THE FINNISH PROPERTY MARKET 2017 THE FINNISH PROPERTY The Finnish Property Market | 2017 2017 KTI Finland in co-operation with: City of Helsinki; KIINKO Real Estate Education; LocalTapiola; Newsec; Ovenia Group; RAKLI; SATO; SEB Group; Sirius Capital Partners and Skanska. The Finnish Property Market | 2017 Contents Preface 7 1 The Finnish economy 8 1.1 The structure of the economy 8 1.2 Outlook for the Finnish economy 10 1.3 Finnish public finances 13 1.4 Finland’s international competitiveness 15 1.5 Main city regions in Finland 17 2 Institutional aspects of the Finnish property market 20 2.1 Two forms of property ownership 20 2.2 Market practices of property investment and renting 21 2.3 Planning 22 2.4 Taxation in Finland 24 2.5 Legislation for indirect property investment 27 3 The Finnish property investment market: volumes, structure and players 28 3.1 Investment market in 2016 28 3.2 Ownership structure 29 3.3 Real estate service sector 40 4 Property sectors: market structure, practices and investment performance 43 4.1 The office market 43 4.2 The retail market 48 4.3 Rental residential sector 53 4.4 Public use properties 59 4.5 Industrial / logistics market 61 4.6 Hotels 62 5 Property markets in different regions – outlook for 2017 64 5.1 The Helsinki metropolitan area 64 5.1.1 Helsinki 66 5.1.2 Espoo 72 5.1.3 Vantaa 74 5.2 Other growth centres: Tampere, Oulu, Turku, Jyväskylä, Lahti and Kuopio 76 Key terminology 81 The sponsors of this publication 82 Preface The Finnish Property Market 2017 discusses the structure, players, market practices and conditions in the Finnish property investment market. The report aims to satisfy the information needs of international investors and other players interested in the Finnish market. The report is published annually in March. The report is also available in PDF format at www.kti.fi. KTI Finland also publishes an electronic newsletter twice a month. Finnish Property News covers the latest news from the Finnish property market. To receive this newsletter via e-mail, please subscribe to it at www.kti.fi. This publication is sponsored by 10 companies and organisations representing the Finnish property investment, development, management, finance and advisory sectors. KTI wishes to thank our sponsors: The City of Helsinki, KIINKO Real Estate Education, LocalTapiola, Newsec, Ovenia, RAKLI, SATO, SEB Group, Sirius Capital Partners and Skanska. The report provides a comprehensive overview of the Finnish property market. KTI Finland can also provide more detailed information and analysis on the individual sub-markets for specific needs, upon request. We hope you find the report interesting, relevant and worthwhile reading. Hanna Kaleva KTI Finland KTI Finland is an independent research organisation and service company providing information and research services for the Finnish real estate industry. KTI maintains extensive databases on returns, rents, transactions, operating costs and customer satisfaction measures in the Finnish property market. Based on these databases, various kinds of benchmarking and analysis services can be provided. For more information, please call +358 20 7430 130 or visit www.kti.fi. 7 1 The Finnish economy 1.1 The structure of the economy Basic facts about Finland Finland is an open, well-functioning and stable economy, where industrialisation started later than in most other GEOGRAPHY OECD countries but has proceeded rapidly during the Total area 338,000 square kilometres last few decades. Strong growth, innovation and structural Distances 1,160 km north to south reforms transformed Finland into one of the world’s most 540 km east to west competitive economies during the late 1990’s and early 2000’s. PEOPLE Population 5.50 million Services are currently the biggest sector of the Finnish Density: 18 inhabitants per square economy. In 2015, services accounted for some 70% of the kilometre Finnish GDP. Private services make up some two thirds Helsinki 2,933 per square kilometre of all services, the most important sectors being trade, Uusimaa region (southern Finland): transportation, information and communication, as well as 178 per square kilometre real estate services. Lappi region (northern Finland): 2 per square kilometre Languages Two official languages: ”Services account for some Finnish, spoken by 88.7% 70% of the Finnish GDP” Swedish, spoken by 5.3% Foreign languages spoken by 6.0% Religions Lutheran 73.0% Due to its great importance for Finnish exports, industrial Orthodox 1.1% production has had a great impact on the growth of the Capital city Helsinki, 635,000 inhabitants Finnish economy. However, during the past years, the share Helsinki region, 1.5 million inhabitants of industrial production has decreased, while that of services comprising Helsinki and 13 has increased. In 2000, industrial production accounted for neighbouring municipalities – Espoo some 30% of the Finnish GDP. By 2015, its share has fallen and Vantaa being the biggest to some 20%. Other