“Changing side – from buy to sell” - Pangea Property Partners · 2019. 4. 8. · Pangea Institutional Outlook is based on an extensive investor survey conducted by Pangea Research

Institutional Outlook APRIL 2019

Pangea Research

“Changing side –from buy to sell”

2

Real estate ownership among Nordic institutions

This report covers the 160 largest institutions in the Nordic region managing assets worth almost €1,300bn in total. Currently, the average

property allocation among all institutions is 9.2% but there are country-wise differences with higher exposure in Sweden and Norway, while lower

exposure in Finland and Denmark. In terms of size, the institutions covered in this report range from large public pension funds and insurance

companies with AUM above EUR 50bn to smaller corporate pension funds, foundations and unions with AUM below EUR 1bn.

0.0

0.1

1.0

10.0

0 1 10 100

Re

al e

state

, E

UR

bn

Assets under management, EURbn

Sweden Norway Finland Denmark

SE

11.3%

FI

7.3%

NO11.1%

DK

5.6%

SE NO FI

DK

Strictly confidential Pangea Property Partners

Welcome to the fifth Pangea Institutional Outlook

For many years, institutional investors have been one of the

most important investor categories in the Nordic real

estate market. The large pension funds and insurance

companies have been large net buyers and contributed to

low property yields, especially on core assets, as well as

funded a variety of real estate funds and club deals.

However, demand has changed in the past few years and

institutional investors were net sellers in the Nordic market

in 2017/2018, for the first time since the early 2000s. In

parallel, their appetite for foreign real estate exposure and

geographical diversification has increased significantly.

Thus, it seems like a new landscape is emerging and many

institutional investors are currently re-evaluating their

investment strategies within real estate.

Against this background, we are happy to present our fifth

Pangea Institutional Outlook covering the 160 largest

institutional investors in the Nordic region. As always, the

purpose is to give a detailed picture of how these

influential investors view real estate as an asset class and

highlight interesting trends and potential challenges.

This report is based on public data combined with an

extensive investor survey conducted by Pangea Research in

the beginning of 2019. We would like to sincerely thank all

respondents for their time and participation. We hope you

will enjoy reading the report, and feel free to contact us

with questions or comments.

© Pangea Property Partners

3

THIS YEAR, THE FOLLOWING MAIN AREAS ARE COVERED IN THE REPORT:

Transaction activity and real estate exposure

Expectations on capital values over the next 12 months

Investment strategies over the next 12 months

Investor preferences in terms of sectors and geographies

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+46 73 770 77 [email protected]

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Mikael SöderlundhHead of Research & Partner

Sondre N. NilsenAssociate

Christian SahlströmAnalyst

CONTACT PERSONS

A study covering the

160 largest Nordic institutional

investors

Close to €1,300bn of assets under management

Pangea Institutional Outlook

NORDICS NORWAY SWEDEN

– In comparison to other asset classes, real estate is

considered equally attractive as government bonds and

alternative investments, such as hedge funds and

infrastructure. Corporate bonds are considered less

attractive.

– The most popular property segment is public properties,

followed by offices, logistics and residentials. Among

institutions seeking international real estate exposure,

Asia is considered the most attractive market, while

Sweden remains the most attractive Nordic market.

Pangea Institutional Outlook is based on an extensive

investor survey conducted by Pangea Research. It covers

the 160 largest institutional investors in the Nordic region

with focus on their view of real estate as an asset class and

planned investment strategies in the next 12 months.

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Executive summaryChanging side – from buy to sell

REPORT SUMMARY AND HIGHLIGHTS:

– Nordic institutions were large net sellers in the Nordic

property market in 2017 and 2018, for the first time

since the early 2000s.

– Over the last eight years, the average property

exposure among Nordic institutions has increased from

7.7% to 9.2% of AUM. In Sweden and Norway, the

current property allocation is above 11% on average.

