No major issues in second half of 2016
» Increasing implied yields
» Average implied yield ~6.5% in Jan 2017
» Other alternative financing, e.g. mezz funds,
institutional lending and crowd funding
OVERALL CAPITAL STRUCTURE (2016)*
Source: Pangea, SCB, Thomson Reuters. *Listed property sector only
PREFERENCE SHARES VOLUMES (2010-2016)*
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
5
10
15
20
25
30
35
40
45
50
2010 2011 2012 2013 2014 2015 2016
Corporate bonds (SEKbn) % of total debt
0%
1%
2%
3%
4%
5%
6%
7%
0
2
4
6
8
10
12
14
2010 2011 2012 2013 2014 2015 2016
Preference shares, SEKbn % of total debt
SEK
bn
SEK
bn
56%
10%
3%
31%
Bank loans
Corporate bonds
Preference shares
Ordinary equity
23 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
24 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
STOCKHOLM OFFICE MARKETConversion projects reducing the office stock with ~300,000 sqm in the next few years
No Projects Main ownersAcquired
(year)
Current office
area (sqm)
Construction start
(estimated)
1 Marieviks Udde, Liljeholmen JM 2014 40,000 2018
2 Primus, Lilla Essingen Oscar Properties 2014 26,000 2018-2019
3 Racketen, Alviks Strand JM 2015 26,000 2018
4 Nacka Strand Carlyle, Skanska 2012 50,000 2017-2018
5 Ericsson, Telefonplan ALM Equity 2014 68,000 2017-2018
6 Telia, Farsta Ikano, Rikshem 2015 75,000 2018
7 Marievik Tobin Properties 2016 5,000 2018
8 Ekelund, Karlberg HSB 2011 25,000 2019-2020
Sum large projects ~315,000
ESTIMATED CONVERSION OF OFFICE AREA (SQM)
» Several large conversion projects starting in Stockholm 2017-2018:
• 6-7 large projects: ~250,000 sqm
• Many small projects: ~50,000 sqm
• Total: ~300,000 sqm reduced office area
» Some vacant properties such as Telia/Farsta but probably +15,000 employees
to be relocated (based on 30% current vacancy and 15 sqm/employee)
» Will put even more pressure on the already hot office market in central and
northern Stockholm
• Southern Stockholm becoming more a residential area
EXAMPLES OF RESIDENTIAL CONVERSION PROJECTS
1
2
3
4
5
6
7
Source: Pangea Research
COMMENTS
8
0
50,000
100,000
150,000
200,000
2016 2017 2018
25 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
0
1,000
2,000
3,000
4,000
5,000
6,000
0
2
4
6
8
10
12
14
STOCKHOLM OFFICE MARKET (CONT.)Significant under supply will continue fuelling the rental market
NEW OFFICE SUPPLY (SQM)
AVERAGE OFFICE RENT STOCKHOLM CBD (SEK/SQM) OFFICE VACANCY STOCKHOLM CBD (%)
» Strong rental growth close to 5% p.a. since the bottom in 2004, combined with a
record low vacancy rate (<2% in CBD)
» Expected new office supply (~220,000 sqm) well below the conversion volume
(~300,000 sqm) in 2017-2018
» In addition, strong momentum on the Stockholm labour market with many new
jobs created in the office sector
» Even with delays on the conversion projects, there will be pressure on further
rent increases and increased space efficiency (low sqm/employee)
COMMENTS
Source: Pangea Research, Strateg
Rental increase (2004-2016):
4.8% p.a.
