PANGEA PROPERTY OUTLOOK NORDICS · PANGEA PROPERTY PARTNERS 2 STRICTLY CONFIDENTIAL PREFACE This...

1 STRICTLY CONFIDENTIALPANGEA PROPERTY PARTNERS

PANGEA PROPERTY OUTLOOK – NORDICSAt the peak or just on the way to the top? – October 2017


PREFACE

This presentation is produced by Pangea Research and

presents our view on the Nordic market in 2017/2018:

» Macro economy

» Nordic real estate market

» Nordic listed sector

» Country summaries

This edition summarizes the overall Nordic market.

Complete market updates for the Swedish and Norwegian

market are also available.

BACKGROUNDSWEDEN

» Macro economy; broad-based growth well above the Eurozone average, driven by both domestic demand and exports,

coupled with public stimulations in connection to the 2018 election

» Property yields; prime yields expected to remain flat, due to exceptional demand and further rental growth, but secondary

yields starting to climb

» Rental markets; rental growth concentrated to the main cities, fueled by strong labour markets and new supply not

meeting demand, while neutral outlook in smaller cities

» Transaction volume; lower activity expected due to uncertainty related to future financing and tax costs, but still high

liquidity in a European perspective, around SEK 140-160bn in 2017 and 2018

NORWAY

» Macro economy; GDP growth picking up after some years of slow growth; driven by solid onshore GDP growth, higher

production activity and growth in employment

» Property yields; flat yield development is expected in 2018 and 2019, but some upward pressure. Higher leases expected

to be the main driver for investor returns going forward

» Rental markets; strong rental market with increasing office rents, and low net supply of new office premises expected to

reduce vacancy in Oslo and Bergen in 2018

» Transaction volume; volume slightly higher than in 2016, expected around NOK 70-85bn in 2017 and 2018. High activity

from international investors; assumed to continue looking for exposure in Norway

FINLAND

» Macro economy; positive momentum in the Finnish economy, after a long stagnation period

» Property yields; still 75-150 bps yield spread compared to the rest of the Nordics, attracting foreign interest

» Transaction volume; record high volume of EUR 9-10bn in 2017, driven by the Sponda deal (EUR 3.8bn)

DENMARK

» Macro economy; continued upswing for the Danish economy, with better capacity utilization

» Property yields; stable prime yields in Copenhagen, and increasing interest from international investors

» Transaction volume; slightly higher than 2016, around DKK 50-60bn in 2017 and 2018

Mikael Söderlundh, Nordics

Head of Research & Partner

MOB: +46 73 770 77 90

[email protected]

Sondre Nicander Nilsen

Norway

Head of Research Norway & Associate

MOB: +47 94 36 90 35

[email protected]

CONTACT

mailto:[email protected]

mailto:[email protected]


Nordic property market overview

NORDIC LISTED PROPERTY SECTOR (LAST 12M), %

NORDIC TRANSACTION VOLUMES (2007-2018F), EURBN NORDIC OFFICE PRIME YIELDS (2007-2018F), %

NORDIC OFFICE PRIME RENTS (2007-2018F), EUR

Source: Pangea Research, Mrec, Lokalebasen

-15%

-10%

-5%

0%

5%

10%

Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17

PREX Sweden PREX Norway PREX Finland PREX Denmark

3.0%

4.0%

5.0%

6.0%

7.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Stockholm Oslo Helsinki Copenhagen

0

200

400

600

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Stockholm Oslo Helsinki Copenhagen

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Sweden Norway Finland Denmark Forecast

INTRODUCTION


PANGEA PROPERTY OUTLOOK 2017/2018

NORDIC CONTEXT 5

NORDIC REAL ESTATE MARKET 12

NORDIC LISTED REAL ESTATE SECTOR 16

1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


World

» Broad-based economic growth

» Geopolitical tensions

» Reduced monetary and fiscal stimulations?

US

» Slow start for ‘Trumponomics’

» Strong labour market, but no wage acceleration

» 3-4 further interest rates hikes 2017/2018

Eurozone

» Solid economic recovery

» Strong job growth and household confidence

» Long-term Brexit uncertainty

Nordics

» All countries developing positively

» Healthy public finances and banks

» Reduced population growth, but still high

Asia

» China and India growing 6-7% steadily

» ‘Abenomics’ slowly lifting Japan

CURRENT STATUS

Source: Pangea Research, IMF, Riksbanken

+2.2%

+2.0%

+0.8%

US

GDP

CPI

Population +1.7%

+1.7%

+0.2%

EUROZONE

GDP

CPI

Population

+2.1%

+1.5%

+1.1%

NORDICS

GDP

CPI

Population

+6.6%

+2.4%

+0.6%

CHINA

GDP

CPI

Population

+1.3%

+0.4%

-0.3%

JAPAN

GDP

CPI

Population

+3.8%

+3.3%

+1.0%

WORLD

GDP

CPI

Population

GLOBAL OUTLOOK – KEY FIGURES 2017F

Strong late-cycle growth despite geopolitical tensions – with Nordics being a low risk region

GLOBAL OUTLOOK


20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sweden Norway Denmark Eurozone

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Sweden Norway Finland Denmark Nordics Eurozone

2017F 2017-2021F

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F

Sweden Norway Finland Denmark Nordics

GDP in the Nordics on par with the Eurozone

GDP GROWTH

GDP GROWTH (2010-2021F)

PMI – PURCHASING MANAGERS’ INDEX (2007-2017) GDP FORECASTS (2017-2021F)

» Nordics overall with a forecasted 2017 growth of 2.0%, primarily driven by

the strong growth in Sweden (3.2% in 2017)