– Over the next 12 months, Nordic institutions anticipate

slightly falling or flat real estate capital values.

– Nevertheless, 45% of the Nordic institutions aim to

increase their property holdings over the next 12

months. This share is, however, significantly lower than

in previous surveys.

2010/2011 2014/2015 2018/2019

INSTITUTIONAL OWNERSHIP

Number of institutions covered in the report 110 156 160

Total assets under management (AUM), €bn 872 1,134 1,263

Average real estate exposure, % of AUM 7.7% 8.3% 9.2%

12M MARKET EXPECTATIONS

Positive view on property prices 28% 63% 12%

Negative view on property prices 17% 11% 21%

Neutral 55% 26% 67%

12M REAL ESTATE INVESTMENT STRATEGIES

Net buyers 81% 69% 45%

Net sellers 0% 10% 8%

Neutral 19% 21% 47%

INVESTMENT PREFERENCES

Most attractive asset class Real estate Real estate Government bonds

Most attractive property sector Office Residential Public properties

Most attractive Nordic market Sweden Sweden Sweden

Most attractive international market Asia Europe Asia

Overall, it seems like the investor sentiment has changed

quite drastically over the last four years. The Nordic

institutions have moved from being net buyer to net sellers

and their market view is gloomier today. The underlying

reason for this might be that real estate has overperformed

in comparison to other asset classes for many years,

pushing many institutions’ property allocation close to their

long-term targets. Adding to that, the recent interest rates

hikes should put upward pressure on property yields and

make debt instruments more attractive. Currently, Nordic

prime office yields are around 3.5%, which is just 90 basis

points higher than the 10-year US government bond yield.

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From net buyers to net sellers

Transaction activity


Historically, institutional investors have been very active buyers in

the Nordic property market with investment volumes peaking

around EUR 6-7 billion in 2015-2016. Since then, investment

volumes have declined significantly to around EUR 4 billion and

institutional investors were net sellers in the Nordic market in

2017-2018. The sudden change can be explained by several

factors such as more focus on property development, increasing

appetite for international real estate, stricter capital requirements

and solvency rules, and perhaps most important, several

institutions starting to reach their long-term allocation targets.

The average property allocation among Nordic institutions has

increased from 7.7% in 2011 to 9.2% in 2019.

Looking at different countries, Swedish institutions have been

major net buyers over the last eight years, while Danish and

Finnish institutions have been net sellers. Over the same period,

institutions from Norway have been practically equally active on

the buy-side and sell-side. The average property allocation

among Swedish institutions has increased from 6.9% in

2011 to the current level of 11.3%, which is the highest

allocation in the Nordics.


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Sweden Norway Denmark Finland

EU

Rb

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8Y AGGREGATED BUY AND SELLVOLUMES BY COUNTRY

Acquisitions Divestments

4%

5%

6%

7%

8%

9%

10%

11%

12%

2011 2012 2013 2014 2015 2016 2017 2018 2019

% o

f A

UM

PROPERTY ALLOCATION OVER TIME

Sweden Norway Finland Denmark Nordics

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2011 2012 2013 2014 2015 2016 2017 2018

EU

Rb

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INSTITUTIONS’ TRANSACTION ACTIVITY IN THE NORDIC MARKET

Acquisitions Divestments Net

Nordic institutional ownership

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Average real estate exposure just above 9%


The investors covered in this report are large corporate

and public pension funds, insurance companies and other

institutional investors such as foundations, endowments

and unions. Altogether, the institutions have close to

€1,300bn of total assets under management, of which

slightly above 9% in real estate. As can be seen in the table

above, institutions from Sweden have the highest real

estate allocation, closely followed by institutions from

Norway. On average, Danish institutions have the lowest

real estate allocation.

