Finland’s capital city, Helsinki, has seen a significant jump in demand for co-working office space with time-based rents – and this could set a trend for other global cities to follow.
The country and its 5.5 million inhabitants are at the forefront of digital industries including gaming, cloud services, e-commerce and digital consulting, and many self-employed people in these sectors require highly flexible office space. They prefer to rent somewhere by the week, or even by the day.
“This shift to more adjustable offices may create problems for investors with old-fashioned offices,” says Sirpa Ojala, CEO at Colliers International Finland. “The demand for old-fashioned offices will decline in the market, which in turn may increase vacancy rates and decrease the estimated rental value of old office investments. However, modern and well-managed offices with a distinctive brand image have an excellent opportunity to succeed in the market, as demand remains high for those kind of premises.”
A new record
In 2017, yields on prime office space in Helsinki amounted to 4.2% annually, down from 4.7% in 2016. Total property transactions in Finland hit a new record of €10.2bn last year, however, 38% higher than the previous record year of 2016, according to a report by Finnish real estate research company KTI. In 2017, offices were the largest segment of the transactions marketing in the country, with total volume exceeding €4bn.
In June, Polar Bidco, a fund managed by Blackstone, acquired Sponda, a listed Finnish real estate company, for €1.8bn in cash. Sponda has €3.8bn in assets under management, mostly in the office and residential space. Stockholm-based real estate manager Areim was a co-investor.
Another major deal that boosted the total volume in Finland was Blackstone’s sale of Logicor, a large European warehouse company, to China Investment Corporation, the Chinese sovereign wealth fund, in June. Out of Logicor’s €12bn total property portfolio, 8% is located in Finland.
In 2017, foreign investors made up 68% of all property transactions in the Finnish market. Analysts say that German investors, in particular, were active, attracted by the fact that Finland has the euro and hence no currency exchange risk exists. The size of Finland’s professional property investment market amounted to €63.7bn in 2017, up 9% on 2016.
“Transactions in the Finnish market have really started to take off,” says Janne Eriksson, managing director of Cushman & Wakefield in Finland. “The country’s economy is one of the fastest growing in Europe and the population of Helsinki is expected to increase by 15% by 2030. That will lead to a lot more demand for all kinds of real estate.”
Sami Kiehelä, a senior director in the capital markets team at CBRE in Finland, adds: “International investor interest in Finland has picked up because of our stronger economic growth and Helsinki’s favourable position compared with other European cities. The population is growing strongly because of a higher birth rate and a high rate of domestic and international migration to the city. The growing population is driving the residential market.”
Making a home
Central Helsinki has a population of about 645,000 but the greater metropolitan area has 1.4 million inhabitants. It is estimated that the urban area’s population is rising by about 20,000 people per year. According to Statistics Finland, construction started on 45,000 new homes throughout the country in 2017, a 12% rise on 2016. Some 6900 new homes were under construction in Helsinki.
“We are seeing a number of lifestyle changes that affect where people want to live in Helsinki,” says Anni Sinnemäki, the city’s deputy mayor for the urban environment. “The number of new apartments with their own saunas is dropping dramatically, for example.
“There has been a big increase in the quantity of public or communal saunas and people are happy to use them rather than have one in their own home. We are seeing a strong demand by people for an urban lifestyle, with all the amenities and cultural facilities that that has to offer. Many families would now prefer to live in the city centre.”
Ms Sinnemäki adds that the city’s traditional port areas are now being turned over to residential use (the main cargo port is now at Vuosaari in eastern Helsinki). In the traditional city centre only apartment buildings of up to six storeys are permitted, but in the West Harbour, modern apartment buildings have been constructed of up to nine storeys, and in the Fish Harbour they rise as high as 32 storeys.
“These harbour areas are in very good locations, close to the city centre. They are ideal for residential development as they have good public transport links,” says Ms Sinnemäki.
Two large mixed-use developments are taking place at Redi in Kalasatama, in the eastern part of Helsinki, and at Tripla in the Pasila district in the central-northern part of the city. Redi includes a 60,000-square-metre shopping centre that will open in September. It will host 38 restaurants and coffee shops. Two residential towers of up to 30 storeys are also being built.
Tripla is a three-block urban centre with 115,000 square metres of retail space, 50,000 square metres of office space, a 430-room hotel and more than 400 apartments for 1000 residents. It involves a €1bn investment, making it the biggest current construction project in Finland. The European Investment Bank has provided €130m of financing.
“It will take up to five years for the market to absorb all the new retail units coming on stream,” says Tapani Piri, managing director at JLL in Finland. “E-commerce has also started to affect the traditional retail offering. For a shopping centre to work today it must be lifestyle orientated, with a strong emphasis on entertainment and eating out. E-commerce is also leading to a very big rise in demand for small warehousing units in city centres. These are necessary so that goods purchased online can be distributed within the city.”
Finnish real estate, it seems, is becoming more and more popular with international investors because of the country’s strong economic growth and stable political climate.