» Strong PMI figures in the Nordics and rest of the Eurozone

» Recovery of the Norwegian GDP growth, expected to land at 1.8 % in 2017

and an average of 2.1% from 2017-2021

• Real disposable income for households expected to grow by 1.9% and 2.7%

in 2017 and 2018 (-1.5% in 2016), contributing to consumption growth

» Solid Swedish GDP growth of 2.3% projected in 2017-2021F

• Fiscal and monetary policies remain expansionary

COMMENTS

Source: IMF World Economic Outlook 2017, Statistics Norway

Index (

0-1

00)


0.0 %

0.3 %

0.6 %

0.9 %

1.2 %

1.5 %

1.8 %

2.1 %

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F

Sweden Norway Denmark Finland Nordics

Source: IMF World Economic Outlook 2017, Statistics Norway, Statistics Sweden

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%


2017F 2017-2021F

The Nordics with a population growth well above the European average

POPULATION

POPULATION PYRAMID - NORWAY (2017 AND 2040)

POPULATION GROWTH (2007-2020F) POPULATION FORECASTS (2017-2021F)

» Exceptional population growth in the Nordics compared to the rest of

Europe, driven by Sweden and Norway

» The population growth in Sweden and Norway is primarily driven by net

immigration, high birth rates and aging population

» Number of asylum seekers in Sweden is back to a normalized level with a

2017 forecast of ~28,000

» Lower immigration in the Nordics, compared to the last couple of years,

but the impact on real estate is expected to be limited

COMMENTS

2017 2040

45,000 35,000 25,000 15,000 5,000 5,000 15,000 25,000 35,000 45,000

1

8

15

22

29

36

43

50

57

64

71

78

85

92

99

106

Retired

Working age

Minors

FEMALE MALE

+0.4%

+0.6%

+2.4%

CAGR:


-4.0 %

-2.0 %

0.0 %

2.0 %

4.0 %

6.0 %

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Sweden Norway Denmark Finland Nordics

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%


2017F 2017-2021F

Strong labour market, continuing to strengthen in 2017/2018

EMPLOYMENT

UNEMPLOYMENT (2010-2020F)

EMPLOYMENT (2007-2018F) UNEMPLOYMENT FORECASTS (2017-2021F)

» Norway experienced increasing unemployment in 2015 and 2016, but the

trend reversed around year-end 2016

• Expected to continue to decrease, due to expected growth in most

Norwegian industries

» Decreasing unemployment rates throughout the rest of the Nordics; starting to reach historically low levels

» Two-folded market; lack of qualified work force, but relatively high unemployment among certain groups

» Decreasing unemployment rates across Europe too, but high levels compared to the Nordics

COMMENTS

Source: IMF World Economic Outlook 2017, Statistics Norway

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F



Source: IMF World Economic Outlook 2017, Statistics Norway, Statistics Sweden, Riksbanken

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


2017F 2017-2021F

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F


Relatively high inflation in Norway, compared to the rest of the Nordics and the Eurozone

INFLATION

INFLATION (2010-2021F)

INFLATION FORECASTS (2017-2021F)

» Higher inflation expected globally, starting in the US, fuelled by tax cuts

and public investments

» Slight increase in inflation in the Nordics expected going forward, with

the exception of Norway that is coming from very high levels in 2016

» Swedish inflation (CPI) above 2% in June 2017 for the first time since

2010, but expected to fall back again somewhat

» Norway experienced very high inflation in 2016, mainly due to imported

inflation

• Some imported inflation in Norway is still expected due to expensive

foreign products

COMMENTS

-30%

-20%

-10%

0%

10%

20%

30%

10Y 5Y 1Y

INFLATION BY CATEGORY IN SWEDEN (10Y, 5Y, 1Y)


-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17

Sweden Norway Denmark Finland (Euro)

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17


-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


Expectations of stable interest rates throughout 2017

INTEREST RATES

INTEREST RATE STRUCTURE (AUG 2017)

5Y SWAP RATES (2012-2017) SIGHT DEPOSIT RATES (2012-2017)

» Quite steep yield curve in the Nordics, especially in Sweden, indicating that the

capital market anticipates higher interest rates and a stronger economy

• First repo rate increases in the Nordics expected earliest mid 2018; Sweden

• First repo rate increase in Norway expected earliest in Q3 2019

» Higher interest rates likely to curb further yield compression

» Large interest rate spread between Norway and the other Nordic countries

» All else equal, high interest rates would make fixed income products more

attractive (and real estate less attractive)

COMMENTS

Source: Thomson Reuters (numbers as of September 20th 2017)



NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


NORDIC REAL ESTATE: STABLE LONG-TERM RETURNS…

Source: MSCI, Pangea Property Research

TOTAL RETURN PER ASSET CLASS (2000-2016)

Index (

2000=

100)

RETURN PROFILE (2000-2016)

CORRELATION (2000-2016)

Total return, %

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


0

2

4

6

8

10


Total returns Risk (volatility)

Sweden Norway Denmark Finland

Sweden 100% 77% 51% 76%

Norway 77% 100% 79% 79%

Denmark 51% 79% 100% 67%

Finland 76% 79% 67% 100%

The IT bubble

(2000-2001)

The financial crisis

(2007-2008)

Unlevered total returns

according to MSCI / IPD


Sweden

41%

Norway

20%

Finland

22%

Denmark

17%

1 1 1 1 NORDICS

No. of transactions, last 12m ~460 ~285 ~130 ~140 ~1,015

Transaction vol. Q1-Q3 2017, €bn 10.0 6.0 7.8 5.7 29.5

- %-change from Q1-Q3 2016 -31% +33% +40% +50% +4%

Transaction vol. 2016, €bn 22.1 8.0 7.4 6.3 43.8

- %-change from 2015 +42% -43% +24% +1% +10%

NORDIC TRANSACTION VOLUMES (2016 AND Q1-Q3 2017) NORDIC TRANSACTION VOLUMES (2007-2017F)