important Espoo, 274,000 cities Tampere, 228,000 The biggest industrial sector in 2015 was metal industries, Vantaa, 219,000 which accounted for some 41% of the total industrial Oulu, 200,000 production. The biggest categories within metal Turku, 188,000 industries include mechanical engineering, electronics and Jyväskylä, 139,000 electrotechnical industry, metals industry and information Lahti, 119,000 technology industries. Chemical and forestry industries Kuopio, 118,000 both accounted for approximately 20% of total industrial production. Of the main industrial sectors, forestry and ECONOMY electrotechnical industries have decreased in importance GDP per capita €38,162 (2015) during the past decade, while the share of chemical industries has increased. Most important Chemical industry products exporting indus- Forest and paper industry products The importance of foreign trade for the Finnish economy tries Metal and engineering products is crucial, and changes in exports have a profound impact Machinery and equipment on economic growth. Exports played an important role in Electronics and electrotechnical the strong growth of the Finnish economy in the 1990’s and goods early years of 2000’s. At its highest, the share of exports of Currency Euro (since 2002) the GDP was some 45% in 2008. Since the global financial History and Independent democracy since 1917 crisis, however, the international competitiveness of Finnish governance industrial production has deteriorated, and the share of Member of the European Union since exports has declined. 1995 Head of State President of Republic, Sauli Niinistö (since 2012) ”The Finnish economy is Parliament One chamber, 200 members, elected dependent on exports” for 4 years. Current parliament elected in 2015. Biggest parties: The Center Party During the past years, a big share of investment goods in (49 seats), The Finns Party (37), The Finnish exports has brought about difficulties, as demand National Coalition Party (37) and The for investment goods has been depressed by weak economic 1 The Finnish economy Social Democratic Party (35). 8 Finnish economic structure 2015 2014 2013 2012 2011 2010 2005 2000 1995 1990 1985 1980 1975 0 10 20 30 40 50 60 70 80 90 100 % ■ Primary production ■ Manufacturing ■ Construction ■ Public services ■ Private services Source: Statistics Finland conditions in many important target markets. In 2015, and this is expected to support the total volume of Finnish investment goods represented some 29% of the total exports. exports to turn to a significant growth in the coming years. Valmet Automotive’s growth has, in recent years, supported The share of services of all exports has increased steadily the economic growth and employment in Western Finland, in recent years. In 2015, services represented almost one and the company is currently one of the largest contract third of all exports. Services requiring high technology manufacturers in the vehicle industry in the world. and engineering skills are characteristic for Finnish service exports. ”Outlook for the Finnish In 2015, exports accounted for some 38% of the Finnish GDP. The biggest exporting industries included chemical exports turning more positive” industries (some 19% of total exports), pulp and paper industries (17%) and metal industries (15%). Also on several other important industrial sectors, the In 2016, the total volume of the Finnish exports of goods volume of exports is expected to accelerate in 2017. There decreased by some 4% compared with the previous year. are, however, significant risks associated with the outlook However, the decrease was mostly caused by the decline in for the Finnish exports, caused by, for instance, uncertainty the exports of transport vehicles, due to the temporary break and risks for increasing protectionism related to Brexit and in the production of cars in the Valmet Automotive factory in the recent US presidential election. Uusikaupunki. In 2017, the production will accelerate again Finnish foreign trade by target area Finnish exports by industry sector Electric and electronics industry products Sweden Russia Germany Metal industry products USA The Netherlands Machinery and transport industry products % Forest industry products 16 Chemical industry products % Other products 14 35 12 30 10 25 8 20 6 15 4 2 10 0 5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2008 2008 1–11/ 1–11/ 1 The Finnish economy Source: Finnish Customs Source: Finnish Customs 9 The majority of Finnish exports go to other EU countries, some 2.1%. Both retail trade and sales of services increased, accounting for 59% of total exports in 2015. The two biggest supported by improving employment and low inflation. target countries are Germany and Sweden with shares of some 14 and 10%, respectively. The share of Russia has The volume of Finnish exports decreased slightly compared declined steadily in recent years, and was less than 6% in to the previous year, but the decrease is expected to be 2015.