Vacancy reduction (2004-2016)
-11% (~200,000 sqm)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2012 2013 2014 2015 2016 2017F 2018F
26 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
» After many years with excess demand, 2015 was the first year with balance in
new demand and new housing supply in Stockholm
STOCKHOLM RESIDENTIAL MARKETSupply finally meeting demand – but housing shortage will remain due to low historical construction
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rental Condo Ownership
0
5,000
10,000
15,000
20,000
25,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Population growth Need for new construction New apartments
NEED FOR NEW HOUSING
NO. OF COMPLETED APARTMENTS
80
100
120
140
160
180
200
220
240
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Condo Index
90
100
110
120
130
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Rent index
» Volatile annual construction rate ranging from 3,000 to 5,000 units with high
focus on condos in Stockholm
CONDO PRICE INDEX
RESIDENTIAL RENT INDEX
Source: SBC, Datscha, Valueguard
» Condo prices in Stockholm rose by 100 points in a five-year period
» Rental levels rose by 13 points between 2011 and 2012
27 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MARKET OUTLOOK 2017
1 SUMMARY
2 MACRO ECONOMY
BUY SIDE – DEMAND FOR REAL ESTATE
SELL SIDE – POTENTIAL SELLERS AND TRIGGERS
3 FINANCING
RENTAL MARKETS
OTHER NORDIC MARKETS
APPENDIX
1
2
3
4
5
6
7
8
28 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
NORWAYSolid onshore GDP growth and normalised transaction market after exceptional 2015
Source: Pangea Research
MACRO ECONOMY
» Onshore GDP growth back to +2.0% figures
» Inflation to come down from 2016 high, but
remains sifnificantly higher than rest of Nordics
» Interest rates 30-50 bps up from mid-2016
bottom mark
» Oil price mainly affecting the size of the oil fund
and certain markets (e.g. Stavanger) and sectors
TRANSACTION MARKET
» 2016 second best year on record, with all time
high number of transactions
» Solid transaction volumes around NOK 50-80bn
expected in 2017, depending on incidence of large
corporate deals
» Lower interest from international buyers, but still
attractive segments
YIELDS AND RENTS
» Overall, slight increase in yields due to higher
interest rates
» Markets with strong rental growth to see
unchanged yields
» Stable regional office and retail rents; strong
hotel and Oslo office rents
» Weak Bergen hotel and Trondheim office rents;
weak rents for small grocery stores
KEY MACRO PARAMETERS (2010-2019F) TRANSACTION ACTIVITY (2006-2018F) PROPERTY YIELDS (2016 VS 2017E)
NO
Kbn
% p
.a. gr
ow
th
0
40
80
120
160
200
240
280
0
20
40
60
80
100
120
140
2006 2008 2010 2012 2014 2016 2018
No. deal
s
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2012 2014 2016 2018
Onshore GDP Inflation Money market interest rate
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Oslo office Regional office Hotels Retail
2016 2017E
29 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MACRO ECONOMY
» Finnish economy showing positive growth after a
few slow years (+0.8% in 2016 and +1.1% in 2017)
» Domestic demand and construction driving the
economy, while export is still lagging behind
» Major economic reforms launched concerning
healthcare, social welfare and regional governments
• Cost savings of ~EUR 3bn for the government
• More focus on 15 large regional cities
TRANSACTION MARKET
» Strong transaction volumes expected, partly
driven by foreign investors
» Large capital inflow from Sweden, but also
Germany, Switzerland, US and UK
» Focus on HMA and selective regional cities, e.g.
Tampere, Turku, Oulu
» Active sellers in the core segment, e.g. listed
companies (valued at large discounts), institutions
(looking for partners) and construction companies
YIELDS AND RENTS
» Higher property yields (+75-150 bps) than rest of
Nordics
» Room for new investors and less competition
» Lack of sector specialists, e.g. within hotels,
logistics, retail and care properties
» Gradually increasing office rents in HMA, stable in
other regional cities
FINLANDEconomic growth finally picking up again, making investors look east
Source: Pangea Research, Mrec
KEY MACRO PARAMETERS (2010-2020F) TRANSACTION VOLUME (2006-2018F) PROPERTY YIELDS AND 10Y SWAP (2010-2016)
-2%
-1%
0%
1%
2%
3%
4%
2010 2012 2014 2016 2018F 2020F
GDP growth Population growth Inflation0
1
2
3
4
5
6
7
8
2006 2008 2010 2012 2014 2016 2018F
EU
Rbn
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2010 2011 2012 2013 2014 2015 2016
30 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
MACRO ECONOMY
» Economic recovery continues with moderate
GDP growth of 1.5-2.0% in 2017-2020F
» Low unemployment and increasing private
consumption, while export is still lagging (due to
oil, shipping, Brexit, etc.)