EU

Rbn

Source: Pangea Property Research

Based on deals above EUR 5m in property value

COUNTRY SPLIT (LAST 12M) SECTOR SPLIT (LAST 12M)

… AND HIGH TRANSACTION VOLUMES

3.0%

4.0%

5.0%

6.0%

7.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

Sweden Norway Finland Denmark

NORDIC OFFICE PRIME YIELDS

Residential

24%

Office

34%

Retail

15%

Industry/logistics

8%

Public sector

6%

Other

13%

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

Sweden Norway Finland Denmark Forecast


NORDIC LIQUIDITY VS THE REST OF EUROPE

TRANSACTION VOLUMES (2016)

>10 EURbn

5-10 EURbn

3-5 EURbn

1-3 EURbn

<1bn

TRANSACTION VOLUMES (2016) TURNOVER OF STOCK (10Y)

Source: Cushman & Wakefield, Savills, Leimdörfer, Pangea Property Research

# Country EURbn

1 UK 59

2 Germany 53

3 France 27

4 Sweden 22

5 Netherlands 10

6 Italy 9

7 Spain 8

8 Norway 8

9 Finland 7

10 Denmark 6

Total Nordics 43

# Country %

1 Sweden 6.5%

2 UK 5.8%

3 Luxembourg 4.7%

4 Norway 4.3%

5 Denmark 3.7%

6 Finland 3.6%

7 Netherlands 2.3%

8 Germany 2.1%

9 France 1.9%

10 Poland 1.9%

Nordic average 5.1%

Nordics accounted for 17-18% of the European volume 2016



NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


Office

39%

Mixed

25%

Retail

13%

Residential

11%

Warehouse

7%

Hotel

5%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

1,000

2,000

3,000

4,000

5,000

Sweden

78%

Norway

10%

Finland

10%

Denmark

2%

Sweden

21

Norway

3

Finland

3

Denmark

2

NORDIC REAL ESTATE EQUITIES29 listed property companies with a market cap of EUR ~45bn

Source: Pangea Property Research, Thomson Reuters

MARKET CAPITALIZATION (EURm)

TOTAL STOCK RETURNS, LAST 12M

COMPANIES BY COUNTRY

MARKET VALUE BY COUNTRY

MARKET VALUE BY SECTOR

29

EUR ~45bn

EUR ~45bn

DenmarkFinlandSweden Norway

Comment: Share prices as of September 25th 2017

DenmarkFinlandSweden Norway


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

PREX Office PREX Retail PREX Residential PREX Warehouse PREX Mixed

-20%

-15%

-10%

-5%

0%

5%

10%

15%

PREX Sweden PREX Norway PREX Finland PREX Denmark PREX Nordics

» 29 Nordic listed property companies (main list)

» Market cap around EUR 45bn – 78% in Sweden

» The Nordic listed real estate sector last 12m (+0%) has

underperformed compared to the overall Nordic listed market

» Sector valued around NAV

» Historically, efficient leading indicator for property prices (6-9

months lag)

LISTED REAL ESTATE: FLAT RETURN OVER LAST 12 MONTHS…

R² = 59%

-40

-20

0

20

40

60

-5 0 5 10 15 20

Pro

pert

y s

hare

s (t

)

Property (t+1)

CORRELATION PROPERTY VS PROPERTY SHARES (2000-2016)*

* Total returns for property shares (PREX Nordic) and property (IPD/MSCI) with one year lag

PREX SECTOR (LAST 12M)

PREX COUNTRY (LAST 12M)


Pangea Real Estate Index (PREX) measures equity market returns excluding dividends


0.6x

0.7x

0.8x

0.9x

1.0x

1.1x

1.2x

1.3x

1.4x

1.5x

Saga

x

Jeudan

Vic

tori

a Par

k

Pan

dox

Wal

lenst

am

Fas

tPar

tner

Cat

ena

Pla

tzer

D. C

arnegi

e

Bal

der

Core

m

NP3

Hem

fosa

Wih

lborg

s

Hufv

udst

aden

Fab

ege

Entr

a

Sponda

Tech

nopolis

Diö

s

Cas

tellu

m

Atr

ium

Lju

ngb

erg

Heba

Klö

vern

Kungs

leden

Cityc

on

Norw

egi

an P

rop.

Ola

v T

hon

Weighted average

by country:

NORDICS

1.01DENMARK

1.16FINLAND

0.87SWEDEN

1.04NORWAY

0.80

Comment: Share prices as of 1th of October 2017, EPRA NAV as of latest interim reports

… AND VALUATIONS GOING FROM PREMIUM TO PAR

PROPERTY SECTOR VALUATION (PRICE / EPRA NAV), OCTOBER 2017

Source: Thomson Reuters, Pangea Property Research

2.0x



NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


-1%

0%

1%

2%

3%

4%

5%

2011 2013 2015 2017F 2019F 2021F

GDP growth Population growth Inflation

SWEDENEconomic tailwind and further rental growth, but new tax regulations affecting the property market

Source: Pangea Research

MACRO ECONOMY

» Strong macro fundamentals remain, reinforcing

the view of Sweden as a stable core market

» Broad-based economic growth (above 3% in

2017F) driven by job growth, exports and public

stimulations connected to the 2018 election

» Inflation stabilizing around the 2% target

» Expectations on higher interest rates with first

repo rate increase in mid-2018

TRANSACTION MARKET

» Still high liquidity from a European perspective,

but volumes coming down from the 2016 level

» The slowdown driven by investors expecting

higher financing and tax costs already in 2018

» Increased spending power among public pension

funds expected, due to new investment guidelines

» High activity in the residential and public sector

segments accounting for almost half of the volume

YIELDS AND RENTS

» Stable and record low prime yields, pushed down

by exceptional demand and low supply

» Secondary yields starting to increase, particularly

in the retail segment

» Stockholm office rental growth continues, driven

by new supply not meeting demand

» Regulated market for rental apartments, but

large scale renovation schemes lifting the rents

KEY MACRO PARAMETERS (2010-2020F) TRANSACTION VOLUME (2007-2018F) OFFICE YIELDS AND 10Y SWAP (2006-2017)

