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FINLANDCountry SnapshotsFirst quarter | 2017

This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. ©2017 Cushman & Wakefield LLP. All rights reserved.

Ville Suominen Associate Director, Valuation & Research Itämerenkatu 1, Helsinki, 00180, Finland Tel: +358 10 836 8455 [email protected] cushmanwakefield.com / cushmanwakefield.fi

FINLAND

Office Market Snapshot First Quarter | 2017

Overview During Q1 2017 the GDP growth estimate for 2016 was revised up by 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. The office market had a sound start to the year, with investment sentiment improving and subsequently yields sharpening. Minor rental growth was also evident in Espoo and Vantaa.

Occupier focus Occupier demand has continued to grow during the first quarter of 2017, however the overall vacancy rate remains high at 14.20%. The demand is mostly towards smaller units (200-300 sq.m) in modern buildings with good locations. There were no new office developments completed in the Helsinki Metropolitan Area (HMA) in Q1 2017. However, there are an estimated 64,000 sq.m due to be completed in the HMA during 2017. The current market conditions will support positive rental growth at the prime end of the market. For secondary properties, the rental level is estimated to remain stable.

The ongoing investments in public transport infrastructure will alter future demand in the office market in Helsinki. The new metro line towards the west from Helsinki has been delayed and will now open in 2017. This could provide an opportunity for companies looking to relocate now to secure a cheaper rent, before this area becomes more popular with the completion of these infrastructure projects.

Investment focus Total office investment volumes were €220 mn in Q1, with private property vehicles being the most active investors, accounting for approximately 90%. International investors accounted for around 63% of office deals. Investor demand is still clearly focused on prime product. However, the demand for secondary office properties increased during 2016 and Q1 2017, as the lack of quality product forced investors to look elsewhere for opportunities.

Outlook Prime, well-let assets will remain a key focus for investors, although demand for non-core assets has improved and will attract more investors. The occupational market is expected to gradually improve once the economy starts to build good momentum.

MARKET INDICATORS Market Outlook Prime Rents: Vacancy is still high and rents are generally stable,

but there is some potential uplift for quality stock.

Prime Yields: Prime yields are expected to further decrease in the short term.

Supply: Supply is expected to increase slightly in the short term before stabilising later in 2017.

Demand: A strengthening of demand is apparent but this is from a low base.

Prime Office rents – March 2017 LOCATION € € US$ GROWTH %

SQ.M MTH

SQ.M YR

SQ.FT YR

1YR 5YR CAGR

Helsinki (City Centre) 35.00 420 42.5 2.9 3.1

Helsinki (Out of Town) 21.50 258 26.1 0.0 2.5

Turku 17.00 204 20.6 3.0 2.5

Tampere 21.50 258 26.1 2.4 3.1

Oulu 15.00 180 18.2 0.0 n/a

Prime Office yields – March 2017 LOCATION (FIGURES ARE NET, %)

CURRENT LAST LAST 10 YEAR Q Q Y HIGH LOW

Helsinki (City Centre) 4.25 4.30 4.40 6.00 4.25

Helsinki (Out of Town) 5.25 5.50 5.75 6.95 5.25

Turku 7.00 7.20 7.25 8.00 5.80

Tampere 6.50 6.50 6.75 7.75 5.80

Oulu 6.50 6.50 6.75 7.75 5.80 With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

Recent performance

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17

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Yield - Country Average Yield - PrimeRental Growth - Prime Rental Growth - Country Average



FINLAND

Retail Market Snapshot First Quarter | 2017

Overview During Q1 2017 the GDP growth estimate for 2016 was revised up by 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. According to Statistics Finland, consumer confidence increased from 19.5 in December 2016 to 22.9 in March 2017 - the highest recorded value.

Occupier focus Retail occupier demand remained steady from Q4 2016. However, on q/q comparison to Q1 2016 and 2015 the demand in the first quarter of 2017 showed positive signs. Retail rents remained mostly stable in Q1, with a decrease in Oulu due to increased amount of vacant retail space. Demand is expected to strengthen further for key retail thoroughfares and the prime rents in the Helsinki CBD are expected to increase during 2017.

In Q1 2017 some 22,000 sq.m of new retail premises were completed, as the second phase of Ainoa shopping centre and new Lidl supermarket was opened in Espoo. Development activity is expected to further improve in the coming years, with over 380,000 sq.m of new shopping centre space due to delivered in 2017-2019. More than 60% of new shopping centre space will be opened in the Helsinki area. Although strong supply in the retail market – when comparing to annual growth in demand – the pace of annual completions indicates even the HMA shopping center segment is fairly balanced or even short of supply.

Investment focus Investment volumes in the retail market were €470 mn in Q1, with a largest deal being the 50% share of the Kamppi shopping centre in Helsinki. International investors accounted for around 65% of retail deals and the most active investor type was private property vehicles.

Outlook The consumer spending is expected to be influenced by the rising inflation. However, the retail property market is expected to remain relatively stable with an increasingly positive outlook. Occupational and investor demand is estimated to improve and some yield compression is expected in the prime locations in 2017.

MARKET INDICATORS Market Outlook Prime Rents: Stable rents, although some marginal growth

potential in the best prime high streets in Helsinki.

Prime Yields: Some yield compression expected for shopping centres and prime high street retail, but stable across all other retail segments.