» Housing prices continue to increase, particularly
in Copenhagen and Aarhus, but not as fast as in
last years
» Low repo rate (-0.65%) and public stimulations
TRANSACTION MARKET
» Gradually increasing transaction volumes and a
more active transaction market
» Large interest from international investors, shifting
from residential to more office and prime retail
» Main focus on the Copenhagen region accounting
for more than 70% of the investment market, with
Aarhus holding a clear second place
YIELDS AND RENTS
» Generally decreasing property yields in recent
years, following a broader investor demand
» Going forward, downward pressure on prime
yields and development projects continues
» Strong office labour market coupled with low
office vacancy rates, push rents upwards
» Still low residential rents in Copenhagen
compared to similar cities
DENMARKEconomic recovery continues with international investors dominating the market
Source: Pangea Research
KEY MACRO PARAMETERS (2010-2020F) TRANSACTION ACTIVITY (2006-2018F)
-1%
0%
1%
2%
3%
4%
2010 2012 2014 2016 2018F 2020F
GDP growth Population growth Inflation0
10
20
30
40
50
60
70
2006 2008 2010 2012 2014 2016 2018F
DK
Kbn
0 %
1 %
2 %
3 %
4 %
5 %
6 %
7 %
8 %
9 %
2010 2011 2012 2013 2014 2015 2016
PROPERTY YIELDS AND 10Y SWAP (2010-2016)
31 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
APPENDIX
32 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
PANGEA PROPERTY PARTNERSIndependent Nordic property adviser with full transaction focus
Corporate finance
» M&A
» ECM and DCM
» IPO's and buyouts
» Financial restructuring
» Strategic advise
OSLOSTOCKHOLM
HELSINKI
LONDON
Property Transactions
» Buy-side and sell-side
» Single assets and portfolios
» Property development
» All property segments
» Strategic advise
Research
» Weekly/monthly market updates
» Extensive fact books
» Full Nordic coverage
» Capital and property markets
» Customized mandates
Pangea offices – In Finland, Pangea collaborates with Mrec Oy
SERVICE OFFERING OFFICES – FULL NORDIC COVERAGE
EUR 25bntotal property
value (2010-2016)
+300 deals
executed deals in the
Nordics (2010-2016)
Transaction value SEK 11.5bn
ADVISED ON THE LARGEST NORDIC TRANSACTIONS
Transaction value NOK 12.3bn
Acquisition of shopping center company Sektor Gruppen in Norway
Transaction value SEK 11.5bn
Acquisition of property companies Sveareal in Sweden and Fortin in Norway
Sale of 50% of Hemsö with properties in Sweden, Finland and Germany
Transaction value SEK 26.2bn
Acquisition of Norrporten with properties in Sweden and Denmark
2016
2015
2014
2013
employees+30
33 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
PANGEA PROPERTY PARTNERSMore than 50 executed transactions with a deal value around EUR 6.8bn in 2016
Jul 2016
SEK 1.8 bn
Buyer:
Sale of residential portfolio
(1,938 apartments) in southern Sweden
PROPERTY FUND
Sep 2016
NOK ~2 bn
Sale of shopping centre
Åsane Storsenter in Bergen
Buyer:
Sep 2016
SEK ~1.7 bn
Sale of logistics and industrial portfolio
in Sweden, Norway and Denmark
Buyer:
Nov 2016
Not disclosed
Sale of fund 1 and III
(~41,000 sqm)
Buyer:
Nov 2016
SEK 5-14 bn
Acquisition of 13 residential projects
in Sweden
Seller:
Apr 2016
SEK 26.2 bn
Seller:
Acquisition of Norrporten with
properties in Sweden and Denmark
Jun 2016
NOK 2.5 bn
Buyer:
Sale of 3 office properties
in Skøyen, Oslo
Apr 2016
SEK ~500m
Buyer:
Sale of residential portfolio
(544 apartments) in Skellefteå
Mar 2016
NOK 760 m
Buyer:
Sale of newly developed office building
in Bergen
Feb 2016
SEK 890 m
Buyer:
Sale of 8 hotels with 965 rooms
in Sweden
Mar 2016
SEK 2.9 bn
Seller:
Acquisition of Garnisonen in Linköping
and Campus in Östersund
Feb 2016
SEK 1.1 bn
Buyer:
Sale of residential portfolio
(1,700 apartments) in Östersund
Dec 2016
SEK ~6.0 bn
Sale of four separate property
portfolios in Northern Sweden
Buyers:
Jun 2016
SEK ~500 m
Buyer:
Sale of two elder care properties
in Uppsala
Dec 2016
NOK 2.1bn
Buyer:
Sale of 58 grocery stores
in Norway
34 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
PANGEA PROPERTY PARTNERSCross-border organization with some +200 years of combined experience within property transactions
Andreas Birgersson
Director & Partner
MSc in Engineering, Real Estate Economics
Years of experience
in real estate/finance: +15
André Lundberg
Director & Partner
BSc in Business and Economics
Years of experience
in real estate/finance: +15
Joakim Arvius
Director & Partner
MSc in Engineering, Real Estate Economics
Years of experience
in real estate/finance: +15
Håvard A. Nustad
Director & Partner
MSc in Business and Economics
Years of experience
in real estate/finance: +20
Andreas
Friberg
MSc in Business
and Economics
Mikael Söderlundh
Head of Research & Partner
MSc in Business and Economics
Years of experience
in real estate/finance: +10
Erik Høvik
Director & PartnerMSc in Business and Economics
Years of experience
in real estate/finance: +8
Bård Bjølgerud
CEO & Partner
MSc in Business and Economics
Years of experience
in real estate/finance: +20
Malin
Lindeborg
MSc in Business
and Economics
Linn Idsø Brenne
DirectorMSc in Business and Economics
Years of experience
in real estate/finance: +15
Adam
Bakonyi
MSc in Business
and Economics
Thomas Andersson
Director & Partner
MSc in Business and Economics
Years of experience
in real estate/finance: +8
Fredrik Berlin
Associate Director & Partner
MSc in Business and Economics
Years of experience
in real estate/finance: +8
Knut Waltré
Director & Partner
MSc in Business and Economics.