SEK

bn

0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2008 2010 2012 2014 2016

0

100

200

300

400

500

0

50

100

150

200

250

2007 2009 2011 2013 2015 2017F

Transaction volume No of deals


PANGEA PROPERTY OUTLOOK 2017/2018Overall temperature watch – the Swedish market

GDP GROWTHLABOUR MARKET

POPULATION

GROWTH

LISTED SECTOR

INSTITUTIONS

PUBLIC SECTOR

BANK LOANSRETAIL

INFLATION

INSTITUTIONS

PROPERTY FUNDS

INTEREST RATES

INTERNATIONAL

LISTED SECTOR

PROPERTY FUNDS

DEVELOPERS

ALTERNATIVE DEBT

BOND MARKET

STOCKHOLM OFFICE

HOTELS

PROPERTY YIELDS

RENTAL MARKET

TRANSACTION

ACTIVITY

FINANCING

OVERALL MARKET

YIELDSRENTAL MARKETS

REGIONAL OFFICE

HOTELSREGIONAL OFFICE

STOCKHOLM OFFICE

SECONDARY ASSETSPREFERENCE SHARES

» Strong macro fundamentals remain

2017/2018, reinforcing the view of

Sweden as a stable core market

» Still strong demand for property, with

increased spending power among public

pension funds expected

» However, higher financing costs and tax

issues making the transaction market

cool down somewhat

» Rental growth concentrated to core

offices, more downside risks in certain

retail and residential submarkets

PRIVATE COMPANIES

RESIDENTIAL

RESIDENTIALSRETAIL

MACRO BUY SIDE SELL SIDE

Solid economic growth with interest

rates and inflation on the rise

Many active investors, with new

regulations for public pension funds

Public sector (municipalities, city

councils) and developers active sellers

Slightly cautious banks, hampered

by high property prices and regulation

Rental growth concentrated to the

largest office markets

Higher financing costs put pressure on

yields, but limited overall impact

Further rental growth but transaction

volumes slightly down from 2016


INTERNATIONALPRIVATE COMPANIESDEVELOPERS

MACRO


SWEDISH ECONOMIC OUTLOOKEconomic tailwind and scoop for rental growth, but higher interest rate risks

CATEGORY 2017F 5Y forecast COMMENT IMPACT ON REAL ESTATE OUTLOOK

ECONOMIC

GROWTH(real GDP growth)

3.2% 2.3%

• A couple of more years with solid growth, well above the Eurozone average

• Broad-based economic growth driven by both domestic demand and exports

• High historical correlation between GDP growth and property returns (but late cyclical tendency)

• Sweden looks competitive in a European perspective attracting foreign core investments

DEMOGRAPHICS(population growth)

1.8% 1.2%

• Exceptional population growth in a European perspective, also after the stop of refugee influx

• Aging population and clear urbanization trend

• Growing population creates immediate demand for housing and public services

• Focus on the largest cities and regions attracting the main bulk of people

LABOUR MARKET(unemployment rate)

6.7% 6.6%

• Strong job growth but two-folded labour market (skilled vs unskilled workforce)

• Limited wage increases due to recently settled collective agreements

• Continued strong occupier markets in the largest cities, where vacancy rates are already record low

• Lack of construction workers could mitigate the risk of a construction boom going forward

INFLATION(CPI)

1.8% 2.0%

• KPIF (and KPI) above the long-term target of 2% for the first time since 2010

• Expected to fall back again initially due to temporary factors

• Positive effect on CPI-linked leases

• However, higher inflation puts pressure on the Riksbank to hike up the key interest rate

INTEREST RATES(5Y swap)

0.4% n/a

• Expectations on gradually increasing interest rates with first repo rate increase expected mid-2018

• Long-term interest rates expected to be 50-75 bps higher at end of 2018

• More expensive property financing

• Bonds becoming more attractive as an investment(but still a gap between real estate vs bond yields)

1

2

3

4

5

Source: Pangea Research, IMF, Riksbanken


INVESTOR OUTLOOKInstitutions, property funds and international investors expected to be net buyers

CATEGORY CURRENT HOLDINGS CHANGE 2016 CHANGE 2017 YTD OUTLOOK COMMENT

Institutional

investorsSEK ~500bn

Net: SEK +5bn

Buy: SEK +33bn

Sell: SEK -28bn

Net: SEK +8bn

Buy: SEK +14bn

Sell: SEK -6bn

• Outlook: net buyers

• Still underweighted in real estate (9% of AUM on average)

• New regulations for the Swedish National Pension Funds (AP1-AP4)

• Some institutions shifting focus to property development

Listed property

companiesSEK ~650bn

Net: SEK +34bn

Buy: SEK +60bn

Sell: SEK -26bn

Net: SEK +2bn

Buy: SEK +19bn

Sell: SEK -17bn

• Outlook: neutral

• Stock market valuation changing from premium to par

• Good access to capital, both equity and debt

• Large net buyers in 2016 due to by Norrporten

Property funds SEK ~170bn

Net: SEK +2bn

Buy: SEK +13bn

Sell: SEK -11bn

Net: SEK -1bn

Buy: SEK +3bn

Sell: SEK -4bn

• Outlook: net buyers

• Many funds with significant capital to spend over the next few years

• Almost SEK 30bn raised to Swedish property funds/clubs in 2016/2017

• Challenging to find opportunistic returns in Sweden

Private property

companiesSEK ~1,200bn

Net: SEK -15bn

Buy: SEK +51bn

Sell: SEK -66bn

Net: SEK -8bn

Buy: SEK +20bn

Sell: SEK -28bn

• Outlook: net sellers

• Record low yields triggering strategic sales

• Consolidation trend with large companies growing larger

• Fragmented group, many small local property owners

International

investorsSEK ~230bn

Net: SEK -8bn

Buy: SEK +34bn

Sell: SEK -42bn

Net: SEK +4bn

Buy: SEK +24bn

Sell: SEK -20bn

• Outlook: neutral

• Many foreign investors considering the Nordics a safe haven

• Increasing interest from international core funds

• Mixed currency effects (USD / EUR / GBP)

