Real Estate Research

A postcard from... Helsinki

From dusk to new dawn: healthy fundamentals, a strong economic recovery and large-scale urban regeneration make an appealing real estate investment case.


Oliver Kummerfeldt

Oliver Kummerfeldt

European Real Estate Analyst

The ice is melting in Helsinki’s commercial real estate market and the last two years have been busy years in Helsinki’s commercial real estate investment market. According to Real Capital Analytics (RCA), commercial real estate investment totalled ca. €2.5bn in 2016 and ca. €5.8bn in 2017. These are impressive volumes considering that at the height of the Global Financial Crisis (GCF) in 2009 and 2010, investment volumes were barely over €0.5bn.

This is quite a change to a few years back, when many investors would shy away from investing in Finnish commercial real estate, apart maybe from some of the local heavy-weights. The Finnish economy was severely hit by the global financial crisis and the burden from the EU-sanctions against Russia, one of Finland’s large trade partners, with GDP plunging over 8% in 2009 and contracting again during 2012-2014.

But it wasn’t just the cyclical crisis from 2009 onwards that made investors hesitant. The concerns were too often also about the structural issues in the economy. The crisis in shipbuilding and paper & pulp trading continued to weight down on the economy, and when Nokia missed the smartphone-boom, many investors lost hope. In addition, the inflexible system of wage-setting had over years led to a steady erosion of competitiveness.

Since then things have changed and news about Finland are going from one good story to another. GDP started to recover in 2015 and has since shown an impressive dynamic with GDP growth forecasts constantly being upgraded. While at the start of 2017, the Consensus forecast was only for 1.3% growth, GDP growth turned out to be 3.0%.

As a small, export-orientated economy, part of this can be attributed to external factors: the recovery in the Eurozone, stronger world trade, an upturn in the Russian economy and a revival in shipbuilding. However, the other major factor was the “competiveness pact” of structural reforms, which was agreed between government, labour- and employer associations in summer 2016. The measures included a transfer of some employer contributions to social insurance to employees, more flexible work hours and wage-setting mechanisms, zero wage increases in 2017 and cuts to extras such as holiday pay in the public sector. It is estimated, that the pact cut labour costs by around 5%.

And Nokia is doing better. After a series of deals, restructurings and attracting new investors, the company puts big hopes on the much-anticipated rollout of the 5G telecoms networks (starting with the US in 2018).

The centre of the Finnish economy and of course its commercial real estate market is the capital. The Greater Helsinki area (City of Helsinki and the neighbouring 13 municipalities) generate almost 40% of the country’s GDP and with a population of ca. 1.5m the area is home to almost 30% of the Finnish population. And unknown to many, is one of the fastest growing metropolitan regions in Europe: By 2030, the population is expected to increase to 1.7m, by 2050 even to 1.9m. And with a size of ca. 8.7m sq m, the office market is even larger then for example the markets of Zurich, Lyon or Barcelona.

As the capital city, it has a diverse occupier base including all tiers of government, finance- and business services, manufacturing and technology and many HQs of large Finnish corporates and international branches. The recent announcement of the largest bank in the Nordic, Nordea, to move their HQ from Stockholm to Helsinki to participate in the European Banking Union provides a boost to the city’s standing in financial services and banking. And the city is attractive for business and investment, with a highly educated workforce (40% have a university degree) and the country’s sovereign debt rating by all of the three major rating agencies just one level below the highest rating. Corruption is virtually unheard of and in JLL’s 2016 “Global Real Estate Market Transparency Index”, Finland ranks 10th out of 109th countries surveyed making it the highest-ranking Nordic country.

The current economic momentum, besides low interest rate, is of course a key driver of the investment market revival. The recovery in the economy and labour markets s starting to filter through into the occupier market with rising occupier demand. While the vacancy is only slowly reducing, this masks the scarcity of new, modern office supply that occupiers require. It also masks some obsolete stock that is not fit for purpose anymore. Vacancy is also unevenly distributed across the market. While it continues to decrease further in the Central Business District (CBD), it is still elevated in submarkets like Keilaniemi and Otaniemi or Leppavaara, though this does not necessarily mean that these submarkets are unattractive from an investment point, a fact that will be revisited further down.

While buying into the cyclical recovery of the market can be an attractive play, Helsinki has in our opinion a lot more to offer for real estate investors with a long-term view, as the city is undergoing an exciting transformation, which creates interesting opportunities and opens up new submarkets. The city government has committed to a number of infrastructure projects which will improve public transport and help it meet its target of making Helsinki carbon neutral latest by 2050.

One of the most prominent projects is the “Ring Rail Line”, an 18km stretch of rail, which filled the “gap” between Vantaankoski and Tikkurila railway stations and now connects Helsinki-Vantaa airport to the commuter railway lines and Helsinki central station. At the same time it increased the attractiveness of the Aviapolis, a new, mixed-use urban project right by the airport currently under development.