Supply: Increased supply in 2017, mainly through new shopping centre developments.

Demand: Steady demand for prime assets in Helsinki and for the best retail stock in dominant regional cities.

Prime Retail Rents - March 2017 HIGH STREET SHOPS € € US$ GROWTH %

SQ.M MTH

SQ.M YR

SQ.FT YR

1YR 5YR CAGR

Helsinki 133 1,590 161 1.9 0.0

Turku 65 780 79 0.0 -1.5

Tampere 70 840 85 0.0 -2.6

Oulu 60 720 73 -14.3 n/a

Prime Retail Yields - March 2017 HIGH STREET SHOPS (FIGURES ARE NET, %)


Helsinki 4.40 4.40 4.50 5.80 4.40

Turku 6.00 6.00 6.00 7.20 5.65

Tampere 5.75 5.75 5.75 6.95 5.40

Oulu* 6.50 6.50 6.50 7.00 6.50 SHOPPING CENTRES (FIGURES ARE NET, %)


Country prime 4.50 4.70 4.80 5.80 4.50 Note: *4yr record. With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

Recent performance

-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%25.0%

3.00%

4.00%

5.00%

6.00%

7.00%


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FINLAND

Industrial Market Snapshot First Quarter | 2017

Overview During Q1 2017 the GDP growth estimate for 2016 was lifted with 20 bps to 1.60%. The economic growth outlook for 2017 remains somewhat weaker, at 1.00%, mostly due to rising inflation influencing the consumer spending. The export sector is estimated to slightly pick up during 2017. Investor demand exists, albeit exclusively for prime product, and despite the limited activity in Q1, logistics yields hardened by 5bp-20bps across a number of markets.

Occupier focus The activity patterns seen in 2016 were largely unchanged in the first quarter of 2017. The absorption of space remains limited. The average vacancy in the HMA remains at 6.0%.

In Q1 2017 some 41,000 sq.m of new logistics space was completed in the HMA. The new developments consists of a new logistics terminal for Metsä Fibre and new HQ/logistics premises for HUB Logistics. There are currently under construction some 35,000 sq.m of new logistics premises to be completed in 2017 in the HMA. This is mostly covered by the new Finnair’s 30,000 sq.m cargo terminal. The lower cost of land is resulting in the outer parts of HMA, such as Sipoo or Kerava, becoming increasingly popular in location strategies.

Investment focus Low investment activity in the industrial sector continued in Q1, with just €62 mn transacted, mainly due to the lack of prime properties for sale. Demand remains strong, however, both from domestic and international investors but there is a clear focus on quality, income producing properties. Prime yields in Q1 were at 6.25% in Helsinki and are around 75-125 bps higher in the regional markets.

Outlook As the export sector is estimated to gradually pick up during 2017, we might see some more activity on the industrial occupier market. The fundamentals underpinning the industrial real estate sector will remain stable, with further consolidation by occupiers dominating activity going forward. Indeed, volumes are unlikely to pick-up dramatically until the performance of the economy improves.

MARKET INDICATORS Market Outlook Prime Rents: Low demand and limited new supply should maintain

a relative stability in the market for rents.

Prime Yields: Prime yield compression is estimated for 2017 as the demand for prime products remains high.

Supply: Vacancy should remain fairly stable and new supply will be driven by prior commitment.

Demand: Demand, for both occupiers and investors, will concentrate on best in class assets.

Prime Industrial Rents – March 2017 LOGISTICS LOCATION € € US$ GROWTH %

SQ.M MTH

SQ.M YR

SQ.FT YR

1YR 5YR CAGR

Helsinki 9.25 111 11.22 -2.6 -1.0

Turku 7.75 93 9.40 0.0 0.0

Tampere 7.75 93 9.40 0.0 0.0

Oulu 7.00 84 8.49 0.0 0.0

Prime Industrial Yields – March 2017 LOGISTICS LOCATION (FIGURES ARE NET, %)


Helsinki 6.25 6.30 6.50 8.00 6.25

Turku 7.00 7.20 7.50 9.40 7.00

Tampere 7.00 7.20 7.50 9.40 7.00

Oulu* 7.50 7.70 8.00 8.75 7.50 Note: * 4yr record With respect to the yield data provided, in light of the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

Recent performance

-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%

3.00%4.00%5.00%6.00%7.00%8.00%9.00%


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Ville Suominen Associate Director, Valuation & Research Finland +358 10 836 8455 [email protected]

István Tóth Senior Research Analyst EMEA Research +36 (06) 1 484 1302 [email protected]

Disclaimer

This report has been produced by Cushman & Wakefield LLP, with data and market intelligence contributed by DTZ Finland, the Alliance Partner of legacy Cushman & Wakefield in Finland, for use by those with an interest in commercial property solely for information purposes and should not be relied upon as a basis for entering into transactions without seeking specific, qualified professional advice. It is not intended to be a complete description of the markets or developments to which it refers. This report uses information obtained from public sources that Cushman & Wakefield has rigorously checked and believes to be reliable, but Cushman & Wakefield has not verified such information and cannot guarantee that it is accurate or complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained in this report and Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. The prior written consent of Cushman & Wakefield is required before this report or any information contained in it can be reproduced in whole or in part, and any such reproduction should be credited to Cushman & Wakefield. ©2017 Cushman & Wakefield LLP. All rights reserved.

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