Other investors SEK ~1,500

Net: SEK –17bn

Buy: SEK +17bn

Sell: SEK –34bn

Net: SEK –6bn

Buy: SEK +9bn

Sell: SEK –15bn

• Outlook: net sellers

• Municipalities sold for about SEK 17bn in 2016-2017 H1

• Further sales interrupted by the election 2018

• Non-core sales expected from city councils and owner-occupiers

TOTAL MARKET SEK ~4,300bn

1

2

3

4

5

Source: Pangea Research. Estimated property holdings

6


SEGMENTS OUTLOOKOverall positive outlook with most downside risk in the retail segment

KEY DRIVERS OFFICE RETAIL RESIDENTIAL LOGISTICS PUBLIC SECTOR HOTEL COMMENTS

RENT

POTENTIALPOSITIVE NEUTRAL

SLIGHTLY

POSITIVE

SLIGHTLY

POSITIVE

SLIGHTLY

POSITIVE

SLIGHTLY

POSITIVE

• Strong job growth and low vacancy rates favouring the office sector

• Less impact on long lease properties and regulated markets such as residentials

INTEREST RATE

SENSITIVITY

SLIGHTLY

NEGATIVE

SLIGHTLY

NEGATIVENEGATIVE

SLIGHTLY

NEGATIVENEGATIVE

SLIGHTLY

NEGATIVE

• Risk of higher interest rates affecting the entire property market

• However, largest impact on low yielding properties and highly leveraged segments

DEBT

AVAILABILITY

SLIGHTLY

POSITIVENEUTRAL NEUTRAL NEUTRAL

SLIGHTLY

POSITIVENEUTRAL

• Fairly liquid bank sector and very strong bond market

• Focus on core assets and relationship-driven lending

INVESTOR

PREFERENCESPOSITIVE NEUTRAL POSITIVE POSITIVE POSITIVE POSITIVE

• Generally, strong investor demand for real estate in the current market

• Weak interest for secondary retail

NEW SUPPLY

BALANCEPOSITIVE

SLIGHTLY

NEGATIVE

SLIGHTLY

NEGATIVEPOSITIVE POSITIVE

SLIGHTLY

POSITIVE

• Risk of oversupply in some niches of the residential and retail markets

• Surplus demand and limited vacancy risks in most other segments

OVERALL POSITIVE NEUTRALSLIGHTLY

POSITIVEPOSITIVE

SLIGHTLY

POSITIVE

SLIGHTLY

POSITIVE

• Rental upside vs. risks of higher financing and tax costs

• New supply risks in the retail and residential segments

Rental growth concentrated tothe largest cities

Large differenceprime vs secondary

retail

Large difference old stock vs new

production

Long-term trading patterns favouring

logistics

Favourable demographics but pressured yields

Strong demand from both leisure

and business guestsSource: Pangea Research



NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


0

20

40

60

80

100

120

2006 2008 2010 2012 2014 2016 2018

0%

1%

2%

3%

4%

2011 2013 2015 2017F 2019F 2021F

GDP growth Population growth Inflation1%

2%

3%

4%

5%

6%

7%

8%

2010 2011 2012 2013 2014 2015 2016 2017

MACRO ECONOMY

» Onshore GDP back to +2.0 % figures

» Inflation to normalize from 2016’s high levels, but

still remains significantly higher than rest of Nordics

» Higher production activity boost employment from

2015/16’s high unemployment. However,

unemployment still well below European average

» Population growth primality driven by net

immigration, high birth rates and aging population

TRANSACTION MARKET

» Strong transaction market in 2017 so far;

expected to land at NOK 70-85bn

» Forecasted slightly higher volume in 2017 and

2018 compared to 2016

» The Oslo and Akershus market is highly liquid,

followed by Hordaland and Rogaland counties

» High activity from international investors, with

a ~23 % market share over the last 12 months

YIELDS AND RENTS

» Historically low prime office yields

» Expect flat yield development in 2018-2019 with

an upward pressure on rents; being the driver for

investor returns going forward

» Stable repo rate of 0.5 % since April 2016. First

repo rate increase expected earlies Q3 2019

» Higher interest rates likely to curb further yield

compression

NORWAYStable economic outlook, liquid transaction market and historically low prime yields in Norway

Source: Pangea Research, IMF Economic outlook

KEY MACRO PARAMETERS (2011-2021F) TRANSACTION VOLUME (2006-2018F) PROPERTY YIELDS AND 10Y SWAP (2010-2017)

NO

Kbn


MARKET TEMPERATURE WATCHStrong macro and property market in 2017/18, but some upwards pressure on secondary yields

