THE FINNISH PROPERTY MARKET 2019 THE FINNISH PROPERTY The Finnish Property Market | 2019 KTI Finland in co-operation with: City of Helsinki; KIINKO Real Estate Education; Kojamo; LocalTapiola; Newsec; RAKLI; SATO; SEB Group; Sirius Capital Partners; Skanska and YIT. The Finnish Property Market | 2019 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 12 1.4 Demographics 14 1.5 Finland’s international competitiveness 15 1.6 Main city regions in Finland 17 2 Institutional aspects of the Finnish property market 19 2.1 Two forms of property ownership 19 2.2 Market practices of property investment and renting 20 2.3 Planning 22 2.4 Taxation in Finland 23 2.5 Legislation for indirect property investment 27 3 The Finnish property investment market: volumes, structure and players 30 3.1 Investment market in 2018 30 3.2 Ownership structure 31 3.3 Real estate service sector 42 4 Property sectors: market structure, practices and investment performance 46 4.1 The office market 46 4.2 The retail market 51 4.3 Rental residential sector 56 4.4 Public use properties 63 4.5 Industrial / logistics market 65 4.6 Hotels 67 5 Property markets in different regions 68 5.1 The Helsinki metropolitan area 68 5.1.1 Helsinki 70 5.1.2 Espoo 77 5.1.3 Vantaa 79 5.2 Other growth centres: Tampere, Oulu, Turku, Jyväskylä, Lahti and Kuopio 81 The partners of this publication 88 Preface Positive economic development, a stable and transparent business environment and strong performance of the property market have attracted international and domestic capital to the Finnish property market in recent years. The past three years have witnessed historically high transaction volumes, and some two thirds of all transactions have been carried out by international players. Foreign interest is widespread among all property sectors, and the Helsinki metropolitan area is recognised as one of the most attractive property investment targets in Europe. The Finnish Property Market 2019 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 property market. This publication is produced in partnership with 11 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, Kojamo, LocalTapiola, Newsec, RAKLI, SATO, SEB Group, Sirius Capital Partners, Skanska and YIT. 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. 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, development projects, 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 a well-functioning and stable economy, which is a good example of the benefits of globalization, openness GEOGRAPHY and a market economy. Strong economic growth, innovation Total area 338,000 square kilometres and structural reforms transformed Finland into one of the Distances 1,160 km north to south world’s most competitive and prosperous economies during 540 km east to west the late 1990’s and early 2000’s. PEOPLE Growth of industrial production has had a great impact on Population 5.53 million the development of the Finnish economy during the past Density: 18 inhabitants per square decades. Electrotechnical industries played an important kilometre role in the growth of the Finnish economy during the first Helsinki 3,012 per square kilometre decade of the 2000’s, although its share of the Finnish Uusimaa region (southern Finland): exports has declined in recent years. Forestry and paper 170 per square kilometre industries are traditionally strong sectors in Finland, as Lappi region (northern Finland): well as metal and machinery industries. The importance 2 per square kilometre of chemical industries has also increased significantly in recent years. Languages Two official languages: Finnish, spoken by 88.0% However, during the past years, the share of industrial Swedish, spoken by 5.2% production has decreased, while that of services has Foreign languages spoken by 6.8% increased. In 2000, industrial production accounted for Capital city Helsinki, 645,000 inhabitants 30% of the Finnish GDP, and, by 2016, its share had fallen Helsinki region, 1.5 million inhabitants to some 20%. comprising Helsinki and 13 neighbouring municipalities – Espoo and Vantaa being the biggest ”Exports account for almost 40 Other important Espoo, 280,000 cities Tampere, 232,000 per cent of the Finnish GDP” Vantaa, 224,000 Oulu, 202,000 Turku, 190,000 Services are currently the biggest sector of the Finnish Jyväskylä, 140,000 economy, and account for some two thirds of the Finnish Lahti, 120,000 GDP. Private services make up some 75 per cent of all Kuopio, 118,000 services, the most important sectors being information and communication, administration and support, trade, ECONOMY transportation, as well as hospitality services. GDP per capita €40,618 (2017) Most important Forest and paper industry products In 2017, the total industrial production amounted to some exporting 20% of total exports in 2017 €86.5 billion, representing a growth of 11% compared to industries Chemical industry products 19% the previous year. The biggest industrial sector was metal Metal and engineering industries, which accounted for some 43% of the total products 14.9% industrial production. The biggest categories within metal Machinery and equipment 13% industries include mechanical engineering, electronics and Electronics and electrotechnical electrotechnical industry, metals industry and information goods 11.9% technology industries. Chemical and forestry industries both accounted for approximately 20% of total industrial Currency Euro (since 2002) production. History and Independent democracy since 1917 governance Finland is an export driven economy, and changes in exports Member of the European Union since have a profound impact on the economic development. At 1995 its highest in 2008, exports accounted for some 45% of Head of State President of Republic, Sauli Niinistö the Finnish gross domestic product. In 2017, the exports (since 2012, re-elected in 2018) increased by some 7.5%, and its share of GDP amounted to 38.5% of the GDP. In 2018, the exports of goods increased Parliament One chamber, 200 members, elected by some 7%, and the total value increased to €63.8 billion, for 4 years. according to the preliminary statistics of the Finnish Current parliament elected in 2015. Customs. Biggest parties: The Center Party (49 seats), The National Coalition Party (38), The Social Democratic Party (35), Blue Reform Parliamentary ”Exports contributed 1 The Finnish economy Group (19), The Finns Party (17). positively to the growth of the 8 New parliament will be elected in economy in 2017 and 2018” April 2019. Finnish economic structure 2017 2016 2015 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 The diversity of Finnish exports has increased in recent years. In 2017, metal, machinery and transport equipment ”Services account for 30% of industries accounted for some 37% of the total exports. The share of forest industry amounted to 20 per cent, and that of the total exports” chemical industry to 19%. Electric and electronics industry products accounted for 12% of total exports. In 2018, the machinery and vehicle industry products were the largest exports sector with a share of some 21%. Some 60% of the Finnish exports went to the other EU countries in 2018. The share of Asia amounted to 15% The share of services of total exports has increased steadily and North America to some 8% of the total exports. The in recent years. In 2017, services accounted for some 30% most important target countries of Finnish exports include of the total exports, and in 2018, the growth in exports of Germany (15%), Sweden (10%), the USA (7%), and the services exceeded that of industrial products. The biggest Netherlands (6%). Exports to Germany have increased exporting sector in services is IT services. Other significant significantly in recent years, mainly due to the growth in exporting service industries include business to business exports of cars. The exports to Russia accounted for some services like research, engineering or marketing services, 5% of the total exports. At its highest in 2013, Russia’s share as well as installation and maintenance services related to of total goods exports was as high as 18%. Finnish machinery and equipment