Years of experience in real
estate/finance: +8
Sandra
Nordstrand
Administration
Karin
Tilja
Graphic Designer
Thure LundbergCo-founder & Senior advisor
Christian Winther
CFOMSc in Business and Economics
“The Pangea team comprises some 30 employees and key
professionals with a combined experience of over +200 years
from real estate transactions and corporate finance”
Sondre N.
Nilsen
MSc in Business
and Economics
Jenny
Diaz Jernberg
MSc in Engineering,
Real Estate Economics
Joakim
Andersson
Financial Controller
Anton
Friling
MSc in Business and
Economics
Jørn L. Høistad
Director & Head of Research Norway MSc in Business and Economics
Years of experience
in real estate/finance: +15
Hannes
Kimari
MSc in Business and
Economics
Partners /Directors
Associate/Analysts
Admin/Backoffice
Sondre
Skjerven
MSc in Business
and Economics
Frida
Tosterud
MSc in Finance
Kristina Picard
Head of Communications
& Marketing
MSc in Business and Economics
& Journalism
Hege
Nilsen
Administration
Sina
Såtvedthagen
Administration
Rebecka
Ljungqvist
Reception
Vibeke
Hansen
Reception
35 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
DISCLAIMER
This presentation has been prepared by Pangea Property Partners KB and Pangea Property Partners AS (”Pangea”)
for the exclusive use of the party to whom Pangea delivers this presentation (together with its subsidiaries and
affiliates, the ”Company”) using information provided by publicly available information. The valuations, forecasts,
estimates, opinions and projections contained herein involve elements of subjective judgment and analysis. Pangea
has not independently verified the information contained herein, nor does Pangea make any representation or
warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in
this presentation. It should not be regarded by the recipients as a substitute for the exercise of their own judgment.
This presentation may contain forward-looking statements. Pangea undertakes no obligation to update these
forward-looking statements for events or circumstances that occur subsequent to such dates. Any information or
opinion expressed herein is subject to change without notice. Any estimates or projections as to events that may
occur in the future (including projections of revenue, expense, net income and stock performance) are based upon
the best judgment of Pangea from the information provided by publicly available information as of the date of this
presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will
vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon
as, a promise or representation as to the past or future. Pangea, its affiliates, directors, officers, employees and/or
agents expressly disclaim any and all liability relating or resulting from the use of all or any part of this presentation.
This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or
an offer to buy or sell any securities or related financial instruments. The Company should not construe the
contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The Company
should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction
described herein. This presentation does not purport to be all-inclusive or to contain all of the information that the
Company may require. No investment, divestment or other financial decisions or actions should be based solely on
the information in this presentation.
This presentation has been prepared on a confidential basis solely for the use and benefit of the Company; provided
that the Company and any of its employees, representatives, or other agents may disclose to any and all persons,
without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax
structure. Distribution of this presentation to any person other than the Company and those persons retained to
advise the Company, who agree to maintain the confidentiality of this material and be bound by the limitations
outlined herein, is unauthorized. This material must not be copied, reproduced, distributed or passed to others at
any time, in whole or in part, without the prior written consent of Pangea.
© 2017 Pangea Property Partners KB and Pangea Property Partners AS. All rights reserved. Pangea
specifically prohibits the redistribution of this material and accepts no liability whatsoever for the actions of third
parties in this respect.
36 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS
STOCKHOLM
Norrlandsgatan 15, 7th floor,
Box 7740, 103 95 Stockholm, SWEDEN
pangeapartners.se
OSLO
Tjuvholmen Allé 3, 8th floor,
N-0250 Oslo NORWAY
pangeapartners.no
LONDON
Berkeley Square House, Berkeley Square,
London W1J 6BD, UNITED KINGDOM
en.pangeapartners.se