Another key project is the western extension of Helsinki’s metro to Espoo. After ca. 8 years of construction, the line was inaugurated in November 2017. The new stretch runs from the existing Ruoholahti station via Lauttasaari, the Aalto University Otaniemi campus, and Tapiola to Matinkyla. In a second phase, the line will be further extended to Kivenlahti. The effects on the real estate market were already felt ahead of the opening of the lines with occupier (and investor) interest noticeably increasing, particularly in areas like Keilanimi, an office area that provides larger scale office space, but did suffer from Nokia’s struggles.

Finally, work has also started on the “Raide-Jokeri” or Jokeri line, a light rail way line that will be built between Itakeskus in the east of Helsinki and Keilaniemi. The planned ca. 25km of track will replace the very popular bus line 550, which is the busiest bus line in the Helsinki region and is forecast to carry more than 100,000 people in the future. According to the preliminary estimates, construction will commence in 2019 and the line is expected to start operation in the early 2020s.

But it’s not just transport infrastructure projects that are changing Helsinki. The city is also undertaking a number of regeneration projects with the two most prominent being the regeneration of the Western Harbour and the Fishing harbour (Kalasatama). The former industrial and port districts are gradually being converted into residential and business areas.
In the Western Harbour, in parts overlooking the open sea at the southern tip, one of the largest areas (ca. 100ha) lies Jätkäsaari, which as at today is still home to one of Finland’s busiest passenger terminals with ferries to St. Petersburg and Tallinn and cruise ships terminals. By 2030, the recently vacated site of the cargo port is however planned to accommodate an extensive park, ca. 20,000 residents and workplaces for 6,000. The area will include private waterside houses, high-density apartments, a connection to the tram and a school. The passenger harbour will continue to exist next to the new residential area with new ferry and cruise ship facilities. Three small sailboat harbours and motorboat piers are planned to be added in the future. Just across the water lies the Munkkisaari/ Hernesaari area, just 5min from Helsinki’s city centre. will see a transformation from former industrial land, to a residential and business area by the water with a high focus on recreation and water sport. The construction of the new Hernesaari cruise dock (LHD) has already started in early 2017. Hernesaari is also an area, where in July 2016 the Sohjoa-project was launched: An open road experimental use of two driverless minibuses that can carry up to 9 people.

On the other side of Helsinki lies Kalasatma. Kalasatama is probably the 2nd largest development project in Helsinki and sits at the southern end of the “Axis of growth” from Pasila via Valilla to Kalasatama. Construction started in 2009 and is now already well underway with the last parts expected to complete in 2030. The former harbour and industrial area of approximately 175 ha of waterfront on the eastern side of the city will see a complete regeneration to create a large new mixed-use borough just 10min from downtown Helsinki and the central bsiness district. Planners expected to deliver a total of 1.2m sq m of new residential space as well as ca. 400,000 sq m of office space alongside new retail space, a school and day-care centre and the new Kalasatama health care and wellness centre, that already opened its doors in early February. The prominent heart of new district will be the “Redi” area,which will consist of eight high-rise towers and the 60,000 sq m Redi-shopping centre. Construction of the shopping centre continued to advance with the opening now scheduled for late September 2018, while the first apartment tower is scheduled to complete in 2019.

At the northern end of the “Axis of growth” lies Pasila and the Pasila railway station. Already a transport hub, the redesign of the station and bus hub is expected to make it as busy as London’s King-Cross station with 47m passengers per year according to planners with 900 trains, 850 buses and 400 trams a day - the busiest transport hub in Finland. The plans go however further and include large-scale office, retail, hotel, leisure and residential schemes as part of YIT’s “Tripla” scheme. As part of it and opening in 2019, the new “Mall of Tripla” will be the largest shopping centres in Finland with ca. 250 shops. It will feature 3,400 parking spots for bicycles(!) and nearly 350 charging stations for electric cars. The appearance of Pasila will completely change further, with the development of high-rise towers providing. The whole development will give Pasila a completely new weight and standing in Helsinki’s urban fabric and will significantly lift the attractiveness of the North-East of Helsinki.

Given the scale of the projects ongoing in Helsinki, it is quite evident, that the current face of the city will significantly change and the improvement in infrastructure will make many areas, that today might look somewhat unappealing to occupiers and investors alike, more attractive. Large-scale developments like the Western Harbour, Kalasatama and Pasila will create new, well-connected neighbourhoods that offer high quality space and a modern mix of uses. This creates opportunities for real estate investors by benefiting from natural uplifts in values, especially as prime yields outside the central business district – while having seen some compression – are often still at 5-6%.

For further information, please contact:

Sarah Deutscher: +44 20 7658 6139

Nicole Carey: +44 20 7658 4466



Notes to Editors
Important Information: The views and opinions contained herein are those of Oliver Kummerfeldt,European Real Estate Fund Analyst at Schroders, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change