GDP GROWTH EMPLOYMENT

POPULATION

GROWTH

LISTED SECTOR

PROFIT TAKING

COMPLETED

DEVELOPMENTS

BANK LOANS

RETAIL

INFLATION

INSTITUTIONSPROPERTY FUNDS

INTEREST RATES

INTERNATIONAL

STRATEGIC EXITS

PORTFOLIO

SHARPENING

BOND MARKETOSLO OFFICE

HOTELS

PROPERTY YIELDS

RENTAL MARKET

TRANSACTION

ACTIVITY

FINANCING

OVERALL MARKET

YIELDSRENTAL MARKETS

REGIONAL OFFICEOSLO OFFICE

REGIONAL OFFICE

HOTELS

RETAIL

» Strong macro fundamentals, and positive

future prospects

» Persistent buy-side demand; more sellers

might emerge seeking to harvest profits

» Stable financing terms going forward;

banks’ net margin has never been higher

» Wide spread in rental market

performance

» Yields have bottomed out and could rise

in markets with sluggish rental growth

PRIVATE COMPANIES

RESIDENTIAL

RESIDENTIALS SECONDARY ASSETS

MACRO BUY SIDE SELL SIDE

Solid economic growth and inflation still

relatively high; possible higher int. rates

High demand; active financial buyers,

passive listed sector, private co’s selective

Sellers driven by good timing

for profit harvesting

Banks prefer existing clients, bonds are

attractive, increase in institutional credit

Oslo office will outperform,

but most segments positive

Possible higher interest rates put pressure

on yields, but limited overall impact

Rental growth and strong transaction

market, but some upwards yield pressure


MACRO

BORROWING

MARGINSINSTITUTIONAL

CREDIT

WESTERN NORWAY

HOTELS


CATEGORY 2017F 5Y forecast COMMENT IMPACT ON REAL ESTATE OUTLOOK

ECONOMIC

GROWTH

(Real GDP growth)

1.8 % 2.3 %

• GDP growth has picked up and is expected to be on average 2.1% the coming 4 years

• Driven by solid onshore GDP growth, higher production activity and growth in employment

• High historical correlation between GDP growth and property returns (but late cyclical tendency)

• Economic growth will eventually materialize in lower vacancy rates and increased rents, especially in areas reliant on oil-activity like Stavanger and Bergen

DEMOGRAPHICS

(Population growth)1.4 % 1.1 %

• Strong population growth in Norway compared to the European average

• Driven by net immigration, high birth rates and aging population

• Positive impact on real estate as it drives demand

• Strong impact on the residential market; developers with focus on conversion to residential purposes and zoning of new central residential projects

LABOUR MARKET(Unemployment rate)

4.2 % 3.8 %

• Employment decreased with the oil price drop in 2014-2015, but show signs of recovery

• Expectations of higher production activity result in stable outlook for the Norwegian employment market with a forecasted 5yr unemployment rate of 3.8%

• Low unemployment reduce risk of vacancy

• Important factor for international investors; Norway’s unemployment rate is still well below the European and Nordic average and considered a safe haven

INFLATION(CPI)

2.1 % 2.5 %

• After a period of high inflation in 2016 (3.6%), it is expected to be just below 2.0 % in 2017

• Recent forecasts indicate inflation just below 2 % in 2018-2020; higher than rest of the Nordics and Europe

• Positive effect on rents through CPI-linked leases

• Inflation forecasts below Norway’s target of 2.5 % curbs the pressure on key interest rate hikes

INTEREST RATES(5Y swap)

1.4 %

Jan-17: 2.36 %

Sep-17: 2.40 %

Δ: +0.04 %

• Still need for expansive monetary policy due to low interest rates abroad, capacity utilization below normal and inflation below target going forward

• Key interest rate expected to gradually increase from 2019

• More expensive property financing and higher cost of capital

• Bank margins, however, are high historically, and a reduction of margins might neutralize some of the effect from increased interest rates

NORWEGIAN ECONOMIC OUTLOOKAnd implications on the real estate market

1

2

3

4

5



NORWEGIAN INVESTOR OUTLOOKActive buyers and sellers – 2016 vs 2017/2018

CATEGORY EST. HOLDINGS ACTIVITY 2016ACTIVITY 2017/2018

2017 YTD OUTLOOKCOMMENT

Institutional

investorsNOK ~135bn

Buy: NOK +5.0bn

Sell: NOK -6.7bn

Net: NOK -1.7bn

Buy: NOK +4.0bn

Sell: NOK -3.2bn

Net: NOK +0.8bn

• 2016: neutral; outlook 2017/2018: neutral to net buyers

• Regulation-driven divestments from 2015 onwards

• Current allocations close to target

• Selective net buyers in 2017/2018

Listed property

companiesNOK ~91bn

Buy: NOK +7.7bn

Sell: NOK -8.3bn

Net: NOK -0.6bn

Buy: NOK +2.3bn

Sell: NOK -4.3bn

Net: NOK -2.0bn

• 2016: neutral; outlook 2017/2018: neutral to net sellers

• Stock market valuation still below NAV

• Access to capital; low loan-to-value

• Entra and OLT buyers; NPRO sellers in 2016

Property

funds/syndicatesNOK ~107bn

Buy: NOK +21.1bn

Sell: NOK -12.0bn

Net: NOK +8.8bn

Buy: NOK +10.2bn

Sell: NOK -11.6bn

Net: NOK -1.4bn

• 2016: net buyers; outlook 2017/2018: net buyers

• Many funds with significant capital to spend over the next few years

• Some financing issues for SPVs

• Profit harvesting to cause increased sales in 2017/2018

Private property

companiesNOK ~1,300bn

Buy: NOK +26.4bn

Sell: NOK -31.6bn

Net: NOK -5.1bn

Buy: NOK +20.4bn

Sell: NOK -20.8bn

Net: NOK -0.4bn

• 2016: net sellers; outlook 2017/2018: neutral to net sellers

• High profitability and capital to spend (amortizing not so interesting)

• Record low yields also triggering strategic sales

• Long-term consolidation trend, large companies growing larger

International

investorsNOK ~95bn

Buy: NOK +8.9bn

Sell: NOK -7.0bn

Net: NOK +1.9bn

Buy: NOK +14.2bn

Sell: NOK -4.9bn

Net: NOK +9.3bn

• 2016: net buyers; outlook 2017/2018: neutral to net buyers

• Many foreign investors looking at the Nordics as a safe haven

• Meets tough competition from domestic investors and low yields

• Lower required returns and use of separate accounts keep the Nordics attractive

Other n.a.

