real estate outlook sweden · population in sweden by age (1980-2020f) population forecasts...

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

[email protected]

Jørn Høistad, Norway

Head of Research Norway & Director

MOB: +47 92 82 84 37

[email protected]

» 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

mailto:[email protected]

mailto:[email protected]


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


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


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


MARKET OUTLOOK 2017

1 SUMMARY

2 MACRO ECONOMY



3 FINANCING

RENTAL MARKETS


APPENDIX

1

2

3

4

5

6

7

8


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


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


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%


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


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


Source: IMF, SCB

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


2017F 2016-2020F

-2%

-1%

0%

1%

2%

3%

4%1Y 5Y


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


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%


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


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


-1.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17



MARKET OUTLOOK 2017

1 SUMMARY

2 MACRO ECONOMY

BUY SIDE: DEMAND FOR REAL ESTATE

SELL SIDE: POTENTIAL SELLERS AND TRIGGERS

3 FINANCING

RENTAL MARKETS


APPENDIX

1

2

3

4

5

6

7

8


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


EU

Rbn


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


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


*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


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)


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


MARKET OUTLOOK 2017

1 SUMMARY

2 MACRO ECONOMY



3 FINANCING

RENTAL MARKETS


APPENDIX

1

2

3

4

5

6

7

8


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)


* Estimated property value in Sweden


MARKET OUTLOOK 2017

1 EXECUTIVE SUMMARY

2 MACRO ECONOMY



3 FINANCING

RENTAL MARKETS

NORDIC OUTLOOK

APPENDIX

1

2

3

4

5

6

7

8


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


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


MARKET OUTLOOK 2017

1 SUMMARY

2 MACRO ECONOMY



3 FINANCING

RENTAL MARKETS


APPENDIX

1

2

3

4

5

6

7

8


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


COMMENTS

8

0

50,000

100,000

150,000

200,000

2016 2017 2018


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


» 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


MARKET OUTLOOK 2017

1 SUMMARY

2 MACRO ECONOMY



3 FINANCING

RENTAL MARKETS


APPENDIX

1

2

3

4

5

6

7

8


NORWAYSolid onshore GDP growth and normalised transaction market after exceptional 2015


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


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


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


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)


APPENDIX


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


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


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:


(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:


(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


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


Joakim Arvius

Director & Partner

MSc in Engineering, Real Estate Economics

Years of experience


Håvard A. Nustad

Director & Partner

MSc in Business and Economics

Years of experience


Andreas

Friberg

MSc in Business

and Economics

Mikael Söderlundh

Head of Research & Partner


Years of experience


Erik Høvik

Director & PartnerMSc in Business and Economics

Years of experience


Bård Bjølgerud

CEO & Partner


Years of experience


Malin

Lindeborg

MSc in Business

and Economics

Linn Idsø Brenne

DirectorMSc in Business and Economics

Years of experience


Adam

Bakonyi

MSc in Business

and Economics

Thomas Andersson

Director & Partner


Years of experience


Fredrik Berlin

Associate Director & Partner


Years of experience


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


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


& Journalism

Hege

Nilsen

Administration

Sina

Såtvedthagen

Administration

Rebecka

Ljungqvist

Reception

Vibeke

Hansen

Reception


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.


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

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