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Country Institutional investors, # Assets under management, €bn Real estate under management, €bn Real estate exposure, %

Sweden 82 579 65 11.3%

Norway 35 155 17 11.1%

Finland 24 237 17 7.3%

Denmark 19 293 16 5.6%

All institutions 160 1,263 116 9.2%

47%

9%

25%

19%

INSTITUTIONAL BREAKDOWN BY CATEGORY

Corporate pension funds Public pension fundsInsurance companies Other institutions

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

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20

30

40

50

60

70

Corporatepension funds

Public pensionfunds

Insurancecompanies

Otherinstitutions

EU

Rb

n

AVERAGE REAL ESTATE EXPOSURE BY CATEGORY

Real estate (EURbn) % of AUM

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

20

40

60

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100

120

>€10bn €1-10bn <€1bnA

xe

ltit

el

EU

Rb

n

AVERAGE REAL ESTATE EXPOSURE BY SIZE

Real estate (EURbn) % of AUM

22%

32%

46%

INSTITUTIONAL BREAKDOWN BY SIZE

>€10bn €1-10bn <€1bn

Furthermore, it can be noted that smaller institutions tend

to have a somewhat higher real estate allocation than

larger institutions, and often with more focus on indirect

investments such as property funds.

Currently, Nordic institutions own real estate valued at

€116bn, which is €7bn higher than one year ago, despite

that the institutions have been net sellers during this

period. The increase is driven by strong capital value

growth as well as major investments in the institutions’

project portfolios.


Investment strategies

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Real estate still attractive, but other assets gaining popularity


EXPECTED EQUITY MARKET CAPITAL VALUES

Nordic institutions have a neutral view on equities over the

next 12 months. According to the survey, 38% of the

respondents anticipate increasing share prices, 38%

anticipate decreasing share prices and 24% anticipate a flat

market. In general, institutions from Sweden have a more

pessimistic view and institutions from Finland have a more

optimistic view of the equity market going forward.

THE MOST ATTRACTIVE ASSET CLASSES

Compared to the previous survey in 2014/2015, real estate

has dropped in popularity among Nordic institutions. When

asked to rank the attractiveness of different asset classes,

25% of the respondents have real estate as their top-pick

today, which is 13% lower than four years ago. Currently,

real estate is considered equally attractive as government

bonds (25%) and alternative investments (25%), and slightly

more attractive than equities (20%). Corporate bonds are

considered the least attractive asset class in the current

market (5%).


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25%

20%

25%

5%

25%

MOST ATTRACTIVE ASSET CLASSES

Real estate Equities Government bonds Corporate bonds Alternative investments

EXPECTED REAL ESTATE CAPITAL VALUES

Nordic institutions have a quite cautious view on real

estate going forward. Over the next 12 months, 21% of

the respondents anticipate capital values to fall, 12%

anticipate capital values to increase and 67% anticipate

capital values to be unchanged. The result is quite similar

across all Nordic countries. In 2014/2015, as much as 63%

of the institutions anticipated increasing capital values in

the Nordic real estate market.

12%

21%

67%

EXPECTED REAL ESTATE CAPITAL VALUES IN THE NEXT 12 MONTHS

Prices will rise Prices will decrease Prices will remain unchanged

38%

38%

24%

EXPECTED EQUITY CAPITAL MARKET VALUES IN THE NEXT 12 MONTHS

Prices will rise Prices will decrease Prices will remain unchanged

INVESTMENT STRATEGIES

Despite cautious market expectations, as much as 45% of

the Nordic institutions are still planning to increase their

real estate holdings over the next 12 months. This share is,

however, lower than in the previous survey 2014/2015,

when 69% of the respondents wanted to increase their real

estate holdings. In general, the institutions from Finland

have less aggressive investment strategies over the next

12 months in comparison to the other Nordic institutions.

45%

47%

8%

REAL ESTATE INVESTMENT STRATEGIES IN THE NEXT 12 MONTHS

Increase No change Decrease

Investment preferences

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Which markets and sectors are most popular?