Buy: NOK +6.3bn

Sell: NOK –8.3bn

Net: NOK -2.0bn

Buy: NOK +2.0bn

Sell: NOK -8.8bn

Net: NOK –6.8bn

• 2016: net sellers; outlook 2017/2018: net sellers

• Typically private investors that does not have real estate as their core business

• Sales likely triggered by buy side initiatives

• More demanding tenants require professional management; trigger sales

1

2

3

4

5

Source: Pangea Property Research (numbers as of September 20th 2017)

6


PROPERTY SEGMENTS2018 Outlook

SEGMENT COMMENTS OUTLOOK OUTLOOK

OSLO OFFICE

• All time low prime yield and all time high average office rent in Oslo

• Highly liquid market, 2017 YTD up 85 % from same period last year

• Oslo becomes bigger; inner city still considered very attractive, but due to lease levels, some tenants seek alternatives outside that can provide similar amenities, such as Helsfyr, Nydalen, Skøyen, etc.

• Reduced vacancy rate in Oslo and Bærum in 2018

• Flat office yields and upwards pressure on leases in Oslo

• Expect slight reduction in conversion from office to residential –with potential to effect vacancy, as a result of recent sluggish residential prices in Oslo

REGIONAL OFFICE

• Stavanger, Bergen and Trondheim struggle with great division in the office market

• In general, strong performance in the city center while areas outside the city center struggle with high vacancy and low office rents

• Stavanger is the definite weakest market of the three, but picking up

• Residential conversion and low net supply of new office premises in Bergen assumed to reduce vacancy – stable outlook

• Stavanger market expected to have reached its low point – positive

• Trondheim with risk of oversupply of new offices and week office rents outside the inner city center in 2018 - negative

RETAIL

• Shopping centers struggle with sluggish rents and flat turnover development

• High street retail with stable performance; positive rent development and low yields. Demand from international investors

• Big box market stable and liquid, but relatively small

• Shopping centers in process of adjusting to new consumer habits; offering more than just traditional shopping to attract visitors

• Investors willing to invest in customer experience will be the “winners” of this segment

• Flat development in retail yield assumed in 2018

HOTEL

• All time high ADR, RevPAR and occupancy rate in Norway 2017YTD (compared to same periods) since 2008

• Oslo proves itself as a strong hotel city with ~50 % growth in RevPar over the last 5 years

• Revenue growth, in an environment of low construction, paves the ground for a strong hotel year in 2017/18, with the exception of Western Norway

• Ownership is still relatively dispersed, opening for structural changes within the segment going forward

LOGISTICS

• Logistics segment in Norway is small compared to other countries

• Higher activity and demand from investors over the last 2-3 years

• More development of premises situated close to city centers

• High-tech solutions seen as key driver for rent development

• “Winners” of this segments will be landlords who are willing to invest large amounts upfront to tailor-make premises for tenants

• In such case, tenants’ willingness to pay higher rents increase

• Yield for premises situated close to the city center has the potential to fall some, along with increased trend of e-commerce

1

2

3

4

5



PROPERTY SEGMENTS OUTLOOKImpact of key drivers

KEY DRIVERS OFFICE RETAIL RESIDENTIAL LOGISTICS HOTEL COMMENTS

RENT

POTENTIALPOSITIVE

SLIGHTLY

NEGATIVE

SLIGHTLY

POSITIVENEUTRAL POSITIVE

• Strong job growth and low vacancy rates favouring the office sector

• Positive momentum in the hotel segment

INTEREST RATE

SENSITIVITY

SLIGHTLY

NEGATIVE

SLIGHTLY

NEGATIVENEGATIVE

SLIGHTLY

NEGATIVE

SLIGHTLY

NEGATIVE

• Risk of higher interest rates affecting the entire property market

• However, largest impact on low yielding properties and highly leveraged segments

DEBT

AVAILABILITY

SLIGHTLY

POSITIVENEUTRAL

SLIGHTLY

NEGATIVENEUTRAL

SLIGHTLY

POSITIVE

• Fairly liquid bank sector and strong bond market

• Focus on core assets and relationship-driven lending

INVESTOR

PREFERENCESPOSITIVE NEUTRAL

SLIGHTLY

POSITIVEPOSITIVE POSITIVE

• Generally, strong investor demand for real estate in the current market

• Weaker interest for secondary retail

NEW SUPPLY

BALANCEPOSITIVE

SLIGHTLY

POSITIVE

SLIGHTLY

NEGATIVEPOSITIVE

SLIGHTLY

POSITIVE

• Risk of oversupply in parts of the residentialand hotel segment

• Surplus demand and limited vacancy risks in most other segments

OVERALL POSITIVE NEUTRALSLIGHTLY

NEGATIVEPOSITIVE

SLIGHTLY

POSITIVE

• Favourable outlook for office, logistics and hotel properties

• More downside risk in the retail and residential segments

Rental growth concentrated tothe largest cities

Large differenceprime vs secondary retail

Risks associated with the vast increase in residential prices the last

few years

Long-term trading patterns favouring

logistics

Solid underlying growth driving the hotel segment,

except for Western Norway



NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


MACRO ECONOMY

» The Finnish economy has clearly bottomed out and

shows solid growth again, after a long stagnation

» Household confidence is improving as well as

domestic production and exports

» Major economic reforms launched concerning

healthcare, social welfare and regional governments

» More focus on the top 15 regions and significant

cost savings

TRANSACTION MARKET

» Record-high transaction volumes reaching almost

EUR 10bn in 2017, driven by foreign investors

» Large capital inflow from Sweden, but also

Germany, Switzerland, US and UK

» Focus on HMA and selective regional cities such

as Tampere, Turku and Oulu

» Finnish institutional investors looking for partners

and international diversification

YIELDS AND RENTS

» Still attractive property yields (+75-150 bps)

compared to the rest of the Nordics

» Room for new investors and less competition in

certain sectors such as hotels, logistics, retail and

care properties

» Gradually increasing office rents in HMA, while

stable outlook in most regional cities

FINLANDEconomic growth picking up speed, making international investors look east

Source: Pangea Research, Mrec

KEY MACRO PARAMETERS (2011-2021F) TRANSACTION VOLUME (2007-2018F) OFFICE YIELDS AND 10Y SWAP (2010-2017)

EU

Rbn

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017

0

2

4

6

8

10

2007 2009 2011 2013 2015 2017F

-2%

-1%

0%

1%

2%

3%

4%

2011 2013 2015 2017F 2019F 2021F




NORDIC CONTEXT 5



1 SWEDEN 20

2 NORWAY 26

FINLAND 33

DENMARK 35

APPENDIX 37

1

2

3

4

5

8

6

7


-1%

0%

1%

2%

3%

4%

2011 2013 2015 2017F 2019F 2021F


MACRO ECONOMY

» Economic recovery continues with expected GDP

growth just above 2% in 2017-2018F

» Low unemployment and increasing private

consumption, while export is still lagging

» Housing prices continue to increase, particularly

in Copenhagen and Aarhus, at a controlled pace

» Low repo rate (-0.65%) and public stimulations

TRANSACTION MARKET

» Gradually increasing transaction volumes, driven

by a large proportion of cross-border deals

» Strong interest from international investors,

gradually shifting focus from residential to office

and prime retail

» 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 low rent levels in Copenhagen, both in

the residential and office segments, due to the

city dynamics

» However, a strong labour market coupled with

low office vacancy pushes rents slowly upwards

» Downward pressure on property yields in recent

years, following a broader investor demand

DENMARKEconomic recovery continues with international investors dominating the property market


KEY MACRO PARAMETERS (2011-2021F) TRANSACTION VOLUME (2007-2018F)

DK

Kbn

OFFICE YIELDS AND 10Y SWAP (2010-2017)

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017

0

10

20

30

40

50

60

70

2007 2009 2011 2013 2015 2017F


APPENDIX:

PANGEA PROPERTY PARTNERS


Corporate finance

» M&A

» ECM and DCM

» IPO's and buyouts

» Financial restructuring

» Strategic advise

OSLOSTOCKHOLM

HELSINKI

LONDON

Property transactions

» Sell-side and buy-side

» Single assets and portfolios

» Property development

» All property segments

» Strategic advise

Research

» Weekly/monthly updates

» Extensive reports

» Full Nordic coverage

» Capital and property markets

» Customized mandates

Pangea offices – In Finland, Pangea collaborates with Mrec Oy

SERVICE OFFERING OFFICES – FULL NORDIC COVERAGE

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


Acquisition of property companies Sveareal in Sweden and Fortin in Norway

Sale of 50% of Hemsö with properties in Sweden, Finland and Germany


Acquisition of Norrporten with properties in Sweden and Denmark

2016

2015

2014

2013

employees+30

Independent Nordic property adviser with full transaction focus

+330 dealsin the Nordics

(2010-2017)

EUR 27bntotal deal volume

(2010-2017)

PANGEA PROPERTY PARTNERS


Sep 2016

SEK ~1.7bn

Sale of logistics and industrial portfolio

in Sweden, Norway and Denmark

Buyer:

Nov 2016

SEK ~6bn

Acquisition of 13 residential

projects in Sweden

Seller:

Apr 2016

SEK 26.2bn

Seller:

Acquisition of Norrporten with

properties in Sweden and Denmark

Mar 2016

SEK 2.9bn

Seller:

Acquisition of Garnisonen in Linköping

and Campus in Östersund

Dec 2016

SEK ~6bn

Sale of four separate property

portfolios in northern Sweden

Buyers:

Dec 2016

NOK 2.1bn

Buyer:

Sale of 58 grocery stores

in Norway

SEK ~2.4bn

Seller:

Feb 2017

Acquisition of Hilton Hotel

(382 rooms) at Copenhagen Airport and

development of a new Comfort Hotel

Dec 2016

NOK 1.0bn

Sale of Comfort Hotel Carl Johan

(181 rooms) in central Oslo

Buyer:

SEK 858m

Buyer:

May 2017

Sale of five office properties

in central Örnsköldsvik

SEK 850m

Buyer:

June 2017

Divestment of 3 properties located in

Flemingsbergsdalen in Stockholm

Not disclosed

Seller:

June 2017

Acquisition of office building

“Stockholm HUB” in

Stockholm CBD

PANGEA PROPERTY PARTNERSMore than 80 executed transactions with a deal value above EUR 8bn in 2016/2017

SEK 675m

Seller:

Jul 2017

Acquisition of 325 apartments (part

of Senapsfabriken) in Uppsala

Not disclosed

Buyer:

Aug 2017

Sale of two retail properties

in Uddevalla and Skövde, Sweden

NOK ~600m

Buyer:

Aug 2017

Sale of shopping centre Øyrane Torg

in Bergen, Norway

Jul 2017

Not disclosed

Köpare:

Sale of development project

Eldsundsviken in Strängnäs, Sweden


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

All the information in this publication has been compiled in good faith and is based on sources that Pangea

Property Partners considers reliable. Nevertheless, no guarantee can be given for the completeness of correctness

of the contents, and Pangea assumes no responsibility for actions based on the contents of this publication. © 2017

Pangea Property Partners KB and Pangea Property Partners AS. All rights reserved.

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