SECTOR-WISE

Currently, the most popular property sector is public

properties, ranked as either the first- or second-hand choice

by almost 60% of the respondents. Other popular sectors

are offices, logistics and residentials, receiving high overall

scores as well. There are some country wise differences

such as, in relative terms, Swedish institutions being more

positive towards public properties, Norwegian institutions

being more positive towards offices and Finnish institutions

favouring residentials.

GEOGRAPHY

Over the past years, interest for investing in real estate

abroad has increased gradually among Nordic institutions.

According to the survey, 53% of the respondent consider

their domestic markets as most attractive today, down from

82% in 2010/2011. Among those institutions seeking

international property exposure, Asia and the US are

considered the most attractive markets. Asia is especially

popular among the largest institutions. Sweden is

considered the most attractive market within the Nordics,

followed by Norway.

13

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sweden Norway Denmark Finland Europe US Asia

MOST ATTRACTIVE MARKETS*

Ranked no 8 (worst) Ranked no 7Ranked no 6 Ranked no 5Ranked no 4 Ranked no 3Ranked no 2 Ranked no 1 (best)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Office Retail Residential Logistics Publicproperties

Hotels

MOST ATTRACTIVE REAL ESTATE SECTOR

Ranked no 7 (worst) Ranked no 6Ranked no 5 Ranked no 4Ranked no 3 Ranked no 2Ranked no 1 (best)


*Excluding votes on home markets

Pangea Property Partners

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A leading property advisor in the Nordic region


ABOUT US

Pangea Property Partners is an independent advisory firm

focusing on property related corporate finance and

transaction services in the Nordics. The company has

approximately 30 employees with offices in Stockholm,

Oslo and London. In addition, there is a close cooperation

with Mrec in Finland. In 2018/2019, Pangea Property

Partners have executed more than 60 transactions and

advisory mandates with an underlying property value of

about EUR 4.0bn.

SERVICE OFFERING

– Property Transactions

– Corporate Finance

– Research & Strategic Advisory

– Hotel Sector Competence

15

Pangea Weekly Pangea Monthly Pangea Listed Overview

Pangea Hotel Monthly

Pangea Property Outlook

RESEARCH REPORTS

PANGEA RESEARCH

Pangea’s inhouse research team follows the Nordic

property and capital markets continuously and provides

an independent view on real estate. Please see key contact

persons below.

NORDICS

Mikael Söderlundh

+46 73 770 77 90 [email protected]

SWEDEN

Christian Sahlström


NORWAY

Sondre N. Nilsen


NORWAY

Kristian Hoem


RESEARCH PARTNERS

FINLANDJohan Fager, Mrec

+35 40 777 [email protected]

Mrec Oy is an independent financial adviser in property and infrastructure

related transactions in Finland. Mrec was established in 2010 as a Finnish

subsidiary to Tenzing AB, a leading property transaction advisor in Sweden.

As a result of the sale of Tenzing AB in 2014 key personnel acquired the

Finnish company Tenzing Oy and changed the name to Mrec. After the

transaction Mrec continues its mission to serve clients in the Finnish property

and infrastructure market.

MREC

Lokalebasen.dk is a well-established player in the Danish market for letting

and leasing services. The company has some 14 employees with office in

Copenhagen and is fully independent. Lokalebasen.dk offers an easy to use

web portal where property owners can market their vacant premises (office,

retail, industrial/storage) towards a broad and diversified group of potential

tenants. The company was part of DN Erhverv up to 2013.

LOKALDATABASEN.DK

DENMARKJakob Dalhoff, Lokalebasen.dk



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 WIJ 6BD, United Kingdom

pangeapartners.co.uk

HELSINKI

C/o Mrec Oy, Mikonkatu 4 B

00100 Helsinki, Finland

pangeapartners.co.uk

Documents

“Changing side – from buy to sell” - Pangea Property Partners · 2019. 4. 8. · Pangea Institutional Outlook is based on an extensive investor survey conducted by Pangea Research